NOTES TO UNAUDITED 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 the United States and Asia. The Company is comprised of two operating segments (i) our Legacy YOD business
with primary operations in the PRC which has been winding down operations over the last 12 months and (ii) our Mobile Energy Group
(MEG) (formally known as our Wecast Service) business, which is transitioning to focus on the commercial fleet market for electric
vehicles in addition to the Company’s existing fintech advisory business. Our MEG business operates as an end-to-end solutions
provider for the procurement, financing, charging and energy management needs for fleet operators of commercial Electronic Vehicles
(EV). MEG operates through a series of joint ventures with the leading companies in the commercial EV space, principally in China,
and earns fees for every transaction completed based on the spread for group buying of vehicles and fees derived from the arrangement
of financing and energy management such as commercial purchasing of pre-paid electricity credits. MEG focuses on commercial EV
rather than passenger EV, as commercial EV is on an accelerated adoption path when compared to consumer EV adoption – which
is expected to take between ten to fifteen years. We focus on four distinct commercial vehicles types with supporting income streams:
1) Closed-area heavy commercial, in areas such as Mining, Airports, and Sea Ports; 2) Last-mile delivery light commercial; 3) Buses
and Coaches; 4) Taxis. The purchase and financing of vehicles provides for one-time fees and the charging and energy management
provides for recurring revenue streams. In July 2019 the company invested in Glory Connection Snd. Bhd, (Glory) a vehicle manufacturer
based in Malaysia. Glory holds the only license granted so far for the manufacture of electric vehicles in Malaysia and is in the
process of setting up its manufacturing and assembly capabilities.
We continue to develop our FinTech services which principally
consist of our ownership of the Delaware Board of Trade (DBOT) ATS, Intelligenta for marketing AI solutions to the Financial Services
industry and FinTech Village, a 58 acre development site in West Hartford, Connecticut.
The fintech business intends to offer
customized services based on best-in-class blockchain, AI and other technologies to mature and emerging businesses across various
industries. To do so, we are building a financial technology ecosystem through license agreements, joint ventures and strategic
investments, which we refer to as our “Fintech Ecosystem”.
Basis of Presentation
In this Form 10-Q, unless the context otherwise
requires, the use of the terms "we," "us", "our" and the “Company” refers to Ideanomics,
Inc, its consolidated subsidiaries and variable interest entities (“VIEs”).
On April 24, 2018, the Company
completed the acquisition of a 100% equity ownership in Shanghai Guang Ming Investment Management (“Guang Ming”),
a PRC limited liability company. One of the two selling shareholders is a related party, an affiliate of Bruno Wu (“Dr.
Wu”). Guang Ming holds a special fund management license. The acquisition will help the Company develop a fund
management platform. Under Accounting Standard Codification (“ASC”) 805-50-05-5 and ASC 805-50-30-5, the
transaction was accounted for as a reorganization of entities under common control, in a manner similar to a pooling of
interest, using historical costs. As a result of the reorganization, the net assets of Guang Ming were transferred to the
Company, and the accompanying consolidated financial statements as of and for the three and nine months ended September 30,
2018 have been prepared as if the current corporate structure had been in place at the beginning of the periods presented in
which the common control existed.
In the opinion of management,
the unaudited interim 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 on consolidation. However,
the results of operations included in such financial statements may not necessary be indicative of annual results.
We use the same accounting policies in
preparing quarterly and annual financial statements. Certain information and footnote disclosures normally included in the annual
consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”) have been condensed or omitted. These unaudited 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, 2018 filed with the Securities and Exchange Commission on April 1, 2019 (“2018
Annual Report”).
Use of Estimates
The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, as well as the related disclosure of contingent assets and liabilities. Actual results
could differ from those estimates.
On an ongoing basis, we evaluate our estimates,
including those related to the bad debt allowance, variable considerations, fair values of financial instruments, intangible assets
(including digital currencies) and goodwill, useful lives of intangible assets and property and equipment, asset retirement obligations,
income taxes, and contingent liabilities, among others. We base our estimates on assumptions, both historical and forward looking,
that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets
and liabilities.
Fair Value Measurements
Accounting standards require the categorization
of financial assets and liabilities, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The
various levels of the fair value hierarchy are described as follows:
•
|
Level 1 - Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that we have the ability to access.
|
•
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Level 2 - Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.
|
•
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Level 3 - Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
|
The fair value hierarchy requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company reviews the valuation techniques
used to determine if the fair value measurements are still appropriate on an annual basis and evaluate and adjust the unobservable
inputs used in the fair value measurements based on current market conditions and third party information.
Our financial assets and liabilities that
are measured at fair value on a recurring basis include cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses, other current liabilities and convertible notes. The fair values of these assets approximate carrying values
because of the short-term nature of these instruments. If these instruments were measured at fair value in the financial statements,
they would be classified as Level 1 in the fair value hierarchy.
Our financial assets that are measured
at fair value on a nonrecurring basis include goodwill and other intangible assets, asset retirement obligations, and adjustment
in carrying value of equity securities for which the measurement alternative of cost less impairment plus or minus observable price
changes is used. There were no material impairments and no material adjustments to equity securities using the measurement alternative
for the three and nine months ended September 30, 2019 and 2018.
Digital Currency
Digital currency consists of GTDollar
Coins (“GTB”), Bitcoin and Ethereum.
GTB is received in connection with
the services agreement and assets purchase agreement with GT Dollar Pte. Ltd. (“GTD”), our minority shareholder
at the time of the transaction (Note 3 and 14 (b)). As of September 30, 2019, GTD has disposed of its investment in the Company and is no longer a minority
shareholder.
GTB is a type of digital asset that is
not a fiat currency and is not backed by hard assets or other financial instruments, and does not represent an investment in GTD
or a right to access GTD’s platform. As a result, the value of GTB is determined by the value that various market participants
place on GTB through their transactions. GTB holders make or lose money from buying and selling GTB. To date, the Asia EDX exchange has not permitted holders of GTB, Bitcoin or Ethereum to exchange digital
currencies held in accounts at the exchange for fiat. The company is unable to predict when our cryptocurrency holdings will be convertible into fiat
and consequently does not consider them to be part of the company’s liquid resources.
During the nine months ended
September 30, 2019, the Company gradually converted 1,038,778 GTB to 2,763 Bitcoins and 21,312 Ethereum. As of September 30,
2019, the Company holds 7,294,555 GTB, 2,763 Bitcoins and 21,312 Ethereum. These Bitcoins and Etheruem represent GTB
denominated in Bitcoin & Etheruem and do not represent a direct holding of Bitcoin and Etheruem.
Given that there is limited precedent regarding
the classification and measurement of cryptocurrencies and other digital currencies under current GAAP, the Company has determined
to account for these currencies as indefinite-lived intangible assets in accordance with ASC 350, Intangibles-Goodwill and Other
until further guidance is issued by the FASB.
Indefinite-lived intangible assets are
recorded at cost and are not subject to amortization, but shall be tested for impairment annually and more frequently if events
or changes in circumstances indicate that it is more likely than not that the asset is impaired. If, at the time of an impairment
test, the carrying amount of an intangible asset exceeds its fair value, an impairment loss in an amount equal to the excess is
recognized. The fair value of GTB currency was a Level 2 measurement (see Note 3) based upon the consideration agreed by GTD and
the Company with a discount considering volatility, risk and limitations at contract inception.
Assets and Liabilities Held for Sale
The Company classifies assets and liabilities
(disposal group) to be sold as held for sale in the period in which all of the following criteria are met: management, having the
authority to approve the action, commits to a plan to sell the disposal groups; the disposal group is available for immediate
sale in its present condition subject only to terms that are usual and customary for sales of such disposal group; an active
program to locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated;
the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify as a completed sale within
one year, except if events or circumstances beyond the Company’s control extend the period of time required to sell the disposal
group beyond one year; the disposal group is being actively marketed for sale at a price that is reasonable in relation to
its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to
the plan will be made or that the plan will be withdrawn.
The Company initially measures a
disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any
loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Gains are not recognized
on the sale of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less any costs
to sell, each reporting period it remains classified as held for sale and reports any subsequent losses as an adjustment to the
carrying value of the disposal group.
Reclassifications of a General Nature
Certain amounts in the prior periods presented
have been reclassified to conform to the current period financial statement presentation. These reclassifications have no effect
on previously reported net income. Note 2 provides information about our adoption of new accounting standards for leases.
Note 2.
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New Accounting Pronouncements
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Recently Adopted Accounting Pronouncements
We adopted Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), as of January 1, 2019, using
a modified retrospective transition method and as a result, the consolidated balance sheet prior to January 1, 2019 was not restated,
continues to be reported under ASC Topic 840, Leases, or ASC 840. For all leases at the lease commencement date, a right-of-use
asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term.
The lease liability represents the present value of the lease payments under the lease.
The lease liability is based on the present
value of the remaining minimum lease payments, determined under ASC 840, discounted using our incremental borrowing rate at the
effective date of January 1, 2019, using the original lease term as the tenor. As permitted under the transition guidance, we elected
several practical expedients that permit us to not reassess (1) whether a contract is or contains a lease, (2) the classification
of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application
of the practical expedients did not have a significant impact on the measurement of the operating lease liability. Adoption of
the new standard resulted in the recording of operating right of use assets and the related lease liabilities of approximately
$3.6 million and $3.7 million, respectively, as of January 1, 2019. The difference between the additional lease assets and lease
liabilities was immaterial. The standard did not materially impact our consolidated operating results and had no impact on cash
flows. Please see Note 10.
In June 2018, the FASB issued ASU
No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which largely aligns the measurement and classification
guidance for share-based payments to nonemployees with the guidance for share-based payments to employees. The ASU also clarifies
that any share-based payment issued to a customer should be evaluated under ASC 606, Revenue from Contracts with Customers
. The ASU requires a modified retrospective transition approach. We adopted ASU 2018-07 as of January 1, 2019 and there is
no impact to our consolidated financial statement because we did not have such payments in 2019.
In July 2017, the FASB issued ASU No. 2017-11,
(Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral
for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception. The new standard applies to issuers of financial instruments with down-round features. A down-round
provision is a term in an equity-linked financial instrument (i.e. a freestanding warrant contract or an equity conversion feature
embedded within a host debt or equity contract) that triggers a downward adjustment to the instrument’s strike price (or
conversion price) if equity shares are issued at a lower price (or equity-linked financial instruments are issued at a lower strike
price) than the instrument’s then-current strike price. The purpose of the feature is typically to protect the instrument’s
counterparty from future issuances of equity shares at a more favorable price. The ASU amends (1) the classification of such instruments
as liabilities or equity by revising the certain guidance relative to evaluating if they must be accounted for as derivative instruments
and (2) the guidance on recognition and measurement of freestanding equity-classified instruments. For the Company, this ASU was
effective January 1, 2019. Please see Note 12.
