☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-35561
IDEANOMICS, INC.
(Exact name of registrant as specified in its charter)
Nevada
20-1778374
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1441 Broadway, Suite 5116
New York,NY10018
(Address of principal executive offices)
212-206-1216
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol(s)
Name of each exchange on which registered:
Common stock, $0.001 par value per share
IDEX
The Nasdaq Capital Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “larger accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 563,602,888 shares as of November 7, 2022.
Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” “our Company,” “the Company,” “IDEX,” or “Ideanomics,” are to the business of Ideanomics, Inc. (formerly known as “Seven Star Cloud Group, Inc.,” “SSC” and “Wecast Network, Inc.,”) a Nevada corporation, and its consolidated subsidiaries.
The following is a glossary of certain terms used in this report:
$
refers to the legal currency of the United States.
ASC
refers to Accounting Standards Codification.
ASC 205
refers to Accounting Standards Codification Topic 205, Presentation of Financial Statements.
ASC 718
refers to Accounting Standards Codification Topic 718, Stock Compensation.
ASC 810
refers to Accounting Standards Codification Topic 810, Consolidation.
ASEAN
refers to the Association of Southeast Asian Nations.
refers to Accounting Standards Update 2019-12, Income Taxes (Topic 740).
ASU 2020-06
refers to Accounting Standards Update 2020-06, Debt (Topic 470).
ASU 2021-04
refers to Accounting Standards Update 2021-04, Earning Per Share.
BEV
refers to battery electric vehicles.
Board
refers to the Company's Board of Directors.
CaaS
refers to Charging as a Service.
China
refers to the People’s Republic of China.
Chinese
refers to the People’s Republic of China.
DBOT
refers to the Delaware Board of Trade Holdings, Inc. which is holding company for the Company’s FINRA Registered Broker Dealer. The Company owns 99% of the share capital Delaware Board of Trade Holdings, Inc. On September 20, 2021 the name was changed to Justly Holdings Inc. (JUSTLY).
Dr. Wu.
refers to Dr. Bruno Wu., the former Chairman of the Company as of December 31, 2020.
Energica
refers to Energica Motor Company, S.P.A., manufacturer of high-performance electric motorcycles.
EV
refers to electric vehicles, particularly battery operated electric vehicles.
Exchange Act
refers to the Securities Exchange Act of 1934, as amended.
FASB
refers to the Financial Accounting Standards Board.
FCEV
refers to fuel cell electric vehicles.
FINRA
refers to the Financial Industry Regulatory Authority.
Fintech
refers to financial technology.
Fintech Village
refers to the Global Headquarters for Technology and Innovation in Connecticut.
FNL
refers to FNL Technologies, Inc., the owner and operator of the social media platform Hoo.be.
GAAP
refers to generally accepted accounting principles in the United States of America.
Glory
refers to Glory Connection Sdn. Bhd.
Grapevine
refers to Grapevine Logic, Inc. a previously wholly-owned subsidiary of Ideanomics focused on influencer marketing.
Ideanomics China
refers to Mobile Energy Global (MEG) the subsidiary that holds all of the Company’s EV.
Ideanomics
refers to Ideanomics Inc.
JUSTLY
refers to the company formerly known as DBOT - Delaware Board of Trade Holdings, Inc. which is holding company for the Company’s FINRA Registered Broker Dealer. The Company owns 99% of the share capital Delaware Board of Trade Holdings, Inc. On September 20, 2021 the name was changed to Justly Holdings Inc. (JUSTLY).
MDI Fund
refers to the Minority Depository Institution Keepers Fund.
refers to Qingdao Medici New Energy Vehicle Co., Ltd. , formerly known as Qingdao Chengyang Mobo New Energy Vehicle Sales Service Company Limited.
OEM
refers to original equipment manufacturer.
OPEX
refers to the day-to-day operating expenses of a business.
Orangegrid
refers to Orangegrid LLC.
PEA
refers to Prettl Electronics Automotive.
Qianxi
refers to Guizhou Qianxi Green Environmentally Friendly Taxi Service Co.
PCAOB
refers to the Public Company Accounting Oversight Board.
PRC
refers to the People’s Republic of China.
RMB
refers to the legal currency of the PRC.
SAFE
refers to Simple Agreement for Future Equity.
Sarbanes-Oxley Act
refers to Section 404 of the Sarbanes-Oxley Act of 2002, as amended.
SEC
refers to the United States Securities and Exchange Commission.
SEDA
refers to standby equity distribution agreement.
SDPA
refers to secured debenture purchase agreement.
Securities Act
refers to the Securities Act of 1933, as amended.
Shenma
refers to Sichuan Shenma Zhixing Technology Co.
Silk
refers to Silk EV Cayman LP, is an Italian engineering and design services company.
Silk-FAW
refers to Silk, an Italian engineering and design services company that has recently partnered with FAW to form a new company (Silk-FAW) to produce fully electric, luxury vehicles for the Chinese and Global auto markets.
Silk EV Note
refers to the convertible promissory note Ideanomics entered into with Silk EV Cayman LP.
Solectrac
refers to Solectrac, Inc., which was acquired on June 11, 2021.
SSE
refers to Seven Stars Energy PTD LTD.
SSSIG
refers to Sun Seven Stars Investment Group Limited, a British Virgin Islands corporation, an affiliate of Dr. Wu, the former Chairman of the Company.
The 2010 Plan
refers to the 2010 Stock Incentive Plan.
The Company
refers to Ideanomics Inc.
Timios
refers to Timios Holdings Corp. and its affiliates which was acquired on January 8, 2021.
Timios New Shares
refers to the new common stock of Timios.
TM2
refers to Technology Metals Market Limited, a London based digital commodities issuance and trading platform for technology metals.
Tree Technologies
refers to Tree Technologies Sdn. Bhd., headquartered in Kuala Lumpur, Malaysia and through its Treeletrik brand sells EV bikes, scooters, and batteries throughout the ASEAN region.
U.S. dollars
refers to the legal currency of the United States.
U.S. GAAP
refers to accounting principles generally accepted in the United States of America.
US Hybrid
refers to US Hybrid Corporation, which was acquired on June 20, 2021.
USD
refers to the legal currency of the United States.
VaaS
refers to Vehicle as a Service.
VIA
refers to VIA Motors International, Inc. a business that produces commercial battery electric skateboard architecture.
WAVE
refers to Wireless Advanced Vehicle Electrification, Inc. which was acquired on January 15, 2021.
WAVE Agreement
refers to the agreement and plan of merger the Company entered into to acquire 100% of Wireless Advanced Vehicle Electrification, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD in thousands)
September 30, 2022
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
$
25,186
$
269,863
Accounts receivable, net
6,000
3,338
Contract assets
3,767
2,772
Amount due from related parties
534
266
Notes receivable from third parties
83,863
54,907
Notes receivable from related party
400
697
Inventory
29,530
6,159
Prepaid expenses
15,075
20,015
Other current assets
5,673
4,490
Total current assets
170,028
362,507
Property and equipment, net
10,170
2,905
Intangible assets, net
78,645
42,546
Goodwill
68,711
16,161
Operating lease right of use assets
16,835
12,827
Financing lease right of use assets
1,376
—
Long-term investments
23,319
35,588
Other non-current assets
1,235
903
Total assets
$
370,319
$
473,437
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK, REDEEMABLE NON-CONTROLLING INTEREST AND EQUITY
Current liabilities
Accounts payable
$
22,782
$
6,674
Deferred revenue (including customer deposits of $2,681 and $3,163 as of September 30, 2022 and December 31, 2021, respectively)
3,540
5,392
Accrued salaries
7,916
8,957
Amount due to related parties
2,223
1,102
Other current liabilities
8,831
7,137
Current portion of operating lease liabilities
3,878
3,086
Current portion of financing lease liabilities
348
—
Current contingent consideration
767
648
Promissory note-short term
2,424
312
Convertible promissory note due to third-parties-short term
9,250
57,809
Total current liabilities
61,959
91,117
Promissory note-long term
1,559
—
Operating lease liability-long term
12,808
9,647
Financing lease liability-long term
1,253
—
Non-current contingent consideration
100
350
Deferred tax liabilities
7,972
5,073
Other long-term liabilities
770
620
Total liabilities
86,421
106,807
Commitments and contingencies (Note 19)
Convertible redeemable preferred stock and Redeemable non-controlling interest:
Series A - 7,000,000 shares issued and outstanding, liquidation and deemed liquidation preference of $3,500,000 as of September 30, 2022 and December 31, 2021
1,262
1,262
Equity:
Common stock - $0.001 par value; 1,500,000,000 shares authorized, 517,134,223 shares issued and outstanding as of September 30, 2022 and 497,272,525 and 344,861,295 shares issued and outstanding as of December 31, 2021,
517
497
Treasury Stock
4,639
—
Additional paid-in capital
980,232
968,066
Accumulated deficit
(709,451)
(605,758)
Accumulated other comprehensive income
(13,162)
222
Total Ideanomics, Inc. shareholders' equity
262,775
363,027
Non-controlling interest
19,861
2,341
Total equity
282,636
365,368
Total liabilities, convertible redeemable preferred stock, redeemable non-controlling interest and equity
$
370,319
$
473,437
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD in thousands)
Three Months Ended
Nine Months Ended
September 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Revenue from sales of products (including from a related party of $10, $0 and $10, $1, for the three and nine months ended September 30, 2022 and 2021, respectively)
$
15,746
$
9,676
$
55,157
$
21,149
Revenue from sales of services
8,412
16,336
28,461
64,339
Other revenue
120
$
569
253
$
1,159
Total revenue
24,278
26,581
83,871
86,647
Cost of revenue from sales of products (including from a related party of $0, $4 and $0, $8 for the three and nine months ended September 30, 2022 and 2021, respectively)
18,198
9,934
58,963
20,445
Cost of revenue from sales of services
6,691
12,165
23,879
41,441
Cost of other revenue
48
531
179
1,063
Total cost of revenue
24,937
22,630
83,021
62,949
Gross profit
(659)
3,951
850
23,698
Operating expenses:
Selling, general and administrative expenses
37,710
37,750
113,555
74,419
Research and development expense
849
184
2,543
429
Asset impairment
378
15,183
1,030
15,183
Goodwill impairment
—
5,850
—
5,850
Change in fair value of contingent consideration, net
—
(5,099)
(131)
(7,006)
Litigation settlement
2
216
44
5,216
Depreciation and amortization
2,271
1,779
5,838
4,548
Total operating expenses
41,210
55,863
122,879
98,639
Loss from operations
(41,869)
(51,912)
(122,029)
(74,941)
Interest and other income (expense):
Interest income
957
417
2,560
812
Interest expense
(456)
(308)
(1,523)
(1,683)
Gain on extinguishment of debt
—
300
—
300
Loss on disposal of subsidiaries, net
(30)
—
(218)
(1,264)
Gain on remeasurement of investment
—
—
10,965
2,915
Other income, net
2,574
8
4,460
507
Loss before income taxes and non-controlling interest
(38,824)
(51,495)
(105,785)
(73,354)
Income tax benefit
400
944
925
9,971
Impairment of and equity in gain (loss) of equity method investees
(429)
(1,447)
(2,357)
(2,062)
Net loss
(38,853)
(51,998)
(107,217)
(65,445)
Net loss attributable to common shareholders
(38,853)
(51,998)
(107,217)
(65,445)
Net loss attributable to non-controlling interest
1,439
187
3,525
459
Net loss attributable to Ideanomics, Inc. common shareholders
$
(37,414)
$
(51,811)
$
(103,692)
$
(64,986)
Earnings (loss) per share
Basic
$
(0.08)
$
(0.11)
$
(0.21)
$
(0.15)
Diluted
$
(0.08)
$
(0.11)
$
(0.21)
$
(0.15)
Weighted average shares outstanding:
Basic
494,061,205
473,829,962
496,392,410
432,989,602
Diluted
494,061,205
473,829,962
496,392,410
432,989,602
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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.
The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Therefore, the Company operates in one segment with two business units: Ideanomics Mobility and Ideanomics Capital. Through September 30, 2022, the Company operates in one segment with two business units, Ideanomics Mobility and Ideanomics Capital. For the nine months ended September 30, 2022, the Company completed one acquisition. We are in the process of preparing the necessary filing disclosures in anticipation of obtaining the required shareholder approval to acquire 100% of VIA. 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. 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. Anticipated segments are, Ideanomics Mobility, which will encompass the entities with businesses centered in the EV market, Ideanomics Capital, will encompass businesses centered in the finance/real estate market, corporate entity which will encompass costs associated with head office operations, with the combination/consolidation of all segments and the corporate entity comprising the consolidated operations of the Company. The chief operating decision maker will review financial results at the segment level; the Company has appointed business unit managers for Ideanomics Mobility and Ideanomics Capital and is in the process of 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 offering unique business solutions to commercial customers wanting to adopt EV vehicles and supporting infrastructure. To do that, Ideanomics has assembled, is developing and integrating business components with distinctive competence in three key pillars: Vehicles, Charging and Energy. These three pillars provide the foundation for Ideanomics Mobility’s planned offering of unique business solutions such as CaaS and VaaS which are proving to be extremely attractive to both large and small commercial vehicle operators.
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.
Recent Developments
Energica Tender Offer
On September 15, 2021, the Company announced it had entered into an agreement to launch a voluntary conditional tender offer in concert with the founders of Energica for shares of Energica, pursuant to which Ideanomics plans to increase its investment from 20.0% in Energica to 72.4%. The Energica founders shall continue to own 27.6% of Energica.
On February 9, 2022, the Company wired €52.5 million (approximately $60.3 million) to an escrow account in order to facilitate and fund the conditional tender offer. On March, 7, 2022 the Company announced that it had achieved the 90.0% threshold for the conditional tender offer. The transaction received final approval from Italian regulatory authorities and closed on March 14, 2022.
Restructuring of PRC Operations
On September 12, 2022, the Board authorized management to pursue a plan to restructure operations in China. We expect the plan to be finalized and initiated in the fourth quarter of 2022. The restructuring is anticipated to be complete no later than the fourth quarter of 2023. In the year ended December 31, 2021, the company generated $29.7 million in revenues in the PRC, primarily from the sale of electric vehicle products. For the nine months ended September 30, 2022, the company generated $36.2 million in revenues in the PRC. The carrying value of long lived assets in the PRC as September 30, 2022, was $0.8 million and cash held in the PRC was approximately $15.1 million as of September 30, 2022.
As a result of the restructuring of our operations in PRC we have incurred restructuring costs that include employee termination severance and lease termination costs, as well as other incremental costs resulting from the restructuring actions. Employee termination severance are recorded based on statutory requirements and completed negotiations. Restructuring costs are recognized in the Company's condensed consolidated financial statements in accordance with GAAP. Generally, charges are recorded when restructuring actions are approved, communicated and/or implemented.
In the nine months ended September 30, 2022, the Company recorded charges of $0.5 million in connection with its restructuring actions. These charges consist of $0.5 million recorded as selling, general and administrative expenses. The restructuring charges consist of employee termination costs of $0.5 million. Employee termination benefits were recorded based on statutory requirements, completed negotiations and Company policy.
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 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, 2021 filed with the SEC on September 2, 2022 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, the Company evaluates its estimates, including those related to the bad debt allowance, collectability of notes receivable, sales returns, fair values of financial instruments, equity investments, stock-based compensation, intangible assets and goodwill, useful lives of intangible assets and property and equipment, asset retirement obligations, income taxes, and contingent liabilities, among others. The Company bases its estimates on assumptions, both historical and forward looking, that are believed to be reasonable, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities.
Reclassifications
Certain prior year amounts have been reclassified for comparative purposes to conform to the current-period financial statement presentation.
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 2021 Form 10-K. During the nine months ended September 30, 2022, the Company acquired one business, Energica, which resulted in the adoption of the following accounting policies with respect to that business.
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 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):
The majority of the inventory is held in US Hybrid, Solectrac and Energica entities and represents finished assemblies and sub assemblies to be used in delivering electric motorcycles, 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, 2022
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
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 2021 as the effects of the Coronavirus appeared to lessen, and economic activity began to recover. However, commencing in the autumn and fall of 2021 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 Tree Technologies 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.
Liquidity and Going Concern
The accompanying consolidated financial statements of the Company have been prepared assuming the Company will continue as a going concern and in accordance with U.S. GAAP. The going concern basis of presentation assumes that the Company will continue in operation one year after the date these financial statements are issued and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. Pursuant to the requirements of the ASC 205, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued.
