NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Ideanomics, Inc. (Nasdaq: IDEX) is a Nevada corporation that primarily operates in Asia and the United States through its subsidiaries and variable interest entities (“VIEs.”) Unless the context otherwise requires, the use of the terms “we,” “us,” “our” and the “Company” in these notes to condensed consolidated financial statements refers to Ideanomics, Inc., its consolidated subsidiaries and VIEs.
The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Through September 30, 2021, the Company operates in one segment with two business units, Ideanomics Mobility and Ideanomics Capital. For the nine months ended September 30, 2021, the Company completed four acquisitions. We are in the in the process of obtaining required shareholder approval to acquire 100% of VIA Motors International, Inc., ("VIA Motors.") The total aggregate consideration payable in connection with this transaction is equal to $630.0 million, consisting of an upfront payment at the closing of the transaction of $450.0 million and an earnout payment of up to $180.0 million. On September 15, 2021the Company announced it has entered into an agreement to launch a voluntary conditional tender offer in concert with the Founders of Energica for shares of Energica Motor Company S.p.A. (Energica), pursuant to which Ideanomics plans to increase its investment from 20.0% in Energica to approximately 70.0%. The Energica Founders shall continue to own 29% of Energica. The Company anticipates that its internal management structure and the information reviewed by the chief operating decision maker will change such that it may have multiple reportable segments in the future. These will be Ideanomics Mobility, which will encompass the entities with businesses centered in the electric vehicle (“EV”) market, and Ideanomics Capital, which will encompass business centered in the finance/real estate market, Other, and a corporate entity, with the combination/consolidation of all comprising the consolidated operations of the Company. The chief operating decision maker will review financial results at the segment level, and the Company has appointed one segment manager and is in the process of identifying and appointing an additional segment manager and revising its internal reporting, budgeting and forecasting process so as to be aligned with the anticipated corporate structure.
Ideanomics Mobility will drive EV adoption by assembling a synergistic ecosystem of subsidiaries and investments across the three key pillars of EV: Vehicles, Charging, and Energy. These three pillars provide the foundation for Ideanomics Mobility’s planned offering of unique business solutions such as Charging as a Service (“CaaS”) and Vehicle as a Service (“VaaS.”)
Ideanomics Capital will be the Company’s fintech business unit, which focuses on leveraging technology and innovation to improve efficiency, transparency, and profitability for the financial services industry.
Basis of Presentation
In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany transactions and balances are eliminated in consolidation. However, the results of operations included in such financial statements may not necessary be indicative of annual results.
The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 31, 2021 (“2020 Form 10-K.”)
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
On an ongoing basis, management evaluates the Company’s estimates, including those related to the bad debt allowance, variable consideration, fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and
property and equipment, asset retirement obligations, income taxes, and contingent consideration and other contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Significant Accounting Policies
For a detailed discussion of Ideanomics’ significant accounting policies, refer to Note 2 — “Summary of Significant Accounting Policies,” in Ideanomics’ consolidated financial statements included in the Company’s 2020 Form 10-K. During the nine months ended September 30, 2021, the Company acquired four businesses, Timios Holdings Corp. (“Timios,”) Wireless Advanced Vehicle Electrification, LLC. (“WAVE,”) US Hybrid ("U S Hybrid,") and Solectrac, Inc. ("Solectrac,") which resulted in the adoption of the following accounting policies with respect to those businesses.
Timios
Title Revenue
Premiums from title insurance policies written by independent agencies are recognized net of commission costs when the policies are reported to Timios and not before the effective date of the policy. Regulation of title insurance rates varies by state. Premiums are charged to customers based on rates predetermined in coordination with each states’ respective Department of Insurance.
Closing Revenue
A closing or escrow is a transaction pursuant to an agreement of a buyer, seller, borrower, or lender wherein an impartial third-party, such as Timios, acts in a fiduciary capacity on behalf of the parties in accordance with the terms of such agreement in order to accomplish the directions stated therein. Services provided include, among others, acting as escrow or other fiduciary agent, obtaining releases, and conducting the actual closing or settlement. Closing and escrow fees are recognized upon closing of the escrow, which is generally at the same time of the closing of the related real estate transaction.
Appraisal Revenue
Revenue from appraisal services are primarily related to establishing the ownership, legal status and valuation of the property in a real estate transaction. In these cases, Timios does not issue a title insurance policy or perform duties of an escrow agent. Revenues from these services are recognized upon delivery of the service to the customer.
Title Plant
Title plant consists of costs incurred to construct the title plant and to obtain, organize and summarize historical information for Glenn County title searches. These costs were capitalized until such time as the plant was deemed operational to conduct title searches and issue title insurance policies. Management has determined that the title plant has been properly maintained, has an indeterminable life, and in accordance with Accounting Standards Codification (“ASC”) Topic 950, Financial Services – Title Plant, has not been amortized. The costs to maintain the current status of the title plant are recorded as a current period expense.
Software Development Costs
Software developed or obtained for internal use in accordance with ASC 350-40, Internal-Use Software, is capitalized during the application development stage. In accordance with authoritative guidance, the Company begins to capitalize costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed, and the software will be used as intended. Once the project has been completed, these costs are amortized to expense on a straight-line basis over the estimated useful life of the related asset, generally estimated to be three years. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred. The Company classifies software development costs associated with the development of the Company’s products and services as intangible assets. For the nine months ended September 30, 2021, the Company capitalized software development costs of $0.5 million.
Escrow and Trust Deposits
In providing escrow services, Timios holds funds for others in a fiduciary capacity, pending completion of real estate transactions. A separate, self-balancing set of accounting records is maintained by Timios to record escrow transactions. Escrow trust funds held for others are not Timios’s and, therefore, are excluded from the accompanying condensed consolidated balance sheet, however, Timios remains contingently liable for the disposition of these deposits. Escrow trust balances at September 30, 2021 were $32.3 million. It is a common industry practice for financial institutions where escrow funds are deposited to either reimburse or to directly provide for certain costs related to the delivery of escrow services. Timios follows the practice of non-recognition of costs borne by the financial institution where escrow funds are deposited.
WAVE, U S Hybrid, and Solectrac (collectively, the acquired EV entities)
Inventory
Inventories, which include the costs of material, labor and overhead, are stated at the lower of cost or net realizable value, with cost generally computed on a first-in, first-out (“FIFO”) basis. Estimated losses from obsolete and slow-moving inventories are recorded to reduce inventory values to their estimated net realizable value and are charged to costs of revenue. At the point of loss recognition, a new cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in a recovery in carrying value.
The composition of inventory is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
Raw materials
|
$
|
750
|
|
Work in progress
|
|
459
|
|
Finished goods
|
|
2,610
|
|
Total
|
$
|
3,819
|
The majority of the inventory is held in US Hybrid and Solectrac entities and represents finished assemblies and sub assemblies to be used in delivering electric powertrain components and electric tractors to customers, respectively.
Revenue
For product sales, the acquired EV entities consider practical and contractual limitations in determining whether there is an alternative use for the product. For example, long-term design and build contracts are typically highly customized to a customer’s specifications. For contracts with no alternative use and an enforceable right to payment for work performed to date, including a reasonable profit if the contract were terminated at the customer’s convenience for reason other than nonperformance, the acquired EV entities recognize revenue over time. All other product sales are recognized at a point in time.
For contracts recognized over time, the acquired EV entities have historically used the cost-to-total cost method to recognize the revenue over the life of the contract.
For contracts recognized at a point in time, the acquired EV entities recognize revenue when control passes to the customer, which is generally based on shipping terms that address when title and risk and rewards pass to the customer. However, the acquired EV entities also consider certain customer acceptance provisions as certain contracts with customers include installation, testing, certification or other acceptance provisions. In instances where contractual terms include a provision for customer acceptance, the acquired EV entities consider whether they have previously demonstrated that the product meets objective criteria specified by either the seller or customer in assessing whether control has passed to the customer.
For service contracts, the acquired EV entities recognize revenue as the services are rendered if the customer is benefiting from the service as it is performed, or otherwise upon completion of the service. Separately priced extended warranties are recognized as a separate performance obligation over the warranty period.
The transaction price in the acquired EV entities' contracts consists of fixed consideration and the impact of variable consideration including returns, rebates and allowances, and penalties. Variable consideration is generally estimated using a probability-weighted approach based on historical experience, known trends, and current factors including market conditions and status of negotiations.
For design and build contracts, the acquired entities may at times collect progress payments from the customer throughout the term of the contract, resulting in contract assets or liabilities depending on the timing of the payments. Contract assets consist of unbilled amounts when revenue recognized exceeds customer billings. Contract liabilities consist of advance payments and billings in excess of revenue recognized.
Design and engineering costs for highly complex products to be sold under a long-term production-type contract are deferred and amortized in a manner consistent with revenue recognition of the related contract or anticipated contract. Other design and development costs are deferred only if there is a contractual guarantee for reimbursement. Costs to obtain a contract (e.g., commissions) for contracts greater than one year are deferred and amortized in a manner consistent with revenue recognition of the related contract.
Product Warranties
The acquired EV entities' standard product warranty terms generally include post-sales support and repairs or replacement of a product at no additional charge for a specified period of time. Accruals for estimated expenses related to product warranties are made at the time revenue is recognized and are recorded as a component of costs of revenue. The acquired EV entities estimate the liability for warranty claims based on standard warranties, the historical frequency of claims and the cost to replace or repair products under warranty. Factors that influence the warranty liability include the number of units sold, the length of warranty term, historical and anticipated rates of warranty claims and the cost per claim. The warranty liability as of September 30, 2021 is $0.6 million and is included in “Other long-term liabilities” within the condensed consolidated balance sheet. The warranty liability has not changed substantially subsequent to WAVE's acquisition.
Effects of COVID 19
Novel Coronavirus 2019 (“COVID-19”) is an infectious disease cause by severe acute respiratory syndrome coronavirus. The disease was first identified in December 2019 in Wuhan, the capital of China’s Hubei province, and has since spread globally, resulting in the ongoing COVID-19 pandemic. As of October 31, 2021, over 246.7 million cases had been reported across the globe, resulting in 5.0 million deaths.
The spread of COVID-19 has caused significant disruption to society as a whole, including the workplace. The resulting impact to the global supply chain has disrupted most aspects of national and international commerce, with government-mandated social distancing measures imposing stay-at-home and work-from-home orders in almost every country. The effects of social distancing have shut down significant parts of the local, regional, national, and international economies, for limited or extended periods of time, with the exception of government designated essential services.
In many parts of the world, stay-at-home and work-from-home orders were relaxed during the summer of 2020 as the effects of the Coronavirus appeared to lessen, and economic activity began to recover. However, commencing in the autumn and fall of 2020 and continuing, the U.S. as well as countries in Europe, South America and Asia began to experience an increase in new COVID-19 cases, and in some cases local, state, and national governments began to reinstate restrictive measures to stem the spread of the virus. The U.S. and other countries also experienced an increase in new COVID-19 cases after the fall and winter holiday season, with new, more infectious variants of COVID-19 identified. Various vaccines have been developed, with vaccinations programs in effect worldwide, though reaching acceptable levels of immunization against COVID-19 remains challenging at the local, regional and global level.
The future effects of the virus are difficult to predict, due to uncertainty about the course of the virus, different variants that may evolve, and the supply of the vaccine on a local, regional, and global basis, as well as the ability to implement vaccination programs in a short time frame.
The Company does not anticipate significant adverse effects on its operations’ revenue as compared to its business plan in the near- or mid-term, although the future effects of COVID-19 may result in regional restrictive measures which may constrain the Company’s operations, and supply chain shortages of various materials may have a negative effect on our EV sales or production capacity in the longer-term. The Company's Treeletrik business, which focuses on the sale of motorbikes in the ASEAN region, is experiencing disruption in its operations as a result the continued lockdowns in the region, which have adversely impacted its ability to fulfill committed orders.
The Company continues to monitor the overall situation with COVID-19 and its effects on both local, regional and global economies.
Restatement of Previously Reported Condensed Consolidated Financial Statements
As previously disclosed on Form 8-K filed on November 16, 2021 and 8-K/A filed on November 22, 2021, the Company determi1ned that the Company’s previously issued financial statements for the periods ended March 31, 2021 and June 30, 2021 should no longer be relied upon due to errors in such condensed consolidated financial statements related to revenue reported by Timios that provides title and agency services. The preparation of the Company’s condensed consolidated financial statements identified additional transactions and accounting practices not in accordance with U.S. GAAP.
The following errors were identified as part of the restatement:
A.The Company determined that it did not present Timios title and agency services revenue and the related cost of revenue in accordance with US GAAP on the condensed consolidated statement of operations, as premiums from title insurance policies written by independent agencies were presented on a gross basis and did not properly present revenue and cost of revenue net of commission costs.
B.The Company discovered that it did not properly account for its investment in Technology Metals Market Limited (“TM2”) in accordance with the equity method of accounting. In addition, the Company determined that it incorrectly presented equity income (loss) on its equity method investments as a component of interest and other income (expense) on the condensed consolidated statements of operations rather than as a separate financial statement caption below income taxes.