Standards Issued and Not Yet Adopted
In June 2016, the FASB issued Accounting
Standards Update No. 2016-13 (ASU 2016-13) "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments" which requires the measurement and recognition of expected credit losses for financial assets held
at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires
the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary
impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit
losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition
of credit losses. We will adopt ASU 2016-13 effective January 1, 2020. We are currently evaluating the effect of the adoption of
ASU 2016-13 on our 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.
The Company recognizes revenue when its
customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to
receive in exchange for those goods or services.
All of the Company’s revenue is
derived from Mobile Energy Group (formerly Wecast Services). The following table presents our revenues disaggregated by
revenue source, geography (based on our business locations) and timing of revenue recognition.
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|
Three Months Ended
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|
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Nine Months Ended
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|
|
|
September 30,
2019
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|
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September 30,
2018
|
|
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September 30,
2019
|
|
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September 30,
2018
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Geographic Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Singapore
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
260,034,401
|
|
USA
|
|
|
249,512
|
|
|
|
200,660
|
|
|
|
41,649,384
|
|
|
|
200,660
|
|
Hong Kong/PRC
|
|
|
2,854,178
|
|
|
|
43,507,277
|
|
|
|
2,854,178
|
|
|
|
102,393,235
|
|
Total
|
|
$
|
3,103,690
|
|
|
$
|
43,707,937
|
|
|
$
|
44,503,562
|
|
|
$
|
362,628,296
|
|
Services Lines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile Energy Group (formerly Wecast Services)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
260,034,401
|
|
Consumer electronics
|
|
|
-
|
|
|
|
43,432,556
|
|
|
|
-
|
|
|
|
102,081,176
|
|
Digital asset management services
|
|
|
-
|
|
|
|
-
|
|
|
|
40,700,000
|
|
|
|
-
|
|
Electric Vehicles (“EV”)
|
|
|
2,854,178
|
|
|
|
-
|
|
|
|
2,854,178
|
|
|
|
-
|
|
Digital advertising services and other
|
|
|
249,512
|
|
|
|
275,381
|
|
|
|
949,384
|
|
|
|
512,719
|
|
Total
|
|
$
|
3,103,690
|
|
|
$
|
43,707,937
|
|
|
$
|
44,503,562
|
|
|
$
|
362,628,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products and services transferred at a point in time
|
|
$
|
3,103,690
|
|
|
$
|
43,707,937
|
|
|
$
|
3,803,562
|
|
|
$
|
362,628,296
|
|
Services provided over time
|
|
|
-
|
|
|
|
-
|
|
|
|
40,700,000
|
|
|
|
-
|
|
Total
|
|
$
|
3,103,690
|
|
|
$
|
43,707,937
|
|
|
$
|
44,503,562
|
|
|
$
|
362,628,296
|
|
Mobile Energy Group revenue (formerly Wecast Services)
Mobile Energy Group is engaged in the sourcing,
procurement, financing and management of commercial fleets of electronic vehicles. Historically, the Mobile Energy Group were mainly
engaged in the logistics management, including sales of crude oil, consumer electronics, and digital consulting services such as
assets management and marketing services. As of September 30, 2019, we no longer have control over Amer, the subsidiary that engaged
in consumer electronics business, as disclosed in Note 5(h).
Logistics management revenue:
Revenue from the sales of crude oil and
consumer electronics is recognized when the customer obtains control of the Company’s crude oil and consumer electronics,
which occurs at a point in time, usually upon shipment or upon acceptance. The contracts are generally short-term contracts where
the time between order confirmation and satisfaction of all performance obligations is less than one year.
The most significant judgment is determining
whether we are the principal or agent for the sales of crude oil and consumer electronics. We report revenues from these transactions
on a gross basis where we are the principal considering the following principal versus agent indicators:
(a)
|
We are primarily responsible for fulfilling the promise to provide the goods to the customer. The Company enters into contracts with customers with specific quality requirements and the suppliers separately. The Company is obliged to provide the goods if the supplier fails to transfer the goods to the customer and responsible for the acceptability of the goods.
|
|
|
(b)
|
The Company has certain inventory risk. Although the Company has the title to the goods only
momentarily before passing title on to the customer, the Company is responsible to arrange and issue bill of lading to the
customer so that the customer can have the right to obtain the required oil product. In addition, the customer can seek
remedies and submit the claim against the Company regarding the quality or quantity of the products delivered.
|
|
|
(c)
|
The Company has discretion in establishing prices. Upon delivery of the crude oil and consumer electronics to the customer, the terms of the contract between the Company and the supplier require the Company to pay the supplier the agreed-upon price. The Company and the customer negotiate the selling price, and the Company invoices the customer for the agreed-upon selling price. The Company’s profit is based on the difference between the sales price negotiated with the customer and the price charged by the supplier. The sales price for crude oil is based on the daily benchmark price of spot product plus any premium determined by the Company.
|
During the fourth quarter of 2018, we began experiencing market
demand for non-logistics management revenue -generating opportunities and have begun focusing our efforts on these new market fintech
services opportunities, while phasing out of the oil trading and electronics trading businesses.
Digital asset management service with GTD:
On March 14, 2019, the Company entered
into a service agreement with GTD, one of our minority shareholders, to provide digital asset management services including consulting,
advisory and management services which will be delivered in two phases. There are two performance obligations: (1) the development
of a master plan for GTD’s assets for 7,083,333 GTB agreed by both parties; and (2) exclusive marketing and business development
management services for a fee as percentage (0.25%) of the total market value of GTB ; based on a 10-day average of the 10 business
days leading up to the end of a respective calendar month, and paid on the first day of each new calendar month. No marketing
and business development management services were delivered by the Company during the current quarter and, furthermore, the company
does not anticipate providing these services in the fourth quarter.
The Company recognizes revenue for the
master plan development services over the contract period based on the progress of the services provided towards completed satisfaction.
Based on ASC 606-10-32, at contract inception, the Company considered the following factors to estimate the value of GTB (noncash
consideration): a) it only trades in one exchange, which operations have been less than one year; b) its historical volatility
is high; c) the Company’s intention to hold the majority of GTB, as part of our digital asset management services; and d)
associated risks discussed in Note 19 (f). Therefore, the value of 7,083,333 GTB using Level 2 measurement was approximately $40.7
million with a 76% discount to the fixed contract price agreed upon by both parties when signing the contract. We considered similar
assets exchanges in Singapore and considered the volatility of the quoted prices and determined a discount of 76%. The estimated
value of GTB is calculated using the Black-Scholes valuation model using the following assumptions: expected terms 3.0 years; volatility
155%; dividend yield: zero and risk free interest rate 2.25%.
The Company considers the payments for
marketing and business development management services as performance based consideration, in accordance with ASC 606 on constraining
estimates of variable consideration, including the following factors:
•
|
The susceptibility of the consideration amount to factors outside the Company’s influence.
|
•
|
The uncertainty associated with the consideration amount is not expected to be resolved for a long period of time.
|
•
|
The Company’s experience with similar types of contracts.
|
•
|
Whether the Company expects to offer price concessions or change the payment terms.
|
•
|
The range of possible consideration amounts.
|
As of September 30, 2019, all
performance obligations associated with the development of the master plan for GTD’s assets have been satisfied.
Accordingly, the Company recognized revenue of $0 and $40.7 million, for the three months and nine months ended September 30,
2019, respectively. No marketing and business development management services were delivered by the Company during the current quarter and, furthermore, the company does not
anticipate providing these services in the fourth quarter.
Taxis Commission Revenue:
During Q2 2019, the Company signed an agreement with iUnicorn
(also known as Shenma Zhuanche) to form a strategic joint venture (“JV”) that will focus on green finance and integrated
marketing services for new energy taxi vehicles as part of Ideanomics’ Mobile Energy Group (“MEG”). The Company
agreed to contribute advisory and sales resources which include arranging ABS-based auto financing with its bank partners, and
will have 50.01% ownership interest in the JV and will have control of the board. iUnicorn, which will own 49.99% of the JV, agreed
to contribute its vehicles sales orders in Sichuan province. The JV will generate revenues from commissions on vehicle sales order
and ABS fees related to the financing, which will vary accordingly to manufacturer and vehicle model.
During Q3 2019, the JV took over an order of 4,172 EV taxis
from a third-party and helped facilitate the completion of the order in Q3 2019. As part of the transaction, Qianxi agreed to pay
a commission of $2.9 million to the JV for facilitating the completion of this order. There is no other remaining performance obligation
relating to this commission. In addition, the commission revenue is considered revenue from related party as the minority shareholder
of the JV is an affiliate of our customer, Qianxi.
Legacy YOD revenue
Since 2017, we have run our legacy
YOD segment with limited resources. No revenue was recognized for the nine months ended September 30, 2019 and 2018. As of September 30, 2019, we have ceased operations in the YOD segment.
Arrangements with multiple performance
obligations
Our contracts with customers may include
multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative
standalone selling price. We generally determine standalone selling prices based on the observable prices charged to customers
or adjusted market assessment or using expected cost plus margin when one is available. Adjusted market assessment price is determined
based on overall pricing objectives taking into consideration market conditions and entity specific factors.
Variable consideration
Certain customers may receive discounts,
which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be provided to customers
and reduce revenues recognized. Our revenue reserves, consisting of various discounts and allowances, which are components of variable
consideration as discussed above, are considered an area of significant judgment. Additionally, our digital asset management service
revenue, as discussed above, is calculated as a percentage (0.25%) of the total market value of GTB. For these areas of significant
judgment, actual amounts may ultimately differ from our estimates and are adjusted in the period in which they become known.
Deferred revenues
We record deferred revenues when cash payments
are received or due in advance of our performance, including amounts which are refundable.
Our payment terms vary by the type and
location of our customer and the products or services offered. For certain products or services and customer types, we require
payment before the products or services are delivered to the customer.
Practical expedients and exemptions
We do not disclose the value of unsatisfied
performance obligations for contracts with an original expected length of one year or less.
Note 4.
|
VIE Structure and Arrangements
|
We consolidate VIEs in which we hold a
variable interest and are the primary beneficiary through contractual agreements. We are the primary beneficiary because we have
the power to direct activities that most significantly affect their economic performance and have the obligation to absorb the
majority of their losses or benefits. The results of operations and financial position of these VIEs are included in our consolidated
financial statements.
For these consolidated VIEs, their assets
are not available to us and their creditors do not have recourse to us. As of September 30, 2019 and December 31, 2018, assets
(mainly long-term investments) that can only be used to settle obligations of these VIEs were approximately $0.2 million and $3.5
million, respectively, and the Company is the major creditor for the VIEs.
In order to operate our Legacy YOD
business in PRC and to comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that
provides value-added telecommunication services, the Company entered into a series of contractual agreements with two VIEs:
Beijing Sinotop Scope Technology Co., Ltd (“Sinotop Beijing”) and Tianjin Sevenstarflix Network Technology
Limited (“SSF”). These contractual agreements will expire in March 2030 and April 2036, respectively and may not
be terminated by the VIEs, except with the consent of the Company , or , in event of a material breach of the agreement
by the Company. Currently, the Company is still evaluating the overall operating strategy for YOD legacy business and does not have
plan to provide any funding to these two VIEs. Please refer to Note 19(a) for associated regulatory risks.