This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
The Company has a pending acquisition of VIA, a U.S. manufacturer of electric commercial vehicles including Class 2 through Class 5 cargo vans, trucks, and buses. The Company is in the process of obtaining required shareholder approval to acquire 100% of VIA. 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, more than $62.9 million of which has been paid to date (prior to closing) in cash as documented in the form of convertible notes, as well as an earnout payment of up to $180.0 million. In addition, the company has provided an incremental $11.7 million in bridge financing to VIA for the support of ongoing operations due to the delay in closing. This bridge loan will be forgiven at the time of closing. The remaining
consideration for the acquisition of VIA is to be consummated with Ideanomics common stock, rather than cash. However, transaction fees are material and estimated to be $45.0 million, and it is anticipated that VIA will require operational and capital funding of $260.0 million in the next twelve months. The Company has filed a registration statement on Form S-4 regarding shareholder approval for the transaction. As of the date of these financial statements, the registration statement had not been declared effective, and the financial statements contained therein must be updated. An amended S-4 statement with the required updated financial statements is anticipated to be filed with the SEC in the next three months. The terms of the agreement stated that either party may terminate the agreement under specified conditions as of August 31, 2022, however the Company has exercised its option to extend that date to September 30, 2022, and is currently discussing the terms of a further extension with VIA.
The Company believes that its current level of cash and cash equivalents are not sufficient to fund continuing operations or the addition of the two planned acquisitions in various stages of completion. The Company will need to bring in new capital to support its growth and, as evidenced from its successful capital raising activities in 2020 and 2021, believes it has the ability to continue to do so. However, there can be no assurance that this will occur. As described in Note 15, on October 25, 2021 the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note of $75.0 million, and received aggregate gross proceeds of $75.0 million. The note is scheduled to mature on October 24, 2022 and bears interest at an annual rate of 4.0%, which would increase to 18.0% in the event of default. 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. Commencing April 1, 2022, the Company has the obligation to redeem $8.3 million per month, against the unpaid principal. This amount may be reduced by any conversions by YA II PN or optional redemptions made by the Company. As of December 31, 2021, after the conversion of principal in the amount of $17.5 million, $57.5 million remained outstanding.
On August 30, 2022, the Company and YA II PN agreed to amend the terms of the outstanding convertible note and entered into an amendment agreement dated August 29, 2022. As of August 29, 2022, the outstanding principal balance of the original debenture was $16.7 million. The amendments to the original debenture amended the principal amount to reflect the outstanding balance as of August 29, 2022, change the maturity date to January 29, 2023 and adjust the conversion price to the lower of $1.50 or 85.0% of the lowest daily VWAP during the 7 consecutive trading days immediately preceding the conversion date or other date of determination, but not lower than $0.20 per share of common stock. The Company shall not have the right to prepay any amounts due under the amended debenture prior to the maturity date without the investor’s prior written consent.
On September 1, 2022, the company entered into a SEPA with YA II PN . The Company will be able to sell up to 60.0 million of the Company’s shares of common stock, par value $0.001 per share at the Company’s request any time during the 36 months following the date of the SEPA’s entrance into force. The shares would be purchased at 95.0% of the market price and would be subject to certain limitations, including that YA II PN could not purchase any shares that would result in it owning more than 5.0% of the Company’s common stock. Market price is the lowest daily VWAP of the common shares during the three consecutive trading days commencing on the advance notice date, other than the daily VWAP on any excluded days. VWAP means, for any trading day, the daily volume weighted average price of the common shares for such trading day on the principal market during regular trading hours as reported by Bloomberg L.P.
Pursuant to the SEPA, the Company is required to register all shares which YA II PN may acquire. The Company agreed to file with the SEC a registration statement (as defined in the SEPA) registering all of the shares of common stock that are to be offered and sold to YA II PN pursuant to the SEPA. The Company is required to have a registration statement declared effective by the SEC before it can raise any funds using the SEPA.
Unless earlier terminated as provided under the SEPA, the SEPA shall terminate automatically on the earliest of (i) the first day of the month next following the 36-month anniversary of the effective date or (ii) the date on which the YA II PN shall have made payment of advances (as defined in the SEPA) pursuant to the SEPA for the common shares equal to the commitment amount (as defined in the SEPA).
On September 15, 2022, we amended the SEPA increasing the commitment amount from 60.0 million shares to 150.0 million shares. In addition, the shares to be provided as a commitment fee increased from 0.6 million to 1.5 million.
The Company has various vehicles through which it could raise a limited amount of equity funding, however, these are subject to market conditions which are not within management’s control. As our Quarterly Report on Form 10-Q was not filed timely, we will not be Form S-3 eligible until August 9, 2023, which could make fund raising more difficult or more expensive. Management continues to seek to raise additional funds through the issuance of equity, mezzanine or debt securities. As we seek additional sources of financing, there can be no assurance that such financing would be available to us on favorable terms
or at all. Our ability to obtain additional financing in the debt and equity capital markets is subject to several factors, including market and economic conditions, our performance and investor sentiment with respect to us and our business and industry.
As of September 30, 2022, the Company’s principal source of liquidity is its unrestricted cash balance in the amount of $25.2 million of which $15.1 million is held by the Company’s subsidiaries located in China and is subject to foreign exchange control regulations and $2.2 million is the minimum regulatory capital required to be held by US operating companies – we do not consider cash balances held in China or required minimum regulatory capital to be part of the Company’s liquid cash balances. The Company has experienced greater net losses and negative cash flows from operating and investing activities in the third quarter consistent with its business plan for ongoing activities and planned acquisitions. As of the date of the filing of this Form 10-Q, securing additional financing is in progress, and as such management has limited the extent to which it is taking actions to delay, scale back, or abandon future expenditures. As such, management’s actions to preserve an adequate level of liquidity for a period extending twelve months from the date of the filing of this Form 10-Q are no longer sufficient on their own without additional financing, to mitigate the conditions raising substantial doubt about the Company’s ability to continue as a going concern. We currently do not have adequate cash to meet our short or long-term needs. In the event additional capital is raised, it may have a dilutive effect on our existing stockholders.
Although management continues to pursue these facilities and other opportunities to raise additional capital through a combination of debt financing, other non-dilutive financing and/or equity financing to supplement the Company’s capitalization and liquidity, management cannot conclude as of the date of this filing that its plans are probable of being successfully implemented.
The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
We believe substantial doubt exists about the Company’s ability to continue as a going concern for twelve months from the date of issuance of our financial statements.
Note 2. Immaterial Corrections of Prior Period Condensed Consolidated Financial Statements
In the fourth quarter of 2021, the Company became aware of immaterial errors primarily related to amortization expense on certain intangible assets acquired in various acquisitions, the classification of gains and losses from equity method investments, the classification of certain costs, and the accounting for non-controlling interest and income taxes related to the Company’s acquisition of 51% of the ownership interests of Tree Technologies, a Malaysian company engaged in the EV market in December 2019. An assessment concluded that the errors were not material, individually or in the aggregate, to any prior period consolidated financial statements. As such, in accordance with ASC 250, “Accounting Changes and Error Corrections” and Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the prior period consolidated financial statements have been revised in the applicable consolidated financial statements. The Company concluded a revision of prior period consolidated financial statements was appropriate the next time they were reported, since the correction of errors would have been material if recorded in the year ended December 31, 2021. Periods not presented herein will be revised, as applicable, in future filings. Although management has determined that the errors, individually and in the aggregate, were not material to prior periods, the condensed consolidated financial statements for the three and nine months ended September 30, 2021, included herein, have been revised to correct for the impact of these items. Unless otherwise indicated, the condensed consolidated financial information as of and for the three and nine months ended September 30, 2021 presented in this Quarterly Report on Form 10-Q reflects these revisions.
The following table reflects the impact of the immaterial corrections discussed above on the Company’s previously reported condensed consolidated statements of operations and comprehensive loss for the three months ended September 30, 2021 (in thousands, except per share amounts):
Loss before income taxes and non-controlling interest
(51,118)
(377)
(51,495)
Income tax benefit
842
102
944
Net loss
(51,095)
(903)
(51,998)
Net loss attributable to common shareholders
(51,095)
(903)
(51,998)
Net loss attributable to non-controlling interest
244
(57)
187
Net loss attributable to Ideanomics common shareholders
(50,851)
(960)
(51,811)
Foreign currency translation adjustments
(295)
(656)
(951)
Comprehensive loss
(51,386)
(1,559)
(52,945)
Comprehensive loss attributable to non-controlling interest
350
(77)
273
Comprehensive loss attributable to Ideanomics, Inc. shareholders
$
(51,036)
$
(1,636)
$
(52,672)
There was no change in earnings per share – basic and diluted from the immaterial error corrections.
The following table reflects the impact of the immaterial corrections discussed above on the Company’s previously reported condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2021 (in thousands, except per share amounts):
Previously Reported
Adjustment
As Revised
Revenue – sales of products
$
21,934
$
(785)
$
21,149
Total revenue
87,832
(1,185)
86,647
Cost of revenue – sales of products
20,838
(393)
20,445
Cost of revenue – sales of services
42,323
(882)
41,441
Total cost of revenue
63,161
(212)
62,949
Gross profit
24,671
(973)
23,698
Selling, general and administrative
53,650
20,769
74,419
Depreciation and amortization
4,445
103
4,548
Total operating expenses
99,545
(906)
98,639
Loss from operations
(74,874)
(67)
(74,941)
Loss on disposal of subsidiaries
(1,446)
182
(1,264)
Other income, net
689
(182)
507
Loss before income taxes and non-controlling interest
(73,287)
(67)
(73,354)
Income tax benefit
9,667
304
9,971
Equity in loss of equity method investees
(1,517)
(545)
(2,062)
Net loss
(65,137)
(308)
(65,445)
Net loss attributable to common shareholders
(65,137)
(308)
(65,445)
Net loss attributable to non-controlling interest
611
(152)
459
Net loss attributable to Ideanomics common shareholders
(64,526)
(460)
(64,986)
Foreign currency translation adjustments
(1,196)
(487)
(1,683)
Comprehensive loss
(66,349)
(795)
(67,144)
Comprehensive loss attributable to non-controlling interest
1,113
(249)
864
Comprehensive loss attributable to Ideanomics, Inc. shareholders
$
(65,236)
$
(1,044)
$
(66,280)
There was no change in earnings per share – basic and diluted from the immaterial error corrections.
The following table reflects the impact of the immaterial corrections discussed above on the Company’s previously reported condensed consolidated statement of cash flows for the nine months ended September 30, 2021 (in thousands):
Previously Reported
Adjustment
As Revised
Cash flows from operating activities
Net loss
$
(65,137)
$
(308)
$
(65,445)
Depreciation and amortization
4,445
103
4,548
Income tax benefit
(10,160)
(305)
(10,465)
Equity in losses of equity method investees
1,517
545
2,062
Accounts receivable
5,042
253
5,295
Inventory
(410)
610
200
Prepaid expenses and other assets
(16,358)
(2,183)
(18,541)
Accrued expenses, salary and other current liabilities
$
6,971
$
922
$
7,893
Note 3. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, which simplifies the accounting for income taxes by removing certain exceptions currently provided for in ASC 740 and by amending certain other requirements of ASC 740. 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, which simplifies 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. 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.
In May 2021, the FASB issued ASU No. 2021-04, 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 adopted ASU 2021-04 on January 1, 2022. The Company has no freestanding equity-classified written call options. The effect will largely depend on the terms of written call options or financings issued or modified in the future.
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, 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, 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 on the date the ASU was issued. 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 October 2021, the FASB issued ASU No. 2021-08, which 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 4. Revenue
The following table summarizes the Company’s revenues disaggregated by revenue source, geography (based on the Company’s business locations,) and timing of revenue recognition (in thousands):
Three Months Ended
Nine Months Ended
September 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
As restated
As restated
Geographic Markets
Malaysia
$
3
$
17
$
53
$
64
USA
12,665
17,984
38,797
69,873
PRC
7,360
8,580
36,242
16,710
Italy
4,250
—
8,779
—
Total
$
24,278
$
26,581
$
83,871
$
86,647
Product or Service
Electric vehicles products
$
14,713
$
8,737
$
52,913
17,041
Electric vehicles services
71
46
228
154
Charging, batteries and powertrain products
1,034
940
2,244
4,108
Charging, batteries and powertrain services
415
770
1,205
1,526
Title and escrow services
7,875
15,519
26,971
62,428
Digital advertising services and other
—
—
—
231
Fund raising services
50
—
57
—
Other revenue
120
569
253
1,159
Total
$
24,278
$
26,581
$
83,871
$
86,647
Timing of Revenue Recognition
Products and services transferred at a point in time
$
23,742
$
25,196
$
82,381
$
83,807
Services provided over time
536
1,385
1,490
2,840
Total
$
24,278
$
26,581
$
83,871
$
86,647
In the three months ended September 30, 2022 and 2021, the Company recognized revenue of $2.4 million and $0.7 million recorded in deferred revenue as of the beginning of the periods, respectively. In the nine months ended September 30, 2022 and 2021, the Company recognized revenue of $4.4 million and $0.6 million recorded in deferred revenue as of the beginning of the periods, respectively.
In the three months ended September 30, 2022 and 2021, the Company recorded grant revenue of $0.1 million and $0.6 million, respectively. In the nine months ended September 30, 2022 and 2021, the Company recorded grant revenue of $0.3 million and $1.2 million, respectively, in "Other revenue" in the consolidated statements of operations.
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 fair value of available-for-sale securities is determined utilizing Level 1 inputs, as further discussed below.
The following table provides certain information related to available-for-sale debt securities (in thousands):
As of September 30, 2022
Cost
Interest
Unrealized Gains
Unrealized Losses
Impairment
Estimated Fair Value
Available-for-sale securities:
SILK EV Note (a)
$
15,000
$
902
$
4
$
(20)
$
(15,886)
$
—
Total available-for-sale securities
$
15,000
$
902
$
4
$
(20)
$
(15,886)
$
—
(a)Silk EV Convertible Promissory Note
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 principal amount of the convertible promissory note is $15.0 million, is unsecured, bears interest at an annual rate of 6.0%, and the scheduled maturity date was January 28, 2022.
Upon a qualified equity financing, as defined, the outstanding principal and accrued interest 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 convertible promissory note contains certain customary events of default and other rights and obligations of the parties.
SILK EV did not remit payment of principal and interest on the scheduled maturity date of January 28, 2022, and the Company has sent a notice of default. The Company determined that the Silk EV note was fully impaired and recorded an impairment loss of $15.8 million recorded in "Asset impairment" in the year ended December 31, 2021.
Notes receivable consists of the following (in thousands):
As of September 30, 2022
Cost
Interest
Unrealized Gains
Unrealized Losses
Impairment
Estimated Fair Value
VIA Note (a)
$
58,418
$
1,994
$
—
$
—
$
—
$
60,412
VIA Note-2(a)
11,682
105
—
—
—
11,787
Inobat Note (b)
11,819
652
724
(2,096)
—
11,099
Timios (c)
520
—
—
—
—
520
Green Power Motor Company (d)
$45
—
—
—
—
45
Total notes receivable
$
82,484
$
2,751
$
724
$
(2,096)
$
—
$
83,863
As of December 31, 2021
Cost
Interest
Unrealized Gains
Unrealized Losses
Impairment
Estimated Fair Value
VIA Note (a)
$
42,500
$
578
$
—
$
—
$
—
$
43,078
Inobat Note (b)
11,819
10
—
—
—
11,829
Total notes receivable
$
54,319
$
588
$
—
$
—
$
—
$
54,907
(a)VIA Convertible Promissory Note
On August 30, 2021, the Company invested $42.5 million in VIA, in the form of a convertible promissory note. VIA is a leading electric commercial vehicle company with proven advanced electric drive technology, delivering sustainable mobility solutions for a more livable world. VIA 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 principal amount of the convertible promissory note is $42.5 million, is unsecured, bears interest at an annual rate of 4.0%, and the scheduled maturity date is the earlier of the closing date of the acquisition or one year after the agreement is terminated according to its terms.
The convertible promissory note contains certain customary events of default and other rights and obligations of the parties. The Company expects to convert this promissory note in conjunction with the closing of the acquisition of VIA.Management assessed the probability of closing the acquisition in determining the recoverability of the promissory note.
The Company entered into amendments of the convertible promissory note during the second quarter of 2022 to provide a total of an additional $5.5 million. The company entered into further amendments during the third quarter of 2022 to provide a total of an additional $10.4 million.
The Company entered into a secured promissory note (VIA Note-2) of $2.2 million with VIA on May 20, 2022. The Company entered into an amendment of the secured promissory note during the second quarter of 2022 to provide an additional $5.1 million. The company entered into further amendments during the third quarter of 2022 to provide a total of an additional $4.4 million.The note is secured by the certain assets and rights of VIA , bears interest at an annual rate of 4.0%. The principal and interest is due and payable in the event of the termination of the merger agreement.