C.The Company discovered certain errors in determining the estimated fair value of acquired intangible assets in its purchase price allocation for its acquisitions.
D.The Company determined that the errors in determining the estimated fair value of net assets acquired in its acquisitions resulted in an additional reduction to the Company’s deferred tax liabilities.
E.The Company determined that it did not properly recognize income tax expense (benefit) for certain acquired entities subsequent to their respective acquisitions during the periods ended March 31, 2021 and six June 30, 2021.
Note 2. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2019-12 (“ASU 2019-12”) “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes.” ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions currently provided for in ASC 740, “Income Taxes” (“ASC 740,”) and by amending certain other requirements of ASC 740. The changes resulting from ASU 2019-12 will be made on a retrospective or modified retrospective basis, depending on the specific exception or amendment. For public business entities, the amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted ASU 2019-12 effective January 1, 2021. The effect of the adoption of ASU 2019-12 was not material.
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current U.S. GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting, and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as additional paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. For public business entities, the amendments in ASU 2020-06 are effective for public entities which meet the definition of a smaller reporting company are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company adopted ASU 2020-06 effective January 1, 2021. As the Company had no outstanding convertible instruments as of that date, the adoption of ASU 2020-06 had no effect.
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) “Financial Instruments - Credit Losses” (“ASC 326:”) Measurement of Credit Losses on Financial Instruments” which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2019, the FASB issued ASU 2019-10 “Financial Instruments – Credit Losses (Topic 326,) Derivatives and Hedging (Topic 815,) and Leases (Topic 842)” (“ASC 2019-10,”) which defers the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, for public entities which meet the definition of a smaller reporting company. The Company will adopt ASU 2016-13 effective January 1, 2023. Management is currently evaluating the effect of the adoption of ASU 2016-13 on the consolidated financial statements. The effect will largely depend on the composition and credit quality of our investment portfolio and the economic conditions at the time of adoption.
In May 2021, the FASB issued ASU No. 2021-04 (“ASU 2021-04”) “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40)” which provides guidance on modifications or exchanges of a freestanding equity-classified written call option that is not within the scope of another Topic. An entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument, and provides further guidance on measuring the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. ASU 2021-04 also provides guidance on the recognition of the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration. The Company will adopt ASU 2021-04 on January 1, 2022. Management is currently evaluating the effect of the adoption of ASU 2021-04 on the consolidated financial statements. The effect will largely depend on the terms of written call options or financings issued or modified in the future.
In October 2021, the FASB issued ASU No. 2021-08 ("ASU No. 2021-08") "Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers". ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of this ASU on its financial statements and the effects will be based upon the contract assets and liabilities acquired in the future.
Note 3. Fuzhou Note Receivable
In May 2020, Energy Sales provided a note receivable to Fuzhou Zhengtong Hongxin Investment Management Company Limited (“Zhengtong”) in the amount of 3.0 million RMB ($0.4 million). The note receivable was not collateralized. Zhengtong agreed to repay 3.3 million RMB ($0.5 million) within three months of the disbursement date. The Company had recorded a reserve of $0.5 million against this note receivable in the three months ended December 31, 2020, and subsequently commenced legal action in order to recover the amounts due. In September 2021, Zhengtong, Beijing Seven Stars Global Culture Development Inc.(“BSSGCD”), an affiliate of Bruno Wu, and the Company reached an assignment agreement pursuant to which BSSGCD accepted from Zhengtong all the rights and claims arising from this note receivable. The Company received the payment in full of 3.3 million RMB ($0.5 million) from BSSGCD subsequently and recorded this recovery in Selling, general and administrative expenses.
Note 4. Revenue
The following table summarizes the Company’s revenues disaggregated by revenue source, geography (based on the Company’s business locations,) and timing of revenue recognition (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
2021
|
|
September 30,
2020
|
|
September 30,
2021
|
|
September 30,
2020
|
|
Geographic Markets
|
|
|
|
|
|
|
|
|
Malaysia
|
$
|
18
|
|
|
$
|
33
|
|
|
$
|
65
|
|
|
$
|
42
|
|
|
USA
|
17,984
|
|
|
480
|
|
|
69,873
|
|
|
908
|
|
|
PRC
|
9,045
|
|
|
10,107
|
|
|
17,894
|
|
|
14,740
|
|
|
Total
|
$
|
27,047
|
|
|
$
|
10,620
|
|
|
$
|
87,832
|
|
|
$
|
15,690
|
|
|
|
|
|
|
|
|
|
|
|
Product or Service
|
|
|
|
|
|
|
|
|
Electric vehicles
|
$
|
9,236
|
|
|
$
|
8,872
|
|
|
$
|
18,322
|
|
|
$
|
9,622
|
|
|
Charging, batteries and powertrains
|
2,292
|
|
|
—
|
|
|
6,850
|
|
|
—
|
|
|
Title and escrow services
|
15,519
|
|
|
—
|
|
|
62,429
|
|
|
—
|
|
|
Combustion engine vehicles
|
—
|
|
|
1,268
|
|
|
—
|
|
|
5,160
|
|
|
Digital advertising services and other
|
—
|
|
|
480
|
|
|
231
|
|
|
908
|
|
|
Total
|
$
|
27,047
|
|
|
$
|
10,620
|
|
|
$
|
87,832
|
|
|
$
|
15,690
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
|
Products and services transferred at a point in time
|
$
|
25,526
|
|
|
$
|
10,620
|
|
|
$
|
84,546
|
|
|
$
|
15,690
|
|
|
Services provided over time
|
1,521
|
|
|
—
|
|
|
3,286
|
|
|
—
|
|
|
Total
|
$
|
27,047
|
|
|
$
|
10,620
|
|
|
$
|
87,832
|
|
|
$
|
15,690
|
|
|
|
|
|
|
|
|
|
|
In the three and nine months ended September 30, 2021, the Company recognized revenue of $0.6 million and $0.6 million recorded in deferred revenue as of the beginning of the period.
Note 5. Available-for-Sale Securities
The Company accounts for its available-for-sale securities at their fair value, with changes in fair value, if any, recorded in other comprehensive income.
The following table provides certain information related to available-for-sale debt securities (in thousands):
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2021
|
|
|
Cost
|
|
Interest
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Estimated Fair Value
|
|
Available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SILK EV Note (a)
|
$
|
15,000
|
|
$
|
607
|
|
$
|
4
|
|
$
|
(20)
|
|
$
|
15,591
|
|
CyVolve Note (b)
|
|
200
|
|
|
1
|
|
|
—
|
|
|
|
—
|
|
|
|
201
|
|
Via Motor Note (c)
|
|
42,500
|
|
|
149
|
|
|
—
|
|
|
|
—
|
|
|
|
42,649
|
|
Total available-for-sale securities
|
$
|
57,700
|
|
$
|
757
|
|
$
|
4
|
|
$
|
(20)
|
|
|
$
|
58,441
|
(a)On January 28, 2021, the Company invested $15.0 million in Silk EV via a convertible promissory note. Silk is an Italian engineering and design services company that has recently partnered with FAW to form a new company (“Silk-FAW”) to produce fully electric, luxury vehicles for the Chinese and global auto markets.
The terms of the convertible promissory note are as follows:
•The principal amount is $15.0 million;
•The interest rate is 6%;
•The maturity date is January 28, 2022;
•Upon a qualified equity financing, as defined, the outstanding principal and accrued interest shall convert into equity securities sold in the qualified equity financing at a conversion price equal to the cash price for the equity securities times 0.80;
•The events of default are as follows:
◦SILK EV fails to pay timely the principal and accrued interest due under this note;
◦SILK EV files any petition for relief under bankruptcy, reorganization, insolvency or similar other law; or
◦An involuntary petition is filed against SIK EV under bankruptcy or similar statute.
The Company accounts for the Silk EV note as an available-for-sale security at its fair value, with changes in fair value, if any, recorded in other comprehensive income. The Company recorded in other comprehensive income an increase of the note's fair value of $4,000 in the three months ended September 30, 2021. The Company recorded in other comprehensive income a reduction of the note's fair value of $16,275 in the nine months ended September 30, 2021.
(b)On July 30, 2021 the Company invested $0.1 million in CyVolve, Inc. (“CyVolve,”) via a secured promissory note and on September 24, 2021, the Company invested another $0.1 million in CyVolve, via a secured promissory note. Cyvolve is a next-generation provider of data security, to ensure constant encryption and Artificial Intelligence-driven pervasive control of an organization’s data across platforms.
The terms of the secured promissory notes are as follows:
•The principal amount is $0.1 million each;
•The interest rate is 8%;
•The maturity dates are January 30, 2022;
•The events of default are as follows:
◦CyVolve fails to pay timely the principal and accrued interest due under this note;
◦CyVolve files any petition for relief under bankruptcy, reorganization, insolvency or similar other law; or
◦An involuntary petition is filed against CyVolve under bankruptcy or similar statute.
The Company accounts for the CyVolve notes as an available-for-sale security at its fair value, with changes in fair value, if any, recorded in other comprehensive income.
(c)On August 30, 2021, the Company invested $42.5 million in VIA Motors, via a convertible promissory note. VIA Motors is a leading electric commercial vehicle company with proven advanced electric drive technology, delivering sustainable mobility solutions for a more livable world. VIA Motors designs, manufactures and markets electric commercial vehicles, with superior life-cycle economics, for use across a broad cross-section of the global fleet customer base.
The terms of the convertible promissory note are as follows:
•The principal amount is $42.5 million;
•The interest rate is 4%;
•The maturity date is the earlier of the closing date of the acquisition or August 30, 2022;
•The events of default are as follows:
◦VIA Motors fails to pay timely the principal and accrued interest due under this note;
◦VIA Motors files any petition for relief under bankruptcy, reorganization, insolvency or similar other law; or
◦An involuntary petition is filed against VIA Motors under bankruptcy or similar statute.
Note 6. Acquisitions and Divestitures
The Company may divest certain businesses from time to time based upon review of the Company’s portfolio considering, among other items, factors relative to the extent of strategic and technological alignment and optimization of capital deployment, in addition to considering if selling the businesses results in the greatest value creation for the Company and for shareholders.
The Company had not acquired any companies nor disposed of any subsidiaries in the year ended December 31, 2020, with the exception of the disposition of its remaining 10.0% interest in Amer Global Technology Limited (“Amer.”) In the three months ended September 30, 2020, the Company sold its remaining 10.0% interest in Amer to Fintalk Media Inc., a related party, for a nominal amount. As the Company had no basis in its remaining interest in Amer, the gain recognized on the sale was de minimis.
2021 Acquisitions
The Company has completed the below acquisitions in the nine months ended September 30, 2021. The accompanying condensed consolidated financial statements include the operations of the acquired entities from their respective acquisition dates. All of the acquisitions have been accounted for as business combinations. Accordingly, consideration paid by the Company to complete the acquisitions is initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values. The recorded amounts for assets acquired and liabilities assumed are provisional and subject to change during the measurement period, which is up to 12 months from the acquisition date. Management considers the valuations final for Timios and WAVE. The open areas for Solectrac relate to the finalization of net working capital adjustments with the sellers; and the open areas for US hybrid relate to the finalization of net working capital adjustments with the sellers and the impact of final income tax returns that may impact the deferred tax assets and liabilities, respectively.
The acquisitions below are collectively defined as the 2021 Acquisitions.
Timios Holdings Corp.
On January 8, 2021 the Company completed the acquisition of privately held Timios and its affiliates pursuant to the stock purchase agreement (the “Timios Agreement”) entered into on November 11, 2020. Pursuant to the Timios Agreement, the Company acquired 100% of the outstanding capital stock of Timios for a purchase price of $40.0 million, net of cash acquired of $6.5 million. The full purchase price was paid in cash. Pursuant to the Timios Agreement, $5.1 million of the cash consideration was paid into escrow pending a one year indemnification review. Timios provides title and escrow services for real estate transactions. Revenue of $15.5 million and $62.4 million and net loss of $(16.4) million and $(10.6) million for the three and nine months ended September 30, 2021, respectively, have been included in the condensed consolidated financial statements.
On July 26, 2021, Timios experienced a systems outage that was caused by a cybersecurity incident, which caused disruption to parts of Timios’ business, including its ability to perform its mortgage title, closing and escrow services offerings. This resulted in an adverse impact on Timios’ revenues in that one significant customer was lost and other customers have reduced their volume. The Company determined that an indicator of potential impairment existed and decided to perform an interim quantitative tangible and intangible asset and goodwill impairment tests for its Timios reporting unit.
Based on the results of this interim quantitative impairment test, the fair value of the Timios reporting unit was below the carrying value of its net assets. Refer to Note 9 for further information related to the impairment and the amounts recorded as of September 30, 2021. The tables below that relate to Timios have not been adjusted to reflect any impairments and continue to represent the fair value of the assets acquired and liabilities assumed as of the acquisition date.
Wireless Advanced Vehicle Electrification, Inc.
