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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2020

◻     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                         to                        

Commission File No. 001-35561

IDEANOMICS, INC.

(Exact name of registrant as specified in its charter)

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1441 Broadway, Suite 5116, New York, NY 10018

(Address of principal executive offices)

(212) 206-1216

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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Securities registered pursuant to Section 12(g) of the Exchange Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ⌧      No ◻

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ◻      No ⌧

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ⌧      No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ⌧      No ◻

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ◻ No ⌧

As of June 30, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter as of the original date of this filing), the market value of the shares of the registrant’s common stock held by non-affiliates (based upon the closing price of shares as reported by Nasdaq) was approximately $388,199,635. Shares of the registrant’s common stock held by each executive officer and director and each by each person who owns 10% or more of the outstanding common stock have excluded from the calculation in that such persons may be deemed to be affiliates of the registrant. This determination affiliate status is not necessarily a conclusive determination for other purposes.

There were a total of 419,314,800 shares of the registrant’s common stock outstanding as of March 29, 2021.

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DOCUMENTS INCORPORATED BY REFERENCE

None.

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IDEANOMICS, INC.

Annual Report on FORM 10-K

For the Fiscal Year Ended December 31, 2020

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Special Note Regarding Forward Looking Statements

In addition to historical information, this report contains forward-looking statements within the meaning of Section 27A of the Securities Act (as defined below), and Section 21E of the Exchange Act (as defined below). We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning our transition to become a next-generation financial technology company; our expectations regarding the market for our new and existing products and industry segment growth; our expectations regarding demand for and acceptance of our new and existing products or services; our expectations regarding our partnerships and joint ventures, acquisitions, investments; our beliefs regarding the potential benefits and opportunities from integrating digital artificial intelligence and blockchain technology as part of our product and services offerings; our business strategies and goals; any projections of sales, earnings, revenue, margins or other financial items; any statements regarding the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in the PRC; and all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including, and without limitation, those identified in Item 1A—“Risk Factors” included herein, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements included herein are made as of the date of this report. We undertake no obligation to update any of these forward-looking statements, whether written or oral, that may be made, from time to time, after the date of this report to conform our prior statements to actual results or revised expectations.

Use of Terms

Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” “our Company,” “the Company,” “IDEX,” or “Ideanomics,” are to the business of Ideanomics, Inc. (formerly known as “Seven Star Cloud Group, Inc.,” “SSC” and “Wecast Network, Inc.,”) a Nevada corporation, and its consolidated subsidiaries and variable interest entities.

In addition, unless the context otherwise requires and for the purposes of this report only:

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Each operating company within Ideanomics Mobility offers its own unique products and participates in a shared services ecosystem fulfilling Ideanomics’ Sales-to-Financing-to-Charging (“S2F2C”) model, with centralized supply chain operations and marketing expertise designed to accelerate growth and business opportunities across the group.

The combination of products from within its subsidiaries and investments, coupled with Ideanomics Mobility’s shared services, will provide the Company with the opportunity to bring to market unique business solutions intended to drive commercial fleet electrification such as Charging-as-a-Service and Vehicle-as-a-Service. These solutions offer fleet operators an opportunity to benefit from an OpEx-driven model which lowers the barrier to entry for the adoption of zero emissions fleets.

The Company believes that the EV market is poised for rapid growth.  Bloomberg NEF estimates that global commercial EV sales will reach 1.2 million units in 2023. The global EV charging infrastructure market is expected to grow at a compound annual growth rate of 33.4% from 2021 to 2028 to $144.97 billion. President Biden’s administration is supportive of EV with a goal to achieve a 100% clean-energy economy and states such as California have accelerated timelines to phase out internal combustion engine (“ICE”) vehicles.