As of October 31, 2022, the company has invested an additional $2.0 million in VIA, pursuant to amendments to the notes detailed above.
On December 24, 2021, the Company invested €10.0 million ($11.4 million) in Inobat via a convertible promissory note, that is due December 24, 2022. Inobat specializes in the research, development, manufacture, and provision of innovative electric batteries custom-designed to meet the specific requirements of global mainstream and specialist OEMs within the automotive, commercial vehicle, motorsport, and aerospace sectors. Inobat is a European based battery manufacturer, that has a battery research and development facility and pilot line under development in Slovakia.
The principal amount of the convertible promissory note is €10.0 million ($11.4 million) is unsecured, bears interest at an annual rate of 8.00%, and the scheduled maturity date is December 28, 2022.
The convertible promissory note contains certain customary events of default and other rights and obligations of the parties.
The fair value of the Inobat convertible promissory note was valued using a scenario-based approach utilizing Level 3 inputs. The significant unobservable inputs include the probability of a qualified financing and the implied yield rate. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement. The following table summarizes the significant inputs and assumptions used in the model:
September 30, 2022
Probability
50
%
Yield rate
17.5
%
(c)Timios Promissory Note
During the first quarter of 2022, Timios purchased mortgage notes at a fair value of $0.5 million, the notes bear interest of 3.5% and 4.875%. The notes mature August 2043 and December 2049. Installments for the loans are approximately $3,000. There was no interest recorded for the three and nine months ended September 30, 2022.
(d)Green Power Motor Company
On July 29, 2022, the Company loaned $43,500, to Green Power Motor Company. Interest will accrue on the outstanding principal at a rate of fixed interest rate per annum equal to 7.50%. Borrower will make 80 consecutive monthly payments commencing on September 1, 2022.
Note 7. Acquisitions and Divestitures
The Company continually evaluates potential acquisitions that align with the Company’s strategy of accelerating the adoption of electric vehicles. The Company has completed a number of acquisitions that have been accounted for as purchases and have resulted in the recognition of goodwill in the Company’s Consolidated Financial Statements. This goodwill arises because the purchase prices for these businesses exceeds the fair value of acquired identifiable net assets due to the purchase prices reflecting a number of factors including the future earnings and cash flow potential of these businesses, the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers, the competitive nature of the processes by which the Company acquired the businesses and the complementary strategic fit and resulting synergies these businesses bring to existing operations.
For all acquisitions, the Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains the information used for the purchase price allocation during due diligence and through other sources. In the months after closing, as the Company obtains additional information about the acquired assets and liabilities, including through tangible and intangible asset appraisals, and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price.
The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. Significant assumptions include the discount rates and certain assumptions that form the basis of the forecasted results of the acquired business including earnings before interest, taxes, depreciation and amortization, revenue, revenue growth rates, royalty rates and technology obsolescence rates. These assumptions are forward looking and could be affected by
future economic and market conditions. The Company engages third-party valuation specialists who review the Company’s critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions.
Only facts and circumstances that existed as of the acquisition date are considered for subsequent adjustment. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. The Company has included tables for the respective acquisitions by calendar year below. Where a purchase price allocation is considered final this has been disclosed respectively.
In addition to evaluating potential acquisitions, 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. Details and the impacts of any dispositions are noted below.
2022 Acquisitions
The Company has completed the below acquisition in the nine months ended September 30, 2022. 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.
Energica Acquisition
On March 3, 2021, the Company entered into an investment agreement with Energica to acquire 20.0% of Energica share capital. On September 15, 2021, the Company announced it had entered into an agreement to launch a voluntary conditional tender offer in concert with the founders of Energica for shares of Energica, pursuant to which Ideanomics plans to increase its investment from 20.0% in Energica to 72.4%. The Energica founders shall continue to own approximately 27.6% of Energica.
On February 9, 2022, the Company wired €52.5 million (approximately $60.3 million) to an escrow account in order to facilitate and fund the conditional tender offer. On March, 7, 2022, the Company announced that it had achieved the 90.0% threshold for the conditional tender offer. The transaction received final approval from Italian regulatory authorities and closed on March 14, 2022.
Acquisition Method Accounting Estimates
The preliminary purchase price was $58.1 million including $2.0 million in cash obtained through the acquisition. The purchase price was paid in cash and funded from available cash resources. The table below summarizes the preliminary estimates of fair value of identifiable assets acquired and liabilities assumed in the acquisition of Energica. These preliminary estimates of the fair value are subject to revisions, which may result in an adjustment to the preliminary values presented below.
Cash paid at closing, including working capital estimates
$
58,140
Fair value of previously held interest
22,183
Fair value of non-controlling interest
24,778
Purchase price
$
105,101
Allocated to:
Current assets
$
19,708
Property and equipment, net
1,927
Intangible assets –Customer relationships
14,226
Intangible assets – Development technology
18,603
Intangible assets – Trademark and trade name
14,496
Goodwill
58,643
Other assets
2,775
Current liabilities
(16,894)
Other liabilities
(8,383)
Fair value of assets acquired, less liabilities assumed
$
105,101
The useful lives of the intangible assets acquired is as follows:
Energica
Intangible assets – customer relationships
13.0
Intangible assets – development technology
8.0
Intangible assets – trademark and tradename
25.0
Weighted average
14.7
The estimated amortization expense related to these intangible assets for each of the years subsequent to September 30, 2022, is as follows (amounts in thousands):
2022 remaining
$
809
2023
4,000
2024
4,000
2025
4,000
2026
4,000
2027 and beyond
28,145
Total
$
44,954
Amortization expense related to intangible assets created as a result of the Energica acquisition for the three and nine months ended September 30, 2022 respectively was $1.0 million and $2.4 million.
The goodwill from the Energica acquisition represents future economic benefits that we expect to achieve as a result of the Energica acquisition, 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. Goodwill will not be amortized but instead will be tested for impairment at least annually and more frequently if certain indicators of impairment are present.
Revenue of $4.2 million and $8.8 million and net loss of $3.7 million and net loss of $8.8 million for the three and nine months ended September 30, 2022, respectively, have been included in the condensed consolidated financial statements. As the
Company did not consolidate Energica in 2021 there are no results to disclose, these have been included in the unaudited proforma information below.
2021 Acquisitions
The Company completed the below acquisitions in 2021. The accompanying condensed consolidated financial statements include the operations of the acquired entities from their respective acquisition dates. All of the acquisitions have been accounted for as business combinations. Accordingly, consideration paid by the Company to complete the acquisitions is initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values. The recorded amounts for assets acquired and liabilities assumed are provisional and subject to change during the measurement period, which is up to 12 months from the acquisition date.
The acquisitions below are collectively defined as the 2021 Acquisitions. Management considers the valuations final for the 2021 Acquisitions.
Timios
On January 8, 2021 the Company purchased 100% of Timios and its affiliates, a privately held company, pursuant to a stock purchase agreement for a purchase price of $40.0 million, net of cash acquired of $6.5 million. The purchase price was paid in cash and pursuant to the Agreement, $5.1 million of the cash consideration was paid into escrow pending a one year indemnification review.
Timios is a nationwide title and settlement solutions provider, which has been expanding in recent years though offering innovative solutions for real estate transactions, including residential and commercial title insurance, closing and settlement services, as well as specialized offers for the mortgage industry. The Company expects Timios to become one of the cornerstones of the Company's fintech business unit.
Revenue of $7.9 million and $15.5 million and net income of $2.2 million and a net loss $16.4 million for the three months ended September 30, 2022 and 2021, respectively, have been included in the condensed consolidated financial statements.
Revenue of $27.0 million and $62.4 million and net loss of $3.4 million and $10.6 million for the nine months ended September 30, 2022 and 2021, respectively, have been included in the condensed consolidated financial statements.
The final purchase price allocation for Timios is summarized in the table below in the “Acquisition Method Accounting Estimates” section of this note.
Refer to Note 10 for information related to an impairment charge recognized for the Timios reporting unit during the year ended December 31, 2021.
WAVE
On January 15, 2021 the Company purchased 100% of WAVE, a privately held company, pursuant to an agreement and plan of merger for a purchase price 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.
WAVE is a technology company focused on creating practical and economical solutions for the worldwide transit and off-road EV markets and is a leading provider of wireless charging solutions for medium and heavy duty EVs. The Company expects WAVE to create immediate synergies with its existing EV initiatives as it brings wireless charging to the Company’s current product offerings.
As of September 30, 2022, 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 $11.4 million as of the acquisition date. 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 agreement would not be issued to the sellers. The Company has extended 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. No earnout was earned for the period ending December 31, 2021. 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.
The Company 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 $0.8 million and $1.0 million and net loss of $4.1 million and $1.2 million, for the three months ended September 30, 2022 and 2021, respectively, have been included in the condensed consolidated financial statements.
Revenue of $2.0 million and $5.2 million and net loss of $11.0 million and $3.1 million for the nine months ended September 30, 2022 and 2021, respectively, have been included in the condensed consolidated financial statements.
The final purchase price allocation for WAVE is summarized in the table below.
Refer to Note 10 for information related to an impairment charge recognized for the WAVE reporting unit during the year ended December 31, 2021.
US Hybrid
On June 10, 2021, the Company purchased 100% of US Hybrid, a privately held company, pursuant to an agreement and plan of merger for a 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 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. The agreement provided that the 6.6 million shares were paid into an indemnity escrow to satisfy future indemnification obligations of the selling shareholders, if any.
On July 12, 2022, the Company received 6.6 million shares of common stock back from the escrow agent pursuant to the triggering of a legal condition that permitted the Company to reclaim 100% of the shares held in escrow.The Company has concluded that the return of these shares do not constitute a change in the purchase consideration of US Hybrid and will account for this transaction as a Treasury Stock transaction in the third quarter is 2022.
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. The Company expects US Hybrid to become another cornerstone in the Company’s mission to reduce commercial fleet greenhouse gas emissions through advanced EV technologies and forward-thinking partnerships.
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, 2022 the Company has not accrued any of this retention plan as the various criteria for 2021 were not met and the criteria for 2022 and 2023 are not probable of being met.
Revenue of $0.8 million and $1.3 million and net loss of $1.9 million and $0.7 million, for the three months ended September 30, 2022 and 2021, respectively, have been included in the condensed consolidated financial statements.
Revenue of $1.7 million and $1.6 million and net loss of $7.3 million and $0.8 million for the nine months ended September 30, 2022 and 2021, respectively, have been included in the condensed consolidated financial statements.
The final purchase price allocation for US Hybrid is summarized in the table below.
Refer to Note 10 for information related to an impairment charge recognized for the US Hybrid reporting unit during the year ended December 31, 2021.
Solectrac
On June 11, 2021, the Company purchased the remaining 78.6% of Solectrac, a privately held company, pursuant to an agreement and plan of merger for a purchase price of $18.0 million. The Company had previously acquired 21.4% of Solectrac in 2020. The Company now owns 100% of Solectrac. The purchase price was paid in cash and pursuant to the 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. The Company remeasured the previous equity investment by grossing up the value of the 21.4% equity ownership to reflect the proceeds paid to gain control of Solectrac. This remeasurement resulted in a gain of $2.9 million recorded in the year ended December 31, 2021, this was recorded in Gain on remeasurement of investment, in our consolidated statement of operations,
Solectrac is a manufacturer and distributor of clean agricultural equipment of 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. The Company expects Solectrac to create immediate synergies with its existing EV initiatives as it brings a rapidly growing agricultural sector to the Company’s current product offerings.
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 $2.4 million as additional consideration for purposes of the preliminary purchase price allocation. Of the $2.4 million, $1.6 million was included in the purchase price allocation and $0.8 million has been recorded as an expense for the year ended December 31, 2021 in the consolidated statement of operations, other income (expense) caption. 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, 2022 the Company has not accrued any of this retention plan as the various criteria are not yet probable of occurring.
Revenue of $3.2 million and $0.2 million net loss of $4.5 million and net income of $0.7 million for the three months ended September 30, 2022 and 2021, respectively, have been included in the condensed consolidated financial statements.
Revenue of $8.1 million and $0.4 million and net loss of $10.5 million and net income of $0.7 million for the nine months ended September 30, 2022 and 2021, respectively, have been included in the condensed consolidated financial statement
The final purchase price allocation for Solectrac is summarized in the table below.
Refer to Note 10 for information related to an impairment charge recognized for the Solectrac reporting unit during the year ended December 31, 2021.
The table below reflects the Company’s final purchase price allocations 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
$
18,025
$
30,139
$
46,576
$
15,000
Fair value of previously held interest
5,287
—
—
—
Fair value of common stock
—
20,877
—
28,616
Fair value of contingent consideration
1,640
—
—
11,418
Total purchase consideration
$
24,952
$
51,016
$
46,576
$
55,034
Purchase Price Allocation
Assets acquired
Current assets
2,700
3,793
7,292
2,820
Property, plant and equipment
30
5
429
—
Other assets
45
52
48
—
Intangible assets – tradename
4,210
1,740
8,426
12,630
Intangible assets – lender relationships
—
—
16,600
—
Intangible assets - technology
2,350
5,110
Intangible assets – patents
—
—
—
13,000
Intangible assets - non-compete
—
520
—
—
Intangible assets – licenses
—
—
1,000
—
Indefinite lived title plant
—
—
500
—
Goodwill
17,714
42,218
21,824
35,689
Total assets acquired
27,049
53,438
56,119
64,139
Liabilities assumed:
Current liabilities
(509)
(1,602)
(4,306)
(4,578)
Deferred tax liability
(1,588)
(820)
(5,237)
(4,527)
Total liabilities assumed
(2,097)
(2,422)
(9,543)
(9,105)
Net assets acquired
$
24,952
$
51,016
$
46,576
$
55,034
Intangible Assets
During the year-ended December 31, 2021 the Company identified impairment indicators related to the 2021 Acquisitions resulting from changing market conditions and sustained supply chain issues that negatively impacted the subsidiaries' projections. The Company impaired all of the intangible assets for WAVE, US Hybrid and Solectrac. The intangibles assets related to Timios were partially impaired. Refer to Note 10 of the Form 10-K filed on September 2, 2022 for additional details of the impairment.
The table below represents the useful lives for the remaining intangibles assets related to the 2021 Acquisitions:
The estimated amortization expense adjusted for the impairment related to the remaining intangible assets for each of the years subsequent to September 30, 2022 is as follows (amounts in thousands):
2022 remaining
$
358
2023
1,433
2024
1,433
2025
933
2026
933
2026 and beyond
5,307
Total
$
10,397
Amortization expense related to the 2021 Acquisitions was $0.4 million and $1.2 million for three and nine months ended September 30, 2022 and was $1.7 million and $4.0 million for the three and nine months ended September 30, 2021.
Cumulative Goodwill, excluding any impairments, in the amount of $117.4 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 2022/2021 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.
Refer to Note 10 for information related to an impairment charge recognized for the 2021 Acquisitions during the year ended December 31, 2021. This impairment charge reflected the impact of changing market conditions and sustained supply chain issues that negatively impacted the subsidiaries' projections.
2021 and 2022 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 $0.0 million and $0.4 million during the three and nine months ended September 30, 2022 related to the 2021 Acquisitions, immaterial acquisitions and other possible opportunities, other than Energica.
•The Company incurred transaction costs of $0.0 million and $0.7 million during the three and nine months ended September 30, 2022, respectively, related to the Energica 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.
Unaudited 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, 2021. The Company filed an Amended Form 8-K on April 6, 2021 to disclose unaudited pro forma financial information, and explanatory notes, related to the acquisition of Timios as it met the criteria of a significant acquisition. The remainder of the 2021 Acquisitions and the Energica acquisition did not meet the criteria of a significant acquisition, in aggregate or individually.
The pro forma adjustments are based on historically reported transactions by the acquired companies. The pro forma results do not include any material, nonrecurring adjustments directly attributable to the 2021 Acquisitions or the Energica acquisition. 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, 2021.
(Amounts in thousands, except per share and share data)
Total revenue
$
24,278
$
37,502
$
87,003
$
99,451
Net loss attributable to IDEX common shareholders
(45,850)
(54,568)
(112,555)
(76,217)
Earnings (loss) per share
Basic and Diluted
$
(0.09)
$
(0.11)
$
(0.23)
$
(0.17)
Weighted average shares outstanding
Basic and Diluted
494,061,205
477,214,431
496,392,410
440,151,607
Dispositions
Seven Stars Energy Pte. Ltd.