Based on the contracts we entered with
VIEs’ shareholders, we consider that there is no asset of the VIEs that can be used only to settle obligation of the Company,
except for the registered capital of VIEs amounting to RMB 38.2 million (approximately $5.7 million).
Note 5.
|
Acquisitions and Divestitures
|
Acquisitions
(a)
Assets Acquisition of SolidOpinion, Inc (“SolidOpinion”)
On February 19, 2019, the Company completed
the acquisition of certain assets from SolidOpinion in exchange for 4,500,000 shares of the Company’s common stock. The assets
include cash ($2.5 million) and intellectual property (“IP”) which is complementary to the IP of Grapevine. The
parties agreed that 450,000 of such shares of common stock (“Escrow Shares”) will be held in escrow until February
19, 2020 in connection with SolidOpinion’s indemnity obligations pursuant to the agreement. SolidOpinion have the rights
to vote and receive the dividends paid with respect to the Escrow Shares.
(b) Assets Acquisition of Fintalk Assets (“Fintalk”)
In September 2018, the Company entered
into an agreement to purchase Fintalk Assets from Sun Seven Star International Limited, a Hong Kong company and an affiliate of
Dr. Wu. FinTalk Assets include the rights, titles and interest in a secure mobile financial information, social, and messaging
platform that has been designed for streamlining financial-based communication for professional and retail users. The purchase
price for Fintalk Assets was $7.0 million payable with $1.0 million in cash and shares of the Company’s common stock with
a fair market value of $6.0 million. The Company paid $1.0 million in October 2018 and recorded in prepaid expense as of December
31, 2018 because the transaction had not closed.
In June 2019, the Company
entered into an amendment to the agreement which amended the purchase price for Fintalk Assets to $6.35 million payable with
$1.0 million in cash and shares of the Company’s common stock with a fair market value of $5.35 million. The Company
issued 2,860,963 shares ($1.87 per share) in June 2019 and completed the transaction. In addition, upon completion of
transaction the $1.0 million cash paid in 2018 was reclassified from prepaid expense to intangible assets.
(c) Acquisition of Grapevine Logic, Inc. (“Grapevine”)
In September 2018, the Company
completed the acquisition of a 65.65% share of Grapevine for $2.4 million in cash. Fomalhaut Limited
(“Fomalhaut”), a British Virgin Islands company and an affiliate of Dr. Wu, the Chairman of the Company, is the
non-controlling equity holder of 34.35% in Grapevine (the “Fomalhaut Interest”). Fomalhaut entered into an option
agreement, effective as of August 31, 2018 (the “Option Agreement”), with the Company pursuant to which the
Company provided Fomalhaut with the option to sell the Fomalhaut Interest to the Company (the “Option”). The
aggregate exercise price for the Option is the fair market value of the Fomalhaut Interest as of the close of business on the
date preceding the date upon which the Option is exercised, and is payable in a combination of 1/3 in cash and 2/3 in the
Company’s shares of common stock at the then market value on the exercise date. The Option Agreement will expire
on August 31, 2021.
In May 2019, the Company entered into two
amendments to the Option Agreement, The aggregate exercise price for the Option is amended to the greater of (i) fair market value
of the Fomalhaut Interest in Grapevine as of the close of business on the date preceding the date upon which the option is exercised;
and (ii) $1.84 per share of the Company’s common stock. It was also agreed that the full amount of the exercise price shall
be paid in the form of common stock of the Company.
In June 2019, the Company issued 590,671 shares in
exchange for a 34.35% ownership in Grapevine as a result of the exercise of the Option, at the completion of this transaction the Company owned 100% of Grapevine. At the completion date of the
transaction, the carrying amount of the non-controlling interest in Grapevine was approximately $0.5 million. The difference
between the value of the consideration exchanged of approximately $1.1 million and the carrying amount of the non-controlling
interest in Grapevine is recorded as a debit to Additional Paid in Capital based on ASC 810-10-45-23.
(d) Termination of agreements with Tree Motion Sdn. Bhd. (“Tree Motion”)
Effective July 18, 2019, Ideanomics,
Inc. (the “Company”) terminated its Acquisition Agreement with Tree Motion Sdn. Bhd., a Malaysian company (“Tree
Motion”), pursuant to which the Company was to acquire 51% of Tree Motion in exchange for 25,500,000 shares of the Company’s
common stock at $2.00 per share. Further, the Company terminated its Acquisition Agreement to acquire 11.22% of Tree Motion’s
parent company, Tree Manufacturing Sdn. Bhd. (the “Parent Company”) for 12,190,000 shares of the Company’s common
stock; provided, however, that the Company has acquired 250 acres in Malaysia-China Kuantan Industrial Park (MCKIP), the
1st Malaysia National Industrial Park joint developed by both Malaysia and China for $620,000.
(e) Acquisition of Glory Connection Sdn. Bhd (“Glory”)
On July 18, 2019, Ideanomics, Inc.
(the “Company”) entered into an Acquisition Agreement (“Glory Agreement”) to purchase a 34% interest
in Glory Connection Sdn. Bhd. a Malaysian Company, from its shareholder Beijing Financial Holding Limited, a Hong Kong
registered company, for the consideration of 12,190,000 restricted common shares of Ideanomics (IDEX), representing $24.4
million at $2.00 per share. As part of this transaction, the Company was also granted an option to purchase a 40% interest in Bigfair Holdings Limited (“Bigfair”) from its shareholder Beijing Financial Holding Limited for an
exercise price of $13.2 million in the form of common shares of Ideanomics. Bigfair currently holds a 51% ownership stake in
Glory. The option is exercisable from July 18, 2020 to July 19, 2021. If the option was exercised, the Company would have
20.4% indirect ownership in Glory in addition to the 34% direct ownership it already has. As of September 30, 2019, the
Company does not have control of Glory and has accounted for Glory as an equity method investment.
The Company has performed a valuation analysis
and allocated $23,000,000 and $1,380,000 of the consideration transferred to the equity method investment and the call option,
respectively. The call option is accounted for as an equity security without readily determinable fair value. Pro forma results
of operations for Glory have not been presented because they are not material to the consolidated results of operations. Glory is currently in the process of ramping up its operations.
The following table summarizes the income
statement information of Glory as of September 30, 2019:
|
|
Three Months Ended
September 30, 2019
|
|
|
Nine Months Ended
September 30, 2019
|
|
Revenue
|
|
$
|
2,041
|
|
|
$
|
3,936
|
|
Gross Profit
|
|
|
1,379
|
|
|
|
769
|
|
Net loss from operations
|
|
|
173,465
|
|
|
|
354,502
|
|
Net loss
|
|
|
171,719
|
|
|
|
352,606
|
|
Net loss attributable to Glory
|
|
$
|
95,477
|
|
|
$
|
195,121
|
|
(f) Acquisition of Delaware Board
of Trade Holdings, Inc. (“DBOT”)
In April 2019, the Company entered into
a securities purchase agreement to acquire 6,918,547 shares in DBOT in exchange for 4,427,870 shares of the Company’s common
stock at $2.11 per share. In July 2019, the Company entered into another securities purchase agreement to acquire an additional
2,224,937 shares in DBOT in exchange for 1,423,960 shares of the Company’s common stock at $2.11 per share. The two transactions,
which increased the Company’s ownership in DBOT to 99.04%, were completed in July 2019. The securities purchase agreements
required the Company to issue additional shares of the Company’s common stock (“True-Up Common Stock”) in the
event the stock price of the common stock fall below $2.11 at the close of trading on the date immediately preceding the lock-up
date, which is 9 months from the closing date. The Company accounted for the additional True-Up Common Stock consideration as a
liability in accordance with ASC 480. We recorded this liability at fair value of $2,217,034 on the date of acquisition. As of
September 30, 2019, we remeasured this liability to $2,327,919 and the remeasurement loss of $(110,885) was recorded in the other
income/(expense) of the income statement.
DBOT operates three companies: (i) DBOT
ATS LLC, an SEC recognized Alternative Trading System; (ii) DBOT Issuer Services LLC, focused on setting and maintaining issuer
standards, as well as the provision of issuer services to DBOT designated issuers; and (iii) DBOT Technology Services LLC, focused
on the provision of market data and marketplace connectivity.
The consolidated statements of operation
for the three months ended September 30, 2019 include the results of DBOT. Supplemental information on an unaudited pro forma basis,
as if the acquisition had been consummated as of January 1, 2018 is as follows:
|
|
Three
Months Ended
September 30, 2018
|
|
|
Nine
Months Ended
September 30, 2019
|
|
|
Nine
Months Ended
September 30, 2018
|
|
Revenue
|
|
$
|
43,798,865
|
|
|
$
|
44,612,471
|
|
|
$
|
363,004,917
|
|
Net Income (loss) attributable to IDEX common shareholders
|
|
$
|
(7,818,047
|
)
|
|
$
|
10,582,474
|
|
|
$
|
(21,387,162
|
)
|
The unaudited pro forma results of operations
do not purport to represent what the Company’s results of operations would actually have been had the acquisition occurred
on January 1, 2018. Actual future results may vary considerably based on a variety of factors beyond the Company’s
control.
For all intangible assets acquired, continuing
membership agreements have useful life of 20 years and the customer list has useful life of 3 years.
The following table summarizes the acquisition-date
fair value of assets acquired and liabilities assumed, as well as the fair value of the non-controlling interest in DBOT recognized:
Cash
|
|
$
|
246,929
|
|
Other financial assets
|
|
|
1,686,464
|
|
Financial liabilities
|
|
|
(4,411,140
|
)
|
Noncontrolling interest
|
|
|
(104,649
|
)
|
Goodwill
|
|
|
9,323,189
|
|
Intangible asset – continuing membership agreement
|
|
|
8,255,440
|
|
Intangible asset – customer list
|
|
|
58,830
|
|
|
|
$
|
15,055,063
|
|
Divestitures
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.
(g) Red Rock Global Capital LTD (“Red Rock”)
In May 2019, the Company determined
to sell the Red Rock business and entered into an agreement with Redrock Capital Group Limited, an affiliate of Dr. Wu, to sell its entire interest in Red Rock for a consideration of $700,000. The Company decided to sell Red Rock
primarily because it has incurred operating losses and its business is no longer needed based on our strategic plan. The transaction
was completed in July 2019 and the company recorded a disposal gain of $552,215.