On January 15, 2021 the Company completed the acquisition of privately held WAVE pursuant to an agreement and plan of merger (the “WAVE Agreement”) entered into on January 4, 2021. WAVE is a provider of wireless charging solutions for medium and heavy-duty electric vehicles.
Pursuant to the WAVE Agreement, the Company acquired 100% of the outstanding capital stock of WAVE for an aggregate purchase price of $55.0 million in a combination of $15.0 million of cash plus a total of 12.6 million unregistered shares of the Company’s common stock, valued at $40.0 million at the date of closing. Pursuant to the Wave Agreement, $5.0 million of the cash consideration was paid into escrow pending a one year indemnification review. The WAVE Agreement provided that 3.6 million shares of the Company’s common stock be held back at closing, to be released upon the receipt of certain customer
consents not obtained prior to closing. As of September 30, 2021, 0.5 million of the Company’s common stock remains unissued pending receipt of a final consent. Since receipt of this consent is probable, the Company has included the total common shares to be issued as contingent consideration as of the acquisition date of $7.7 million. Pursuant to the original agreement, if any such consent is not obtained within six months following the closing date, the portion of the common stock allocated to such consent in the WAVE Agreement would not be issued to the sellers. The Company intends to extend the time frame for this contractual provision as the receipt of the consents is outside the control of the former WAVE shareholders.
In addition to the purchase price to be paid at closing, the WAVE Agreement contains three earnouts that could result in additional payments of up to $30.0 million to the sellers based upon: (1) revenue and gross profit margin metrics in calendar year 2021; (2) revenue and gross profit margin metrics in calendar year 2022; and (3) revenue and gross profit margin metrics for 2021 and 2022 collectively. The Company considers this earnout to be contingent consideration that as of the acquisition date is unlikely to occur and has therefore attributed zero value for purposes of the preliminary purchase price allocation. The Company will continue to monitor the fair value of this contingent considerations with any changes being recorded in the consolidated statement of operations if and when a change occurs.
Ideanomics has also agreed to a performance and retention plan for the benefit of certain WAVE’s employees which could result in up to $10.0 million paid to such employees if certain gross revenue targets and certain gross profit margins are achieved for calendar years 2021 and 2022. The Company has concluded that this performance and retention plan does not constitute purchase consideration and will be recorded as compensation expense when the criteria are probable of being met. The Company has not accrued any of this retention plan as the revenue and gross profit margin criteria are not probable of being met.
Revenue of $1.0 million and $5.2 million and net loss of $(1.2) million and $(3.2) million, for the three and nine months ended September 30, 2021, respectively, have been included in the condensed consolidated financial statements.
US Hybrid
On June 10, 2021, the Company completed the acquisition of privately held US Hybrid Corporation ("US Hybrid") pursuant to an agreement and plan of merger (the “USH Agreement”) entered into on May 12, 2021. US Hybrid specializes in the design and manufacturing of zero-emission electric powertrain components including traction motors, controllers, auxiliary drives, energy storage and fuel cell engines for electric, hybrid, and fuel cell medium and heavy-duty municipality vehicles, commercial trucks, buses, and specialty vehicles throughout the world.
Pursuant to the USH Agreement, the Company acquired 100% of the outstanding capital stock of US Hybrid Corporation for an aggregate purchase price of $50.0 million in a combination of $30.0 million in cash and 6.6 million in unregistered shares of the Company's common stock, valued at $20.9 million at the date of closing. Pursuant to the USH Agreement, $1.0 million of cash consideration was paid into escrow pending a true up of net working capital within 90 days of the closing date. Additionally, the 6.6 million shares were paid into an indemnity escrow to satisfy future indemnification obligations of the selling shareholders, if any.
The Company has also agreed to a performance and retention plan for the benefit of certain US Hybrid employees which could result in up to $16.7 million paid to such employees if certain gross revenue targets, gross profit margins and certain operational targets are achieved for calendar years 2021, 2022 and 2023. The Company has concluded that this performance and retention plan does not constitute purchase consideration and will be recorded as compensation expense when the criteria are probable of being met. As of September 30, 2021 the Company has not accrued any of this retention plan as the various criteria are not probable of being met.
Revenue of $1.3 million and $1.6 million and net loss of $(0.7) million and $(1.0) million, for the three and nine months ended September 30, 2021, respectively, have been included in the condensed consolidated financial statements.
Solectrac
On June 11, 2021, the Company completed the acquisition of privately held Solectrac, Inc ("Solectrac") pursuant to an agreement and plan of merger (the “Solectrac Agreement”) entered into on June 11, 2021. Solectrac developed 100% battery-powered, all-electric tractors for agriculture and utility operations. Solectrac tractors provide an opportunity for farmers around the world to power their tractors by using the sun, wind, and other clean renewable sources of energy. Solectrac’s mission is to offer farmers independence from the pollution, infrastructure, and price volatility associated with fossil fuels.
Pursuant to the Solectrac Agreement, the Company acquired the remaining 78.6% of the outstanding capital stock of Solectrac for an aggregate purchase price of $17.7 million in net cash. The Company had previously acquired 21.4% of Solectrac in 2020. The Company now owns 100% of Solectrac. Pursuant to the Solectrac Agreement, $2.0 million of cash consideration was paid
into an indemnity escrow to satisfy future indemnification obligations of the selling shareholders, if any. In conjunction with the acquisition of Solectrac, the Company remeasured the 21.4% previously accounted for as an equity method investment. This remeasurement resulted in a gain of $2.9 million recorded in the prior quarter condensed consolidated statement of operations.
In addition to the purchase price to be paid at closing, the Solectrac Agreement contains three earnouts that could result in additional payments of up to $6.0 million to the sellers based upon: (1) revenue and gross profit margin metrics in calendar year 2021; (2) revenue and gross profit margin metrics in calendar year 2022; and (3) revenue and gross profit margin metrics in calendar year 2023. The Company considers this earnout to be contingent consideration that as of the acquisition date is probable to occur in certain years and has attributed $1.6 million as additional consideration for purposes of the preliminary purchase price allocation. The Company will continue to monitor the fair value of this contingent consideration with any changes being recorded in the consolidated statement of operations if and when a change occurs.
The Company has also agreed to a performance and retention plan for the benefit of certain Solectrac employees which could result in up to $3.0 million paid to such employees if certain gross revenue targets, gross profit margins and certain operational targets are achieved for calendar years 2021, 2022 and 2023. The Company has concluded that this performance and retention plan does not constitute purchase consideration and will be recorded as compensation expense when the criteria are probable of being met. As of September 30, 2021 the Company has not accrued any of this retention plan as the various criteria are not yet probable of occurring.
Revenue of $0.2 million and $0.4 million and net loss of $(0.7) million and $(0.7) million, for the three and nine months ended September 30, 2021, respectively, have been included in the condensed consolidated financial statements.
Acquisition Method Accounting Estimates
The Company initially recognizes the assets and liabilities acquired from the aforementioned acquisitions based on its preliminary estimates of their acquisition date fair values. As additional information becomes known concerning the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is no longer than a one year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment.
The table below reflects the Company’s provisional estimates of the acquisition date fair values of the assets acquired and liabilities assumed for the 2021 Acquisitions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solectrac
|
|
US Hybrid
|
|
Timios
|
|
WAVE
|
|
Purchase Price
|
|
|
|
|
|
|
|
|
Cash paid at closing, including working capital estimates
|
$
|
17,745
|
|
|
$
|
30,139
|
|
|
$
|
46,576
|
|
|
$
|
15,000
|
|
|
Fair value of previously held interest
|
5,287
|
|
|
—
|
|
|
|
|
|
|
Fair value of common stock
|
—
|
|
|
20,877
|
|
|
—
|
|
|
32,377
|
|
|
Fair value of contingent consideration
|
1,639
|
|
|
—
|
|
|
—
|
|
|
7,657
|
|
|
Total purchase consideration
|
$
|
24,671
|
|
|
$
|
51,016
|
|
|
$
|
46,576
|
|
|
$
|
55,034
|
|
|
|
|
|
|
|
|
|
|
|
Purchase Price Allocation
|
|
|
|
|
|
|
|
|
Assets acquired
|
|
|
|
|
|
|
|
|
Current assets
|
3,011
|
|
|
4,547
|
|
|
7,292
|
|
|
2,130
|
|
|
Property, plant and equipment
|
30
|
|
|
5
|
|
|
429
|
|
|
—
|
|
|
Other assets
|
45
|
|
|
51
|
|
|
48
|
|
|
—
|
|
|
Intangible assets – tradename
|
4,570
|
|
|
1,740
|
|
|
7,780
|
|
|
12,630
|
|
|
Intangible assets – lender relationships
|
—
|
|
|
—
|
|
|
14,790
|
|
|
—
|
|
|
Intangible assets - technology
|
2,450
|
|
|
5,110
|
|
|
|
|
|
|
Intangible assets – patents
|
—
|
|
|
—
|
|
|
—
|
|
|
13,000
|
|
|
Intangible assets - non-compete
|
—
|
|
|
520
|
|
|
—
|
|
|
—
|
|
|
Intangible assets – licenses
|
—
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
Indefinite lived title plant
|
—
|
|
|
—
|
|
|
500
|
|
|
—
|
|
|
Goodwill
|
16,787
|
|
|
41,446
|
|
|
24,252
|
|
|
34,142
|
|
|
Total assets acquired
|
26,893
|
|
|
53,419
|
|
|
56,091
|
|
|
61,902
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed:
|
|
|
|
|
|
|
|
|
Current liabilities
|
(509)
|
|
|
(1,601)
|
|
|
(4,306)
|
|
|
(3,778)
|
|
|
Deferred tax liability
|
(1,713)
|
|
|
(802)
|
|
|
(5,209)
|
|
|
(3,090)
|
|
|
Total liabilities assumed
|
(2,222)
|
|
|
(2,403)
|
|
|
(9,515)
|
|
|
(6,868)
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
$
|
24,671
|
|
|
$
|
51,016
|
|
|
$
|
46,576
|
|
|
$
|
55,034
|
|
|
|
|
|
|
|
|
|
|
The useful lives of the intangible assets acquired is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Solectrac
|
|
US Hybrid
|
|
Timios
|
|
WAVE
|
|
Intangible assets – tradename
|
6
|
|
7
|
|
15
|
|
15
|
|
Intangible assets – lender relationships
|
—
|
|
|
—
|
|
|
7
|
|
—
|
|
|
Intangible assets – technology
|
10
|
|
13
|
|
—
|
|
|
—
|
|
|
Intangible assets – patents
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
Intangible assets - non-compete
|
—
|
|
|
5
|
|
—
|
|
|
—
|
|
|
Intangible assets – licenses
|
—
|
|
|
—
|
|
|
15
|
|
—
|
|
|
Weighted average useful life
|
7.4
|
|
11.0
|
|
10
|
|
14.5
|
Amortization expense related to intangible assets created as a result of the 2021 Acquisitions of $1.7 million and $4.0 million has been recorded for the three and nine months ended September 30, 2021. Estimated amortization expense related to these intangible assets for each of the years subsequent to September 30, 2021 is as follows (amounts in thousands):
|
|
|
|
|
|
|
|
2021 remaining
|
$
|
1,518
|
|
|
2022
|
6,222
|
|
|
2023
|
6,222
|
|
|
2024
|
6,222
|
|
|
2025
|
6,222
|
|
|
2026 and beyond
|
33,400
|
|
|
Total
|
$
|
59,806
|
|
Cumulative Goodwill, excluding any impairments, in the amount of $116.6 million was recorded as a result of the 2021 Acquisitions. The goodwill from the 2021 Acquisitions represent future economic benefits that we expect to achieve as a result of the acquisitions, Goodwill is calculated as the excess of the consideration transferred over the net assets acquired and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill is not expected to be deductible for tax purposes for any of the 2021 Acquisitions. Goodwill will not be amortized but instead will be tested for impairment at least annually and more frequent if certain indicators of impairment are present.
Transaction Costs
Transaction costs describe the broad category of costs the Company incurs in connection with signed and/or closed acquisitions. Transaction costs include expenses associated with legal, accounting, regulatory, and other transition services rendered in connection with acquisition, travel expense, and other non-recurring direct expenses associated with acquisitions. The Company incurred transaction costs of $0.6 million and $2.2 million during the three and nine months ended September 30, 2021 related to the 2021 Acquisitions. In addition, the Company incurred transaction costs of $3.3 million during the three and nine months ended September 30, 2021, associated with the proposed VIA Motors acquisition. Transaction costs have been included in selling, general and administrative expenses in the condensed consolidated statements of operations and in cash flows from operating activities in the condensed consolidated statements of cash flows.