Ideanomics Mobility’s mission is to leverage its ecosystem of synergistic operating companies to generate efficiencies and increase business opportunities across the group. With a diverse commercial EV product offering, the company plans to use EV and EV battery sales and financing solutions to attract commercial fleet operators that will generate large scale demand for energy. The Company operates as an end-to-end solutions provider for the procurement, financing, charging and energy management needs for fleet operators of commercial EV. Ideanomics Mobility focuses on commercial EV rather than passenger personal EV, as commercial EV is on an accelerated adoption path when compared to consumer EV adoption – which is expected to take between ten to fifteen years. We focus on four distinct commercial vehicle types with supporting income streams: 1) Closed-area heavy commercial, in sectors such as Mining, Airports, and Sea Ports 2) Last-mile delivery light commercial 3) Buses and Coaches 4) Taxis. The vehicle financing solutions (such as purchase or leasing) would generate fee-based revenues whereas the charging and energy management would yield recurring revenue streams.

Ideanomics Mobility’s revenues are generated from its S2F2C operating model. The Company’s planned EV revenues will come from the sale of EVs under our Medici Motor Works and Treeletrik brands outside of the China and within China through our MEG operating units sale of other manufacturers vehicles and batteries.

The Company’s presence in the China market creates a deep knowledge of the logistics and supply chain for the manufacture of EVs, batteries and related components; this in turn enables the sourcing of high quality components at competitive prices for the Company’s operations outside of China.

Within the Ideanomics Mobility business unit there are four operating companies:

Mobile Energy Global (“MEG”)

The Company’s MEG business operates in China where government clean air regulations and subsidy programs provide a strong impetus for the adoption of commercial EV.  The Company competes in China using its S2F2C. Using this model the Company helps the customer find the best vehicle for its needs and earns fees for every completed sale; revenue is derived from the spread between group buying of vehicles and price sold, fees for the arrangement of financing, and payments from subsequent charging and energy management.

Tree Technologies Sdn. Bhd. (“Tree Technologies”)

Tree Technologies is headquartered in Kuala Lumpur, Malaysia and through its Treeletrik brand sells EV bikes, scooters, and batteries throughout the ASEAN region. Two-wheel bikes and scooters form a large part of the transport infrastructure in the ASEAN region; according to Deloitte Consulting, there were 13.7 million motor bikes sold in the six major ASEAN countries in 2019. Environmental regulations in the ASEAN region help accelerate the adoption of EV bikes. The Company has also started to import Treeletrik brand EV bikes into the United States.

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Medici Motor Works

Medici Motor Works plans to sell its own brand vehicles in the United States, Latin America and Europe. Presently, the Company is working with manufacturers based in China to design and build trucks, buses and closed-area vehicles for mining, airports and seaports.

Solectrac, Inc. (“Solectrac”)

On October 21, 2020 the Company acquired 15%, and on November 23, 2020 the Company subsequently increased its ownership to 24% in California-based Solectrac, Inc.  Solectrac develops, assembles and distributes 100% battery-powered electric tractors—an alternative to diesel tractors—for agriculture and utility operations.

According to Research And Markets, the global agricultural tractor market is currently valued at $75 billion, with the North American agricultural tractor market expected to reach $20 billion by 2023. The largest segment for agricultural tractors is the below-40HP segment, where Solectrac's initial three models address the broad needs of the market. Its tractors are specifically designed to serve the needs of community-based farms, vineyards, orchards, equestrian arenas, greenhouses, and hobby farms.

Founded in 2012 to take electric tractors into commercial production, Solectrac was incorporated as a California Benefit Corp in 2019. It has received grants from the Indian U.S. Science and Technology Fund and the National Science Foundation. In 2020, Solectrac received the World Alliance Solar Impulse Efficient Solutions label from the Solar Impulse Foundation. The label was awarded for being one of the one thousand most efficient and profitable solutions that can transition society to being economically viable while being environmentally sustainable.

Recent Developments Since December 31, 2020

Since December 31, 2020 the Company has completed a number of transactions that have expanded the scope of the Company’s EV activities.

WAVE

On January 15, 2021 acquired 100% of privately held Wireless Advanced Vehicle Electrification, Inc. ("WAVE.")

Founded in 2011, and headquartered in Salt Lake City, Utah, WAVE is a leading provider of inductive (wireless) charging solutions for medium and heavy-duty EVs. Embedded in roadways and depot facilities, the WAVE system automatically charges vehicles during scheduled stops. The hands-free WAVE system eliminates battery range limitations and enables fleets to achieve driving ranges that match that of internal combustion engines.