(h) Amer Global Technology Limited
(“Amer”)
On June 30, 2019, the Company entered
into an agreement with BCC Technology Company Limited (“BCC”) and Tekang Holdings Technology Co., Ltd (“Tekang
”) pursuant to which Tekang will inject certain assets in the robotics and electronic internet industry and IOT business
consisting of manufacturing data, supply chain management & financing, and lease financing of industrial robotics into Amer
in exchange for 71.81% of ownership interest in Amer. The parties subsequently entered into several amendments including (1) changing
the name of Amer to Logistorm Technology Limited, (2) issuing 39,500 new shares in Amer or 71.81% ownership interest to BCC instead
of Tekang, (3) issuing 5,500 new shares in Amer or 10% ownership interest to Merry Heart Technology Limited (“MHT”)
and (4) the Company is responsible for 20% of any potential
tax obligation associated with Amer, if Amer fails to be publicly listed in 36 months from the closing date of this transaction.
The Company concluded that it’s not probable that this contingent liability would be incurred. As a result of this transaction,
the Company’s ownership interest in Amer was diluted from 55% to 10%. The transaction was completed on August 31, 2019.
The Company recognized a disposal gain
of $505,148 as a result of the deconsolidating Amer. $95,104 of the gain is attributable to the 10% ownership interest retained
in Amer. In addition, on the date Amer was deconsolidated, the Company recorded a bad debt expense of $622,286
relating to a receivable due from Amer to a subsidiary of the Company.
The following table summarizes the Consolidated
Statement of Operations for the three months and nine months ended September 30, 2018, on an unaudited pro forma basis, as if the
dilution of the Company’s interest in Amer had been consummated as of January 1, 2018:
|
|
Three Months Ended
September 30, 2018
|
|
|
Nine Months Ended
September 30, 2018
|
|
Revenue
|
|
$
|
275,380
|
|
|
$
|
260,547,120
|
|
Net loss from operations
|
|
|
(6,305,340
|
)
|
|
|
(18,548,258
|
)
|
Net loss
|
|
|
(7,390,597
|
)
|
|
|
(19,351,526
|
)
|
Net loss attributable to IDEX common shareholders
|
|
$
|
(7,158,674
|
)
|
|
$
|
(18,945,524
|
)
|
Pro forma results of operations for the
period ended September 30, 2019 have not been presented because they are not material to the consolidated results of operations.
Amer has no revenue and minimal operating expense in 2019.
Note 6.
|
Accounts Receivable
|
Accounts
receivable is mainly from our Mobile Energy Group (formerly Wecast Services) business and consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Accounts receivable, gross
|
|
$
|
2,941,348
|
|
|
$
|
19,370,665
|
|
Less: allowance for doubtful accounts
|
|
|
(103
|
)
|
|
|
-
|
|
Accounts receivable, net
|
|
$
|
2,941,245
|
|
|
$
|
19,370,665
|
|
The following
table outlines the aging of the accounts receivable:
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
Within 90 days
|
|
$
|
2,941,245
|
|
|
$
|
1,219,526
|
|
91-180 days
|
|
|
-
|
|
|
|
633
|
|
181-365 days
|
|
|
-
|
|
|
|
12,385,193
|
|
More than 1 year
|
|
|
-
|
|
|
|
5,765,313
|
|
Total
|
|
$
|
2,941,245
|
|
|
$
|
19,370,665
|
|
The decrease in balance is mainly due
to the deconsolidation of Amer as of September 30, 2019 as disclosed in Note 5(h). Our payment term is usually within 180
days upon the receipts of the goods. The Company has reviewed the outstanding balance by customers and concluded that the
outstanding balances are collectible.
Note 7.
|
Property and Equipment, net
|
The following is a breakdown of property
and equipment:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Furnitures and office equipment
|
|
|
602,548
|
|
|
|
357,064
|
|
Vehicle
|
|
|
60,951
|
|
|
|
63,135
|
|
Leasehold improvements
|
|
|
239,781
|
|
|
|
200,435
|
|
Total property and equipment
|
|
|
903,280
|
|
|
|
620,634
|
|
Less: accumulated depreciation
|
|
|
(482,548
|
)
|
|
|
(186,514
|
)
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
3,042,777
|
|
|
|
3,042,777
|
|
Building1
|
|
|
308,779
|
|
|
|
2,607,666
|
|
Assets Retirement Obligations - Environmental Remediation
|
|
|
8,000,000
|
|
|
|
8,000,000
|
|
Capitalized direct development cost
|
|
|
2,732,705
|
|
|
|
944,864
|
|
Construction in progress (Fintech Village)
|
|
|
14,084,261
|
|
|
|
14,595,307
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment, net
|
|
$
|
14,504,993
|
|
|
$
|
15,029,427
|
|
Note
1 The $2.3 million decrease from the prior year represents the impairment charge recorded in connection
with four of the five existing buildings on Fintech Village which are expected to be demolished.
The Company recorded depreciation expense,
which is included in its operating expense, of $65,862 and $14,820 for the three months ended September 30, 2019 and 2018 and $102,991
and $32,941 for the nine months ended September 30, 2019 and 2018, respectively.
The Company recorded $8.0 million of Asset
Retirement Obligations which are related to our legal contractual obligations in connection with the acquisition of Fintech
Village. The Capitalized direct development costs mainly represent the architectural costs.
Note 8.
|
Goodwill and Intangible
Assets
|
Goodwill
Changes in the carrying value of goodwill
consist of following:
|
|
Nine months ended
September 30, 2019
|
|
|
Year Ended
December 31, 2018
|
|
At the beginning of the year
|
|
|
704,884
|
|
|
|
-
|
|
Goodwill Acquired1
|
|
|
9,323,189
|
|
|
|
704,884
|
|
At the end of the period
|
|
|
10,028,073
|
|
|
|
704,884
|
|
Note
1 The change in carrying amount
of goodwill in the current year was the result of the acquisition of DBOT as disclosed in Note 5(f).
Intangible Assets
Information regarding amortizing and indefinite
lived intangible assets consisted of the following:
|
|
|
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
|
|
Weighted
Average
Remaining
|
|
|
Gross
Carry
|
|
|
Accumulated
|
|
|
Accumulated
Impairment
|
|
|
Net
|
|
|
Gross
Carry
|
|
|
Accumulated
|
|
|
Accumulated
Impairment
|
|
|
Net
|
|
|
|
Useful
Life
|
|
|
Amount
|
|
|
Amortization
|
|
|
Loss
|
|
|
Balance
|
|
|
Amount
|
|
|
Amortization
|
|
|
Loss
|
|
|
Balance
|
|
Amortizing Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Animation Copyright (Note 14 (b))
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
301,495
|
|
|
$
|
(64,606
|
)
|
|
$
|
-
|
|
|
$
|
236,889
|
|
Software and licenses
|
|
|
-
|
|
|
|
97,308
|
|
|
|
(97,308
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
97,308
|
|
|
|
(93,251
|
)
|
|
|
-
|
|
|
|
4,057
|
|
SolidOpinion IP (Note 5 (a))
|
|
|
4.4
|
|
|
|
4,655,000
|
|
|
|
(543,084
|
)
|
|
|
-
|
|
|
|
4,111,916
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Fintalk intangible assets (Note 5 (b))
|
|
|
4.8
|
|
|
|
6,350,000
|
|
|
|
(317,500
|
)
|
|
|
-
|
|
|
|
6,032,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Influencer network
|
|
|
8.9
|
|
|
|
1,980,000
|
|
|
|
(214,500
|
)
|
|
|
-
|
|
|
|
1,765,500
|
|
|
|
1,980,000
|
|
|
|
(66,000
|
)
|
|
|
-
|
|
|
|
1,914,000
|
|
Customer contract1
|
|
|
2.0
|
|
|
|
558,830
|
|
|
|
(185,458
|
)
|
|
|
-
|
|
|
|
373,372
|
|
|
|
500,000
|
|
|
|
(55,556
|
)
|
|
|
-
|
|
|
|
444,444
|
|
Continuing Membership Agreement1
|
|
|
19.8
|
|
|
|
8,255,440
|
|
|
|
(103,193
|
)
|
|
|
-
|
|
|
|
8,152,247
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Trade name
|
|
|
13.9
|
|
|
|
110,000
|
|
|
|
(7,944
|
)
|
|
|
-
|
|
|
|
102,056
|
|
|
|
110,000
|
|
|
|
(2,444
|
)
|
|
|
-
|
|
|
|
107,556
|
|
Technology platform
|
|
|
5.9
|
|
|
|
290,000
|
|
|
|
(44,881
|
)
|
|
|
-
|
|
|
|
245,119
|
|
|
|
290,000
|
|
|
|
(13,808
|
)
|
|
|
-
|
|
|
|
276,192
|
|
Total
amortizing intangible assets
|
|
|
|
|
|
$
|
22,296,578
|
|
|
$
|
(1,513,868
|
)
|
|
$
|
-
|
|
|
$
|
20,782,710
|
|
|
$
|
3,278,803
|
|
|
$
|
(295,665
|
)
|
|
$
|
-
|
|
|
$
|
2,983,138
|
|
Indefinite lived intangible
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Website name
|
|
|
|
|
|
|
159,504
|
|
|
|
-
|
|
|
|
(134,290
|
)
|
|
|
25,214
|
|
|
|
159,504
|
|
|
|
-
|
|
|
|
(134,290
|
)
|
|
|
25,214
|
|
Patent
|
|
|
|
|
|
|
28,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,000
|
|
|
|
28,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,000
|
|
GTB (Note 14 (b))
|
|
|
|
|
|
|
61,124,407
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61,124,407
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
intangible assets
|
|
|
|
|
|
$
|
83,608,489
|
|
|
$
|
(1,513,868
|
)
|
|
$
|
(134,290
|
)
|
|
$
|
81,960,331
|
|
|
$
|
3,466,307
|
|
|
$
|
(295,665
|
)
|
|
$
|
(134,290
|
)
|
|
$
|
3,036,352
|
|
Note
1 During the third quarter
of 2019, the Company completed the acquisition of additional shares in DBOT which increased its ownership in DBOT to 99.04%. $8,314,270
of intangible assets were recognized on the date of acquisition as disclosed in Note 5(f).
Amortization expense relating to intangible
assets was $764,010 and $276,692 for the three months ended September 30, 2019 and 2018 and $1,317,419 and $281,796 for the nine
months ended September 30, 2019 and 2018, respectively.
The following table outlines the expected
amortization expense for the following years:
|
|
|
Amortization
to be
|
|
Years ending December 31,
|
|
|
recognized
|
|
2019 (excluding the nine months ended September 30, 2019)
|
|
|
$
|
761,702
|
|
2020
|
|
|
|
3,046,811
|
|
2021
|
|
|
|
2,991,255
|
|
2022
|
|
|
|
2,870,339
|
|
2023
|
|
|
|
2,860,534
|
|
2024 and thereafter
|
|
|
|
8,252,069
|
|
Total amortization to be recognized
|
|
|
$
|
20,782,710
|
|
Note 9.
|
Long-term Investments
|
Long-term investments consisted
of Non-marketable Equity Investment and Equity Method Investment as below:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Non-marketable Equity Investment
|
|
$
|
9,147,170
|
|
|
$
|
9,452,103
|
|
Equity Method Investment
|
|
|
33,012,143
|
|
|
|
16,956,506
|
|
Total
|
|
$
|
42,159,313
|
|
|
$
|
26,408,609
|
|
Non-marketable equity investment
Our non-marketable equity investments are
investments in privately held companies without readily determinable fair values. These investments are carried at cost minus impairment,
if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment
of the same issuer.