Pro forma Financial Information
The unaudited pro forma results presented below include the effects of the Company’s acquisitions as if the acquisitions had occurred on January 1, 2020. The pro forma adjustments are based on historically reported transactions by the acquired companies. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisitions. The unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisitions occurred on January 1, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
|
(Amounts in thousands, except per share and share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
27,047
|
|
|
$
|
32,418
|
|
|
$
|
91,369
|
|
|
$
|
75,747
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to IDEX common shareholders
|
|
(50,854)
|
|
|
(6,132)
|
|
|
(66,325)
|
|
|
(42,398)
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.11)
|
|
|
$
|
(0.02)
|
|
|
$
|
(0.15)
|
|
|
$
|
(0.20)
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
477,214,431
|
|
|
256,752,912
|
|
|
440,151,607
|
|
|
211,193,769
|
|
Dispositions
On April 20, 2021, Ideanomics entered into a stock purchase agreement with FNL Technologies, Inc., (“FNL”) the owner and operator of the social media platform Hoo.be, pursuant to which Ideanomics made an investment into FNL, including cash,
Ideanomics common stock, and 100% of the common stock outstanding of Grapevine Logic, Inc. (“Grapevine,”) a wholly-owned subsidiary of the Company focused on influencer marketing. Subsequent to this transaction, the Company owned 29.0% of the outstanding common stock of FNL.
The Company recognized a disposal loss of $1.2 million as a result of the deconsolidation of Grapevine, and such loss was recorded in “Loss on disposal of subsidiaries, net” in the condensed consolidated statements of operations. Through its ownership in FNL, the Company has retained a 29.0% interest in Grapevine. The disposal loss of $1.2 million includes the adjustment recorded to adjust the retained interest of 29.0% in Grapevine to its fair value on the date of disposal.
Refer to Note 10 for additional information concerning the investment in FNL.
Note 7. Accounts Receivable
The following table summarizes the Company’s accounts receivable (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Accounts receivable
|
$
|
6,053
|
|
|
$
|
8,619
|
|
|
Less: allowance for doubtful accounts
|
(1,559)
|
|
|
(1,219)
|
|
|
Accounts receivable, net
|
$
|
4,494
|
|
|
$
|
7,400
|
|
The gross balance includes the taxi commission revenue receivables of $1.2 million and $1.2 million from the related party Guizhou Qianxi Green Environmentally Friendly Taxi Service Co, as of September 30, 2021 and December 31, 2020, respectively.
The following table summarizes the movement of the allowance for doubtful accounts (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Balance at the beginning of the period
|
$
|
(1,219)
|
|
|
$
|
—
|
|
|
Increase in the allowance for doubtful accounts
|
(340)
|
|
|
(1,219)
|
|
|
Balance at the end of the period
|
$
|
(1,559)
|
|
|
$
|
(1,219)
|
|
The Company reserved its accounts receivable of $0.3 million from a third-party in the nine months ended September 30, 2021. In the year ended December 31, 2020, the Company fully reserved its accounts receivable of $1.2 million from the related party Guizhou Qianxi Green Environmentally Friendly Taxi Service Co.
Note 8. Property and Equipment, net
The following table summarizes the Company’s property and equipment (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Furniture and office equipment
|
$
|
1,163
|
|
|
$
|
315
|
|
|
Vehicle
|
393
|
|
|
229
|
|
|
Leasehold improvements
|
547
|
|
|
246
|
|
|
Machinery and equipment
|
277
|
|
|
—
|
|
|
Total property and equipment
|
2,380
|
|
|
790
|
|
|
Less: accumulated depreciation
|
(753)
|
|
|
(460)
|
|
|
Property and equipment, net
|
$
|
1,627
|
|
|
$
|
330
|
|
|
|
|
|
|
|
Fintech Village
|
|
|
|
|
Land
|
$
|
—
|
|
|
$
|
2,750
|
|
|
Assets retirement obligations - environmental remediation
|
—
|
|
|
4,500
|
|
|
Fintech Village
|
$
|
—
|
|
|
$
|
7,250
|
|
The Company recorded depreciation expense of $126,323 and $25,170, which is included in its operating expense, for the three months ended September 30, 2021 and 2020, respectively and $335,785 and $90,962 for the nine months ended September 30, 2021 and 2020, respectively.
In the three months ended June 30, 2020 the Company ceased to use the premises for its New York City headquarters at 55 Broadway, and vacated the premises. As a result, the Company recorded an impairment loss of $0.2 million related to leasehold improvements and other fixed assets at that location.
Global Headquarters for Technology and Innovation in Connecticut (“Fintech Village”)
On January 28, 2021, the Company’s Board of Directors accepted an offer of $2.75 million for Fintech Village, and subsequently signed a sale contract on March 15, 2021. The Company believes that Fintech Village met the criteria for held for sale classification on January 28, 2021. As the sale is expected to be completed within one year, the land with a carrying amount of $2.6 million and the asset retirement cost of $4.5 million are recorded as “Held for sale assets (Fintech Village”) in the current asset section of the condensed consolidated balance sheet. The Company has estimated the costs to sell Fintech Village to be $0.2 million and has recorded these costs in “Loss on disposal of subsidiaries, net.”
The Company recorded asset retirement obligations for environmental remediation matters in connection with the acquisition of Fintech Village. The asset retirement obligations are classified as held for sale as they will be derecognized upon the sale.
The following table summarizes the activity in the asset retirement obligation for the nine months ended September 30, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2021
|
|
Liabilities
Incurred
|
|
Remediation
Performed
|
|
Accretion
Expense
|
|
Revisions
|
|
September 30,
2021
|
|
|
|
Asset retirement obligation
|
$
|
4,653
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,653
|
|
Note 9.
A reporting unit is the level at which goodwill is tested for impairment, and is defined as an operating segment or one level below an operating segment, if certain criteria are met. Under its current corporate structure, the Company has one operating segment and seven reporting units.
Goodwill
The following table summarizes changes in the carrying amount of goodwill (in thousands):
|
|
|
|
|
|
|
|
Balance as of January 1, 2020
|
$
|
23,344
|
|
|
Measurement period adjustments
|
(12,848)
|
|
|
Effect of change in foreign currency exchange rates
|
(8)
|
|
|
Impairment loss
|
(9,323)
|
|
|
Balance as of December 31, 2020
|
1,165
|
|
|
Impairment*
|
(5,610)
|
|
|
Restatement adjustments**
|
16,171
|
|
|
Acquisitions
|
100,455
|
|
|
Effect of change in foreign currency exchange rates
|
(19)
|
|
|
Disposal of Grapevine***
|
(704)
|
|
|
Balance as of September 30, 2021
|
$
|
111,458
|
|
*On July 26, 2021, Timios experienced a systems outage that was caused by a cybersecurity incident, which caused disruption to parts of Timios’ business, including its ability to perform its mortgage title, closing and escrow services offerings. This resulted in an adverse impact on Timios’ revenues in that one significant customer was lost and other customers have reduced their volume. The Company determined that an indicator of potential impairment existed and decided to perform an interim quantitative tangible and intangible asset and goodwill impairment tests for its Timios reporting unit.
Based on the results of this interim quantitative impairment test, the fair value of the Timios reporting unit was below the carrying value of its net assets. The decline in the fair value of the Timios reporting unit resulted from the cybersecurity event described above, which lowered the projected revenue and profitability levels of the reporting unit. The fair value of the Timios
reporting unit was based on the income approach. Under the income approach, the Company estimated the fair value of the reporting unit based on the present value of estimated future cash flows which are level 3 unobservable inputs in the fair value hierarchy. The Company prepared cash flow projections based on management's estimates of revenue growth rates and operating margins, taking into consideration the historical performance and the current macroeconomic industry and market conditions. The Company based the discount rate on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the Timios’ ability to execute on the projected cash flows. The fair value of Timios’ reporting unit is based on management’s best estimates, and should actual results differ from those estimates, future impairment charges may be required in future periods.
The quantitative analysis indicated that the carrying amount of the Timios reporting unit exceeded its fair value by $19.5 million. As a result, the Company recorded a goodwill impairment charge of $5.6 million, and impairment charges related to the Timios tradename and lender relationships of $0.7 million and $13.2 million, respectively, in the three months ended September 30, 2021.
**As reported in Note 1 the Company restated its condensed consolidated financial statements, including errors in determining the estimated fair value of acquired intangible assets in its purchase price allocation for its 2021 acquisitions. The cumulative impact of these errors resulted in less fair value being attributed to identifiable intangible assets and additional value attributed to goodwill. Refer to the Amended Form 10-Q's as of and for the three months ended March 31, 2021 and as of and for the three and six months ended June 30, 2021 that have been filed with the SEC on November 22, 2021.
***During the three months ended June 30, 2021, the Company completed the sale of Grapevine. Refer to Note 6 for additional information.
Intangible Assets
The following table summarizes information regarding amortizing and indefinite lived intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
December 31, 2020
|
|
|
|
|
Weighted
Average
Remaining
Useful Life
(in years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Balance
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Balance
|
|
|
|
Amortizing Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Influencer network (a,g)
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,137
|
|
|
$
|
(462)
|
|
|
$
|
675
|
|
|
|
|
Customer contract (a,g)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500
|
|
|
(389)
|
|
|
111
|
|
|
|
|
Continuing membership agreement (b)
|
17.8
|
|
1,179
|
|
|
(642)
|
|
|
537
|
|
|
1,179
|
|
|
(619)
|
|
|
560
|
|
|
|
|
Trade name (a,g)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
110
|
|
|
(17)
|
|
|
93
|
|
|
|
|
Technology platform (a,g)
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
290
|
|
|
(97)
|
|
|
193
|
|
|
|
|
Land use rights (c)
|
97.3
|
|
27,024
|
|
|
(341)
|
|
|
26,683
|
|
|
28,162
|
|
|
(142)
|
|
|
28,020
|
|
|
|
|
Timios licenses (d)
|
14.3
|
|
1,000
|
|
|
(49)
|
|
|
951
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Timios tradename (d)
|
14.3
|
|
7,108
|
|
|
(378)
|
|
|
6,730
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Timios lender relationships (d)
|
6.3
|
|
1,539
|
|
|
(1,539)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Timios software (e)
|
2.8
|
|
452
|
|
|
(38)
|
|
|
414
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
WAVE patents (f)
|
13.3
|
|
13,000
|
|
|
(656)
|
|
|
12,344
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
WAVE tradename (f)
|
14.3
|
|
12,630
|
|
|
(595)
|
|
|
12,035
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Software - Solectrac (h)
|
1.8
|
|
38
|
|
|
(5)
|
|
|
33
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Solectrac - Brand (h)
|
9.7
|
|
4,570
|
|
|
(138)
|
|
|
4,432
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Solectrac - Technology (h)
|
9.7
|
|
2,450
|
|
|
(74)
|
|
|
2,376
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
US Hybrid - Brand (i)
|
6.7
|
|
1,740
|
|
|
(75)
|
|
|
1,665
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
US Hybrid - Non-compete (i)
|
4.7
|
|
520
|
|
|
—
|
|
|
520
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
US Hybrid - Technology (i)
|
12.7
|
|
5,110
|
|
|
(119)
|
|
|
4,991
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Software (j)
|
4.8
|
|
11
|
|
|
(1)
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Total
|
|
|
78,371
|
|
|
(4,650)
|
|
|
73,721
|
|
|
31,378
|
|
|
(1,726)
|
|
|
29,652
|
|
|
|
|
Indefinite lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timios Title plant (d)
|
|
|
500
|
|
|
—
|
|
|
500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
Website name
|
|
|
25
|
|
|
—
|
|
|
25
|
|
|
25
|
|
|
—
|
|
|
25
|
|
|
|
|
Patent
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
—
|
|
|
28
|
|
|
|
|
Total
|
|
|
$
|
78,896
|
|
|
$
|
(4,650)
|
|
|
$
|
74,246
|
|
|
$
|
31,431
|
|
|
$
|
(1,726)
|
|
|
$
|
29,705
|
|
|
|
(a)During the third quarter of 2018, the Company completed the acquisition of 65.7% share of Grapevine. In connection with the business analysis of Grapevine, the Company determined that the attrition rate of the influencer network had accelerated, and performed an impairment analysis, and recorded an impairment loss of $0.8 million during the year ended December 31, 2020. As a result of this analysis of the influencer network, the Company determined that the remaining useful life of the influencer network should be reduced to two years, effective January 1, 2021 and also determined that remaining useful life of the technology should be reduced to one year, effective January 1, 2021.
(b)During the three months ended September 30, 2019 the Company completed the acquisition of additional shares in DBOT, which increased its ownership to 99.0%. Intangible assets of $8.3 million were recognized on the date of acquisition. As part of the determination of the fair value of DBOT’s intangible assets during the year ended December 31, 2020, the Company utilized the cost method to determine the fair value of the continuing membership agreement, and determined the fair value was $0.6 million, and recorded an impairment loss of $7.1 million during the year ended December 31 2020.
(c)During the three months ended December 31, 2019, the Company completed the acquisition of a 51.0% interest in Tree Technologies, a Malaysian company engaged in the EV market. Tree Technologies holds the land use rights for 250 acres of vacant land zoned for industrial development in the Begeng Industrial Area adjacent to Kuantan Port. Kuantan is the capital city of the state of Pahang on the east coast of Peninsular Malaysia.
(d)During the three months ended March 31. 2021, the Company completed the acquisition of 100.0% interest in Timios. Refer to Note 6 for additional information related to the acquisition.