On February 9, 2022, the Company transferred its 51.0% interest in Seven Starts Energy Pte. Ltd. to Fan Yurong, a current shareholder of SSE, for a nominal amount.
The Company recognized a disposal loss of $0.5 million.as a result of the deconsolidation of SSE and such loss was recorded in “Loss on disposal of subsidiaries, net” in the condensed consolidated statements of operations for the nine months ended September 30, 2022.
Grapevine
On April 20, 2021, Ideanomics entered into a stock purchase agreement with 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, 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. The fair value of the retained interest in Grapevine was determined 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.
Refer to Note 10 for additional information concerning the investment in FNL.
Note 8. Accounts Receivable
The following table summarizes the Company’s accounts receivable (in thousands):
As of September 30, 2022 and December 31, 2021, the gross balance includes the taxi commission revenue receivables from the related party Qianxi of $1.1 million and $1.3 million, respectively. These balances are fully reserved in the balances stated above.
The following table summarizes the movement of the allowance for doubtful accounts (in thousands):
September 30, 2022
December 31, 2021
Balance at the beginning of the period
$
(1,607)
$
(1,219)
Increase in the allowance for doubtful accounts
(13)
(350)
Effect of change in foreign currency exchange rates
$
142
$
(38)
Balance at the end of the period
$
(1,478)
$
(1,607)
For the nine months ended September 30, 2022, the Company increased its allowance for doubtful accounts for accounts receivable by $13 thousand from a third-party. In the year ended December 31, 2021, the Company increased its allowance for doubtful accounts by $0.4 million for accounts receivable from a third-party.
Note 9. Property and Equipment, net
The following table summarizes the Company’s property and equipment (in thousands):
September 30, 2022
December 31, 2021
Furniture and office equipment
$
2,685
$
1,432
Vehicle
1,488
900
Leasehold improvements
5,275
581
Machinery and equipment
2,747
825
Total property and equipment
12,195
3,738
Less: accumulated depreciation
(2,025)
(833)
Property and equipment, net
$
10,170
$
2,905
The Company recorded depreciation expense of $0.6 million and $0.1 million, which is included in its operating expense, for the three months ended September 30, 2022 and 2021, respectively and $1.5 million and $0.3 million for the nine months ended September 30, 2022 and 2021, respectively.
Fintech Village
On January 28, 2021, the Company’s Board accepted an offer of $2.8 million for Fintech Village, which was a 58-acre former University of Connecticut campus in West Hartford and subsequently signed a sale contract on March 15, 2021. The Company estimated the costs to sell Fintech Village to be $0.2 million and recorded these costs in “Loss on disposal of subsidiaries, net”
In the year ended December 31, 2021, the Company closed on the sale of Fintech Village for $2.8 million, excluding commissions and other costs of $0.2 million.
The asset retirement obligations were derecognized in the year ended December 31, 2021.
Note 10. Goodwill and Intangible Assets
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):
Effect of change in foreign currency exchange rates
(1)
Acquisitions
117,445
Disposal of Grapevine (a)
(704)
Impairment loss (b,c,d,e)
(101,470)
Balance as of December 31, 2021
16,161
Acquisitions
59,593
Effect of change in foreign currency exchange rates
(7,043)
Balance as of September 30, 2022
$
68,711
(a)During the three months ended June 30, 2021, the Company completed the sale of Grapevine. Refer to Note 7 for additional information.
(b)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, for the year ended December 31, 2021.
(c)For the year ended December 31, 2021, market conditions and supply chain issues have had an adverse impact on WAVE’s business forecasts. The projections have negatively impacted WAVE’s performance, resulting in lower gross margins and revenue forecasts being reduced. As a result, the Company recorded a goodwill impairment charge of $35.7 million for the year ended December 31, 2021.
(d)For the period ended December 31, 2021, market conditions and supply chain issues have had an adverse impact on US Hybrid’s business forecasts. The projections have negatively impacted US Hybrid’s performance, resulting in lower gross margins and revenue forecasts being reduced. As a result, the Company recorded a goodwill impairment charge of $42.2 million for the year ended December 31, 2021.
(e)For the period ended December 31, 2021, market conditions and supply chain issues have had an adverse impact on Solectrac's business forecasts. The projections have negatively impacted Solectrac's performance, resulting in lower gross margins and revenue forecasts being reduced. As a result, the Company recorded a goodwill impairment charge of $17.7 million for the year ended December 31, 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.
Intangible Assets
The following table summarizes information regarding amortizing and indefinite lived intangible assets (in thousands):
September 30, 2022
December 31, 2021
Weighted Average Remaining Useful Life (in years)
Gross Carrying Amount
Accumulated Amortization
Impairment Loss
Net Balance
Gross Carrying Amount
Accumulated Amortization
Impairment Loss
Net Balance
Amortizing Intangible Assets
Continuing membership agreement (a)
16.8
$
1,179
$
(665)
$
—
$
514
$
1,179
$
(649)
$
—
$
530
Patents, trademarks and brands (d,f,h,i)
37.7
21,672
(1,385)
(1,132)
19,155
39,820
(2,715)
(30,492)
6,613
Customer relationships
14
12,737
(582)
—
12,155
—
Land use rights (c)
96.3
24,407
(555)
—
23,852
27,102
(411)
—
26,691
Licenses (d,j)
22.6
1,141
(124)
—
1,017
1,000
(65)
—
935
Lender relationships (d)
5.3
16,600
(1,952)
(12,551)
2,097
16,600
(1,638)
(12,550)
2,412
Internally developed software (e)
1.8
753
(203)
—
550
452
(76)
—
376
Software (h,j)
10.7
4,491
(1,006)
—
3,485
4,492
(178)
—
4,314
Non-compete (i)
0
—
—
—
—
520
(57)
(463)
—
Technology (h,i)
7.5
16,655
(1,447)
—
15,208
7,460
(347)
(7,113)
—
Assembled workforce
1.2
150
(63)
—
87
150
(6)
—
144
Total
99,785
(7,982)
(13,683)
78,120
98,775
(6,142)
(50,618)
42,015
Indefinite lived intangible assets
Timios Title plant (d)
500
—
—
500
500
—
—
500
Website name
25
—
—
25
25
—
—
25
Title License
6
—
(6)
—
6
—
—
6
Patent
—
—
—
—
—
—
—
—
Total
$
100,316
$
(7,982)
$
(13,689)
$
78,645
$
99,306
$
(6,142)
$
(50,618)
$
42,546
(a)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 mentioned above, 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. The Company also recorded an impairment loss of $30,000 related to DBOT's customer list. Refer to Note 7 for additional information related to the acquisition.
(b)During the three months ended December 31, 2021, the Company completed the acquisition of a 51.0% interest in Tree Technologies, a Malaysian company engaged in the EV market. As part of the acquisition, Tree Technologies acquired an exclusive right to market and distribute the EVs manufactured by Tree Manufacturing. Upon acquisition, the fair value of this agreement was determined to be $11.3 million. In the three months ended December 31, 2020, Tree Technologies obtained a domestic EV manufacturing license in Malaysia; and therefore determined it would not purchase vehicles from Tree Manufacturing. The Company subsequently severed all commercial relationships with Tree Manufacturing. Accordingly, the Company determined there was no underlying value to the marketing and distribution agreement, and recorded an impairment loss of $12.5 million. Refer to Note 7 for additional information related to the acquisition.
(c)During the three months ended March 31, 2022, the Company completed the acquisition of 100.0% interest in Timios. Refer to Note 7 for additional information related to the acquisition.
(d)Relates to software development costs capitalized during the three months ended September 30, 2021 at Timios. The asset was placed into service in July 2021.
(e)During three months ended March 31, 2021, the Company completed the acquisition of 100.0% interest in WAVE. Refer to Note 7 for additional information related to the acquisition.
(f)During the three months ended June 30, 2021, the Company completed a stock purchase agreement with FNL, pursuant to which Ideanomics made an investment into FNL, including cash, Ideanomics common stock, and 100% of the common stock outstanding of Grapevine.
(g)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 7 for additional information related to the acquisition.
(h)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 7 for additional information related to the acquisition.
(i)Relates to software costs capitalized during the nine months ended September 30, 2021.
(j)Relates to licensing costs that were capitalized during the three months ended September 30, 2022
Amortization expense relating to intangible assets was $1.7 million for both three month periods ended September 30, 2022 and 2021, respectively. Amortization expense relating to intangible assets was $4.3 million and $4.2 million for the nine months ended September 30, 2022 and 2021, respectively.
The following table summarizes the expected amortization expense for the following years (in thousands):
Years ending September 30,
Amortization to be recognized
2022 (excluding the nine months ended September 30, 2022)
$
1,566
2023
6,255
2024
5,987
2025
5,480
2026
5,315
2026 and thereafter
53,517
Total
$
78,120
Note 11. Long-term Investments
The following table summarizes the Company’s long-term investments (in thousands):
September 30, 2022
December 31, 2021
Non-marketable equity investments
$
7,500
$
7,500
Equity method investments
15,819
28,088
Total
$
23,319
$
35,588
Non-marketable equity investment
Our 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, no impairment losses were recorded in the three and nine months
ended September 30, 2022. 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.
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, 2022
January 1, 2021
Addition
Income (loss) on investment
Foreign currency translation
Reclassification to subsidiaries
Return of basis
September 30, 2022
Energica
(a)
$
12,329
$
—
$
(1,031)
$
—
$
(11,298)
$
—
$
—
FNL Technologies
(b)
2,856
—
(685)
—
—
—
2,130
MDI Fund
(c)
3,765
274
(135)
—
—
(659)
3,245
PEA
(d)
9,138
—
(506)
(1,264)
—
—
7,368
Orange Grid
(e)
—
3,076
—
—
—
—
3,076
Total
$
28,088
$
3,350
$
(2,357)
$
(1,264)
$
(11,298)
$
(659)
$
15,819
The Company has received no dividends from equity method investees in the three and nine months ended September 30, 2022 and 2021.
(a)Energica
On March 3, 2021, the Company entered into an investment agreement with 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.
On February 9, 2022, the Company wired €52.5 million (approximately $60.3 million) to an escrow account in order to facilitate and fund the conditional tender offer. On March, 7, 2022, the Company announced that it had achieved the 90.0% threshold for the conditional tender offer. The transaction received final approval from Italian regulatory authorities and closed on March 14, 2022.
(b)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 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.
On July 26, 2021, the Company entered into a subscription agreement to invest $25.0 million in the MDI Fund. The MDI Fund an organization of minority-owned banks that aim to increase inclusivity in the financial services industry, is sponsored by the National Bankers’ Association. 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.
(d)PEA
On August 2, 2021, the Company announced a strategic investment in 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 ($9.1 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 ($9.1 million) representing a 30% equity ownership.
(e)Orangegrid
On May 20, 2022, Timios purchased 6.6 million Series A-1 preferred share units in Orangegrid for a total investment of $3.0 million. Orangegrid is a is a developer and vendor of software technologies which improve the operational efficiency and effectiveness of financial institutions and their service providers. Timios and Orangegrid also entered into a strategic partnership making Timios the preferred provider of title, escrow, valuation and asset management services within OrangeGrid's GridReady default management ecosystem.
Note 12. Leases
As of September 30, 2022, and December 31, 2021, the Company’s operating lease right of use assets are $16.8 million and $12.8 million, respectively. As of September 30, 2022, the Company’s finance lease right of use assets are $1.4 million, the Company did not have any finance lease right of use assets as of December 31, 2021.
The following table summarizes the components of lease expense (in thousands):
Three Months Ended
Nine Months Ended
September 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Operating lease cost
$
1,210
$
610
$
3,434
$
1,058
Short-term lease cost
187
241
636
523
Finance lease cost:
Amortization of right-of-use assets
61
—
160
—
Interest on lease liabilities
5
—
13
—
Total lease cost
$
1,463
$
851
$
4,243
$
1,581
The following table summarizes supplemental information related to leases (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
1,150
$
723
$
3,277
$
1,506
Finance cash flows from financing leases
66
—
173
—
Right-of-use assets obtained in exchange for new operating lease liabilities
—
3,515
6,895
8,141
Right-of-use assets obtained in exchange for new finance lease liabilities
1,376
—
1,376
—
Weighted average remaining lease term:
Operating leases
5.4
5.4
Finance leases
4.3
4.3
Weighted average discount rate:
Operating leases
4.6
%
4.6
%
Finance leases
4.7
%
4.7
%
The additional right of use assets was primarily acquired in the Tree Technologies, Energica, WAVE, and Solectrac acquisitions. The facilities acquired are primarily office buildings and warehouses in Asia, Europe and U.S. locations where they conduct business.
The future minimum lease payments required under operating and financing lease obligations as of September 30, 2022, having initial or remaining non-cancelable lease terms in excess of one year are summarized as follows (in thousands):
September 30, 2022
Operating Leases
Finance Leases
Total
2022 (excluding the nine months ended September 30, 2022)
$
1,165
$
114
$
1,279
2023
4,707
409
5,116
2024
3,453
409
3,862
2025
3,187
409
3,596
2026
2,610
282
2,892
2026 and thereafter
4,354
160
4,514
Total undiscounted lease liabilities
19,476
1,783
21,259
Less: imputed interest
(2,790)
(182)
(2,972)
Net lease liabilities
$
16,686
$
1,601
$
18,287
In the nine months ended September 30, 2022, the Company executed two finance leases, a five-year automobile lease and short-term service center, through the acquisition of Energica, a manufacturer of high-performance electric motorcycles and two operating leases with a twelve-year and six-year term on the Company’s manufacturing and general headquarters located in Italy. In Asia, the Company acquired a two-year operating lease and renewed a two-year lease for a general office building for a manufacturing facility for EV bikes, scooters, and batteries. In the U.S., the Company acquired two operating leases, one of which has a two-year term for a general office building and the other lease, has a ten-year life for a warehouse and office facility used primarily for fabrication, assembly, production, and storage of battery-powered electric tractors. In addition, the Company acquired twelve finance leases on trucks purchased for business purposes with a four-year term for each vehicle.
As of September 30, 2022, the Company has entered four finance leases that have not yet commenced.
The following table summarizes the outstanding promissory notes as of September 30, 2022 and December 31, 2021 (dollars in thousands):
September 30, 2022
December 31, 2021
Interest Rate
Principal Amount
Carrying Amount*
Principal Amount
Carrying Amount*
Convertible Debenture (a)
4%
$
9,250
$
9,250
$
57,500
$
57,809
Small Business Association Paycheck Protection Program (c)
1%
242
242
311
312
Tim ios
5.49
491
491
—
—
Energica lending arrangements
0.06% - 5.7%
3,250
3,250
—
—
Total
$
13,233
13,233
$
57,811
58,121
Less: Current portion
(11,674)
(58,121)
Long-term Note, less current portion
$
1,559
$
—
As of September 30, 2022 debts are classified as current and long term.
The weighted average interest rate for these borrowings is 3.8% and 4.0% as of September 30, 2022 and December 31, 2021, respectively.
As of September 30, 2022, and December 31, 2021 the Company was in compliance with all ratios and covenants.
(a)$75.0 million Convertible Debenture due October 24, 2022 – YA II PN
On October 25, 2021, the Company executed a security purchase agreement with YA II PN, whereby the Company issued a convertible note of $75.0 million, and received aggregate gross proceeds of $75.0 million. The note is scheduled to mature on October 24, 2022 and bears interest at an annual rate of 4.0%, which would increase to 18.0% in the event of default. 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 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 contained customary events of default, indemnification obligations of the Company and other obligations and rights of the parties. Commencing February 1, 2022, the Company has the obligation to redeem $8.3 million per month, against the unpaid principal. This amount may be reduced by any conversions by YA II PN or optional redemptions made by the Company.
On August 30, 2022, the Company and YA II PN agreed to amend the terms of the outstanding convertible note and entered into an amendment agreement dated August 29, 2022. As of August 29, 2022, the outstanding principal balance of the original debenture was $16.7 million. The amendments to the original debenture amended the principal amount to reflect the outstanding balance as of August 29, 2022, change the maturity date to January 29, 2023 and adjust the conversion price to the lower of $1.50 or 85.0% of the lowest daily VWAP during the 7 consecutive trading days immediately preceding the conversion date or other date of determination, but not lower than $0.20 per share of common stock. The Company shall not have the right to prepay any amounts due under the amended debenture prior to the maturity date without the Investor’s prior written consent.
During the nine months ended September 30, 2022, principal and accrued and unpaid interest in the amount of $7.5 million was converted into 20.6 million shares of common stock of the Company. Total interest expense recognized was $0.2 million and $1.2 million for the three and nine months ended September 30 2022.