The Company reviews its equity securities
without readily determinable fair values on a regular basis to determine if the investment is impaired. For purposes of this assessment,
the Company considers the investee’s cash position, earnings and revenue outlook, liquidity and management ownership, among
other factors, in its review. If management’s assessment indicates that an impairment exists, the Company estimates the fair
value of the equity investment and recognizes in current earnings an impairment loss that is equal to the difference between the
fair value of the equity investment and its carrying amount. There is no impairment for the nine months ended September 30, 2019.
Equity method investments
The Company’s investment in companies
accounted for using the equity method of accounting consist of the following:
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
Loss on
|
|
|
Reclassification
|
|
|
translation
|
|
|
September 30,
|
|
|
|
|
|
|
2018
|
|
|
Addition
|
|
|
investment
|
|
|
to subsidiaries
|
|
|
adjustments
|
|
|
2019
|
|
Wecast Internet
|
|
|
(i)
|
|
|
$
|
4,114
|
|
|
$
|
-
|
|
|
$
|
(5
|
)
|
|
$
|
-
|
|
|
$
|
1,930
|
|
|
$
|
6,039
|
|
Hua Cheng
|
|
|
(ii)
|
|
|
|
308,666
|
|
|
|
-
|
|
|
|
(32,890
|
)
|
|
|
-
|
|
|
|
(37,210
|
)
|
|
|
238,566
|
|
Shandong Media
|
|
|
(iii)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
BDCG
|
|
|
(iv)
|
|
|
|
9,800,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,800,000
|
|
DBOT
|
|
|
(v)
|
|
|
|
6,843,726
|
|
|
|
-
|
|
|
|
(3,719,735
|
)
|
|
|
(3,123,991
|
)
|
|
|
-
|
|
|
|
-
|
|
Glory
|
|
|
(vi)
|
|
|
|
-
|
|
|
|
23,000,000
|
|
|
|
(32,462
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
22,967,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
16,956,506
|
|
|
$
|
23,000,000
|
|
|
$
|
(3,785,092
|
)
|
|
$
|
(3,123,991
|
)
|
|
$
|
(35,280
|
)
|
|
$
|
33,012,143
|
|
All the investments above are privately
held companies; therefore, quoted market prices are not available. We have not received any dividends since initial investments.
(i) Wecast Internet
Starting from October 2016, we have 50%
interest in Wecast Internet Limited (“Wecast Internet”) and initial investment was invested RMB 1,000,000 (approximately
$149,750). Wecast Internet is in the process of liquidation and the remaining carrying value is immaterial.
(ii) Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd.(“Hua Cheng”)
The Company held 39% equity ownership in
Hua Cheng, a company established to provide integrated value-added service solutions for the delivery of VOD and enhanced content
for cable providers.
(iii) Shandong Lushi Media Co., Ltd (“Shandong Media”)
The Company held 30% equity ownership in
Shandong Media, a print based media business, for Legacy YOD business. The accumulated operating loss of Shandong Media reduced
the Company’s investment in Shandong Media to zero. The Company has no obligation to fund future operating losses.
(iv) BBD Digital Capital Group Ltd. (“BDCG”)
In 2018, we signed a joint venture
agreement with two unrelated parties, to establish BDCG located in the United States for providing block chain services for
financial or energy industries by utilizing AI and big data technology in the United States. The Company received 40% equity
ownership in BDCG from the initial joint venture agreement. On April 24, 2018, the Company acquired 20% equity ownership in
BDCG from one noncontrolling party for a total consideration of $9.8 million which consists of $2 million in cash and $7.8
million paid in the form of the Company’s common stock (valued at $2.60 per share and equal to 3 million shares of the
Company’s common stock), increasing the Company’s ownership to 60% in BDCG. The remaining 40% of BDCG are held by
Seasail ventures limited (“Seasail”). The accounting treatment of the joint venture is based on the equity
method due to variable substantive participating rights (in accordance with ASC 810-10-25-11) granted to Seasail. The new
entity is currently in the process of ramping up its operations. In April 2019, the company rebranded the name of the BDCG
joint venture to Intelligenta. As part of the rebranding, Intelligenta’s strategy will now include credit services,
corporation services, index services and products, and capital market services and products.
(v) Delaware Board of Trade Holdings, Inc. (“DBOT”)
Refer to Note 5(f).
(vi) Glory Connection Sdn. Bhd (“Glory”)
Refer to Note 5(e).
We lease certain office space and equipment
from third parties. Leases with an initial term of 12 months or less are not recorded on the balance sheet and we recognize lease
expense for these leases on a straight-line basis over the lease term. For leases beginning in 2019 and later, at the inception
of a contract we assess whether the contract is, or contains, a lease. Our assessment is based on: (1) whether the contract involves
the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use
of the asset throughout the period, and (3) whether we have the right to direct the use of the asset. At inception of a lease,
we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the
lease payments. Leases entered into prior to January 1, 2019, are accounted for under ASC 840 and were not reassessed. We account
for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the nonlease
components (e.g.,common-area maintenance costs).
Most leases include one or more options
to renew, with renewal terms that can extend the lease term from one year or more. The exercise of lease renewal options is at
our sole discretion. Our leases do not include options to purchase the leased property. The depreciable life of assets and leasehold
improvements are limited by the expected lease term. Certain of our lease agreements include rental payments adjusted periodically
for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. All
our leases are operating lease. We have elected not to recognize right-of-use assets and lease liabilities for short-term leases
that have a term of 12 months or less. The effect of short-term leases and initial direct costs on our right-of-use asset and lease
liability was not material.
As of September 30, 2019, our operating
lease right of use assets and operating lease liability are approximately $6.8 million and $7.2 million, respectively. The weighted-average
remaining lease term is 6.6 years and the weighted-average discount rate is 7.5%.
For the three and nine months ended September
30, 2019, the components of lease expense were as follows:
|
|
Three Months Ended
September 30, 2019
|
|
|
Nine Months Ended
September 30, 2019
|
|
Operating Lease Cost
|
|
$
|
390,577
|
|
|
$
|
1,264,049
|
|
Short-Term Lease Cost
|
|
|
78,076
|
|
|
|
250,924
|
|
Sublease Income
|
|
|
(10,605
|
)
|
|
|
(10,605
|
)
|
Total Lease Cost
|
|
$
|
458,048
|
|
|
$
|
1,504,368
|
|
Supplemental information related to leases
was as follows:
|
|
Nine Months Ended
September 30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
967,565
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities
|
|
$
|
935,242
|
|
Maturity of operating lease liability is
as follows:
Maturity of Lease Liability
|
|
|
Operating Lease
|
|
2019 (excluding the nine months ended September 30, 2019)
|
|
|
$
|
332,549
|
|
2020
|
|
|
|
1,307,783
|
|
2021
|
|
|
|
1,328,160
|
|
2022
|
|
|
|
1,422,965
|
|
2023
|
|
|
|
1,474,391
|
|
2024 and thereafter
|
|
|
|
3,377,653
|
|
Total lease payments
|
|
|
|
9,243,501
|
|
Less: Interest
|
|
|
|
(2,001,696
|
)
|
Total
|
|
|
$
|
7,241,805
|
|
Note 11.
|
Supplemental Financial
Statement Information
|
Other Current Assets
“Other current
assets” were approximately $2.4 million and $3.6 million as of September 30, 2019 and December 31, 2018, respectively.
Components of "Other current assets" that were more than 5 percent of total current assets: (1) other receivable
due from third parties in our subsidiaries located in PRC and Hong Kong in the amount of $1.7 million and $3.3 million for
the period ended September 30, 2019 and December 31, 2018 and (2) $0.6 million receivable due from ID Venturas 7 relating
to the convertible debenture executed on September 27, 2019. As disclosed in Note 12(c), we have received the $0.6 million in October.
Other Current Liabilities
“Other current liabilities”
were approximately $9.1 million and $5.3 million as of September 30, 2019 and December 31, 2018, respectively. Components of "Other
current liabilities" that were more than 5 percent of total current liabilities: (1) $2.3 million liability relating to additional
True-Up Common Stock consideration from the DBOT acquisition as disclosed in Note 5 (f) and (2) other payable due to third parties
in the amount of $5.1 million and $4.6 million for the period ended September 30, 2019 and December 31, 2018, respectively.
Note 12.
|
Convertible Note
|
The following is the summary of outstanding
convertible notes as of September 30, 2019 and December 31, 2018:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Convertible Note-Mr. McMahon(Note 14 (a))
|
|
$
|
3,229,808
|
|
|
$
|
3,140,055
|
|
Convertible Note-SSSIG (Note 14 (a))
|
|
|
1,288,032
|
|
|
|
1,000,000
|
|
Convertible Note-Advantech
|
|
|
12,382,806
|
|
|
|
11,313,770
|
|
$2.05 million Senior Secured Convertible Note - ID Venturas 7
|
|
|
626,387
|
|
|
|
-
|
|
$2.5 million Senior Secured Convertible Note - ID Venturas 7
|
|
|
14,917
|
|
|
|
-
|
|
Total
|
|
$
|
17,541,950
|
|
|
$
|
15,453,825
|
|
Short-term Note
|
|
|
1,914,419
|
|
|
|
4,140,055
|
|
Long-term Note
|
|
|
15,627,531
|
|
|
|
11,313,770
|
|
(a) $12 million Convertible Note
- Advantech
On June 28, 2018, the Company entered
into a convertible note purchase agreement with Advantech Capital Investment II Limited (“Advantech”) in the aggregate
principal amount of $12,000,000 (the Notes). The Notes bear interest at a rate of 8%, mature on June 28, 2021, and are convertible
into approximately 6,593,406 shares of the Company’s common stock at a conversion price of $ 1.82 per share. The difference
between the conversion price and the fair market value of the common stock on the commitment date (transaction date) resulted
in a beneficial conversion feature recorded of approximately $1.4 million. For the three months ended September 30, 2019 and 2018,
total interest expense recognized relating to the beneficial conversion feature was $117,000 and $112,000, respectively. For the
nine months ended September 30, 2019 and 2018, total interest expense recognized relating to the beneficial conversion feature
was $347,000 and $112,000, respectively. The agreement also requires the Company to comply with certain covenants, including restrictions
on the use of the proceeds and other convertible note offering. As of September 30, 2019, the Company was in compliance with all
ratios and covenants.