(e)Relates to software development costs capitalized during the nine months ended September 30, 2021 at Timios. The asset was placed into service in July 2021.
(f)During three months ended March 31. 2021, the Company completed the acquisition of 100.0% interest in WAVE. Refer to Note 6 for additional information related to the acquisition.
(g)During the three months ended June 30, 2021, the Company completed a stock purchase agreement with FNL Technologies, Inc., the owner and operator of the social media platform Hoo.be, pursuant to which Ideanomics made an investment into FNL, including cash, Ideanomics common stock, and 100% of the common stock outstanding of Grapevine, a wholly-owned subsidiary of the Company focused on influencer marketing.
(h)During three months ended June 30, 2021, the Company completed the acquisition of privately held Solectrac. Solectrac develops 100% battery-powered, all-electric tractors for agriculture and utility operations. Refer to Note 6 for additional information related to the acquisition.
(i)During three months ended June 30, 2021, the Company completed the acquisition of privately held US Hybrid Corporation. US Hybrid specializes in the design and manufacturing of zero-emission electric powertrain components. Refer to Note 6 for additional information related to the acquisition.
(j)Relates to software costs capitalized during the nine months ended September 30, 2021.
Amortization expense relating to intangible assets was $1.6 million and $0.7 million for the three months ended September 30, 2021 and 2020, respectively, and $4.1 million and $1.6 million for the nine months ended September 30, 2021 and 2020, respectively.
The following table summarizes the expected amortization expense for the following years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years ending December 31,
|
|
Amortization to be
recognized
|
|
2021 (excluding the nine months ended September 30, 2021)
|
|
$
|
1,625
|
|
|
2022
|
|
6,396
|
|
|
2023
|
|
6,396
|
|
|
2024
|
|
6,305
|
|
|
2025
|
|
6,230
|
|
|
2026 and thereafter
|
|
46,769
|
|
|
Total
|
|
$
|
73,721
|
|
Note 10. Long-term Investments
The following table summarizes the Company’s long-term investments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Non-marketable equity investments
|
$
|
10,522
|
|
|
$
|
4,787
|
|
|
Equity method investments
|
25,027
|
|
|
3,783
|
|
|
Total
|
$
|
35,549
|
|
|
$
|
8,570
|
|
Non-marketable equity investment
Non-marketable equity investments are investments in privately held companies without readily determinable fair values are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The Company reviews its equity securities without readily determinable fair values on a regular basis to determine if the investment is impaired. For purposes of this assessment, the Company considers the investee’s cash position, earnings and revenue outlook, liquidity and management ownership, among other factors, in its review. If management’s assessment indicates that an impairment exists, the Company estimates the fair value of the equity investment and recognizes an impairment loss that is equal to the difference between the fair value of the equity investment and its carrying amount. Based on
management’s analysis of certain investment’s performance, the Company determined that there was a $1.5 million impairment loss recorded in the three and nine months ended September 30, 2021. Based on management's analysis of certain investment's performance, no impairment losses were recorded in the three and nine months ended September 30, 2020.
On August 2, 2021, the Company announced a strategic investment in Prettl Electronics Automotive ("PEA"), a business unit within the Prettl Group, a large German industrial company that manufactures and distributes components and systems for the automotive, energy, and electronics industries. The terms include a strategic investment of €7.5 million for 11,175 preferred shares. Ideanomics will receive exclusive sales and distribution rights for PEA charging infrastructure products and solutions in North America and CEO Alf Poor will join PEA's Board of Directors. The Company received legal ownership as of October 19, 2021, after payment of €7.5 million ($8.5 million).
Equity method investments
The following table summarizes the Company’s investment in companies accounted for using the equity method of accounting (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
January 1, 2021
|
|
Addition
|
|
Income (loss)
on investment
|
|
|
|
|
Reclassification to equity method investee
|
|
Reclassification to subsidiaries
|
|
Dilution loss due to investee share issuance
|
|
September 30, 2021
|
|
Solectrac
|
(a)
|
$
|
2,556
|
|
|
$
|
—
|
|
|
$
|
(153)
|
|
|
|
|
|
$
|
—
|
|
|
$
|
(2,372)
|
|
|
$
|
(31)
|
|
|
$
|
—
|
|
|
Energica
|
(b)
|
—
|
|
|
13,555
|
|
|
(735)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,820
|
|
|
FNL Technologies
|
(c)
|
—
|
|
|
3,505
|
|
|
(236)
|
|
|
|
|
|
250
|
|
|
—
|
|
|
—
|
|
|
3,519
|
|
|
MDI Fund
|
(d)
|
—
|
|
|
628
|
|
|
—
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
628
|
|
|
TM2
|
(e)
|
1,227
|
|
|
7,226
|
|
|
(393)
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,060
|
|
|
Total
|
|
$
|
3,783
|
|
|
$
|
24,914
|
|
|
$
|
(1,517)
|
|
|
|
|
|
$
|
250
|
|
|
$
|
(2,372)
|
|
|
$
|
(31)
|
|
|
$
|
25,027
|
|
The Company has received no dividends from equity method investees in the three and nine months ended September 30, 2021 and 2020.
(a) Solectrac, Inc. (“Solectrac”)
On October 22, 2020, the Company acquired 1.4 million common shares, representing 15.0% of the total common shares outstanding, of Solectrac for a purchase price of $0.91 per share, for total consideration of $1.3 million. On November 19, 2020, Ideanomics acquired an additional 1.3 million shares of common stock for $1.00 per share, for a subsequent investment of $1.3 million. The Company’ ownership in Solectrac was diluted to 24.3% as of March 31, 2021 due to the new share issuance by Solectrac during the three months ended March 31, 2021.
On June 11, 2021, Ideanomics entered into a stock purchase agreement and plan of merger with Solectrac and its shareholders, and acquired the remaining common shares outstanding of Solectrac for total consideration of $17.7 million. Ideanomics now owns 100% of Soletrac, and commenced consolidation of Solectrac on that date.
Refer to Note 6 for additional information on the acquisition of Solectrac.
Solectrac develops, assembles and distributes 100% battery-powered electric tractors-an alternative to diesel tractors-for agriculture and utility operations. Solectrac tractors provide an opportunity for farmers around the world to power their tractors by using the sun, wind, and other clean renewable sources of energy.
(b) Energica Motor Company S.P.A. (“Energica”)
On March 3, 2021, the Company entered into an investment agreement with Energica Motor Company S.P.A (“Energica.”) The Company invested €10.1 million ($13.6 million) for 6.1 million ordinary shares of Energica at a subscription price of €1.78 ($2.21) for each ordinary share. Pursuant to the purchase of the shares the Company will hold 20.0% of Energica’s share capital. From March 3, 2021 through September 30, 2021 the Company has the right to participate in any equity financing by Energica. Ideanomics was restricted from selling any of the shares for a period of 90 days.
Energica is the world’s leading manufacturer of high performance electric motorcycles and the sole manufacturer of the FIM Enel MotoE™ World Cup. Energica motorcycles are currently on sale through the official network of dealers and importers.
The Company has decided to account for Energica on a one quarter lag as Energica, which is publicly traded on the Milan stock exchange, is only required to prepare and file semi-annual and annual financial statements, and the time frame in which the filings must be complete is much more lenient than in the U.S. Energica prepares its financial statements in accordance with Article 2423 et seq of the Italian Civil Code, rather than U.S. GAAP. Energica’s financial statements will either be prepared in or reconciled to U. S. GAAP prior to the Company recording its share of Energica’s earnings or losses, and the one quarter lag will be utilized to accomplish this, as well as related disclosure matters.
As of September 30, 2021, the excess of the Company’s investment over its proportionate share of Energica’s net assets was $10.9 million. The difference represents goodwill.
Certain shareholders of Energica have rights such that they may convert their ordinary shares into ordinary shares with supervoting rights under certain conditions. If some or all of these ordinary shares were converted into ordinary shares with supervoting rights, the Company’s ownership in Energica would be diluted, perhaps significantly.
The aggregate market value of the Energica common shares owned by the Company was $22.5 million as of September 30, 2021.
(c) FNL
On April 20, 2021, Ideanomics entered into a stock purchase agreement with FNL, pursuant to which Ideanomics made an investment into FNL, which included the investment of $2.9 million cash into FNL, the issuance of 0.1 million shares of Ideanomics common stock, and 100.0% of the common stock outstanding of Grapevine. Ideanomics received 0.6 million shares of common stock of FNL at a subscription price of $8.09 per share of common stock, and Ideanomics also converted a $250,000 Simple Agreement for Future Equity ("SAFE") into 30,902 shares of common stock. The Company determined that the basis in the FNL investment is the aggregate of the cash invested, including the SAFE, the fair value of the Ideanomics common stock issued, and the fair value of Grapevine. As a result of this transaction, Ideanomics owns 29.0% of the common stock outstanding of FNL, and FNL appointed Alfred Poor, Ideanomics’ Chief Executive Officer, to be a member of its board of directors.
The Company has decided to account for FNL on a one quarter lag, as FNL is in the development stage and will require the additional time to prepare financial statements in accordance with U.S. GAAP.
(d) Minority Depository Institution Keepers Fund
On July 26, 2021, the Company entered into a subscription agreement to invest $25.0 million in the MDI Fund. The MDI Fund sponsored by the National Bankers’ Association, an organization of minority-owned banks that aim to increase inclusivity in the financial services industry. The MDI Fund will provide capital resources primarily in low and moderate income areas to grow a more skilled workforce, increase employment opportunities, and support businesses’ growth among minority and underserved communities. The initial investment of $0.6 million was made on July 26, 2021.
The Company has decided to account for MDI on a one quarter lag, the MDI Fund reporting requirements differ from the Company's quarterly reporting schedule.
(e) Technology Metals Market Limited
On January 28, 2021, the Company entered into a simple agreement for future equity (the “SAFE”) with Technology Metals Market Limited (“TM2”). As of August 13, 2021, the SAFE was amended to which Ideanomics would invested €5.0 million ($5.9 million), an increase in the investment of €3.5 million ($4.1 million), from the original contracted investment of €1.5 million ($1.8 million.) If there is an equity financing (of above five million pounds (€5,000,000) during the twelve months immediately following execution of the SAFE, on the initial closing of such equity financing the SAFE will automatically convert into the number of ordinary shares equal to the purchase amount divided by the lowest price per share of the ordinary shares paid during such equity financing. If no equity financing has taken place during the twelve-month period immediately following the date of the SAFE, the parties shall in good faith attempt for one month to agree a fair value per ordinary share represented by the SAFE, following which the SAFE shall convert into the number of ordinary shares equal to the purchase amount divided by such fair value. If the parties are unable to establish a fair value per ordinary share within such one-month period, the Company shall be entitled to convert the purchase amount into ordinary shares based on the pre-investment valuation of the Company of €10.0 million ($11.1 million) on December 20, 2019, plus the value of any investment into the SAFE since the original investment resulting in a current valuation of the Company of €11.0 million, but subject to increase by the amount of any further debt, equity, convertible investment prior to January 28 2022. In the event of a non-qualifying financing, TM2 shall provide the Company with sufficient information to verify such funding and increase in valuation.
Note 11. Leases
As of September 30, 2021, the Company’s operating lease right of use assets and operating lease liabilities are $8.8 million and $8.8 million, respectively. The weighted-average remaining lease term is 4.1 years and the weighted-average discount rate is 3.6%.
The following table summarizes the components of lease expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
|
Operating lease cost
|
$
|
610
|
|
|
$
|
519
|
|
|
$
|
1,058
|
|
|
$
|
1,488
|
|
|
Short-term lease cost
|
241
|
|
|
82
|
|
|
523
|
|
|
279
|
|
|
Sublease income
|
—
|
|
|
(11)
|
|
|
—
|
|
|
(74)
|
|
|
Total
|
$
|
851
|
|
|
$
|
590
|
|
|
$
|
1,581
|
|
|
$
|
1,693
|
|
The following table summarizes supplemental information related to leases (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
723
|
|
|
$
|
115
|
|
|
$
|
1,506
|
|
|
$
|
961
|
|
|
Right of use assets obtained in exchange for new operating lease liabilities
|
3,515
|
|
|
—
|
|
|
8,141
|
|
|
322
|
|
The additional right of use assets were acquired in the Timios, WAVE, US Hybrid and Solectrac acquisitions. The facilities acquired are primarily office buildings and warehouses in U.S. locations where they conduct business.
The following table summarizes the maturity of operating lease liabilities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years ending December 31
|
|
Leased Property
Costs
|
|
2021 (excluding the nine months ended September 30, 2021)
|
|
$
|
696
|
|
|
2022
|
|
2,544
|
|
|
2023
|
|
2,457
|
|
|
2024
|
|
1,541
|
|
|
2025
|
|
1,153
|
|
|
2026 and thereafter
|
|
1,029
|
|
|
Total lease payments
|
|
9,420
|
|
|
Less: interest
|
|
(633)
|
|
|
Total
|
|
$
|
8,787
|
|
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 due and payable on December 31, 2021. The Company recorded a gain of $0.8 million in "Other income, net" for the settlement of the operating lease liability in the three months ending June 30, 2020.