During the three months ended December 31, 2021, principal and accrued and unpaid interest in the amount of $17.6 million was converted into 9.4 million shares of common stock of the Company. Total interest expense recognized was $0.4 million for the three months ended December 31, 2021.
(b)Small Business Association Paycheck Protection Program
On April 10, 2020, the Company borrowed $0.3 million at an annual rate of 1.0% from a commercial bank through the Small Business Association Paycheck Protection Program. The loan was originally payable in 18 installments of $18,993 commencing on November 10, 2020, with a final payment due on April 10, 2022. With several amendments, the loan is currently payable monthly commencing on September 10, 2021, with a final payment due on April 10, 2025. The forgiveness
application of the loan was submitted in August 2021. While the forgiveness application is under review, the Company has made payments totaling $31,674 of principal and interest during the year ended December 31, 2021 and $23,756 and $71,726 of principal and interest during the three and nine months ended September 30, 2022. Interest expense recognized in connection with this loan was $636 and $2,038in the nine months ended September 30, 2022 and 2021, respectively for the Small Business Association Paycheck Protection Program.
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.
(c)Timios notes payable
Timios entered a promissory note of $0.6 million to finance insurance premium in the three months ended September 30, 2022. The interest rate is 5.49%. The loan is payable in 11 installment of $50,320 commencing on September 1, 2022.
(d)Energica Lending Arrangements
Energica is party to eleven individual instruments with different counterparties in Italy comprising an aggregate outstanding unpaid balance of $0.5 million. These instruments provide working capital for the Energica manufacturing operations through the combination of accounts receivable factoring, vendor financing programs and other secured asset-based lending arrangements. The instruments bear interest rates ranging from 0.1% to 5.7%, with a weighted average interest rate of 3.1%. An amount of $1.7 million of the payable will be due within one year, and $1.6 million of the payable will due between 2026 and 2028 in installments ranging 8 to 51 months. Due to the nature of the lending arrangements providing working capital, these arrangements are primarily classified as current liabilities and are secured primarily by Energica’s related trade accounts receivable, inventory and other current assets.
Promissory Notes Issued and Repaid in the Year Ended December 31, 2021
During the year ended December 31, 2021, the Company issued several convertible debt instruments to YA II PN, the terms of which are summarized in the following table (principal and gross proceeds in thousands):
YA II PN Note 1
YA II PN Note 2
YA II PN Note 3
YA II PN Note 4
Principal
$
37,500
$
37,500
$
65,000
$
80,000
Gross proceeds
$
37,500
$
37,500
$
65,000
$
80,000
Interest rate
4.0
%
4.0
%
4.0
%
4.0
%
Conversion price
$
2.00
$
3.31
$
4.12
$
4.95
Maturity dates
July 4, 2021
July 15, 2021
July 28, 2021
August 8, 2021
The conversion prices on the notes above were fixed, and were 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 these notes prior to their maturity date at a cash redemption price equal to the principal to be redeemed, plus accrued and unpaid interest. The notes contained customary events of default, indemnification obligations of the Company and other obligations and rights of the parties.In the event of default, the interest rate would increase to 18.0%.
During the year ended December 31, 2021, the notes, plus accrued and unpaid interest, were converted into 45.9 million shares of common stock of the Company, and one note of $80.0 million was repaid.
Vendor Notes Payable Repaid in the Year Ended December 31, 2021
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 was due on August 31, 2021 and 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 was due and repaid as of December 31, 2021.
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, 2022 and December 31, 2021, 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.
Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time, at the office of the Company or any transfer agent for such stock, into ten fully paid and nonassessable shares of Common Stock, and redeemable at a stated dollar amount upon a merger/consolidation/change in control.
Upon the occurrence of a liquidation event, the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, whether from capital, surplus or earnings, an amount per share equal to $0.50, as may be adjusted from time to time plus all accrued, but unpaid dividends, whether declared or not.
Common Stock
Our Board has authorized 1,500 million shares of common stock, $0.001 par value.
2022 Equity Transactions
The Company issued 1.1 million and 1.5 million shares during the three and nine months ended September 30, 2022 for professional service received and the employee stock option exercise.
SEPA agreement with YA II PN, Ltd
On September 1, 2022 the Company entered into SEPA with YA II PN and subsequently amended it on September 15, 2022. The Company will be able to sell up to 150.0 million shares of its common stock at the Company’s request any time during the 36 months following the date of the Amended SEPA’s entrance into force. The shares would be purchased at 95% of the market price and 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. Pursuant to the SEPA, the Company is required to register all shares which YA II PN may acquire. The Company is required to have a Registration Statement declared effective by the SEC before it can raise any funds using the SEPA. There are no other restrictions on future financing transactions. The SEPA does not contain any right of first refusal, participation rights, penalties or liquidated damages. The Company has paid YA Global II SPV, LLC, a subsidiary of YA II PN, a structuring fee in the amount of $10,000, and, on the Effective Date, the Company agreed to issue to YA II PN an aggregate of 0.6 million Common Shares, as a commitment fee. Unless earlier terminated as provided under the SEPA, the SEPA shall terminate automatically on the earliest of (i) the first day of the month next following the 36month anniversary of the Effective Date or (ii) the date on which the YA II PN shall have made payment of Advances pursuant to the SEPA for the Common Shares equal to the Commitment Amount. The Company issued 1.5 million shares as a commitment fee during the three and nine months ended September 30, 2022.
US Hybrid Escrow Shares
On July 12, 2022, the Company received 6,600,000 shares of common stock back from the escrow agent pursuant to the triggering of a legal condition that permitted the Company to reclaim 100% of the shares held in escrow. The Company has concluded that the return of these shares does not constitute a change in the purchase consideration of US Hybrid and accounts for this transaction as a Treasury Stock transaction in the third quarter of 2022.
Refer to Note 13 for information related to issuance of common stock with convertible notes, Note 16 for information related to the issuance to common stock for option exercise. The Company issued 1.1 million shares during the three and nine months ended September 30, 2022 for the services received.
On June 11, 2021, the Company entered into a SEDA with YA II PN. 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) 95.0% of the Market Price if the applicable pricing period is two consecutive trading days or (ii) 96.0% 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 II PN 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 II PN. Pursuant to the SEDA, the Company is required to register all shares which YA II PN 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 six months ended June 30, 2021, the Company issued 10.0 million shares of common stock for a total of $27.3 million.
Redeemable Non-controlling Interest
The Company and Qingdao formed an entity named New Energy. 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 ($7.0 million) in the three months ended March 31, 2020. The remaining RMB 150.0 million ($21.0 million) are payable in three installments of RMB 50.0 million ($7.0 million) upon New Energy attaining certain revenue or market value benchmarks.
The investment agreement stipulates that New Energy must pay Qingdao dividends at the rate of 6.0%. After one year, Qingdao may sell its investment to an institutional investor, and after three years may redeem its investment for the face amount plus 6.0% interest less dividends paid. The redemption feature was neither mandatory nor certain. Due to the redemption feature, the Company had classified the investment outside of permanent equity. Redeemable non-controlling interest is recorded as at the greater of (i) the redemption amount or (ii) the cumulative amount that would result from applying the measurement guidance in ASC 810.
In the year ended December 31 2021, Qingdao officially requested redemption of the invested funds and dividend, RMB 56.0 million ($7.9 million) in total. The Company has designated New Energy to pay the redemption price. After the payment, New Energy owns 100% of Qingdao. Because Qingdao Medici cannot complete its foreign exchange settlement prior to December 31, 2021, New Energy made the payment on behalf of Qingdao Medici. Qingdao, Qingdao Medici and New Energy agreed that Qingdao Medici will make the payment to Qingdao directly when it completes the foreign exchange settlement and Qingdao will return the money previously paid by New Energy to New Energy immediately after it receives the fund from Qingdao Medici.
The following table summarizes activity for the redeemable non-controlling interest (in thousands):
Nine months ended
September 30, 2022
September 30, 2021
Beginning balance
$
—
$
7,485
Initial investment
—
—
Accretion of dividend
—
347
Loss attributable to non-controlling interest
—
(195)
Adjustment to redemption value
—
195
Ending balance
$
—
$
7,832
Sales agreement with Roth Capital
On February 26, 2021, the Company entered into a sales agreement with 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 Company shall pay to Roth Capital in cash, upon each sale of such shares pursuant to the sales agreement, an amount equal to 3.0% of the gross proceeds from each sale of such shares. During the three months ended September 30, 2021, the Company issued 17.6 million shares of common stock and received net proceeds of $53.4 million after deducting $1.7 million commission and transaction fees.
Refer to Note 7 for information related to the issuance to common stock for acquisitions, Note 14 for information related to issuance of common stock with convertible notes, Note 17 for information related to the issuance to common stock for option exercise.
Note 15. Related Party Transactions
(a) Long-Term Investment to Qianxi
In November 2019, the Company entered into a share transfer agreement with 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 would be required to return the consideration to the Company. The Company has paid $0.5 million as of September 30, 2022 and December 31, 2021, and recorded it on the “Other Non-Current Assets”. The Company has requested that Shenma return the consideration provided and currently has full allowance against this receivable.
(b) Transaction with Dr. Wu. and his affiliates
As of September 30, 2022 and December 31, 2021, the Company has receivables of $0.2 million, respectively, due from Dr. Wu, the former Chairman of the Company, and his affiliates and recorded in “Amounts due from related parties” in the condensed consolidated balance sheets.
As of September 30, 2022 and December 31, 2021, the Company has payables of $0.7 million, respectively, due to Dr. Wu, the former Chairman of the Company, and his affiliates and recorded in “Amounts due to related parties” in the condensed consolidated balance sheets.
Service agreement with SSSIG
The Company entered a new consulting service agreement with SSSIG on April 20, 2021 for the period from April 1, 2021 through June 30, 2021 for $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.”
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 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 operations for the year ended December 31, 2021.
(c) Amounts due from and due to Glory
As of September 30, 2022 and December 31, 2021, the Company has payables of $0.2 million, respectively, due to Glory as a result of the transactions incurred in 2020 and is recorded in “Amount due to related parties”.
(d) Receivable due from Tree Technology minority shareholders
As of September 30, 2022, the Company has receivables of $0.3 million due from Tree Technology minority shareholders for the registered capital contribution of the entity
(e) 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 of $0.1 million is recorded in the “Amount due to related parties” in the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021. Refer to Note 7 for additional information.
In October 2021 , the Company extended a revolving line of credit to Energica Motor Company in the amount of $4.5 million. The parent company of Energica Motor Company is Energica, of which the Company has 20% ownership.
On January 7, 2022, the Company entered into a loan agreement with Energica. Pursuant to this loan agreement, the Company may advance up to €5.0 million ($5.7 million) in installments at an annual interest rate of Euribor plus 2.0%. The purpose of the loan is to provide working capital during the motorcycle manufacturing and purchasing season.
The Company has provided a loan of $0.7 million to Energica Motor Company as of December 31, 2021, and recorded in “notes receivable from related party”in the condensed consolidated balance sheets. On March 14 2022, the Company acquired Energica, the loan is eliminated on the consolidated financial statements as of March 31, 2022. The interest income recognized on the consolidated income statements is $28,476 for the nine months ended September 30, 2022. During the three months ended March 31, 2021, the Company lent $1.4 million and $1.1 million to Energica Motor Company and Energica, respectively.
(f) Energica Acquisition
The Company loaned $1.8 million to Energica senior management to exercise their options during the three months ended March 31, 2022. In April, the Company purchased 847,156 shares from option exercise in another $1.3 million. the $1.8 million was converted into the purchase price of the shares. The total $3.1 million is considered part of the acquisition price of Energica acquisition.
Refer to Note 7 for the details
(g) Energica Purchases
During the three months and nine month ended September 30, 2022, Energica has purchased $0.1 million and $0.4 million, respectively, of material and services from three entities owned by one of its senior management team. The balance as of September 30, 2022 with these three entities are $1.2 million and recorded in “Amounts due to related parties” in the condensed consolidated Balance Sheets.
(h) Receivable due from Ocasia
In the three months ended September 30, 2021, SSE, one of Ideanomics' subsidiaries, 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.
(i) 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.
(j) Promissory note with FNL
On June 7, 2022, the Company entered into a secured negotiable promissory note of $1.0 million with FNL. The note bears an interest rate of 6% and expires on March 7, 2023, or with a change of control of FNL, or in the event of default. The Company recorded $0.6 million impairment of this note during the three months ended September 30, 2022.
Note 16. Share-Based Compensation
As of September 30, 2022, the Company had 22.4 million options 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. 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 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, 2022, options available for issuance are 16.7 million shares.
For the three months ended September 30, 2022 and 2021, total share-based payments expense was $2.2 million and $15.2 million, respectively. For the nine months ended September 30, 2022 and 2021, total share-based payments expense was $7.4 million and $19.2 million, respectively.
(a)Stock Options
The following table summarizes stock option activity for the nine months ended September 30, 2022:
Options Outstanding
Weighted Average Exercise Price
Weighted Average Remaining Contractual Life (Years)
Aggregate Intrinsic Value
Outstanding at January 1, 2022
21,843,781
$
1.74
—
$
—
Granted
1,605,000
1.01
—
—
Exercised
(72,334)
0.53
—
—
Expired
(737,963)
2.48
—
—
Forfeited
(234,662)
2.30
—
—
Outstanding at September 30, 2022
22,403,822
1.67
7.51
—
Vested as of September 30, 2022
18,039,489
1.51
7.31
—
Expected to vest as of September 30, 2022
4,364,333
2.16
8.36
—
As of September 30, 2022, $5.8 million of total unrecognized compensation expense related to non-vested share options is expected to be recognized over a weighted average period of 1.16 years. The total intrinsic value of shares exercised in the nine months ended September 30, 2022 and 2021 was $0.0 million and $5.6 million, respectively. The total fair value of shares vested in the nine months ended September 30, 2022 and 2021 was $6.7 million and $5.4 million, respectively. Cash received from options exercised in the nine months ended September 30, 2022 and 2021 were $0.0 million and $8.4 million, respectively.
For the options with service conditions, the assumptions used to estimate the fair values of the stock options granted in the nine months ended September 30, 2022 and 2021 as follows:
Nine Months Ended
September 30, 2022
September 30, 2021
Expected term (in years)
5.51-5.53
4.79-7.17
Expected volatility
123%-124%
112%-130%
Expected dividend yield
—
%
—
%
Risk free interest rate
1.69%-2.87%
0.51%-1.1%
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:
In connection with certain of the Company’s service agreements, the Company issued warrants to service providers to purchase common stock of the Company.
September 30, 2022
December 31, 2021
Warrants Outstanding
Number of Warrants Outstanding and Exercisable
Number of Warrants Outstanding and Exercisable
Exercise Price
Expiration Date
Service providers
—
200,000
$
5.00
July 1, 2022
Service providers
—
700,000
2.50
July 1, 2022 - October 1, 2022
Service provider
—
100,000
7.50
January 1, 2023
Service provider
—
100,000
9.00
January 1, 2023
Total
—
1,100,000
(c)Restricted Shares
As of September 30, 2022, there was no unrecognized compensation cost related to unvested restricted shares.
Note 17. 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, 2022 and 2021 (USD in thousands, except per share amounts):
Three Months Ended
Nine Months Ended
September 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Net earnings (loss) attributable to common stockholders
$
(37,414)
$
(51,811)
$
(103,692)
$
(64,986)
Basic weighted average common shares outstanding
494,061,205
473,829,962
496,392,410
432,989,602
Effect of dilutive securities
Convertible preferred shares- Series A
—
—
—
—
Convertible promissory notes
—
—
—
—
Diluted potential common shares
494,061,205
473,829,962
496,392,410
432,989,602
Earnings (loss) per share:
Basic
$
(0.08)
$
(0.11)
$
(0.21)
$
(0.15)
Diluted
$
(0.08)
$
(0.11)
$
(0.21)
$
(0.15)
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):
In general, the Company has net operating loss carryovers creating deferred tax assets that, to the extent that they do not offset deferred tax liabilities, are reduced by a 100% valuation allowance. Certain deferred tax liabilities cannot be offset by deferred tax assets. These consist of state deferred tax liabilities of certain US subsidiaries that file separate state tax returns and of certain foreign subsidiaries. The Company also has certain deferred tax liabilities that can only be 80% offset by deferred tax assets relating to net operating loss carryovers that can only offset 80% of taxable income. During the three months ended September 30, 2022 there was an income tax benefit of $0.4 million. This consisted principally of foreign income tax benefits. During the nine months ended September 30, 2022 there was an income tax benefit of $0.9 million. This consisted principally of $0.3 million state income tax benefits for US subsidiaries and $0.6 million of foreign income tax benefits.