(b) $2.05 million Senior Secured Convertible
Debenture due in August 2020 - ID Ventura 7
On February 22, 2019, the Company executed
a security purchase agreement with ID Venturas 7, LLC (“IDV”), whereby the Company issued $2,050,000 of senior secured
convertible note. The note bears interest at a rate of 10% per year payable either in cash or in kind at the option of the Company
on a quarterly basis and matures on August 22, 2020. In addition, IDV is entitled to the following: (i) the convertible note is
senior secured; (ii) convertible at $1.84 per share of Company common stock at the option of IDV (approximately 1,114,130 shares),
subject to adjustments if subsequent equity shares have a lower conversion price, (ii) 1,166,113 shares of common stock of the
Company and (iii) a warrant exercisable for 150% of the number of shares of common stock which the note is convertible into (approximately
1,671,196 shares) at an exercise price of $1.84 per share and will expire 5 years after issuance. On October 29, 2019 the Company entered into a letter agreement (the “Agreement”) with
ID Venturas pursuant to which the Company agreed to reduce the conversion price of the Debentures and the exercise price of the
Warrants to $1.00,
The Company received aggregate gross proceeds
of $2 million, net of $50,000 for the issuance expenses paid by IDV. Total funds received were allocated to convertible note, common
stocks and warrants based on their relative fair values in accordance with ASC 470-20-30. The value of the convertible note and
common stocks was based on the closing price on February 22, 2019. The fair value of the warrants was determined using the Black-Scholes
option-pricing model, with the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 111.83%
and an interest rate of 2.48%. The relative fair value of the warrants was recorded as additional paid-in capital and reduced
the carrying amount of the convertible note. The Company recognized a beneficial conversion feature discount on convertible note
at its intrinsic value, which was the fair value of the common stock at the commitment date for convertible note, less the effective
conversion price. The Company recognized approximately $600,000 of beneficial conversion feature as an increase in additional paid
in capital and reduced (discount on) the carrying amount of the convertible note in the accompanying consolidated balance sheet.
The discounts on the convertible note for
the warrants and beneficial conversion feature are being amortized to interest expense, using the effective interest method over
the term of the convertible note. As of September 30, 2019, the unamortized discount on the convertible note is approximately $1,424,000.
Total interest expense recognized relating to the discount was approximately $175,000 and $626,000 for the three and nine months
ended September 30, 2019, respectively.
Interest on the convertible note is payable
quarterly starting from April 1, 2019. The convertible note is redeemable at the option of the Company in whole at an initial redemption
price of the principal amount of the convertible note plus additional warrants and accrued and unpaid interest to the date of redemption.
The security purchase agreement contains
customary representations, warranties and covenants. The convertible note is collateralized by the Company’s equity interest
in Grapevine, which had a carrying amount of $2.4 million as of September 30, 2019. The Company has the right to request for the
removal of the guarantee and collateral by issuance of additional 250,000 shares of common stock. On September 27, 2019, the Company
issued 250,000 shares of common stock to IDV in exchange for the release of Grapevine as collateral.
IDV has registration rights that require
the Company to file and register the common stock issued or issuable upon conversion of the convertible note or the exercise of
the warrants, within 180 days following the closing of the transaction.
The Company is also subject to penalty
fee at 8% per annum for late payments of interests and compensation for the loss of IDV on failure to timely deliver conversion
shares upon conversion.
(c) $2.5 million Senior Secured Convertible
Debenture due in March 2021 - ID Ventura 7
On September 27, 2019, the Company executed
a security purchase agreement with ID Venturas 7, LLC (“IDV”), whereby the Company issued $2,500,000 of senior secured
convertible note. The note bears interest at a rate of 10% per year payable either in cash or in kind at the option of the Company
on a quarterly basis and matures on March 27, 2021. In addition, IDV is entitled to the following: (i) the convertible note is
senior secured; (ii) convertible at $1.84 per share of Company common stock at the option of IDV (approximately 1,358,696 shares),
subject to adjustments if subsequent equity shares have a lower conversion price, (ii) 1,000,000 shares of common stock of the
Company and (iii) a warrant exercisable for 150% of the number of shares of common stock which the note is convertible into (approximately
2,038,043 shares) at an exercise price of $1.84 per share and will expire 5 years after issuance. On October 29, 2019 the Company entered into a letter agreement (the “Agreement”) with
ID Venturas pursuant to which the Company agreed to reduce the conversion price of the Debentures and the exercise price of the
Warrants to $1.00,
The Company will receive aggregate gross
proceeds of $2.5 million, net of $66,195 for the issuance expenses paid by IDV. The Company received $1.8 million proceed in September
and the remaining $633,805 was received in October. Total gross proceeds were allocated to convertible note, common stocks and
warrants based on their relative fair values in accordance with ASC 470-20-30. The value of the convertible note and common stocks
was based on the closing price on September 27, 2019. The fair value of the warrants was determined using the Black-Scholes option-pricing
model, with the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 110.36% and an interest
rate of 1.55%. The relative fair value of the warrants was recorded as additional paid-in capital and reduced the carrying
amount of the convertible note. The Company recognized a beneficial conversion feature discount on convertible note at its intrinsic
value, which was the fair value of the common stock at the commitment date for convertible note, less the effective conversion
price. The Company recognized approximately $989,000 of beneficial conversion feature as an increase in additional paid in capital
and reduced (discount on) the carrying amount of the convertible note in the accompanying consolidated balance sheet.
The discounts on the convertible note for
the warrants and beneficial conversion feature are being amortized to interest expense, using the effective interest method over
the term of the convertible note. As of September 30, 2019, the unamortized discount on the convertible note is approximately $2,488,000.
Total interest expense recognized relating to the discount was approximately $12,000 and $12,000 for the three and nine months
ended September 30, 2019, respectively.
Interest on the convertible note is payable
quarterly starting from October 1, 2019. The convertible note is redeemable at the option of the Company in whole at an initial
redemption price of the principal amount of the convertible note plus additional warrants and accrued and unpaid interest to the
date of redemption.
The security purchase agreement contains
customary representations, warranties and covenants. The convertible note is collateralized by the Company’s equity interest
in DBOT, which had a carrying amount of $14.3 million as of September 30, 2019.
IDV has registration rights that require
the Company to file and register the common stock issued or issuable upon conversion of the convertible note or the exercise of
the warrants, within 120 days following the closing of the transaction.
The Company is also subject to penalty
fee at 8% per annum for late payments of interests and compensation for the loss of IDV on failure to timely deliver conversion
shares upon conversion.
Note 13.
|
Stockholders’
Equity
|
Convertible Preferred Stock
Our board of directors has authorized 50
million shares of convertible preferred stock, $0.001 par value, issuable in series.
As of September 30, 2019 and December 31,
2018, 7,000,000 shares of Series A preferred stock were issued and outstanding and is convertible, at any time at the option of
the holder, into 933,333 shares of common stock (subject to customary adjustments). The Series A preferred stock shall be entitled
to ten vote per common stock on an as-converted basis and only entitled to receive dividends when and if declared by the board.
On liquidation, both series of preferred stock are entitled to a liquidation preference of $0.50 per share. The shares are not
redeemable except on liquidation or if there is a change in control of the Company or a sale of all or substantially all of the
assets of the Company. The conversion price of the Series A may only be adjusted for standard anti-dilution, such as stock splits
and similar events. The Series A preferred stocks are considered to be equity instruments and therefore the embedded conversion
options have not been separated. Because the preferred stocks have conditions for their redemption that may be outside the control
of the Company, they have been classified outside of Shareholders’ Equity, in the mezzanine section of our balance sheet.
Common Stock
Our board of directors has authorized 1,500
million shares of common stock, $0.001 par value.
Note 14.
|
Related Party Transactions
|
(a) Convertible Notes
$3.0 Million Convertible Note with
Mr. Shane McMahon (“Mr. McMahon”)
On May 10, 2012, Mr. McMahon, our Vice
Chairman, made a loan to the Company in the amount of $3,000,000. In consideration for the loan, the Company issued a convertible
note to Mr. McMahon in the aggregate principal amount of $3,000,000 (the “Note”) at a 4% interest rate computed on
the basis of a 365-day year. We entered several amendments with respect to the effective conversion price (changed from $1.75 to
$1.5), convertible stocks (changed from of Series E Preferred Stock to Common Stock) and extension of the maturity date to December
31, 2020.
For the three and nine months ended September
30, 2019, the Company recorded interest expense of approximately $30,000 and $90,000, respectively, related to the Note. For
the three and nine months ended September 30, 2018, the Company also recorded interest expense of approximately $30,000 and $90,000,
respectively, related to the Note. Interest payable was $229,808 and $140,055 as of September 30, 2019 and December 31, 2018,
respectively.
$2.5 Million Convertible Promissory
Note with SSSIG
On February 8, 2019, the Company
entered into a convertible promissory note agreement with SSSIG, an affiliate of Dr. Wu, in the aggregate principal amount of
$2,500,000. The convertible promissory note bears interest at a rate of 4%, matures on February 8, 2020, and is convertible
into the shares of the Company’s common stock at a conversion price of $1.83 per share anytime at the option of
SSSIG.
As of September 30, 2019, the Company received
$1.3 million from SSSIG. The Company has not received the remaining $1.2 million as of the date of this report. For the three and
nine months ended September 30, 2019, the Company recorded interest expense of approximately $13,000 and $36,000, respectively,
related to the Note.
(b) Transactions with GTD
Disposal of Assets in exchange of
GTB
In March 2019, the Company completed the
sale of the following assets (with total carrying amount of approximately $20.4 million) to GTD, a minority shareholder based in
Singapore, in exchange for 1,250,000 GTB. The Company considers the arrangement as a nonmonetary transaction and the fair values
of GTB are not reasonably determinable due to the reasons described in Note 3. Therefore, GTB received are recorded at the carrying
amount of the assets exchanged and the Company did not recognize any gain or loss based on ASC 845-10-30.
|
·
|
License content (net carrying amount approximately $17.0
million)
|
|
·
|
Approximately 13% ownership interest in Nanjing Shengyi
Network Technology Co., Ltd (“Topsgame”) (carrying amount approximately $3.2 million which was included in long-term
investment-Non-marketable Equity Investment)
|
|
·
|
Animation copy right (net carrying amount approximately
$0.2 million which was included in intangible asset.)
|
Digital asset management services
Please refer to Note 3.
(c) Crude Oil Trading
For the nine months ended September 30,
2018, we purchased crude oil in the amount of approximately $244.1 million from three suppliers that a minority shareholder of
the Company has significant influence upon because this minority shareholder has significant influence on both our Singapore joint
venture and these three suppliers. The Company has recorded the purchase on a separate line item referenced as “Cost of revenue
from related parties” in its financial statements. There is no outstanding balance due (in Accounts Payable) as of September
30, 2019. No such related party transactions occurred for the same period in 2019.
(d) Severance payments
On February 20, 2019, the Company accepted
the resignation of former Chief Executive Officer, former Chief Investment Officer and former Chief Strategy Officer and agreed
to pay approximately $837,000 in total for salary, severance and expenses. The Company paid $637,000 in the first quarter of year
2019 and recorded $200,000 in other current liabilities on our consolidated balance sheet as of September 30, 2019. The $837,000 severance expenses were recorded in the Selling, general and administrative expenses
of the income statement.