In the three months ended June 30, 2020 the Company ceased to use the premises for its New York City headquarters at 55 Broadway, which are subject to two leases, and vacated the real estate. As a result, the Company recorded an impairment loss related to the right of use asset of $5.3 million. The Company had an operating use 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 of $6.4 million for a cash payment of $1.5 million. The Company recorded a gain of $4.9 million in "Other income, net" for the settlement of the operating lease liability in the three months ended September 30, 2020.
Note 12. Promissory Notes
The following table summarizes the outstanding promissory notes as of September 30, 2021 and December 31, 2020 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
|
Interest Rate
|
|
Principal Amount
|
|
Carrying Amount*
|
|
Principal Amount
|
|
Carrying Amount*
|
|
Vendor Note Payable
|
0.25%-4%
|
|
$
|
75
|
|
|
$
|
75
|
|
|
$
|
105
|
|
|
$
|
105
|
|
|
Small Business Association Paycheck Protection Program
|
1.0%
|
|
342
|
|
|
342
|
|
|
460
|
|
|
463
|
|
|
Promissory Note
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
|
$
|
417
|
|
|
417
|
|
|
$
|
565
|
|
|
568
|
|
|
Less: Current portion
|
|
|
|
|
(417)
|
|
|
|
|
(568)
|
|
|
Long-term Note, less current portion
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
______________________________________________
*Carrying amount includes the accrued interest.
As of September 30, 2021 and December 31, 2020, all debts are classified as current.
The Company had various debt instruments outstanding as of September 30, 2020. As of September 30, 2020, the total principal amount outstanding was $15.6 million, and the carrying amount, net of debt discounts arising from beneficial conversion features and including accrued interest, was $12.8 million. These debt instruments were either converted into common stock of the Company or repaid on or prior to their scheduled maturity dates in the year ended December 31, 2020.
In the nine months ended September 30, 2020, the Company received aggregate gross proceeds of $2.0 million from the issuance of convertible notes to YA II PN, Ltd. (“YA PN II,”) pursuant to a previous securities purchase agreement.
In the three months ended September 30, 2020, the Company recorded interest expense related to these debt instruments of $2.0 million, including amortization of the beneficial conversion features of $1.7 million. In the nine months ended September 30, 2020, the Company recorded interest expense related to these debt instruments of $14.2 million, including amortization of the beneficial conversion features of $13.2 million.
$37.5 million Convertible Debenture due July 4 2021 – YA II PN
On January 4, 2021, the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note of $37.5 million, and received aggregate gross proceeds of $37.5 million. The note was scheduled to mature on July 4, 2021 and bore interest at an annual rate of 4.0%, which would increase to 18.0% in the event of default. The note had a fixed conversion price of $2.00. The conversion price was not subject to adjustment except for subdivisions or combinations of common stock. The Company had the right, but not the obligation, to redeem a portion or all amounts outstanding under this note prior to the maturity date at a cash redemption price equal to the principal to be redeemed, plus accrued and unpaid interest. The note contained customary events of default, indemnification obligations of the Company and other obligations and rights of the parties.
During the nine months ended September 30, 2021, the note, plus accrued and unpaid interest, was converted into 18.8 million shares of common stock of the Company. Total interest expense recognized was $0 and $25,479 for the three and nine months ended September 30, 2021, respectively.
$37.5 million Convertible Debenture due July 15 2021 – YA II PN
On January 15, 2021, the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note of $37.5 million, and received aggregate proceeds of $37.5 million. The note was scheduled to mature on July 15, 2021 and bore interest at an annual rate of 4.0%, which would increase to 18.0% in the event of default. The note had a fixed conversion price of $3.31. The conversion price was not subject to adjustment except for subdivisions or combinations of common stock. The Company had the right, but not the obligation, to redeem a portion or all amounts outstanding under this note prior to the maturity date at a cash redemption price equal to the principal to be redeemed, plus accrued and unpaid interest. The note contained customary events of default, indemnification obligations of the Company and other obligations and rights of the parties.
During the nine months ended September 30, 2021, the note, plus accrued and unpaid interest, were converted into 11.3 million shares of common stock of the Company. Total interest expense recognized was $0 and $46,301 for the three and nine months ended September 30, 2021, respectively.
$65.0 million Convertible Debenture due July 28 2021 – YA II PN
On January 28, 2021, the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note of $65.0 million, and received aggregate proceeds of $65.0 million. The note was scheduled to mature on July 28, 2021 and bore interest at an annual rate of 4.0%, which would increase to 18.0% in the event of default. The note had a fixed conversion price of $4.12. The conversion price was not subject to adjustment except for subdivisions or combinations of common stock. The Company had the right, but not the obligation, to redeem a portion or all amounts outstanding under this note prior to the maturity date at a cash redemption price equal to the principal to be redeemed, plus accrued and unpaid interest. The note contained customary events of default, indemnification obligations of the Company and other obligations and rights of the parties.
During the nine months ended September 30, 2021, the note, plus accrued and unpaid interest, were converted into 15.8 million shares of common stock of the Company. Total interest expense recognized was $0 and $53,699 for the three and nine months ended September 30, 2021.
$80.0 million Convertible Debenture due August 8, 2021 – YA II PN
On February 8, 2021, the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note of $80.0 million, and received aggregate proceeds of $80.0 million. The note is scheduled to mature on August 8, 2021 and bears interest at an annual rate of 4.0%, which increases to 18.0% in the event of default. The note has a fixed conversion price of $4.95. The conversion price is not subject to adjustment except for subdivisions or combinations of common stock. The Company has the right, but not the obligation, to redeem a portion or all amounts outstanding under this note prior to the maturity date at a cash redemption price equal to the principal to be redeemed, plus accrued and unpaid interest. The note contains customary events of default, indemnification obligations of the Company and other obligations and rights of the parties.
During the nine months ended September 30, 2021, the Company repaid the note and accrued interest $81.6 million. Total interest expense recognized was $0.3 million and $1.5 million for the three and nine months ended September 30, 2021.
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 was due on December 31, 2020 and was repaid. The remaining payment is due on August 31, 2021and was repaid.
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.
Small Business Association Paycheck Protection Program
On Apr 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 forgiveness application of the loan was submitted in August 2021 and the first payment was made on October 10, 2021 for the payment due on September 10 2021 while the forgiveness application is under review.
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 was originally payable in 18 installments of approximately $7,000 commencing on December 1, 2020, with a final payment due on May 1, 2022. With several amendments, the loan was payable commencing on October 1, 2021, with a final payment due on April 10, 2025. On April 20, 2021, the Company completed the disposal of Grapevine and the loan balance was deconsolidated from consolidated balance sheet.
On May 3, 2020 WAVE 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 $12,630 commencing on November 1, 2020, with a final payment due on May 3, 2022. After the issuance of an additional grace period, payments will commence on September 21, 2021 until the original maturity date of May 3, 2022. The loan and the accrued interest were forgiven and paid by the U.S. Small Business Administration according to the notice received from the bank on September 16, 2021. The Company recorded it as the "Gain on extinguishment of debt" on the condensed consolidated statement of operations.
On February 24, 2021 US Hybrid borrowed $0.5 million at an annual rate of 1.0% from a commercial bank through the Small Business Association Paycheck Protection Program. The loan has a maturity date of February 24, 2026. After the issuance a 10 months grace period was initiated, and payments will commence on March 10, 2022 and will continue until the maturity date. US Hybrid used the loan for qualifying expenses. The loan was forgiven in June 2021 and was accounted for in conjunction with the acquisition accounting in Note 6.
Total interest expense recognized was $851 and $2,899 in the three and nine months ended September 30, 2021, respectively for the Small Business Association Paycheck Protection Program.
Note 13. Stockholders’ Equity, Convertible Preferred Stock and Redeemable Non-controlling Interest
Convertible Preferred Stock
The Board of Directors has authorized 50.0 million shares of convertible preferred stock, $0.001 par value, issuable in series. As of September 30, 2021 and December 31, 2020, 7.0 million shares of Series A preferred stock were issued and outstanding. The Series A preferred stock shall be entitled to one vote per common stock on an as-converted basis and is only entitled to receive dividends when and if declared by the Board.
Redeemable Non-controlling Interest
The Company and Qingdao Chengyang Xinyang Development and Investment Company Limited (“Qingdao”) formed an entity named Qingdao Chengyang Mobo New Energy Automobile Sales Service Company Limited (“New Energy.”). With several name changes, the entity current name is Qingdao Chengyang Medici Zhixing New Energy Automobile Company Limited. Qingdao entered into a capital subscription agreement for a total of RMB 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, or redeem its investment if Qingdao does not meet certain revenue and market value benchmarks and after three years may redeem its investment. the redeemable amount equals the face amount plus 6.0% interest less dividends paid. At Qingdao's request, the Company had entered discussions concerning the redemption of the investment, and in the three months ended September 30, 2021 Qingdao officially requested redemption of the invested funds. Due to the redemption feature, the Company had classified the investment outside of permanent equity, and subsequent to the requested redemption classified the investment in current liabilities.
The following table summarizes activity for the redeemable non-controlling interest (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
Beginning balance
|
|
$
|
7,485
|
|
|
$
|
—
|
|
|
Initial investment
|
|
—
|
|
|
7,047
|
|
|
Accretion of dividend
|
|
347
|
|
|
323
|
|
|
Loss attributable to non-controlling interest
|
|
(195)
|
|
|
(79)
|
|
|
Adjustment to redemption value
|
|
195
|
|
|
79
|
|
|
Ending balance
|
|
$
|
7,832
|
|
|
$
|
7,370
|
|
Common Stock
The Board of Directors has authorized 1,500 million shares of common stock, $0.001 par value.
2021 Equity Transactions
On February 26, 2021, the Company entered into a sales agreement with Roth Capital Partners, LLC (“Roth Capital.”) in accordance with the terms of the sales agreement, the Company may offer and sell from time to time through Roth Capital the Company’s common stock having an aggregate offering price of up to $150.0 million (the “Placement Shares.”). The Company shall pay to Roth Capital in cash, upon each sale of Placement Shares pursuant to the Agreement, an amount equal to 3.0% of the gross proceeds from each sale of Placement Shares. During the three months ended September 30, 2021, the Company issued 7.5 million shares of common stock and received net proceeds of $17.7 million after deducting $0.5 million commission and transaction fees. During the nine months ended September 30, 2021, the Company issued 50.4 million shares of common stock and received net proceeds of $145.5 million after deducting $4.5 million commission and transaction fees.
On June 30, 2021, the Company entered into a Standby Equity Distribution Agreement (the “SEDA”) with YA II PN, Ltd., (“YA”). The Company will be able to sell up to 80.4 million shares of its common stock at the Company’s request any time during the 36 months following the date of the SEDA’s entrance into force. The shares would be purchased at (i) 95% of the Market Price if the applicable pricing period is two consecutive trading days or (ii) 96% of the Market Price if the applicable pricing period is five consecutive trading days, and, in each case, would be subject to certain limitations, including that YA could not purchase any shares that would result in it owning more than 4.99% of the Company’s common stock. “Market Price” shall mean the lowest daily volume weighted average price of the Company’s common stock during the two or five consecutive trading days, as applicable, commencing on the trading day following the date the Company submits an advance notice to YA. Pursuant to the SEDA, the Company is required to register all shares which YA may acquire. The SEDA contains customary representations, warranties and agreements of the Company and YA II PN, indemnification rights and other obligations of the parties. YA II PN has covenanted not to cause or engage in any direct or indirect short selling or hedging of the Company’s shares of common stock. During the nine months ended September 30, 2021, the Company issued 10.0 million shares of common stock for a total of $27.3 million.
On August 12, 2021, the Company entered into a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co ("Cantor"). In accordance with the terms of the Agreement, the Company may offer and sell from time to time through or to Cantor, as sales agent or principal, the Company’s common stock having an aggregate offering price of up to $350,000,000 (the “Placement Shares”). The Placement Shares will be offered and sold pursuant to the Company’s shelf registration statement on Form S-3 (Registration No. 333- 252230). The Company shall pay to Cantor in cash, upon each sale of Placement Shares pursuant to this Agreement, an amount equal to up to 3.0% of the aggregate gross proceeds from each sale of Placement Shares. During the three months ended September 30, 2021, the Company issued 2.0 million shares of common stock and received net proceeds of $4.2 million after deducting $0.1 million commission and transaction fees.
Refer to Note 6 for information related to the issuance to common stock for acquisitions, Note 12 for information related to issuance of common stock with convertible notes, Note 15 for information related to the issuance to common stock for option exercise.
2020 Equity Transactions
During the three months ended September 30, 2020, the Company issued 1.6 million shares of common stock related to the DBOT acquisition, issued 0.3 million shares of common stock related to the professional service provide by a third party.