In March 2022 approximately $4.7 million of deferred tax liabilities were recognized on the acquisition of Energica. These are included in “other liabilities” in the table in Note 7. The foreign income tax benefit for the three and nine months ended September 30, 2022, consists primarily of the reversal of some of this liability as a result of Energica losses.
During the three months ended September 30, 2021 there was an income tax benefit of $0.9 million, During the nine months ended September 30, 2021 there was an income tax benefit of $10.0 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 have been included in the Ideanomics and subsidiaries consolidated U.S. federal tax return from the date of acquistion. WAVE has been 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 Solectrac 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 Solectrac, which have losses, there are state income tax benefits consisting of those losses being used to reduce the state deferred tax liabilities recognized in the acquisitions. In the case of Timios, state income tax expense results from income. The net state income tax 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 net foreign income tax benefit for Tree Technologies was $0.1 million and $0.3 million for the three and nine months ended September 30, 2021, respectively. 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.
At September 30, 2022 and December 31, 2021, the Company’s deferred tax assets do not include $0.3 million of potential deferred tax assets, arising in 2021, not recognized because they do not meet the threshold for recognition. If these assets were to be recognized, they would be fully offset by a valuation allowance. Other than these, there were no uncertain tax positions that would prevent the Company from recording the related benefit as of September 30, 2022 and December 31, 2021.
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the business.
Vendor Settlement
In the year ended December 31, 2020, Ideanomics preliminarily settled a payable of $1.7 million with one vendor for $1.3 million. The settlement were conditioned upon factors which did not expire until three months from the date of the settlement; therefore, the Company recognized the gain of $0.4 million in the year ended December 31, 2020.
Shareholder Class Actions and Derivative Litigations
On July 19, 2019, a purported class action, aptioned Rudani v. Ideanomics, Inc. et al., was filed in the United States District Court for the Southern District of New York against the Company and certain of its then current and former officers and directors. The Amended Complaint alleged violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Among other things, the Amended Complaint alleged purported misstatements made by the Company in 2017 and 2018, seeking damages. As part of a mediation, the parties reached a settlement for $5.0 million. The Court granted final approval of the settlement on January 25, 2022.
On June 28, 2020, a purported securities class action, captioned Lundy v. Ideanomics Inc. et al., was filed in the United States 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 Inc. 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 Exchange Act arising from certain purported misstatements by the Company beginning in September 2020 regarding its Ideanomics China division. On November 4, 2020, the Lundy and Kim actions were consolidated and the litigation 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 Exchange Act arising from certain purported misstatements by the Company beginning in March 2020 regarding its Ideanomics China division and seeking damages. The defendants filed a motion to dismiss on May 6, 2021. On March 15, 2022, the Court granted Defendants’ motions to dismiss in full and dismissed Plaintiff’s complaint. On April 14, 2022, Plaintiff sought leave to amend its complaint and Defendants opposed that request. The Court has not yet ruled on Plaintiff’s request to amend the complaint. While the Company believes that this action is without merit, there can be no assurance that the Company will prevail. We cannot predict the outcome of the pending request seeking leave to amend the complaint. 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 Exchange Act 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 have reached a settlement in which the Company has agreed to certain corporate governance and internal procedure reforms. The Court granted final approval on March 1, 2022.
Following the announcement of the Company’s agreement to acquire VIA, the Company has received several demand letters on behalf of purported stockholders of the Company and the Company and certain of its officers and directors have been named as defendants in complaints filed and consolidated in the United States District Court for the Southern District of New York demanding the issuance of additional disclosures in connection with the merger. The specific complaints, all of which have been consolidated, have the following filing dates: Macmillan v. Ideanomics, Inc.et al.¸ December 2, 2021; Saee v. Ideanomics, et al., December 7, 2021; and Foran v. Ideanomics, Inc., et al., January 11, 2022. In those complaints, Plaintiffs allege that the Company’s Registration Statement on Form S-4 initially filed with the SEC on November 5, 2021, is false and misleading and purportedly omits material information regarding the Company’s acquisition of VIA. The Company believes that its disclosures comply fully with applicable law and that the demand letters and complaints are without merit. Nevertheless, in order to moot the purported deficiencies alleged in the demand letters and the complaints, avoid the risk of delaying the consummation of the merger, and minimize the costs, risks, and uncertainties inherent in litigation, the Company, without admitting any liability or wrongdoing, voluntarily provided certain supplemental disclosures. Nothing in those supplemental disclosures should be considered an admission of the legal necessity or materiality under applicable laws of any of the disclosures included. To the contrary, the Company denies all of the allegations in the demand letters and the complaints that any additional disclosures are required.
SEC Investigation
As previously reported, the Company is subject to an investigation by the Division of Enforcement of the United States Securities and Exchange Commission. The Company is cooperating with the investigation and has responded to requests for documents, testimony and information regarding various transactions and disclosures going back to 2017. At this point, we are unable to predict what the timing or the outcome of the SEC investigation may be or what, if any, consequences the SEC investigation may have with respect to the Company. However, the SEC investigation could result in additional legal expenses and divert management’s attention from other business concerns and harm our business. If the SEC were to determine that legal violations occurred, we could be required to pay civil penalties or other amounts, and remedies or conditions could be imposed as part of any resolution.
Ideanomics Audit Committee Investigation
On March 14, 2022, the Company's then auditor, BDO informed the company that information related to the company’s operations in China indicated that an illegal act may have occurred. In response, the company’s Audit Committee engaged an Am Law 100 law firm and a nationally recognized forensics accounting firm to conduct a complete and thorough investigation and such investigation was completed by such parties to the Audit Committee’s satisfaction on July 17, 2022. The investigation concluded with no findings of improper or fraudulent actions or practices by the Company or any of its officers or employees with respect to any matters, including those raised by BDO.
Ideanomics, Inc. v. Silk EV Cayman LP
Silk executed a convertible promissory note in favor of Ideanomics on January 28, 2021, in the amount of $15.0 million plus interest. Payment of the original principal amount plus interest was due on January 28, 2022. Silk did not pay on the convertible promissory note when it became due. On April 27, 2022, Ideanomics filed suit against Silk in the Supreme Court of the State of New York, New York County, Index No 51668/2022 for non-payment of the convertible promissory note. Silk was timely served with the Summons and Notice of Motion for Summary Judgment in Lieu of Complaint.
On June 1, 2022, IIdeanomics agreed to dismiss the lawsuit without prejudice in exchange for Silk’s execution of a Confession of Judgment wherein Silk, through its Chairman, acknowledged its debt obligation under the convertible promissory note and agreed to a payment schedule, with interest continuing to run until payment in full at the rate of 6.0% per annum.
Following this agreement, Silk did not remit payment according to the payment schedule. On August 16, 2022, Ideanomics obtained a judgment against Silk for $16.4 million including prejudgment interest of 6.0%, which will accrue post-judgment interest of 9.0% until paid. It has not been paid.
Note 20. Concentration of Credit and Foreign Currency Risks
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, 2022 the Company’s cash and cash equivalents were 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.
(a)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 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.
(b)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.
Timios has since recovered their operational capabilities, and has implemented multiple safeguards against future incidents, including but not limited to the establishment of a Chief Information Security Officer and a Security Operations Center that monitors the system against cyber threats twenty four hours a day. Timios still has yet to recover a significant portion of business lost as a result of the incident. Timios is uncertain to what degree any further revenue will be recovered. A class action lawsuit was filed against Timios as a result of the systems outage, which was settled within the limits of its insurance coverage. Timios has filed a claim with its insurer to recover a portion of the lost revenues and profits for the period from July 26, 2021 through January 27, 2022.
Note 21. 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):
September 30, 2022
Level I
Level II
Level III
Total
DBOT - Contingent consideration1
$
—
$
—
$
649
$
649
Tree Technology - Contingent consideration2
—
—
119
119
Solectrac - Contingent consideration3
—
—
100
100
Total
$
—
$
—
$
868
$
868
December 31, 2021
Level I
Level II
Level III
Total
DBOT - Contingent consideration1
$
—
$
—
$
649
$
649
Tree Technology - Contingent consideration2
—
—
250
250
Solectrac - Contingent consideration3
—
—
$
100
100
Total
$
—
$
—
$
999
$
999
1 This represents the liability incurred in connection with the acquisition of DBOT shares during the three months ended September 30, 2019 and as remeasured as of April 17, 2020. 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, 2022 was valued using the Black-Scholes Merton method. The Company issued 11.3 million shares during the year ended December 31, 2021 and partially satisfied this liability. No shares have been issued in the nine months ended September 30, 2022.
2 This represents the liability incurred in connection with the acquisition of Tree Technology shares during the three months ended December 31, 2019 and as subsequently remeasured as of December 31, 2021 and 2020. The fair value of the Tree Technology contingent consideration was valued using a probability-weighted discounted cash flow approach.
3 This represents the liability incurred in connection with the acquisition of Solectrac. The liability represents the fair value of the three contingent considerations that were entered into at closing. The fair value was determined using Monte-Carlo simulations.
DBOT Contingent Consideration
The fair value of the DBOT contingent consideration as of March 31, 2020 and December 31, 2019 was valued using the Black-Scholes Merton model.
The significant unobservable inputs used in the fair value measurement of the contingent consideration includes the risk-free interest rate, expected volatility, expected term and expected dividend yield. The following table summarizes the significant inputs and assumptions used in the model:
March 31, 2020
December 31, 2019
Risk-free interest rate
0.1%
1.6
%
Expected volatility
30%
30
%
Expected term (years)
0.08
0.25
Expected dividend yield
—
%
—
%
Tree Technologies Contingent Consideration
The fair value of the Tree Technologies contingent consideration as of September 30, 2022 and December 31, 2021, was valued using a probability-weighted discounted cash flow approach which incorporates various estimates, including projected gross revenue for the periods, probability estimates, discount rates and other factors. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.
The following table summarizes the significant inputs and assumptions used in the probability-weighted discounted cash flow approach:
September 30, 2022
December 31, 2021
Weighted-average cost of capital
15.0%
15.0%
Probability
5%-20%
5%-10%
Solectrac Contingent Consideration
The fair value of the Solectrac contingent consideration as of September 30, 2022 was valued using a Monte-Carlo simulation model. The significant unobservable inputs include volatility, discount rate and the risk free rate, Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement. The following table summarizes the significant inputs and assumptions used in the model:
September 30, 2022
Risk-free interest rate
3.4%
Expected volatility
25.0%
Expected discount rate
13.1%
The following table summarizes the reconciliation of Level 3 fair value measurements (in thousands):
Remeasurement loss/(gain) recognized in the statement of operations
(131)
September 30, 2022
$
868
Note 22. Subsequent Events
YA PN II SDPA
On October 25, 2022, the company entered into a SDPA with YA II PN, and simultaneously consummated the sale of a secured convertible debenture in a private placement in the principal amount of $6.5 million subject to a lien on all the assets of the Company; the Company received a net amount of $4.875 million after payment of the agreed upon financing fee of $1.5 million and expenses of $125,000. The principal, accrued and unpaid interest, and any other amounts outstanding pursuant to the terms of the debenture will mature on February 24, 2023, unless earlier converted or redeemed by the Company. Interest shall accrue on the outstanding principal at an annual rate equal to 8%; provided that such interest rate shall be increased to 18% upon an event of default. At any time before the maturity date, the Investor may convert the debenture at its option into shares of the Company’s common stock at a variable conversion price of 95% of the lowest daily VWAP during the five consecutive trading days immediately preceding the conversion date or other date of determination, but not lower than $0.05 per share.
Under the SDPA, the Company within one year from the closing, agreed to affect a reorganization, pursuant to which the equity securities of the certain subsidiaries shall be distributed to, and such subsidiaries will therefore become, subsidiaries of a newly-formed holding company. Under an option agreement, the Company and each of the subsidiaries are granting to YA PN II an option to purchase (a) (i) an amount of shares of common stock of Timios and (ii) an amount of shares of common stock of Justly, which, in each case, shall represent twelve percent of the then issued and outstanding Timios common stock and Justly common stock, as applicable, at the time the spin-off call right is effected, and (b) (i) an amount of shares of the Timios New Shares, and (ii) an amount of shares of new common stock of Justly, which, in each case for each entity, shall represent (x) three percent (3%) of the outstanding share capital on an economic basis, and (y) at least fifty-one percent (51%) of the outstanding voting power of such entity.
As noted above, the company has committed to spin out its ownership of Timios and Justly within twelve months. We expect that the spin out may result in the deconsolidation of these businesses. Timios is a nationwide title and settlement solutions provider and as of and for the nine months ended September 30, 2022 generated approximately $27.0 million in revenue and accounted for approximately $20.4 million of non-current assets.
YA PN II convertible debenture
During October 2022, YA PN II converted the remaining outstanding balance at September 30, 2022 of $16.7 million into a cumulative 43.7 million shares pursuant to the provisions of the convertible debenture, as amended on August 29, 2022. Consequently, there is no remaining outstanding balance on the debenture and no repayments or interest was paid in cash in October.
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management’s discussion and analysis is presented in four sections as below and should be read in conjunction with the condensed consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this report on Form 10-Q. In addition to historical information, the following discussion contains certain forward-looking information. See “Cautionary Note Regarding Forward Looking Statements” above for certain information concerning those forward-looking statements.
•Overview
•Results of Operations
•Liquidity and Capital Resources
•Outlook
OVERVIEW
Ideanomics is an operating company incorporated in 2004 under the laws of the State of Nevada. Our evolution has been driven by technological innovation and numerous strategic acquisitions of businesses to act as our operating subsidiaries that expanded our product offerings and complemented our existing solutions. Currently, Ideanomics conducts its operations globally in one segment with two business units – Ideanomics Mobility and Ideanomics Capital. Ideanomics Mobility has as its mission the acceleration of commercial adoption of electric vehicles. Ideanomics Capital is the Company’s fintech business unit, which focuses on leveraging technology and innovation to improve efficiency, transparency, and profitability for the financial services industry.
Through September 30, 2022, the Company operates in one segment with two business units, Ideanomics Mobility and Ideanomics Capital. Ideanomics Mobility will drive EV adoption by offering unique business solutions to commercial customers wanting to adopt EV vehicles and supporting infrastructure. To do that, Ideanomics has assembled, is developing and integrating business components with distinctive competence in three key pillars: Vehicles, Charging and Energy. These three pillars provide the foundation for Ideanomics Mobility’s planned offering of unique business solutions such as CaaS and VaaS which are proving to be extremely attractive to both large and small commercial vehicle operations.
Ideanomics Capital is the Company’s business focused on the financial services and title and agency services in the real estate market. Ideanomics Capital has begun providing a range of financing programs in support of the sale of EVs and associated charging and energy systems by Ideanomics Mobility. Over time, it is Ideanomics intention to focus Ideanomics Capital solely as the financial services arm of Ideanomics Mobility and to divest its other fintech assets accordingly.
Immaterial Corrections of Prior Period Financial Statements
The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to the prior period adjustments made to the previously reported Condensed Consolidated Financial Statements as of and for the three and nine months ended September 30, 2022. For additional information, see Note 2, "Immaterial Corrections of Prior Period Financial Statements.”
Significant Transactions in the Nine Months Ended September 30, 2022
Energica Acquisition
On September 15, 2021, the Company announced it had entered into an agreement to launch a voluntary conditional tender offer in concert with the founders of Energica for shares of Energica, pursuant to which Ideanomics plans to increase its investment from 20.0% in Energica to 72.4%. The Energica founders shall continue to own 27.6% of Energica. The transaction received final approval from Italian regulatory authorities and closed on March 14, 2022.
Principal Factors Affecting the Company’s Financial Performance
The business is expected to be impacted by both macroeconomic and Ideanomics-specific factors. The following factors have been part of the transformation of the Company which affected the results of its operations in 2022 and 2021:
•The Company’s ability to access the equity and debt markets to obtain the working capital and investment capital required to fund its EV operations. The Company’s EV businesses are in the development stage, are not profitable, and are not expected to be profitable and cash generative in the short to medium term. Consequently, the EV businesses are highly dependent on the Company’s ability to access the equity and debt capital markets to provide sufficient cash for these businesses to continue to develop their products, build large scale manufacturing capacity and invest in sales and marketing infrastructure. The availability of capital to fund growth in 2022 has constrained the ability to capitalize on market demand for product at Solectrac and Energica, as market demand for these offerings continues to increase.
•The rate of adoption of EV mobility. The Company will continue to face the externally imposed pace of adoption of EV, which in 2022 was negatively impacted by supply chain constraints and rising interest rates in an inflationary economic cycle. This affected large fleet operators and public sector transportation operations. The availability and accessibility of public sector incentives may continue to affect the demand level for product offerings by Wave Technologies and US Hybrid.