Deployed since 2012, WAVE has demonstrated the capability to develop and integrate high-power charging systems into heavy-duty EVs from leading commercial EV manufacturers. With commercially available wireless charging systems up to 250kW and higher power systems in development, WAVE provides custom fleet solutions for mass transit, logistics, airport and campus shuttles, drayage fleets, and off-road vehicles at ports and industrial sites.

Wireless charging systems offer several compelling benefits over plug-in-based charging systems, including reduced maintenance, improved health and safety, and expedited energy connection and are important to the deployment of autonomous driving vehicles. Furthermore, wireless in-route charging enables greater route lengths or smaller batteries while also maintaining battery life, thereby reducing costs for fleet operators. WAVE customers include what is currently the largest EV bus system in the U.S., the Antelope Valley Transit Authority, and its partnerships include Kenworth, Gillig, BYD, Complete Coach Works and the Department of Energy.

Energica Motor Company, S.P.A. (“Energica”)

On March 3, 2021 the Company purchased 20% of Energica, the world's leading manufacturer of high-performance electric motorcycles and the sole manufacturer of the FIM Enel MotoE™ World Cup. Energica has combined zero emission EV technology with the pedigree of high-performance mobility synonymous with Italy’s Motor Valley to create a range of exceptional products for the high-performance motorcycle market. To support its products, it has developed proprietary EV battery and DC fast-charging in-house that has applications and synergies with Ideanomics’ broader interests in the global EV sector.

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Silk EV Cayman LP (“Silk”)

On January 28, 2021, the Company invested $15.0 million in Silk EV via a promissory note.  Silk is an Italian engineering and design services company that has recently partnered with FAW to form a new company (Silk-FAW) to produce fully electric, luxury vehicles for the Chinese and Global auto markets. Silk-FAW has exclusive rights to develop Hongqi-S brand high-end electric sports cars. The Hongqi brand is the most well-known luxury auto brand in China. Silk-FAW vehicles are being designed in Italy’s Motor Valley and is attracting talent from the luxury and high-performance auto market.  Partnering with Silk provides access to Silk-FAW’s Innovation Centers providing us insight into technological advancements and all best-in-breed technology evaluated at those centers to support the development of high-performance sportscars (battery tech, power management systems, high performance motors.)

Ideanomics Capital

Ideanomics Capital is the Company's fintech business unit, which focuses on leveraging technology and innovation to improve efficiency, transparency, and profitability for the financial services industry.

Technology Metals Market Limited (“TM2”)

TM2 is a London based digital commodities issuance and trading platform for technology metals. It connects institutional investors, proprietary traders and retail investors with metals suppliers – miners, refiners, recyclers and mints. The platform focuses specifically on new metals that currently don’t have an active trading marketplace, such as rhodium, lithium, cobalt, rhenium, etc. The Company’s ownership interest in TM2 provides valuable data and insight into the global technology metals market, which is critical to the future of the Cleantech and EV industries. TM2 connects both pillars of Cleantech and Fintech. The types of metals and materials traded on the TM2 platform are critical to Cleantech (for EV battery production, energy storage systems, solar cells, etc.,) while the Fintech platform is innovative in representing these commodities which do not exist on traditional exchanges.

On January 28, 2021, the Company entered into a simple agreement for future equity with TM2 pursuant to which Ideanomics invested $2.1 million. This investment is a follow-on investment further the Company’s prior investment of $1.2 million in stock-based consideration in December 2019.

Delaware Board of Trade (“DBOT”)

The Delaware Board of Trade (“DBOT”) is a broker dealer that also operates an Alternative Trading System (“ATS,”) presently DBOT is not trading; the business remains in full regulatory compliance. Recent developments have pointed to increased recognition of digital securities’ relevance in regulated global capital markets. As well, regulatory easing of certain restrictions such as the threshold for private securities (Reg A+), along with good demand for products such as pre-IPO issuance, provide good tailwind for the broker dealers business.  The Company has filed a continuing membership application for private placement activities in the primary markets. The Company believes that growing demand for private placements, along with increased attention in digital securities, provide a favorable environment for DBOT’s future growth.