During the nine months ended September 30, 2020, the Company issued 13.0 million shares of common stock related to the DBOT acquisition, issued 27.9 million shares of common stock related to the issuance, conversion and warrant exercise of convertible notes to third party, 10.3 million shares of common stock related to the related party debt conversion, 34.5 million shares related to SEDA, 2.0 million shares related to the settlement of a third party debt and 1.2 million shares of common stock related to the professional service provided by the third parties.
Note 14. Related Party Transactions
(a) Convertible Notes
$3.0 million Convertible Note with Mr. Shane McMahon (“Mr. McMahon”)
On May 10, 2012, Mr. McMahon, the Company’s Vice Chairman, made a loan to the Company in the amount of $3.0 million. In consideration for the loan, the Company issued a convertible note to Mr. McMahon in the aggregate principal amount of $3.0 million at a 4.0% interest rate computed on the basis of a 365-day year. The Company had previously entered several amendments with respect to the effective conversion price (changed from $1.75 to $1.50), convertible stocks (changed from of Series E Preferred Stock to Common Stock). The last amendment was made on May 9, 2020, and extended the maturity date to December 31, 2022. For the three and nine months ended September 30, 2020, the Company recorded interest expense of $0 and $50,959 related to the note, respectively.
On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of conversion price to $0.59, contingent upon the immediate conversion of the Note. On June 5, 2020, the note was converted into 5.1 million shares of common stock. The Company paid the accumulated interest $0.3 million in cash prior to the conversion.
$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 $2.5 million. The convertible promissory note bore interest at a rate of 4.0%, was scheduled to mature on February 8, 2020, and was convertible into shares of the Company’s common stock at a conversion price of $1.83 per share anytime at the option of SSSIG. For the three and nine months ended September 30, 2020, the Company recorded interest expense of $0 and $21,546 related to the convertible promissory note, respectively. The Company did not pay the interest in cash on this note.
The Company received $1.3 million from SSSIG, and did not receive the remaining $1.2 million. On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of the conversion price to $0.59, contingent upon the immediate conversion of the convertible promissory note. On June 5, 2020, the convertible promissory note, including accumulated interest, was converted into 2.2 million shares of common stock.
$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%, was initially scheduled to mature on November 25, 2021, and was convertible into the shares of the Company’s common stock at a conversion price of $1.25 per share anytime at the option of SSSIG. For the three and nine months ended September 30, 2020, the Company recorded interest expense of $0 and $4,301, respectively. The Company did not paid the interest in cash on this note.
The Company received $0.25 million from SSSIG and did not receive the remaining $0.8 million. On June 5, 2020, the Audit Committee and the Board of Directors approved the reduction of the conversion price to $0.59, contingent upon the immediate conversion of the convertible promissory note. On June 5, 2020, the convertible promissory note, including accumulated interest, was converted into 0.4 million shares of common stock.
(b) Severance payments
Pursuant to previous severance agreements with certain executives, the Company paid $0.1 million in the nine months ended Sep 30, 2020, and recorded the remaining $0.1 million in “Accrued salaries” on its condensed consolidated balance sheet as of September 30, 2021 and December 31, 2020.
(c) Transaction with Dr. Wu. and his affiliates
On June 5, 2020, the Audit Committee and the Board of Directors approved the conversion of some borrowings at a conversion price of $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.
As of September 30, 2021 and December 31, 2020, the Company has receivables of $0.2 million and $0.2 million, respectively, due from Dr. Wu and his affiliates and recorded in “Amounts due from related parties” in the condensed consolidated balance sheets.
As of September 30, 2021 and December 31, 2020, the Company has payables of $0.7 million and $0.6 million, respectively, due to Dr. Wu and his affiliates and recorded in “Amounts due to related parties” in the condensed consolidated balance sheets.
The increase is mainly due to $0.4 million accrued service charges payable to SSSIG for the period from April 1, 2021 through September 30, 2021 described more fully below.
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 “Professional fees” for the three and nine months ended September 30, 2021. The agreement was terminated in May 2021 and both parties agree that the service agreement has been completely performed and no payment is outstanding, and the termination shall not be regarded as a breach by either party. As a result, the Company recorded unpaid $0.6 million in "Other income (expense, net)" in the condensed consolidated statement of operation.
The Company entered a new consulting service agreement with SSSIG on April, 20, 2021 for the period from April 1, 2021 through June 30, 2021 for $0.4 million. The service agreement includes employment transfer, financial transition, corporate documents handover, legal representative and board member change for the Company's subsidiaries and affiliates. The Company recorded $0.4 million in the “Amount due to related parties.”
(d) Amounts due from and due to Glory
Glory has made partial payment of $0.5 million on behalf of the Company to acquire the land use rights and the Company has made payments of $0.2 million on behalf of Glory for some of its operational expenses during the year ended December 31, 2020. The net balance of $0.2 million and $0.3 million due to Glory as result of these payments is recorded in “Amount due to related parties” as of September 30, 2021 and December 31, 2020, respectively.
(e) Fuzhou Note Receivable
Refer to Note 3 for the details.
(f) Receivable due from Ocasia
In the three months ended September 30, 2021, Seven Stars Energy PTD LTD (`"SSE"), one of Ideanomics' subsidiary, sent $0.2 million to Ocasia Group Holding LTD for the purpose of a business cooperation project. Ocasia returned $0.2 million in October 2021 because the project was put on hold.
(g) Receivable due from Mr. McMahon
In the three months ended September 30 2021, the Company paid his personal expense $0.1 million on behalf of Mr. McMahon and recorded as the "amount due from related parties" on the consolidated balance sheet.
(h) Long Term Investment to Guizhou Qianxi Green Environmentally Friendly Taxi Service Co. (“Qianxi”)
In November 2019, the Company entered into a share transfer agreement with Sichuan Shenma Zhixing Technology Co. (“Shenma”) to acquire its 1.72% ownership in Qianxi for consideration of $4.9 million, which was to be paid in six installments. Shenma was required to complete the share transfer registration prior to May 31, 2020, otherwise it will be required to return the consideration to the Company. The Company has paid $0.5 million as of September 30, 2021 and December 31, 2020 and recorded it on the “Other Non-Current Assets” since the share transfer registration is not completed yet. The Company is currently taking actions to resolve these matter.
(i) Stock purchase consideration payable due to FNL
On April 20, 2021, Ideanomics entered into a stock purchase agreement with FNL, pursuant to which Ideanomics made an investment into FNL, the unpaid consideration $0.1 million is recorded in the “Amount due to related parties.” Refer to Note 6 for additional information.
(j) Borrowing from Beijing Financial Holdings Limited
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 was subsequently converted to shares at a conversion price of $0.59 per common share on June 5, 2020.
Effective January 1, 2020, Beijing Financials Holding limited is considered a related party because MHTL is 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 of Beijing Financial Holdings Limited.
(k) 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 also 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 the 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.
(l) 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 in the three months ended September 30 2020. 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.
Note 15. Share-Based Compensation
As of September 30, 2021, the Company had 22.9 million options and 1.1 million warrants outstanding.
The Company awards common stock and stock options to employees, consultants, and directors as compensation for their services, and accounts for its stock option awards to employees, consultants, and directors pursuant to the provisions of ASC 718, Stock Compensation. For the options with market conditions, the fair value of each award is estimated on the date of grant using Monte-Carlo valuation model and recognizes the fair value of each option as compensation expense over the derived service period. For the options with performance conditions, the fair value of each award is estimated on the date of grant using Black-Scholes Merton valuation model and recognizes the fair value of each option as compensation expense over the implicit service period. For Restricted stock and option awards only with service conditions, the fair value of each option award is estimated on the date of grant using the Black-Scholes Merton valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line attribution method over the service period, which is generally the vesting period.
Effective as of December 3, 2010 and amended on August 3, 2018, the Company’s Board of Directors approved the 2010 Stock Incentive Plan (“the 2010 Plan”) pursuant to which options or other similar securities may be granted. On October 22, 2020, the Company’s shareholders approved the amendment and restatement of the 2010 Plan. The maximum aggregate number of shares of common stock that may be issued under the 2010 Plan increased from 31.5 million shares to 56.8 million shares. As of September 30, 2021, options available for issuance are 16.3 million shares.
For the three months ended September 30, 2021 and 2020, total share-based payments expense was $15.2 million and $3.3 million, respectively, and $19.2 million and $8.8 million for the nine months ended September 30, 2021 and 2020, respectively.
(a)Stock Options
The following table summarizes stock option activity for the nine months ended September 30, 2021:
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|
|
Options
Outstanding
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at January 1, 2021
|
25,087,416
|
|
|
$
|
1.29
|
|
|
—
|
|
|
$
|
—
|
|
|
Granted
|
9,377,000
|
|
|
2.50
|
|
|
—
|
|
|
—
|
|
|
Exercised
|
(5,589,084)
|
|
|
1.50
|
|
|
—
|
|
|
5,588,929
|
|
|
Expired
|
(2,891,509)
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|
|
1.73
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
(3,067,750)
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|
|
0.63
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|
|
—
|
|
|
—
|
|
|
Outstanding at September 30, 2021
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22,916,073
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|
|
1.77
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|
|
8.48
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|
10,518,390
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|
|
Vested as of September 30, 2021
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12,369,305
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|
|
1.47
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|
|
7.94
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|
8,010,123
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Expected to vest as of September 30, 2021
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10,546,768
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|
2.13
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|
9.11
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|
2,508,267
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|
As of September 30, 2021, $19.1 million of total unrecognized compensation expense related to non-vested share options is expected to be recognized over a weighted average period of 1.6 years. The total intrinsic value of shares exercised in the nine months ended September 30, 2021 and 2020 was $5.6 million and $59,965, respectively. The total fair value of shares vested in the nine months ended September 30, 2021 and 2020 was $5.4 million and $8.8 million, respectively. Cash received from options exercised in the nine months ended September 30, 2021 and 2020 were $8.4 million and $0, respectively.
For the options with performance conditions and only with service conditions, the assumptions used to estimate the fair values of the stock options granted in the nine months ended September 30, 2021 and 2020 as follows:
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Nine Months Ended
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|
September 30, 2021
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September 30, 2020
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Expected term (in years)
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4.79-7.17
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|
5.37-5.46
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Expected volatility
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112.02%-129.63%
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100.98%-101.55%
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|
Expected dividend yield
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—
|
%
|
|
—
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%
|
|
Risk free interest rate
|
0.51%-1.1%
|
|
0.40
|
%
|
For the options with market conditions, the assumptions used to estimate the fair values of the stock options granted in the nine months ended September 30, 2021 as follows:
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|
Nine Months Ended September 30, 2021
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|
Expected term (in years)
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1.88
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Expected volatility
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106.92
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%
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Expected dividend yield
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—
|
%
|
|
Risk free interest rate
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1.31
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%
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(b)Warrants
In connection with certain of the Company’s service agreements, the Company issued warrants to service providers to purchase common stock of the Company. The weighted average exercise price was $4.00 and the weighted average remaining life was 0.9 years.
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|
September 30, 2021
|
|
December 31, 2020
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|
|
|
|
|
Warrants Outstanding
|
|
Number of
Warrants
Outstanding and
Exercisable
|
|
Number of
Warrants
Outstanding and
Exercisable
|
|
Exercise
Price
|
|
Expiration
Date
|
|
Service providers
|
|
200,000
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|
|
200,000
|
|
|
$
|
5.00
|
|
|
July 1, 2022
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|
Service providers
|
|
700,000
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|
|
700,000
|
|
|
2.50
|
|
|
February 28, 2022 - October 1, 2022
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|
Service provider
|
|
100,000
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|
|
—
|
|
|
7.50
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|
|
January 1, 2023
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|
Service provider
|
|
100,000
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|
|
—
|
|
|
9.00
|
|
|
January 1, 2023
|
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Total
|
|
1,100,000
|
|
|
900,000
|
|
|
|
|
|
(c)Restricted Shares
In July 2021, the Company granted 5.0 million restricted shares to seven employees and directors under the “2010 Plan” which was approved by the Board of Directors. The restricted shares were all vested immediately on the grant date. The aggregated grant date fair value of all those restricted shares was $12.4 million.
A summary of the unvested restricted shares is as follows:
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Shares
|
|
Weighted-average fair value
|
|
Non-vested restricted shares outstanding at January 1, 2021
|
—
|
|
|
$
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—
|
|
|
Granted
|
5,025,000
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|
2.46
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|
Forfeited
|
—
|
|
|
—
|
|
|
Vested
|
(5,025,000)
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|
|
2.46
|
|
|
Non-vested restricted shares outstanding at September 30, 2021
|
—
|
|
|
—
|
|
As of September 30, 2021, there was $0 of unrecognized compensation cost related to unvested restricted shares.