(e) Borrowing from Dr. Wu.
and his affiliates
During the third quarter of 2019, the Company’s
net borrowings from Dr. Wu and his affiliates increased by $1.0 million. We recorded these borrowings in amount due to related
parties on our consolidated balance sheet as of September 30, 2019. These borrowings bear no interest.
(f) Acquisition of Fintalk Assets
Please refer to Note 5(b).
(g) Asset for Sale-Red Rock Global Capital LTD (“Red Rock”)
Please refer to Note 5(g).
(h) Acquisition of Grapevine Logic.
(“Grapevine”)
Please refer to Note 5(c).
(i) Amer Global Technology
Limited (“Amer”)
Please refer to Note 5(h).
(j) Taxis commission revenue from
Guizhou Qianxi Green Environmentally Friendly Taxi Service Co. (“Qianxi”)
Please refer to Note 3.
Note 15.
|
Share-Based Payments
|
As of September 30, 2019, the Company had 14,971,431 options,
55,586 restricted shares and 3,709,240 warrants outstanding.
The Company awards common stock and stock
options to employees and directors as compensation for their services, and accounts for its stock option awards to employees and
directors pursuant to the provisions of ASC 718, Stock Compensation. The fair value of each option award is estimated on
the date of grant using the Black-Scholes Merton valuation model. The Company recognizes the fair value of each option as compensation
expense ratably using the straight-line attribution method over the service period, which is generally the vesting period.
Effective as of December 3, 2010 and amended
on August 3, 2018, our Board of Directors approved the 2010 Stock Incentive Plan (“the 2010 Plan”) pursuant to which
options or other similar securities may be granted. As of September 30, 2019, the maximum aggregate number of shares of our common
stock that may be issued under the 2010 Plan is 31,500,000 shares. As of September 30, 2019, options and restricted shares available
for issuance are 14,160,326 shares.
The company recorded share-based payments
expense of $2,547,107 and $11,530 for the three months ended September 30, 2019 and 2018 and $6,474,227 and $3,372,447 for the
nine months ended September 30, 2019 and 2018, respectively.
(a) Stock Options
Stock option activity for the nine months
ended September 30, 2019 is summarized as follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregated
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Life (Years)
|
|
|
Value
|
|
Outstanding at January 1, 2019
|
|
|
1,706,431
|
|
|
$
|
3.28
|
|
|
|
4.08
|
|
|
$
|
-
|
|
Granted
|
|
|
14,325,000
|
|
|
|
1.98
|
|
|
|
8.75
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(83,333
|
)
|
|
|
1.98
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(976,667
|
)
|
|
|
1.98
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at September 30, 2019
|
|
|
14,971,431
|
|
|
$
|
2.13
|
|
|
|
8.72
|
|
|
$
|
-
|
|
Vested and expected to be vested as of September 30, 2019
|
|
|
14,971,431
|
|
|
$
|
2.13
|
|
|
|
8.72
|
|
|
$
|
-
|
|
Options exercisable at September 30, 2019 (vested)
|
|
|
5,529,977
|
|
|
$
|
2.38
|
|
|
|
7.55
|
|
|
$
|
-
|
|
As of September 30, 2019, approximately
$14,255,266 of total unrecognized compensation expense related to non-vested share options is expected to be recognized over a
weighted average period of approximately 1.4 years. The total fair value of shares vested for the nine months ended September 30,
2019 and 2018 was $6,010,085 and $319,001, respectively. Cash received from options exercised during the nine months ended
September 30, 2019 and 2018 was approximately $0 and $2,632, respectively.
(b) Warrants
In connection with the Company’s
financings, the Warner Brother Agreement and the service agreements, the Company issued warrants to service providers to purchase
common stock of the Company. The warrants issued to Warner Brother were expired without exercise on January 31, 2019. The Company
issued warrants to IDV in connection with senior secured convertible notes (See Note 12) and the weighted average exercise price
was $1.84 and the weighted average remaining life was approximately 4.73 years.
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
Outstanding and
|
|
|
Outstanding and
|
|
|
Exercise
|
|
|
Expiration
|
Warrants Outstanding
|
|
Exercisable
|
|
|
Exercisable
|
|
|
Price
|
|
|
Date
|
2014 Broker Warrants (Series E Financing)
|
|
|
-
|
|
|
|
60,000
|
|
|
$
|
1.75
|
|
|
1/31/19
|
$2.05 million IDV Senior Secured Convertible Debenture
|
|
|
1,671,196
|
|
|
|
-
|
|
|
$
|
1.84
|
|
|
2/22/2024
|
$2.5 million IDV Senior Secured Convertible Debenture
|
|
|
2,038,044
|
|
|
|
-
|
|
|
|
1.84
|
|
|
9/27/2024
|
|
|
|
3,709,240
|
|
|
|
60,000
|
|
|
|
|
|
|
|
On September 24, 2018, the Company entered
into employment agreements with three executives. As part of their employment agreements, they are entitled to warrants for an
aggregate of 8,000,000 shares at an exercise price of $5.375 per share (the “Exercise Price”), which is a 25% premium
to the $4.30 per share closing market price of the Company’s common stock on September 7, 2018, the date upon which the terms
of the employment agreements were mutually agreed. In February 2019, the rights to receive warrants were terminated due to the
resignation of three executives.
(c) Restricted Shares
In January 2019, the Company granted 129,840
restricted shares to the two independent directors under the “2010 Plan” which was approved as part of the 2018 independent board compensation plan by the Board of Directors. The restricted shares were all vested immediately since commencement
date. The aggregated grant date fair value of all those restricted shares was $161,001.
A summary of the unvested restricted shares
is as follows:
|
|
|
|
|
Weighted-average
|
|
|
|
Shares
|
|
|
fair value
|
|
Non-vested restricted shares outstanding at January 1, 2019
|
|
|
87,586
|
|
|
$
|
2.46
|
|
Granted
|
|
|
129,840
|
|
|
$
|
1.24
|
|
Forfeited
|
|
|
(3,000
|
)
|
|
$
|
2.60
|
|
Vested
|
|
|
(158,840
|
)
|
|
$
|
1.49
|
|
Non-vested restricted shares outstanding at September 30, 2019
|
|
|
55,586
|
|
|
$
|
2.37
|
|
As of September 30, 2019, there was $33,800
of unrecognized compensation cost related to unvested restricted shares. This amount is expected to be recognized over a weighted-average
period of 0.51 years.
Note 16.
|
Earnings (Loss) Per Common Share
|
Basic earnings (loss) per common share
attributable to our shareholders is calculated by dividing the net earnings (loss) attributable to our shareholders by the weighted
average number of outstanding common shares during the period.
Diluted earnings (loss) per share is calculated
by taking net earnings (loss), divided by the diluted weighted average common shares outstanding. The calculations of basic and
diluted earnings (loss) per share for the three months and nine months ended, 2019 and 2018 are as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Net earnings (loss) attributable to common stockholders
|
|
$
|
(13,711,867
|
)
|
|
$
|
(7,186,847
|
)
|
|
$
|
11,506,861
|
|
|
$
|
(19,228,240
|
)
|
Interest expense attributable to convertible promissory note
|
|
|
-
|
|
|
|
-
|
|
|
|
125,485
|
|
|
|
-
|
|
Net earnings (loss) assuming dilution
|
|
|
(13,711,867
|
)
|
|
|
(7,186,847
|
)
|
|
|
11,632,346
|
|
|
|
(19,228,240
|
)
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
127,609,748
|
|
|
|
74,063,495
|
|
|
|
113,964,933
|
|
|
|
71,574,303
|
|
Effect of dilutive securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Convertible preferred shares- Series A
|
|
|
-
|
|
|
|
-
|
|
|
|
933,333
|
|
|
|
-
|
|
Conversion of restricted shares and employee stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
22,823
|
|
|
|
-
|
|
Convertible promissory notes
|
|
|
-
|
|
|
|
-
|
|
|
|
2,777,687
|
|
|
|
-
|
|
Contingently issuable shares
|
|
|
-
|
|
|
|
-
|
|
|
|
621,117
|
|
|
|
-
|
|
Diluted potential common shares
|
|
|
127,609,748
|
|
|
|
74,063,495
|
|
|
|
118,319,893
|
|
|
|
71,574,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.11
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.27
|
)
|
Diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.27
|
)
|
In 2018, diluted net loss per share equals
basic net loss per share because the effect of securities convertible into common shares was anti-dilutive. The following table
includes the number of shares that may be dilutive potential common shares in the future. The holders of these shares do not have
a contractual obligation to share in our earnings (losses) and thus these shares were not included in the computation of diluted
earnings (loss) per share because the effect was antidilutive.
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Warrants
|
|
|
3,709,240
|
|
|
|
60,000
|
|
|
|
3,709,240
|
|
|
|
60,000
|
|
Options
|
|
|
14,971,431
|
|
|
|
1,797,017
|
|
|
|
14,965,598
|
|
|
|
1,797,017
|
|
Series A Preferred Stock
|
|
|
933,333
|
|
|
|
933,333
|
|
|
|
-
|
|
|
|
933,333
|
|
Convertible promissory note and interest
|
|
|
12,417,909
|
|
|
|
10,227,507
|
|
|
|
9,324,911
|
|
|
|
10,227,507
|
|
Total
|
|
|
32,031,913
|
|
|
|
13,017,857
|
|
|
|
27,999,749
|
|
|
|
13,017,857
|
|
During the nine months ended September
30, 2019, the Company recorded an income tax benefit of $513,935, $152,876 resulting from losses of Grapevine Logic, Inc. offsetting
deferred tax liabilities that were recognized on the acquisition of Grapevine Logic, Inc. and a $361,059 reduction of the valuation
allowance on Ideanomics, Inc. deferred tax assets in excess of those reversed to offset Ideanomics, Inc.’s income. The reduction
in valuation allowance resulted from Ideanomics, Inc.’s acquisition of additional ownership interests in Grapevine Logic,
Inc. which caused Grapevine Logic, Inc. to be included in a consolidated tax return with Ideanomics, Inc. beginning June 30, 2019.
This meant that $361,059 of Ideanomics, Inc.’s deferred tax assets could be utilized to offset Grapevine Logic Inc.’s
remaining deferred tax liabilities. This resulted in an effective tax rate of (4.43%). The effective tax rate for the nine months
ended September 30, 2019 differs from the U.S. statutory tax rate primarily due to the effect of taxes on foreign earnings, non-deductible
expenses and the reduction in the beginning of the year deferred tax valuation allowance.
As of September 30, 2019, the Company
had approximately $9.9 million of the U.S domestic cumulative tax loss carryforwards and approximately $30.9 million of the foreign
cumulative tax loss carryforwards which may be available to reduce future income tax liabilities in certain jurisdictions. The
remaining 2018 U.S. tax loss is not subject to expiration under the new Tax Law. The foreign tax loss carryforwards will expire
beginning year 2019 through 2023.