Timios

On January 8, 2021 the Company acquired 100% of privately-held Timios Holdings Corp. ("Timios.") Timios, a nationwide title and escrow services provider, which has been expanding in recent years through offering innovative and freedom-of-choice-friendly solutions for real estate transactions. The products include residential and commercial title insurance, closing and settlement services, as well as specialized offerings for the mortgage process industry.

Ideanomics expects that Timios will become one of the cornerstones of Ideanomics Capital. Timios combines difficult to obtain local and state licenses, a knowledgeable and experienced team, and a scalable platform to deliver best-in-class services through both centralized processing and localized branch networks. Ideanomics will assist Timios in scaling its business in various ways, including referring client acquisitions and product innovation.

Founded in 2008 by real estate industry veteran Trevor Stoffer, Timios' vision is to bring transparency to real estate transactions. The company offers title and settlement, appraisal management, and real-estate-owned (“REO”) title and closing services in 44 states and currently serves more than 280 national and regional clients.

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Non-Core Assets

The Company has identified a number of business units that it considers non-core and is evaluating strategies for divesting these assets. The non-core assets are Grapevine, a marketing and ecommerce platform focused on influencer marketing, and FinTech Village a 58-acre development site in West Hartford, Connecticut.

On January 28, 2021, the Company’s Board of Directors accepted an offer of $2.75 million for Fintech Village, and subsequently signed a non-binding sale contract on March 15, 2021.  The Company believes that Fintech Village met the criteria for held for sale classification on January 28, 2021.

Sources and Availability of Raw Materials

The Company’s Tree Technologies business located in Malaysia and its WAVE business located in Utah, United States, (acquired in the first quarter of 2021 – see Recent Developments section) assemble and manufacture motor bikes and inductive charging systems respectively. These businesses depend on a ready supply of components that are sourced domestically and internationally and any interruption to the supply of components could have an adverse impact on the Company’s results. The Company’s suppliers that manufacture EVs and batteries depend on a ready supply of raw materials and components, consequently a shortage of raw materials or components could adversely impact their manufacturing process and, potentially, impact the Company’s revenues as it may not be able to complete orders that it had received.  The Company may also be adversely impacted if global logistic and supply chains are interrupted.

Seasonality

The Company expects that orders and sales will be influenced by the amount and timing of budgeted expenditure by its customers. Typically, the Company would expect to see higher sales at the start of the year when companies start executing on their capital programs and at the end of the year when companies are spending any surplus or uncommitted budget before the new budget cycle commences. The Company’s operating businesses are in the early stage of their development and consequently do not have sufficient trading histories to project seasonal buying patterns with any degree of confidence.

Working Capital Requirements

As the Company expands its business the need for working capital will continue to grow.  From time to time the Company’s MEG operating division in China has the opportunity to purchase a large number of vehicles at a favorable price, the terms of the purchase contract frequently require the Company to pay some or all of the cost in advance of the delivery of the vehicles with the resultant need to commit material amounts of working capital.  The Company’s Tree Technologies subsidiary requires working capital to support the assembly of EV motor bikes and scooters for the ASEAN market. The Company acquired WAVE and Solectrac in the first quarter of 2021 (see the Recent Developments section), both of these businesses will require working capital to fund the purchase of components for the assembly of wireless charging systems and electric tractors, respectively. The Company will continue to raise both debt and equity capital to support the working capital needs of these businesses and its U.S. Head Office functions.

Trade marks, Patents and Licenses

The Company’s Intelligenta business operates under a license granted by Seasail Ventures Limited (“Seasail.”) The license does not have a stated term.

Customer Concentration

The Company is in the process of building out its Ideanomics Mobility unit and has not yet reached a stage of development where the loss of any single customer would have a material adverse effect on the Company.

Reliance on Government Contracts

The Company does not contract directly with the government of the PRC, however it does have investments, partnerships and agreements with the State Own Entities (“SOE”) described above. Additionally, the rate at which commercial fleets convert to EV is heavily

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influenced by federal and provincial policies in the PRC as they relate to clean air and adoption of EV technology. Consequently, the Company’s results may be adversely impacted by changes in regulations in the PRC.