Note 16. Earnings (Loss) Per Common Share
The following table summarizes the Company’s earnings (loss) per share for the three and nine months ended September 30, 2021 and 2020 (USD in thousands, except per share amounts):
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|
|
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|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
2021
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|
September 30,
2020
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|
September 30,
2021
|
|
September 30,
2020
|
|
Net earnings (loss) attributable to common stockholders
|
$
|
(50,851)
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|
|
$
|
(8,286)
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|
|
$
|
(64,526)
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|
$
|
(47,212)
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|
|
Basic weighted average common shares outstanding
|
473,829,962
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|
|
237,535,999
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|
|
432,989,602
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|
|
191,976,856
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|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
Convertible preferred shares- Series A
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Convertible promissory notes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Diluted potential common shares
|
473,829,962
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|
|
237,535,999
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|
|
432,989,602
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|
|
191,976,856
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|
|
Earnings (loss) per share:
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|
|
|
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|
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|
Basic
|
$
|
(0.11)
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|
|
$
|
(0.03)
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|
|
$
|
(0.15)
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|
|
$
|
(0.25)
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|
Diluted
|
$
|
(0.11)
|
|
|
$
|
(0.03)
|
|
|
$
|
(0.15)
|
|
|
$
|
(0.25)
|
|
Basic earnings (loss) per common share attributable to the Company’s shareholders is calculated by dividing the net loss attributable to the Company’s shareholders by the weighted average number of outstanding common shares during the period.
Diluted earnings (loss) per share is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive.
The following table includes the number of shares that may be dilutive potential common shares in the future. The holders of these shares do not have a contractual obligation to share in the Company’s losses and thus these shares were not included in the computation of diluted loss per share because the effect was antidilutive (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Warrants
|
1,100
|
|
|
900
|
|
|
Options and RSUs
|
22,931
|
|
|
25,172
|
|
|
Series A Preferred Stock
|
933
|
|
|
933
|
|
|
Contingent shares
|
1,491
|
|
|
1,013
|
|
|
|
|
|
|
|
Total
|
26,455
|
|
|
28,018
|
|
Note 17. Income Taxes
During the three months ended September 30, 2021 there was an income tax benefit of $0.8 million, During the nine months ended September 30, 2021 there was an income tax benefit of $9.7 million. This benefit for the nine months ended September 30, 2021 principally consisted of a reduction in the Company’s valuation allowance that resulted from the acquisitions, US Hybrid and Solectrac in the second quarter, and,Timios and WAVE, in the first quarter. In the case of each acquisition, intangible assets were recognized for financial reporting purposes that were not recognized for income tax purposes. This, in combination with some smaller temporary differences of four acquired businesses, resulted in the recognition of $11.0 million deferred tax liabilities, none of which was in the three months ended September 30,2021. The federal tax returns of all four acquired businesses will be included in the Ideanomics and subsidiaries consolidated U.S. federal tax return. WAVE will be included in the state tax returns of Ideanomics. The federal deferred tax liabilities, and the WAVE state deferred tax liabilities created, resulted in the valuation allowance on Ideanomics’ deferred tax assets being reduced by a similar amount. Ideanomics’ net deferred tax assets that had previously been judged to be more likely that not to be unable to reduce the Company’s income tax liability and consequently were completely offset by a valuation allowance. Once the acquisitions of four acquired businesses occurred, a portion of Ideanomics’ deferred tax assets could be utilized in offsetting the newly acquired deferred tax liabilities, this resulted in a one-time income tax benefit of $9.1 million during the nine months ended September 30, 2021.
Timios, US Hybrid and Soletrac have taxable income or loss reported on certain separate state tax returns and consequently have related state income tax expense or benefit. In the case of US Hybrid and Soletrac, which have losses, there are state income tax benefits consisting of those losses being used to reduce the state deferred tax liabilities recognized in the acquisitions. In the case of Timios, state income tax expense results from income. The net state income benefit for Timios, US Hybrid and Solectrac was $0.8 million and $0.6 million for the three and nine months ended September 30, 2021, respectively. The income tax benefit for both the three and nine months ended September 30, 2021 included a $0.6 million state deferred tax benefit related to the Timios impairment. There are no other material income tax expenses or benefits for the three and nine months ended September 30, 2021 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, excluding Timios, US Hybrid and Solectrac's’ net state deferred tax liabilities, due to its history of pre-tax losses and the likelihood that the deferred tax assets will not be realized.
During the three and nine 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. 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.
There were no uncertain tax positions that would prevent the Company from recording the related benefit as of September 30, 2021 and December 31, 2020.
Note 18. Commitments and Contingencies
Lawsuits and Legal Proceedings
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the business.
Shareholder Class Actions and Derivative Litigation
On July 19, 2019, a purported class action, now captioned Rudani v. Ideanomics, et al. Inc., was filed in the United States District Court for the Southern District of New York against the Company and certain of its current and former officers and
directors. The Amended Complaint alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Among other things, the Amended Complaint alleges purported misstatements made by the Company in 2017 and 2018. As part of a mediation, the parties reached a settlement in principle for $5.0 million. The settlement agreement has been preliminarily approved by the Court and is subject to final court approval.
On June 28, 2020, a purported securities class action, captioned Lundy v. Ideanomics et al. Inc., was filed in the United State District Court for the Southern District of New York against the Company and certain current officers and directors of the Company. Additionally, on July 7, 2020, a purported securities class action captioned Kim v. Ideanomics, et al, was filed in the Southern District of New York against the Company and certain current officers and directors of the Company. Both cases alleged violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 arising from certain purported misstatements by the Company beginning in September 2020 regarding its MEG division. On November 4, 2020, the Lundy and Kim actions were consolidated and is now titled “In re Ideanomics, Inc. Securities Litigation.” In December 2020, the Court appointed Rene Aghajanian as lead plaintiff and an amended complaint was filed in February 2021, alleging violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 arising from certain purported misstatements by the Company beginning in March 2020 regarding its MEG division. The defendants filed a motion to dismiss on May 6, 2021. While the Company believes that this action is without merit, there can be no assurance that the Company will prevail. The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with this litigation.
On July 10, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Toorani v. Ideanomics, et al. The Complaint alleges violations of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and corporate waste and seeks monetary damages and other relief on behalf of the Company. Additionally, on September 11, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the Southern District of New York, captioned Elleisy, Jr. v. Ideanomics, et al, alleging violations and allegations similar to the Toorani litigation. On October 10, 2020, the Court in the Elleisy and Toorani, consolidated these two actions. Additionally, on October 27, 2020, the Company was named as a nominal defendant, and certain of its former officers and directors were named as defendants, in a shareholder derivative action filed in the United States District Court for the District of Nevada, captioned Zare v. Ideanomics, et al, alleging violations and allegations similar to the Toorani and Elleisy litigation. The Company and certain of the defendants, including the Company, have reached a settlement in principle in which the Company has agreed to certain corporate governance and internal procedure reforms and is not expected to have a material financial impact on the Company. The settlement in principle is subject to finalization and approval of the Court.
SEC Investigation
As previously reported, the Company is subject to an investigation by the SEC and continues to respond to various information and requests from the SEC. The Company is fully cooperating with the SEC’s requests and cannot predict the outcome of this investigation.
Note 19. Concentration of Credit and Foreign Currency Risks
(a)Concentration of Credit Risks
Financial instruments that potentially subject the Company to significant concentration of credit risk primarily consist of cash, cash equivalents, and accounts receivable. As of September 30, 2021, the Company’s cash was held by financial institutions (located in the PRC, Hong Kong, Malaysia, the U.S. and Singapore) that management believes have acceptable credit. Accounts receivable are typically unsecured. The risk with respect to accounts receivable is mitigated by regular credit evaluations that the Company performs on its distribution partners and its ongoing monitoring of outstanding balances.
(b)Foreign Currency Risks
A portion of the Company’s operating transactions are denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes in the central government policies and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by laws to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC.”) Remittances in currencies other than RMB by the Company in China must be processed through PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to complete the remittance.
(c)Cybersecurity Incident
The Company’s real estate services subsidiary, Timios, experienced a systems outage that was caused by a cybersecurity incident. Timios has engaged leading forensic information technology firms and legal counsel to assist its investigation into the incident. Although Timios is actively managing the impact of the cybersecurity incident, it has caused a delay or disruption to parts of Timios’ business, including its ability to perform its mortgage title, closing and escrow services offerings during the reporting period. Timios has since recovered their operation capabilities. The cybersecurity incident has had a material adverse impact on Timios’ revenues. Daily orders are increasing and the company anticipates that a significant amount of the business lost immediately after the cybersecurity incident will be recovered in 2022, although there can be no assurances in this regard. Timios promptly notified third-parties who may have been affected by this incident, and its insurer has offered a one year credit monitoring service to those who may have been affected.
Note 20. Contingent Consideration
The following table summarizes information about the Company’s financial instruments measured at fair value on a recurring basis, grouped into Level 1 to 3 based on the degree to which the input to fair value is observable (in thousands):
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|
|
|
|
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|
|
|
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|
|
|
|
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|
|
|
|
|
|
September 30, 2021
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|
|
Level I
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|
Level II
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|
Level III
|
|
Total
|
|
DBOT - Contingent consideration1
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
649
|
|
|
$
|
649
|
|
|
Tree Technology - Contingent consideration2
|
—
|
|
|
—
|
|
|
1,305
|
|
|
1,305
|
|
|
Wave - Contingent consideration3
|
—
|
|
|
—
|
|
|
1,519
|
|
|
1,519
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|
|
Solectrac - Contingent consideration4
|
—
|
|
|
—
|
|
|
1,639
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|
|
1,639
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|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,112
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|
|
$
|
5,112
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
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|
|
Level I
|
|
Level II
|
|
Level III
|
|
Total
|
|
DBOT - Contingent consideration1
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
649
|
|
|
$
|
649
|
|
|
Tree Technology - Contingent consideration2
|
—
|
|
|
—
|
|
|
8,311
|
|
|
8,311
|
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,960
|
|
|
$
|
8,960
|
|
1This represents the liability incurred in connection with the acquisition of DBOT shares during the three months ended September 30, 2019 and as remeasured as of April 17, 2020. The contractual period which required periodic remeasurement has expired, and therefore the Company will not remeasure this liability in the future. The fair value of DBOT contingent consideration as of September 30, 2021 was valued using the Black-Scholes Merton method. The Company issued 11.3 million shares during the nine months ended September 30, 2020 and partially satisfied this liability. No shares have been issued in the nine months ended September 30, 2021.
2This 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, 2021. The fair value of the Tree Technology contingent consideration was valued using a scenario-based method which incorporates various estimates, including projected gross revenue for the periods, probability estimates, discount rates and other factors.
3This represents the liability incurred in connection with the acquisition of WAVE. The liability represents the combination of the contingent shares and the earnout. The contingent shares are the remaining shares to be issued contingent on the receipt of certain customer consents as disclosed in Note 6. The fair value of this contingent consideration was valued using a scenario-based method that indicated based on the probabilities that 100% of the consents will be received. the Company received some consents in the three months ended September 30, 2021 and issued 2.0 million shares accordingly. The earnout liability is dependent on WAVE achieving certain revenue and gross profit margin criteria in 2021, 2022 and cumulatively 2021 and 2022. The fair value of zero has been determined using a scenario-based method which indicated that none of the criteria are likely to be achieved.
4This represents the liability incurred in connection with the acquisition of Solectrac. The liability represents the fair value of the three earnouts that were entered into at closing. The fair value of $1.6 million has been determined using a scenario-based method which indicated partial achievement of the criteria over the three years.
The following table summarizes the reconciliation of Level 3 fair value measurements (in thousands):
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|
|
|
|
|
|
|
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Contingent
Consideration
|
|
January 1, 2021
|
$
|
8,960
|
|
|
Addition
|
9,297
|
|
|
Settlement
|
(6,138)
|
|
|
Measurement period adjustment
|
|
|
Remeasurement loss/(gain) recognized in the statement of operations
|
(7,006)
|
|
|
September 30, 2021
|
$
|
5,113
|
|
Note 21. Subsequent Events
Convertible Debenture
On October 25, 2021 Ideanomics entered into a convertible debenture with the YA II PN, Ltd (“YA,”) with a principal amount of $75.0 million. The note has a fixed conversion price of $1.88. The conversion price is not subject to adjustment except for subdivisions or combinations of common stock. The principal and the interest payable under the note will mature on October 24, 2022, unless earlier converted or redeemed by the Company. At any time before the maturity date, YA may convert the note at its option into up to 39.9 million shares (excluding additional shares issuable upon accrued interest) of the Company’s common stock at a fixed conversion price of $1.88. The note contains customary events of default, indemnification obligations of the Company and other obligations and rights of the parties.
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 the Company’s future expectations, contain projections of the Company’s future results of operations or financial condition or state other “forward-looking” information. The Company believes that it is important to communicate its future expectations to its investors. However, these forward-looking statements are not guarantees of future performance and actual results may differ materially from the expectations that are expressed, implied or forecasted in any such forward-looking statements. There may be events in the future that we are unable to accurately predict or control, including weather conditions and other natural disasters which may affect demand for the Company’s products, and the product-development and marketing efforts of its competitors. Examples of these events are more fully described in the Company’s 2020 Form 10-K under Part I. Item 1A. Risk Factors.
Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the reports and documents the Company files from time to time with the SEC, particularly its Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, Current Reports on Form 8-K and all amendments to those reports.