•The impact of rising interest rates on financial service volume. The company has experienced a significant decline in 2022 in its fintech sector as rising interest rates have significant reduced the volume of mortgage processing. The company flexes a highly variable cost structure in response, but cannot fully compensate for the magnitude of decline in industry activity with new service offerings and new channels to access customers.
Update on the Impact of COVID 19
As of the period covered by this report, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains, such as increased port congestion, intermittent supplier delays, labor shortages, and a shortfall of semiconductor supply.
We have been experiencing varying levels of inflation resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased raw material and labor costs and other disruptions caused by the COVID‐19 pandemic and general global economic conditions. The inflationary impact on our cost structure has contributed to adjustments in our product pricing, despite a continued focus on reducing our manufacturing costs where possible.
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 Tree Technologies 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 local, regional and global economies.
Information about Segment Presentation
The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The Company operates in one segment with two business units: Ideanomics Mobility and Ideanomics Capital. For the nine months ended September 30, 2022, the Company completed one acquisition. We are in the in the process of obtaining required shareholder approval to acquire 100% of VIA. 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 in shares of Ideanomics at a fixed share ratio equal to $2.36 per Ideanomics share and an earnout payment of up to $180.0 million which will be according to the prevailing Ideanomics share price at the time the earnout is achieved. 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.
In conjunction with an agreement executed in October 2022, the company has committed to spin out its ownership of Timios and Justly within twelve months. We expect that the spin out may result in the deconsolidation of these businesses. Timios is a nationwide title and settlement solutions provider and as of and for the nine months ended September 30, 2022 generated approximately $27.0 million in revenue and accounted for approximately $20.4 million of non-current assets. See note 22 for further details related to the agreement.
* The revenues were recorded on either a Principal or Agent basis, depending on the terms of the underlying transaction, including the ability to control the product and the level of inventory risk taken.
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
Revenue for the three months ended September 30, 2022 was $24.3 million as compared to $26.6 million for the three months ended September 30, 2021, an increase of $2.3 million. The decrease was mainly due to a decline in unit volume from the sale of EV products in China in the third quarter of 2022 of $0.9 million as a result of increasing EV production constraints in China and the timing of project revenue from charging services in 2022. In addition, revenue from Title and escrow services decreased from $15.5 million in the three months ended September 30, 2021, to $7.9 million in the three months ended September 30, 2022, a decrease of $7.6 million. This decrease is the result of decreased revenue at Timios as rising interest rates reduce the volume of mortgage processing.
In the three months ended September 30, 2021, the Company recognized $15.5 million revenue from the sales of title and escrow services, $8.8 million revenue from the sales of EVs, and $1.7 million revenue from sales of charging, batteries and powertrains. In the three months ended September 30, 2021, the Company acted in both a Principal and Agent capacity in relation to vehicle sales. For those contracts in which it acted in a principal capacity, revenues were recorded on a gross basis and for those contracts where it acted in an agent capacity the revenues were recorded on a net basis..
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Revenue for the nine months ended September 30, 2022 was $83.9 million as compared to $86.6 million for the nine months ended September 30, 2021, a decrease of $2.8 million. The decrease was primarily due to a large decrease in revenue from Title and escrow services, offset by an increase in the sale of EV products in China in the first and second quarter. Revenue from Title and escrow services decreased from $62.4 million in the nine months ended September 30, 2021, to $27.0 million in the nine months ended September 30, 2022, a decrease of $35.5 million. This decrease is the result of a significant decline in mortgage processing activity in 2022 as interest rates continue to rise. This decrease is offset by increased sales of EV Products in the first and second quarter which increased from $17.0 million in the nine months ended September 30, 2021, to $52.9 million in the nine months ended September 30, 2022, an increase of $35.9 million. This increase is the result of significantly increased revenue from EV products in China during the second quarter of 2022. Other small decreases in other
revenue categories resulted in the overall result of decreased total revenue. In addition, revenues declined for charging, battery and powertrain products year over year by $1.9 million primarily due to the timing of project related revenues year over year.
Cost of revenues (USD in thousands)
Three Months Ended
Nine Months Ended
September 30, 2022
September 30, 2021
Amount Change
September 30, 2022
September 30, 2021
Amount Change
Electric vehicles products
$
15,365
$
8,945
$
6,420
$
52,605
$
16,841
$
35,764
Electric vehicles services
44
48
(4)
147
134
13
Charging, batteries and powertrains products
2,835
1,125
1,710
6,360
3,604
2,756
Charging, batteries and powertrain services
110
701
(591)
829
1,319
(490)
Title and escrow services
6,527
11,281
(4,754)
22,882
39,796
(16,914)
Digital advertising services and other
—
—
—
—
192
(192)
Fund raising services
8
—
8
19
—
19
Other revenue
48
530
(482)
179
1,063
(884)
Total
$
24,937
$
22,630
$
2,307
$
83,021
$
62,949
$
20,072
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
Cost of revenues was $24.9 million for the three months ended September 30, 2022, as compared to $22.6 million for the three months ended September 30, 2021, an increase of $2.3 million. The increase was mainly due to increased cost of revenue from EV Products which increased from $8.9 million in the three months ended September 30, 2021, to $15.4 million in the three months ended September 30, 2022, an increase of $6.4 million. This increase is the result of significantly increased cost of revenue from EV products in China during the second quarter of 2022. This increase is partially offset by a large decrease in cost of revenue from Title and escrow services. Cost of revenue from Title and escrow services decreased from $11.3 million in the three months ended September 30, 2021, to $6.5 million in the three months ended September 30, 2022, a decrease of $4.8 million. This decrease is the result of decreased cost of revenue at Timios, as the company reduced costs with the decline in service processing volume.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Cost of revenues was $83.0 million for the nine months ended September 30, 2022, as compared to $62.9 million for the nine months ended September 30, 2021, an increase of $20.1 million. The increase was mainly due to the increased cost of revenue from EV Products which increased from $16.8 million in the nine months ended September 30, 2021, to $52.6 million in the nine months ended September 30, 2022, an increase of $35.8 million. This increase is also partially attributable to acquiring Solectrac in June 2021, acquiring Energica in March 2022, and significantly increased cost of revenue from EV products in China during the second quarter of 2022. This increase is partially offset by a large decrease in cost of revenue from Title and escrow services. Cost of revenue from Title and escrow services decreased from $39.8 million in the nine months ended September 30, 2021, to $22.9 million in the nine months ended September 30, 2022, a decrease of $16.9 million. This decrease is the result of decreased cost of revenue at Timios, as the company reduced costs with the decline in service processing volume.
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
Gross profit for the three months ended September 30, 2022 was $(0.7) million, as compared to gross profit of $4.0 million for the three months ended September 30, 2021, a decrease of $4.7 million. The decrease was mainly due to the gross margin on charging, batteries and powertrain products it has decreased and is negative in the nine months ended September 30, 2022. This is the result of a change in mix in revenue with a significant decrease in financial services revenue, an increase in revenue from the resale of EV vehicles in China with a lower value add model bring lower margins, while US Hybrid and WAVE are operating with negative gross margins on their sales in 2022 as these operations depend in early-stage product roll outs on smaller scale production levels with higher levels of fixed cost and lower contribution margins related to customized specifications on job production.
The gross profit ratio for the three months ended September 30, 2022 was (2.7)%, while for the three months ended September 30, 2021, it was 14.9%. The decrease was mainly due to the gross margin on Charging, batteries and powertrain products has decreased dramatically and is in fact negative in the nine months ended September 30, 2022. This is the result of US Hybrid and WAVE operating with negative gross margins on their sales in 2022 as these operations depend in early-stage product roll outs on smaller scale production levels with higher levels of fixed cost and lower contribution margins related to customized specifications on job production. This decline was partially offset by a recovery in the gross profit ratio for Title and Escrow services in the three months ended September 30, 2022 as the company implemented cost reduction measures to offset the effect of falling revenues.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Gross profit for the nine months ended September 30, 2022 was $0.9 million, as compared to gross profit in the amount of $23.7 million for the nine months ended September 30, 2021. The decrease was mainly due to the decreased gross margin on Title and escrow services at Timios as some of their costs of revenue such as rent and wages are fixed and did not fall in line with the fall in revenue. Additionally the gross margin on Charging, batteries and powertrain products has decreased dramatically and is in fact negative in the nine months ended September 30, 2022. This is the result of a change in mix in revenue with a significant decrease in financial services revenue, an increase in revenue from the resale of EV vehicles in China, while US Hybrid and WAVE are operating with negative gross margins on their sales in 2022 as these operations depend in early-stage product roll outs on smaller scale production levels with higher levels of fixed cost and lower contribution margins related to customized specifications on job production.
The gross profit ratio for the nine months ended September 30, 2022 was 1.0%, while for the three months ended September 30, 2021, it was 27.4%. The decrease was mainly due to the decreased gross margin on Title and escrow services at Timios as some of their costs of revenue such as rent and wages are fixed and did not fall in line with the fall in revenue. Additionally the gross margin on Charging, batteries and powertrain products has decreased dramatically and is in fact negative in the nine months ended September 30, 2022. This is the result of US Hybrid and WAVE operating with negative gross margins on their sales in 2022 as these operations depend in early-stage product roll outs on smaller scale production levels with higher levels of fixed cost and lower contribution margins related to customized specifications on job production.
Selling, general and administrative expenses
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
Selling, general and administrative expenses for the three months ended September 30, 2022 were $37.7 million as compared to $37.8 million for the three months ended September 30, 2021, an decrease of $0.1 million. Selling, general and administrative expenses includes compensation and benefits costs, professional fees and marketing and other costs. Compensation and benefits expense increased due to hiring of additional staff in the corporate and head office functions to support the continuing growth of the business, offset by lower performance based compensation in the Company's Title and Escrow Agency business. An increase in professional fees was principally due to increased costs related to regulatory filings and consulting expense incurred by the Company's operating entities as they continue build out their sales and operations infrastructure. Marketing and other expense in selling, general and administrative expenses increased as a result of higher rent expense for the Company's new lease in New Jersey.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Selling, general and administrative expenses for the nine months ended September 30, 2022 were $113.6 million as compared to $74.4 million for the nine months ended September 30, 2021, an increase of $39.2 million. Selling, general and administrative expenses includes compensation and benefits costs, professional fees and marketing and other costs. Compensation and benefits expense increased due to hiring of additional staff in the corporate and head office and those operating companies acquired in the nine months ending September 30, 2021, to support the continuing growth of the business, a full year of costs associated with acquired businesses in 2022, partially offset by lower performance based compensation in the Company's Title and Escrow Agency business. The increase in professional fees was due to an increase in audit and consulting fees related to regulatory filing fees, transaction fees related to the purchase of Energica and consulting expense incurred by the Company's operating entities as they continue to build out their sales and operating structure. Marketing and other expense in selling, general and administrative expenses increased due to Company's new lease in New Jersey and a full year of rent expense incurred by the Company's operating entities in 2022, and an increase in general operating expense.
Research and development expense
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
Research and development expense was $0.8 million in the three months ended September 30, 2022 as compared to $0.2 million for the three months ended September 30, 2021, an increase of $0.6 million. The increase is mainly due to higher research and development expense incurred in the entities acquired in 2021 and Energica acquired in 2022.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Research and development expense was $2.5 million in the nine months ended September 30, 2022 as compared to $0.4 million for the nine months ended September 30, 2021, an increase of $2.1 million is mainly due to higher research and development expense incurred in the entities acquired in 2021 and Energica acquired in 2022.
Impairment losses
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
In the three months ended September 30, 2022, the Company recorded impairment losses of $0.4 million, mainly related to the 0.6 million impairment of a note receivable from a related party.. In the three months ended September 30, 2021, the Company recorded impairment losses of $21.0 million primarily related to the decline in value of the investment in Timios as revenues declined significantly in 2021 following a cyber security event.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
In the nine months ended September 30, 2022, the Company recorded impairment losses of $1.0 million, mainly related to the $0.4 million impairment of the Timios right of use asset and the $0.6 million impairment of a note receivable from a related party. In the nine months ended September 30, 2021, the Company recorded impairment losses of $21.0 million primarily related to the decline in value of the investment in Timios as revenues declined significantly in 2021 following a cyber security event.
Change in fair value of contingent consideration, net
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
There was no change in fair value of contingent consideration, net for the three months ended September 30, 2022.
The change in fair value of contingent consideration, net was a decrease of $5.1 million for the three months ended September 30, 2021 this represents the remeasurement of the contingent consideration payable to Tree Technology shareholders.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
The change in fair value of contingent consideration, net was a decrease of $0.1 million for the nine months ended September 30, 2022, representing the remeasurement of the contingent consideration payable to Tree Technology shareholders.
The change in fair value of contingent consideration, net was a decrease of $7.0 million for the nine months ended September 30, 2021, representing the remeasurement of the contingent consideration payable to the Tree Technology shareholders.
Litigation settlement
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
In the three months ended September 30, 2022, the Company recorded less than $0.1 million litigation settlement.
In the three months ended September 30, 2021, the Company recorded a $0.2 million litigation settlement.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
In the nine months ended September 30, 2022, the Company recorded a less than $0.1 million litigation settlement.
In the nine months ended September 30, 2021, the Company recorded a $5.2 million litigation settlement as a result of the agreement reached by both parties on the mediation in April, 2021.
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
Depreciation and amortization for the three months ended September 30, 2022 was $2.3 million as compared to $1.8 million for the three months ended September 30, 2021, an increase of $0.5 million. The increase was mainly due to the increase in amortization and depreciation expense recorded by Energica, which was acquired at the end of the first quarter of 2022, partially offset by the decrease of the amortization expense of intangible assets recognized during the 2021 acquisition because the intangible assets were impaired in 2021.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Depreciation and amortization for the nine months ended September 30, 2022 was $5.8 million as compared to $4.5 million for the nine months ended September 30, 2021, an increase of $1.3 million. The increase was mainly due to the acquisition of Energica at the end of the first quarter of 2022, partially offset by the decrease of the amortization expense of intangible assets recognized during the 2021 acquisition because the intangible assets were impaired in 2021.
Interest income
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
Interest income for the three months ended September 30, 2022 was $1.0 million as compared to $0.4 million for the three months ended September 30, 2021, an increase of $0.6 million. The increase was mainly due to the interest income from Inobat, Via motors and Energica during 2022.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Interest income for the nine months ended September 30, 2022 was $2.6 million as compared to $0.8 million for the nine months ended September 30, 2021, an increase of $1.8 million. The increase was mainly due to the interest income from Inobat, EV riderz, Silk EV, Via motors and Energica during 2022.
Interest expense
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
Interest expense increased $0.1 million to $0.5 million for the three months ended September 30, 2022, from $0.3 million during three months ended September 30, 2021. The increases is related to more debt outstanding during the three months ended September 30, 2022.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Interest expense decreased $0.2 million to $1.5 million for the nine months ended September 30, 2022, from $1.7 million during the nine months ended September 30, 2021. The decreases is related to less debt outstanding during the nine months ended September 30, 2022.
Loss on disposal of subsidiaries, net
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
There are no significant changes for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Loss on disposal of subsidiaries, net, $0.2 million is related to the loss on the disposal of SSE and the dilution loss on FNL for the nine months ended September 30, 2022. Loss on disposal of subsidiaries, net of $1.3 million is mainly related to the dilution loss on Solectrac and loss on the disposal of Grapevine for the nine months ended September 30, 2021.
Gain on remeasurement of investment
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
There was no gain on remeasurement of investment for the three months ended September 30, 2022 and 2021, respectively.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
The Company recorded a gain on remeasurement of investment of $11.0 million in the nine months ended September 30, 2022. This was a result of the remeasuring of the Company's investment in Energica to its fair value of the date the Company obtained the majority of the Energica shares outstanding and commenced consolidating Energica.
The Company recorded a gain on remeasurement of investment of $2.9 million in the nine months ended September 30, 2021. This resulted from remeasuring the Company's investment in Solectrac to its fair value of the date the Company obtained the remainder of the Solectrac shares outstanding and commenced consolidating Solectrac.
Gain on extinguishment of debt
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
There was no gain on extinguishment of debt for the three months ended September 30, 2022.
The Company recorded a gain on the extinguishment of debt of $0.3 million in the three months ended September 30, 2021. This was a result of the loan forgiveness program associated with the Small Business Association Paycheck Protection Program and paid by the U.S. Small Business Administration.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
There was no gain on extinguishment of debt for the nine months ended September 30, 2022.