Competitive Business Conditions, Competitive Position in the Industry and Methods of Competition

Ideanomics Mobility

Purchasers of commercial vehicles have the choice between traditional ICE vehicles and EVs and this is likely to continue for at least the next five years and possibly longer. The most important drivers for the development of the commercial fleet EV market are federal and provincial regulations relating to clean air and electronic vehicles including subsidies and incentives to help owners of fleets of commercial vehicles to convert from combustion engines to EV. The speed at which fleet operators convert to EV is highly correlated with government regulations, targets and related subsidies and incentives. If the governments, or municipalities, change the regulations, targets, incentives or subsidies then the rate at which fleet operators convert their vehicles to EV could slow down which in turn may lead to lower revenues for the Company. Additionally, the rate, and form in which, the commercial fleet EV market develops is dependent upon technological developments in battery and charging systems; deployment of the charging infrastructure to support widespread commercial EV use and the development of new financing and lending structures that address the different collateral and resale values of the battery and vehicle versus internal combustion engine vehicles.

In addition to its directly owned operations the Company operates through a network of investment arrangements, partnerships and formal and informal alliances; consequently, its competitive position could be adversely impacted if one of the members of the alliance was not able to meet the demand for its products, decides not to continue to cooperate with the Company, or goes out of business.

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Ideanomics Capital

The Company’s Ideanomics Capital business unit operates in sectors that are undergoing rapid change.

DBOT is a broker dealer that also operates an ATS. In April 2020 the Company ceased trading OTC equities, terminated the employees assigned to DBOT and the services needed to operate the business. The Company has continued to maintain DBOT’s regulatory licenses and required regulatory capital. The Company has applied for regulatory approval to broker digital securities and tokens, this is a nascent market which the Company believes has good long term potential.

Corporate Structure

The following chart depicts our corporate structure as of December 31, 2020:

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VIE Structure and Arrangements

The Company consolidated certain VIEs located in the PRC in which it held variable interests and was the primary beneficiary through contractual agreements. The Company was the primary beneficiary because it had the power to direct activities that most significantly affected their economic performance and had the obligation to absorb or right to receive the majority of their losses or benefits. The results of operations and financial position of these VIEs are included in the consolidated financial statements for the year ended December 31, 2019. A shareholder in one of the VIEs is the spouse of Bruno Wu (“Dr. Wu,”) the former Chairman of the Company.

Refer to Note 10 of the Notes to Consolidated Financial Statements included in Part IV, Item 8 of this Annual Report on Form 10-K for further information.

The contractual agreements listed below, which collectively granted the Company the power to direct the VIEs activities that most significantly affected their economic performance, as well to cause the Company to have the obligation to absorb or right to receive the majority of their losses or benefits, were terminated by all parties on December 31, 2019. As a result, the Company deconsolidated the VIEs as of December 31, 2019. The deconsolidation resulted in a net loss of $2.0 million recorded in “Gain (loss) on disposal of subsidiaries, net” in the consolidated statements of operations, and a statutory income tax of $0.2 million in the year ended December 31, 2019.

For these consolidated VIEs, their assets were not available to the Company and their creditors did not have recourse to the Company. Prior to December 31, 2019, in order to operate certain legacy business in the PRC and to comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provides value-added telecommunication services, the Company entered into a series of contractual agreements with two VIEs. These contractual agreements were initially set to expire in March 2030 and April 2036, respectively, and could not be terminated by the VIEs, except with the consent of, or a material breach, by the Company. A shareholder in one of the VIEs is the spouse of Dr. Wu, the former Chairman of the Company.

The key terms of the VIE Agreements are summarized as follows:

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Our Unconsolidated Equity Investments

We hold a 34.0% ownership interest in Glory, which through its subsidiary Tree Manufacturing, holds a domestic EV manufacturing license in Malaysia. Tree Manufacturing had entered into a product supply and a product distribution arrangement for EVs with Tree Technologies, a consolidated subsidiary of the Company.