There was no identified unrecognized tax
benefit as of September 30, 2019. We are not aware of any unrecorded tax liabilities which would impact our financial position
or our results of operations.
Note 18.
|
Contingencies and Commitments
|
Lawsuits and Legal Proceedings
From time to time, we 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 our business.
Shareholder Class Action
On July 19, 2019, a purported class action,
captioned Jose Pinto Claro Da Fonseca Miranda v. Ideanomics, Inc., was filed in the United States District Court for the
Southern District of New York against the Company and certain of its current and former officers. While the Company believes
that the Class Action is without merit and plans to vigorously defend itself against these claims, there can be no assurance that
the Company will prevail in the lawsuits. The Company cannot currently estimate the possible loss or range of losses, if any,
that it may experience in connection with these litigations.
Note 19.
|
Concentration, Credit and Other Risks
|
(a) PRC Regulations
The PRC market in which the Company operates
poses certain macro-economic and regulatory risks and uncertainties. These uncertainties extend to the ability of the Company to
conduct wireless telecommunication services through contractual arrangements in the PRC since the industry remains highly regulated.
The Company conducts legacy YOD business in China through a series of contractual arrangements (See Note 4). The Company believes
that these contractual arrangements are in compliance with PRC law and are legally enforceable. If Sinotop Beijing, SSF or their
respective legal shareholders fail to perform the obligations under the contractual arrangements or any dispute relating to these
contracts remains unresolved, we can enforce its rights under the VIE contracts through PRC law and courts. However, uncertainties
in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements. In particular, the interpretation
and enforcement of these laws, rules and regulations involve uncertainties. If we had direct ownership of Sinotop Beijing and SSF,
we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Sinotop Beijing or SSF,
which in turn could affect changes at the management level, subject to any applicable fiduciary obligations. However, under the
current contractual arrangements, the Company relies on Sinotop Beijing, SSF and their respective legal shareholders to perform
their contractual obligations to exercise effective control. The Company also gives no assurance that PRC government authorities
will not take a view in the future that is contrary to the opinion of the Company. If the current ownership structure of the Company
and its contractual arrangements with the VIEs and their equity holders were found to be in violation of any existing or future
PRC laws or regulations, the Company's ability to conduct its business could be affected and the Company may be required to restructure
its ownership structure and operations in the PRC to comply with the changes in the PRC laws which may result in deconsolidation
of the VIEs.
From time to time the PRC government imposes
regulations that limit the amount and timing of foreign payments from companies operating in the PRC. Our ability to repatriate
cash held in the PRC, or obtain funding from sources in the PRC, may be restricted by such regulations.
In addition, the telecommunications, information
and media industries remain highly regulated. Restrictions are currently in place and are unclear with respect to which segments
of these industries foreign owned entities, like YOD WFOE, may operate. The PRC government may issue from time to time new laws
or new interpretations on existing laws to regulate areas such as telecommunications, information and media, some of which are
not published on a timely basis or may have retroactive effect. For example, there is substantial uncertainty regarding the Draft
Foreign Investment Law, including, among others, what the actual content of the law will be as well as the adoption and effective
date of the final form of the law. Administrative and court proceedings in China may also be protracted, resulting in substantial
costs and diversion of resources and management attention. While such uncertainty exists, the Company cannot assure that the new
laws, when it is adopted and becomes effective, and potential related administrative proceedings will not have a material and adverse
effect on the Company's ability to control the affiliated entities through the contractual arrangements. Regulatory risk also encompasses
the interpretation by the tax authorities of current tax laws, and the Company’s legal structure and scope of operations
in the PRC, which could be subject to further restrictions resulting in limitations on the Company’s ability to conduct business
in the PRC.
(b) Major Customers
For the nine months ended September 30,
2018, one customer individually accounted for more than 10% of the Company’s revenue from third parties. One customer individually
accounted for more than 10% of the Company’s net accounts receivables as of September 30, 2018, respectively.
For the nine months ended September 30,
2019, one customer individually accounted for more than 10% of the Company’s revenue. One customer individually accounted
for more than 10% of the Company’s net accounts receivables as of September 30, 2019, respectively.
(c) Major Suppliers
For the nine months ended September 30,
2018, two suppliers individually accounted for more than 10% of the Company’s cost of revenues. Two suppliers individually
accounted for more than 10% of the Company’s accounts payable and amount due to related parties as of September 30, 2018.
For the nine months ended September 30,
2019, one supplier individually accounted for more than 10% of the Company’s accounts payable as of September 30, 2019.
(d) Concentration of Credit Risks
Financial instruments that
potentially subject the Company to significant concentration of credit risk primarily consist of cash and accounts
receivable. As of September 30, 2019 and December 31, 2018, the Company’s cash was held by financial institutions
(located in the PRC, Hong Kong, the United States and Singapore) that management believes have acceptable credit. Accounts
receivable are typically unsecured and are mainly derived from revenues from Mobile Energy Group (formerly Wecast Services).
The risk with respect to accounts receivable is mitigated by regular credit evaluations that the Company performs on its
distribution partners and its ongoing monitoring of outstanding balances.
(e) Foreign Currency Risks
We have certain operating transactions
that are denominated in RMB and a portion of the Company’s assets and liabilities that is denominated in RMB. RMB is not
freely convertible into foreign currencies. The value of the RMB is subject to changes in the central government policies and to
international economic and political developments. In the PRC, certain foreign exchange transactions are required by laws to be
transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”).
Remittances in currencies other than RMB by the Company in China must be processed through PBOC or other China foreign exchange
regulatory bodies which require certain supporting documentation in order to complete the remittance.
Cash consist of cash on hand and demand
deposits at banks, which are unrestricted as to withdrawal.
Time deposits, which mature within one
year as of the balance sheet date, represent interest-bearing certificates of deposit with an initial term of greater than three
months when purchased. Time deposits which mature over one year as of the balance sheet date are included in non-current assets.
Cash and time deposits maintained at banks
consist of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
RMB denominated bank deposits with financial institutions in the PRC
|
|
$
|
110,005
|
|
|
$
|
1,523,622
|
|
US dollar denominated bank deposits with financial institutions in the PRC
|
|
$
|
30,666
|
|
|
$
|
133,053
|
|
HKD denominated bank deposits with financial institutions in Hong Kong Special Administrative Region (“HK SAR”)
|
|
$
|
17,985
|
|
|
$
|
13,133
|
|
US dollar denominated bank deposits with financial institutions in Hong Kong Special Administrative Region (“HK SAR”)
|
|
$
|
13,708
|
|
|
$
|
44,182
|
|
US dollar denominated bank deposits with financial institutions in Singapore (“Singapore”)
|
|
$
|
569,707
|
|
|
$
|
697,099
|
|
SGD denominated bank deposits with financial institutions in Singapore
|
|
$
|
70,432
|
|
|
|
-
|
|
US dollar denominated bank deposits with financial institutions in The United States of America (“USA”)
|
|
$
|
874,093
|
|
|
$
|
695,155
|
|
Total
|
|
$
|
1,686,596
|
|
|
$
|
3,106,244
|
|
As of September 30, 2019 and December 31,
2018, deposits of $855,915 and $0 were insured. To limit exposure to credit risk relating to bank deposits, the Company primarily
places bank deposits only with large financial institutions in the PRC, HK SAR, USA, Singapore and Cayman with acceptable credit
rating.
(f) Digital Currency Risks
As of September 30, 2019, the Company holds
7,294,555 GTB, 2,763 Bitcoins and 21,312 Ethereum. These Bitcoins and Etheruem represent GTB denominated in Bitcoin & Etheruem and not direct holdings
of Bitcoin and Etheruem. The risks related to our holdings of GTB including:
·
|
Digital currency is highly volatile due to the limited trading history, and singular currency exchange platform;
|
·
|
Under the circumstances where governments prohibit or effectively prohibit the trading of digital currency, this will significantly impact the financial statements of the Company since the digital currency market is currently largely unregulated; and
|
·
|
To date the company has not been able to convert any of its crypto currency holdings to fiat. The Asia
EDX exchange has indicated that it continues work towards providing exchangeability for coins held on the exchange into fiat. Management
is unable to give any assurance as to when, if ever, the Asia EDX exchange will permit conversion of the company’s crypto
currency holdings into fiat.
|
Note 20.
|
Defined Contribution Plan
|
For our U.S. employees, during 2019, the
Company introduced a new 401(k) defined contribution plan which provides 100% employer matching up to 4% of each employee’s
pay. Employee is eligible to participate after six months of employment. Company 401(k) matching contributions were approximately
$8,700 and $487 for the three months ended September 30, 2019 and 2018 and $8,700 and $3,242 for the nine months ended September
30, 2019 and 2018, respectively.
Full time employees in the PRC participate
in a government-mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance,
employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Company to make contributions
based on certain percentages of the employees’ basic salaries. Other than such contributions, there is no further obligation
under these plans. The total contribution for such PRC employee benefits was $113,654 and $235,811 for the three months ended September
30, 2019 and 2018 and $267,868 and $607,872 for the nine months ended September 30, 2019 and 2018, respectively.
Note 21.
|
Segments and Geographic
Areas
|
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.
We operate our business in two
operating segments: Legacy YOD and Mobile Energy Group (formerly Wecast Services). Segment disclosures are on a performance
basis consistent with internal management reporting. The Company does not allocate expenses below segment gross profit since
these segments share the same executive team, office space, occupancy expenses, information technology infrastructures, human
resources and finance department.
Information about segments during the periods
presented were as follows:
|
|
Nine Months Ended
|
|
|
|
September 30,
2019
|
|
|
September 30,
2018
|
|
Revenue
|
|
|
|
|
|
|
|
|
-Legacy YOD
|
|
$
|
-
|
|
|
$
|
-
|
|
-Mobile Energy Group (formerly Wecast Services)
|
|
|
44,503,562
|
|
|
|
362,628,296
|
|
Total revenue
|
|
|
44,503,562
|
|
|
|
362,628,296
|
|
Cost of revenue
|
|
|
|
|
|
|
|
|
-Legacy YOD
|
|
|
-
|
|
|
|
-
|
|
-Mobile Energy Group (formerly Wecast Services)
|
|
|
1,217,184
|
|
|
|
359,839,565
|
|
Gross profit
|
|
$
|
43,286,378
|
|
|
$
|
2,788,731
|
|
|
|
September 30,
2019
|
|
|
December 31,
2018
|
|
TOTAL ASSETS
|
|
|
|
|
|
|
|
|
-Legacy YOD
|
|
$
|
635,128
|
|
|
$
|
26,442,810
|
|
-Mobile Energy Group (formerly Wecast Services)
|
|
|
164,128,548
|
|
|
|
51,592,929
|
|
-Unallocated assets
|
|
|
-
|
|
|
|
16,199,373
|
|
Total
|
|
$
|
164,763,676
|
|
|
$
|
94,235,112
|
|