The Company recorded a gain on the extinguishment of debt of $0.3 million in the nine months ended September 30, 2021. This was a result of the loan forgiveness program associated with the Small Business Association Paycheck Protection Program and paid by the U.S. Small Business Administration.
Other income, net
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
Other income, net increased $2.6 million to $2.6 million for the three months ended September 30, 2022 from less than $0.1 million for the three months ended September 30, 2021, mainly due to an insurance claim received for Timios oand the gain on a fair value adjustment on Inobat during 2022.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Other income, net increased $4.0 million to $4.5 million for the nine months ended September 30, 2022 from $0.5 million for the nine months ended September 30, 2021, mainly due to an insurance claim received for Timios and gain on a fair value adjustment on Inobat during 2022.
Income tax benefit
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
During the three months ended September 30, 2022, the income tax benefit of $0.4 million, consisted principally foreign income tax benefits.
During the three months ended September 30, 2021, the income tax benefit of $0.9 million consisted of net state income tax benefit of $0.8 million for the recently acquired entities in 2021, and a foreign income tax benefit of $0.1 million..
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
During the nine months ended September 30, 2022, the income tax benefit of $0.9 million consisted principally of $0.3 million state income tax benefits for U.S, subsidiaries and $0.6 million of foreign income tax benefits.
During the nine months ended September 30, 2021, the income tax benefit of $10.0 million, this consisted of a $9.1 million one-time benefit from the acquisition of subsidiaries, whose acquired deferred tax liabilities allowed for the reversal of previously recognized valuation allowances against deferred tax assets, plus $0.6 million of state and $0.3 million of foreign tax benefits.
Impairment of and equity in gain (loss) of equity method investees
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
Equity in loss of equity method investees decreased $1.0 million to $0.4 million for the three months ended September 30, 2022, from $1.4 million for the three months ended September 30, 2021. The change mainly represents the higher equity pickup loss from MDI and Energica during the three months ended September 30, 2021.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Equity in loss of equity method investees increased $0.3 million to $2.4 million for the nine months ended September 30, 2022, from $2.1 million for the nine months ended September 30, 2021. The increase is mainly due to the increase of the equity pickup loss from Energica, FNL and Prettl, partially offset by the decrease of equity pick up loss from MDI, Solectrac and TM2.
Net loss attributable to common shareholders
Three months ended September 30, 2022 as compared to the three months ended September 30, 2021
Net loss attributable to non-controlling interests was $1.4 million for the three months ended September 30, 2022, compared to a net loss of $0.2 million for the three months ended September 30, 2021. The increase is due to the NCI from the Energica acquisition in March 2022 and the Company increasing its ownership in New Energy to 100%, as a result there was no NCI pickup in 2022.
Nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021
Net loss attributable to non-controlling interests was $3.5 million for the nine months ended September 30, 2022 compared to a net loss of $0.5 million for the nine months ended September 30, 2021. The increase is due to the NCI from the Energica acquisition in March 2022 and the Company increasing its ownership in New Energy to 100%, as a result there was no NCI pickup in 2022.
Restructuring of PRC Operations
On September 12, 2022, the Board authorized management to pursue a plan to restructure the current electric vehicle resale activities in China. While the current operational activities will decline in scale over the next year, the company will continue to source materials from Chinese suppliers through its procurement team in China and evaluate opportunities for the sale of current Ideanomics' subsidiaries technologies in China. We believe that this change in the scope of activities in China will result in a significant reduction in the number of operating entities, a simplification of the legal entity structure and a pivot to margin expansion opportunities.
In the year ended December 31, 2021, the company generated $29.7 million in revenues in the PRC, primarily from the sale of electric vehicle products. For the nine months ended September 30, 2022, the company generated $36.2 million in revenues in the PRC. The carrying value of long lived assets in the PRC as September 30, 2022, was $0.8 million and cash held in the PRC was approximately $15.1 million as of September 30, 2022.
In the nine months ended September 30, 2022, the Company recorded charges of $0.5 million in connection with its restructuring actions. These charges consist of $0.5 million recorded as selling, general and administrative expenses. The restructuring charges consist of employee termination costs of $0.5 million. Employee termination benefits were recorded based on statutory requirements, completed negotiations and Company policy.
As of September 30, 2022, the Company had cash of $25.2 million. Approximately $16.2 million was held in accounts outside of the United States, primarily in Hong Kong and the PRC.
Due to the strict regulations governing the transfer of funds held in the PRC to other jurisdictions, the Company does not consider funds held in its PRC entities to be available to fund operations and investment outside of the PRC and consequently does not include them when evaluating the liquidity needs of its businesses operating outside of the PRC.
Timios holds various regulatory licenses related to its business as a title insurance agency and is required to hold a minimum cash balance of $2.0 million. As a broker-dealer, JUSTLY has minimum capital requirements. JUSTLY had cash of $0.8 million as of September 30, 2022, which was necessary for JUSTLY to meet its minimum capital requirements. The agreement of the Company’s partner in this entity is required prior to disbursement of this entity’s funds for certain defined expenditures.
The following table provides a summary of net cash flows from operating, investing and financing activities (in thousands):
Nine Months Ended
September 30, 2022
September 30, 2021
Net cash used in operating activities
$
(109,286)
$
(42,601)
Net cash used in investing activities
(90,848)
(191,787)
Net cash provided by (used) financing activities
(42,788)
325,291
Effect of exchange rate changes on cash
(1,755)
262
Net increase in cash and cash equivalents
(244,677)
91,165
Cash and cash equivalents at beginning of period
269,863
165,764
Cash and cash equivalents at end of period
$
25,186
$
256,929
Operating Activities
Cash used in operating activities was $109.3 million for the nine months ended September 30, 2022 as compared to cash used in operating activities of $42.6 million in nine months ended September 30, 2021. This was primarily due to: (1) an increase in net loss to $107.2 million in the current period as compared to a net loss of $65.4 million in the same period of 2021, and (2) total non-cash adjustments increase (decrease) to net loss was $10.9 million and $27.9 million for the nine months ended September 30, 2022 and 2021, respectively; (3) total changes in operating assets and liabilities resulted in $13.0 million and $5.1 million in cash used in operating activities for the nine months ended September 30, 2022 and 2021, respectively.
Investing Activities
Cash used in investing activities was $90.8 million for the nine months ended September 30, 2022, which was primarily due to expenditures incurred for the acquisition of Energica and debt securities. Cash used in investing activities was $191.8 million for the nine months ended September 30, 2021, which was primarily due to expenditures incurred for the acquisition of Timios, WAVE, Solectrac and US Hybrid, WAVE, the investment in Energica and FNL and the acquisition of the convertible note with Silk EV.
Financing Activities
In the nine months ended September 30, 2022, the Company repaid $42.8 million from financing activities versus $325.3 million received in the nine months ended September 30, 2021. The company did not issue any convertible notes in the nine months ended September 30, 2022, as compared to $220.0 million generated in the nine months ended September 30, 2021. There were no exercises of warrants and stock options and issuance of common stock generated during the nine months ended September 30, 2022, as compared to $185.3 million in the nine months ended September 30, 2021. In the period ended September 30, 2022, the Company made a repayment of $40.8 million to settle a convertible note.
The Company expects to continue to raise both equity and debt finance to support the Company’s investment plans and operations.
Off-balance sheet arrangements are obligations the Company has with nonconsolidated entities related to transactions, agreements or other contractual arrangements. The Company holds interests in investments accounted for under the equity method of accounting. The Company does not control these investments and therefore does not consolidate them.
The Company does not have other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in its securities.
Seasonality
The Company expects that orders and sales in its Ideanomics Mobility business unit will be influenced by the amount and timing of budgeted expenditure by its customers. Typically, the Company would expect to see higher sales at the start of the year when companies start executing on their capital programs and at the end of the year when companies are spending any surplus or uncommitted budget before the new budget cycle commences. The Company’s operating businesses are in the early stage of their development and consequently do not have sufficient trading histories to project seasonal buying patterns with any degree of confidence.
Orders and sales in our Ideanomics Capital business unit will principally be influenced by changes in interest rates and the resulting impact on in the U.S. housing market particularly as it relates to purchases of homes and the refinancing of existing mortgages which are central to our Timios business.
OUTLOOK
The Company has two distinct business units, Ideanomics Mobility and Ideanomics Capital. Each is focused on the growth opportunity, fueled by technological and legislative disruption, taking place in the automotive, energy, and financial services industries. Ideanomics Mobility has as its mission the acceleration of commercial adoption of electric vehicles. Ideanomics Capital focuses on providing a range of financing programs in support of the sale of EVs and associated charging and energy storage systems by Ideanomics Mobility. The Company believes these two business units provide an opportunity for the Company to benefit from the value creation that can be achieved in the short, medium, and long-term through establishing competitive products and services which can enable the capture of market share sufficient to sustain profitable operations.
IDEANOMICS MOBILITY
The Ideanomics Mobility business unit seeks to accelerate the commercial adoption of electric vehicles. The Company’s EV and technology acquisitions during 2021 completed the foundation for the development of four product-focused verticals comprised of off-highway, two-wheeler, on-highway, and energy and charging services. This integrated offering helps support business progress toward its mission of offering fleet operators a range of vehicles and associated charging systems through a single procurement partner.
By combining leading EV technologies, products, knowledge, and capabilities across the Company’s four product verticals, Ideanomics anticipates that it will be able to rapidly develop unique zero emission mobility solutions in both the off-highway and on-highway commercial vehicle markets. These are anticipated to include the provision of commercial electric vans, trucks, and buses, electric tractors, and two-wheeled transportation, supported by the provision of energy services and infrastructure for the EV market consisting of charging systems, energy storage, energy generation, including hydrogen and solar, and associated data and management applications. These will be supported by financing programs which have been developed to enable commercial fleet operators to migrate away from gasoline and diesel-powered vehicles with minimal disruption to their business models and balance sheet. Together, these products and services will provide the Company with the capability to assist commercial fleet operators to transition with confidence to BEV and FCEV and meet their zero-emission objectives.
By choosing the integrated platform approach from Ideanomics Mobility, the commercial fleet operator will benefit from a single source solution that supports all aspects of the transition to EV, from early-stage requirements analysis, charging infrastructure specification and installation, vehicle procurement and deployment, training, vehicle- and charging-derived data management, operationalization management services, and financing.
To support the cost of transition from fossil fuels to BEV and FCEV, Ideanomics will offer fleet operators the complete financial and management support to confidently migrate from traditional CapEx models to an OpEx model, releasing capital to support traditional business growth and have the simplicity, predictability, and certainty of a monthly subscription which covers
all aspects of EV fleet operations. These programs will also have the added advantage of providing Ideanomics with predictable recurring revenues. These Mobility-as-a-Service solutions are comprised of financing programs we refer to as VaaS and CaaS.
The Company anticipates that the shift from combustion engine vehicles to zero-emission vehicles is a complex process that most fleet operators do not have the expertise to manage. The Company anticipates that vendors selling a single product will be at a disadvantage compared to the Company’s integrated offering. The Company believes this will create a unique opportunity for the Company to become a trusted partner, providing services to analyze and define a customer’s needs, specifying and installing charging infrastructure, procuring and deploying vehicles, administering training, and operationalizing management services. In addition, the Company anticipates that its as-a-Service financing models will make it possible for more customers to transition to zero-emission vehicles as an operating expense rather than a large upfront capital expenditure.
At the operating business level, further investment is planned to support continuous technology and product development and the associated manufacturing and assembly expansion to support increasing demand and revenue achievement.
Global supply chain slowdowns and shipping constraints continue to present challenges at each of the operating companies within the Ideanomics Mobility business unit.
Environmental Matters
The Company is subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, environmental contamination and the protection of the environment. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. We may also incur fines and penalties from time to time associated with noncompliance with such laws and regulations.
New Accounting Pronouncements
Information regarding new accounting pronouncements is included in Note 3. New Accounting Pronouncements, to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are exposed to market risk for changes in interest rates applicable to our cash and cash equivalents. We had cash and cash equivalents totaling $25.2 million as of September 30, 2022. Our cash and cash equivalents were invested primarily in money market and like funds and are not invested for trading or speculative purposes. However, due to the short term nature and the low-risk profile of the money market funds, we do not believe a sudden increase or decrease in market interest rates would have a material effect on the fair market value of our portfolio.In addition, The Company had $9.3 million of fixed rate 4.0% convertible debt outstanding as of September 30, 2022. These debt obligations are not currently subject to fluctuations in interest rates, although in the event of issuance of new debt, such debt could be subject to changes in interest rates.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Inflationary factors such as increases in material costs (e.g. semiconductor chips) or overhead costs may adversely affect our business, financial condition, and operating costs upon commencing commercial operations.
Foreign Currency Risk
The Company has operations in a number of foreign countries and sources components for its US manufacturing operations internationally; consequently, the Company is subject to foreign currency risk. This risk is composed of both potential losses from the translation of foreign currency financial statements, the remeasurement of foreign currency transactions and increased raw material costs for components purchased in foreign currencies. Related to these, risks, a hypothetical change of 10% in currency rates could result in an adjustment to the income statement of approximately $7.4 million. Actual results may differ.
While our exposure to foreign exchange risk is not currently material to us, we expect to grow our international revenues in the future, and any future potential exposure to foreign exchange fluctuations may present a material risk to our business. We
recorded foreign currency exchange losses of $5.5 million and less than $0.1 million for the nine months ended September 30, 2022 and 2021, respectively.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2022 that our disclosure controls and procedures were not effective.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2021, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework (2013). Based on our assessment, we have concluded that our internal control over financial reporting was not effective as of December 31, 2021 due to the material weaknesses described below.
Our evaluation excluded Timios, WAVE, Solectrac and US Hybrid which were acquired in the year ended December 31, 2021, and were not integrated with Ideanomics’ business units as of that date. As of and for the year ended December 31, 2021, Timios represented 8.6% of total assets and 63.7% of revenue, WAVE represented 2.1% of total assets and 6.1% of revenue, Solectrac represented 2.3% of total assets and 1.5% of revenue, and US Hybrid represented 2.2% of total assets and 2.3% of revenue. In accordance with guidance issued by the SEC, we have excluded the acquisitions from our assessment of internal controls over financial reporting during the first year following the acquisition.
Material Weaknesses
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, we are implementing measures designed to ensure that control deficiencies contributing to the previously disclosed material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. These remediation actions are ongoing. Whereas we have expanded our team and enhanced our reporting, there have been no material changes in our remediation efforts during the period covered by this report. The remediation actions, including those listed above, remain in the process where further modifications are necessary to address the material weakness. Although we expect these changes to improve our internal controls, the management believes the remediation of this material weakness will not be completed prior to the end of the fiscal year 2022. There is no assurance as to when such remediation will be completed.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2022, which have materially affected or would likely materially affect our internal control over financial reporting. The Company continues to invest resources in order to upgrade internal controls.
For a description of the Company’s legal proceedings, see Note 19, Commitments and Contingencies, to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
We face a number of significant risks and uncertainties in connection with our operations. For a description of applicable risk factors, please refer to Part I, Item 1A: “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021. No material change in the risk factors discussed in such Form 10-K has occurred, except for the risk factors delineated below. Such risk factors do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. Our business operations could also be affected by additional factors that apply to all companies operating in the U.S. and globally.
We may be adversely affected by the effects of inflation or stagflation or any economic recession
Inflation or possible stagflation and any economic downturn or recession in certain regions or worldwide have the potential to adversely affect our liquidity, business, financial condition and results of operations by increasing our overall product cost structure or decreasing demand, and this can negatively impact our business by putting downward pressure on growth or if we are unable to achieve the increases in product prices necessary to appropriately offset the additional costs sufficient to maintain margins. The existence of inflation in certain economies has resulted in, and may continue to result in, higher interest rates and capital costs, shipping costs, increased costs of labor, weakening exchange rates and other similar effects. As a result of inflation, we have experienced and may continue to experience component, product and shipping cost increases. Inflation, stagflation and any economic downturn or a recession may materially adversely affect our business, financial condition, results of operations and liquidity. Inflation, an economic downturn, a recession, and any other economic challenges may also adversely impact investment patterns of our securityholders and spending patterns by our distributors or end-customers.
Our decision to restructure our operations in China may impact the value of our securities
On September 12, 2022, our Board authorized the management to pursue a plan to restructure operations in China. Although our Board believes that such decision would benefit the Company in the long run, curtailing of our PRC operations generating significant revenue and sacrificing potential business opportunities may negatively impact the Company. As a result, our revenue, net loss, and cash flow may differ materially from previous years and the market price of our common stock may significantly decrease.
Item 2. Unregistered Sales of Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the period covered by this report, other than those that were previously reported in the Company’s Current Reports on Form 8-K.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the period covered by this report.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