In 2018, we signed an investment agreement to establish Intelligenta for providing services for financial or energy industries by utilizing AI and big data technology in the United States.  We hold a 60.0% ownership interest and Seasail holds 40% of Intelligenta.  

On October 22, 2020, the Company acquired 1.4 million common shares, representing 15.0% of the total common shares outstanding, of Solectrac for a purchase price of $0.91 per share, for total consideration of $1.3 million.  On November 19, 2020, Ideanomics acquired an additional 1.3 million shares of common stock for $1.00 per share, for a subsequent investment of $1.3 million.  With this subsequent investment, Ideanomics owned 2.7 million common shares out of a total number of issued and outstanding common shares of 10.2 million after the transaction, or 27.0%.  

Solectrac develops, assembles and distributes 100% battery-powered electric tractors-an alternative to diesel tractors-for agriculture and utility operations. Solectrac tractors provide an opportunity for farmers around the world to power their tractors by using the sun, wind, and other clean renewable sources of energy.

Our investments in Glory, BDCG and Solectrac, where we may exercise significant influence, but not control, are classified as a long-term equity investments and accounted for using the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for our share of undistributed earnings or losses of the investee. Investment losses are recognized until the investment is written down to nil, provided that we do not guarantee the investee’s obligations or we are committed to provide additional funding.

In the years ended December 31, 2020 and 2019, the Company recorded impairment losses with respect to its equity method investments of $16.6 million and $13.1 million, respectively.

Refer to Note 10 of the Notes to Consolidated Financial Statements included in Part IV, Item 8 of this Annual Report on Form 10-K for further information.

Our Competition

Ideanomics Mobility Business Unit

The Company’s EV business operates in the market for fleet commercial vehicles, this market is still in its development stage. The Company could face competition from other companies that develop and operate a similar integrated platform for the procurement, purchase, financing, charging and energy management needs of fleet EV operators. The Company could also face competition from companies that only operate in one part of the vehicle purchase and operation cycle, for example, an EV vehicle or battery manufacturer may sell directly to EV fleet operators while also participating in the platform operated by the Company’s MEG business.

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Other

Grapevine competes in the consumer marketing sector and specializes in designing and managing “influencer” led social media campaigns for brands and advertising agencies that do not have a capability to manage influencer marketing campaigns directly. This is a very competitive sector with multiple competitors.

Revenue Recognition

The Company records and reports revenues in accordance with generally accepted accounting principles in the U.S., particularly ASC 606,  Revenue from Contracts with Customers which provides guidance on how revenues should be reported and the timing of when revenues should be reported. ASC 606 includes guidance on when revenue should be recognized on a Gross (Principal) or Net (Agent) basis, the Company’s contracts are typically with large enterprises and consequently are heavily negotiated as to the services to be provided; consequently the accounting treatment for the reporting of revenues may vary materially between contracts including whether the revenue is reported on a Principal (Gross) or Agent (Net) basis.

Regulation

General Regulation of Businesses in the PRC

We are required to obtain government approval from or filing with the Ministry of Commerce of the PRC (“MOFCOM”) and/or other government agencies in the PRC for transactions, such as our acquisition or disposition of business entities in the PRC. Additionally, foreign ownership of certain business and assets in the PRC is not permitted without specific government approval.

Investment activities in the PRC by foreign investors are principally governed by the Special Administrative Measures for Access of Foreign Investment (Negative List) ("Negative List") and the Catalogue of Industries for Encouraged Foreign Investment ("Encouraged Foreign Investment Catalogue," together with the Negative List, the "Catalogue,") which was promulgated and is amended from time to time by the MOFCOM and the National Development and Reform Commission. The Catalogue sets forth the industries in which foreign investments are encouraged, restricted, or prohibited. Industries that are not listed in any of the above three categories are permitted areas for foreign investments and are generally open to foreign investment unless specifically restricted by other PRC regulations. Establishment of wholly foreign owned enterprises is generally allowed in encouraged and permitted industries. Foreign investors are not allowed to invest in industries in the prohibited category.

Under PRC law, the establishment of a wholly foreign owned enterprise is subject to the approval of or filing with the MOFCOM or its local counterparts and the wholly foreign owned enterprise must register with the competent administration for market regulation. Our significant PRC subsidiaries have duly obtained all material approvals required for their business operations.

In addition, the transportation sector is subject to regulation at the central and provincial level. The PRC government may issue from time to time new laws or new interpretations on existing laws, some of which are not published on a timely basis or may have retroactive effect. Administrative and court proceedings in the PRC may also be protracted, resulting in substantial costs and diversion of resources and management attention.. Regulatory risk also encompasses the interpretation by the tax authorities of current tax laws, and our legal structure and scope of operations in the PRC, which could be subject to further restrictions resulting in limitations on our ability to conduct business in the PRC.

Chinese regulations will also significantly impact our MEG business unit. For example, in September 2017, reports were published that the PRC may begin prohibiting the practice of using digital assets for capital fundraising. In 2018, reports surfaced that the PRC had banned local digital asset exchanges from operating within the country. On January 10, 2019, the Cyberspace Administration of China passed the Administrative Provisions on Blockchain Information Services (“Provisions on Blockchain,”) which took effect on February 19, 2019. The Provisions on Blockchain clarify terms of the scope of blockchain information services, the filing process for blockchain information services, the responsibilities for blockchain information service providers, and the consequences of violations. Until there is greater regulatory clarity and acceptance of digital token and blockchain-based financial products in the PRC, we may not be able to provide services under our MEG business unit in the PRC.

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Taxation

On March 16, 2007, the National People’s Congress of the PRC passed the Enterprise Income Tax law (“EIT Law,”) and on November 28, 2007, the State Council of China passed its implementing rules which took effect on January 1, 2008. The EIT Law and its implementing rules impose a unified earned income tax (“EIT”) rate of 25.0% on all domestic-invested enterprises and foreign invested enterprises (“FIEs”) unless they qualify under certain limited exceptions. In addition, under the EIT Law, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a resident enterprise and will normally be subject to an EIT of 25% on its global income. The implementing rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our organization’s global income will be subject to PRC income tax of 25%. For detailed discussion of PRC tax issues related to resident enterprise status, see Part I—Item 1A—“Risk Factors—Risks Related to Doing Business in the PRC- Under the EIT Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in dividends payable to our foreign investor and gains on sale of our common stock by our foreign investors may become subject to PRC taxation.”

Foreign Currency Exchange

Under the PRC foreign currency exchange regulations applicable to us, RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Currently, our PRC operating entities may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of the PRC State Administration of Foreign Exchange (“SAFE,”) by complying with certain procedural requirements. Conversion of RMB for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the approval of SAFE. In particular, if our PRC operating entities borrow foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance the subsidiaries by means of additional capital contributions, these capital contributions must be registered or filed with by certain government authorities. These limitations could affect our PRC operating entities’ ability to obtain foreign exchange through debt or equity financing.

Dividend Distributions

PRC regulations restrict the ability of our PRC entities to make dividends and other payments to their offshore parent company. PRC legal restrictions permit payments of dividends by our PRC entities only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Each of our PRC subsidiaries is also required under PRC laws and regulations to allocate at least 10% of our annual after-tax profits determined in accordance with generally accepted accounting principles in the PRC to a statutory general reserve fund until the amounts in such fund reaches 50% of its registered capital. These reserves are not distributable as cash dividends. Our PRC subsidiaries have the discretion to allocate a portion of their after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.

In addition, under the EIT law, the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates (“Notice 112,”) which was issued on January 29, 2008, dividends from our PRC operating subsidiaries paid to us through our entities will be subject to a withholding tax at a rate of 10%. Furthermore, the ultimate tax rate will be determined by treaty between the PRC and the tax residence of the holder of the PRC subsidiary. Dividends declared and paid from before January 1, 2008 on distributable profits are grandfathered under the EIT Law and are not subject to withholding tax.

We intend to reinvest profits, if any, and do not intend on making cash distributions of dividends in the near future.

Regulation Regarding our Fintech Businesses

Securities and Commodities Laws

In order for a securities exchange to operate, it must register as a broker-dealer with the SEC, and become a member of FINRA. Depending on a securities exchange’s activities, it may be required to also register as a broker dealer on the state level. DBOT is a registered broker dealer with an ATS.  Depending upon the jurisdiction, we may also be required to comply with laws applicable to securities exchanges.

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Financial Crimes and Sanctions Compliance

The jurisdictions in which we operate and intend to operate generally have adopted laws to prevent money laundering, terrorist financing, fraud and other financial crime, as well as to ensure compliance with applicable sanctions regimes. Various aspects of our business require us to develop and implement policies and procedures that confirm the identity of customers, detect suspicious activities and ensure we do not do business with blocked persons.

Environmental Disclosures

As part of the acquisition of the Fintech Village property (see Part I—Item 2—“Properties,”) we agreed to assume responsibility for completing environmental remediation, previously initiated by the prior owner, relating to the cleanup of asbestos and polychlorinated biphenyls (“PCBs”) from building materials on the property and any contamination of soil and groundwater on the land, an existing condition cited by the Department of Energy and Environmental Protection for the State of Connecticut (“DEEP.”) We were required, as part of the purchase of the land, to post an $8.0 million surety bond, the approximate cost of previous remediation costs. The surety bond will serve either serve as collateral to the state if we do not complete the environmental remediation to state and federal requirements or be returned to us in full if remediation efforts are successful and completed.

On January 28, 2021, the Company’s Board of Directors accepted an offer of $2.75 million for Fintech Village, and subsequently signed a non-binding sale contract on March 15, 2021. The Company  is required to remove or renovate the contaminated buildings on the property. If we elect to sell, transfer or change the use of the facility, additional environmental testing may be required. We cannot assure that we will not discover further environmental contamination, that any planned timeline for remediation will not be delayed, that we would not be required by DEEP or the EPA to incur significant expenditures for environmental remediation in the future.

Human Capital Management

Human Capital Resources

As of December 31, 2020, we had more than 110 employees in four countries. Within this total, 100% of the employee base is comprised of full-time employees and 32.4% are in the United States.

We are an organization built on strong values, employee engagement and ownership. At our core, we are committed to our employees by providing them with an opportunity to participate in our success. By cultivating a dynamic mix of people and ideas, we enrich our businesses’ performance, the experience of an increasingly diverse employee base, and our communities’ engagement.

Human Capital Measures and Objectives

In operating our businesses, human capital measures and objectives are critical drivers of revenues and margins. We continually work to expand service offerings and geographies and seek to manage human capital resources to maximize profitability in the face of shifting client demands.

Our human capital measures and objectives include revenue per employee and profit per employee. The Company is transforming itself and in a phase of rapid growth, consequently these measures may not be comparable between time periods or may be distorted by a change in the nature of our business.

We continue to invest in the business by adding talented professionals across all of our businesses and functional areas. In 2020, we hired approximately 50 new employees.

Human Capital and Social Policies and Practices

We are committed to our people and the communities we serve, investing in our employees' long-term development and engagement by delivering training, programs and a culture where our people can thrive. We are committed to equal opportunity, diversity and other policies and practices, and an abiding pledge to community service and charity. We take seriously the health, safety and welfare

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of our employees, clients, vendors and the broader communities in which we operate and are taking extraordinary measures in light of the current COVID-19 pandemic.

Environmental, Social and Governance (“ESG”) / Sustainability Information

To learn more about policies and practices and our continuing efforts related to human capital and ESG matters, please refer to our website at www.ideanomics.com for further information. You may also find our Corporate Governance Guidelines, the charters of the committees of our Board of Directors. The information contained on, or that may be accessed through, our website, is not part of, and not incorporated into, this Annual Report on Form 10-K.

Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages.

We are required under PRC law to make contributions to employee benefit plans at specified percentages of employee salary. In addition, we are required by the PRC law to cover employees in the PRC with various types of social insurance. We believe that we are in compliance with the relevant PRC laws.

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internal control issues, or business impacts that were not expected. Additionally, as a result of our restructuring efforts in connection with our business transformation plan, we may experience a loss of continuity, loss of accumulated knowledge or loss of efficiency during transitional periods. Reorganization and restructuring can require a significant amount of management and other employees’ time and focus, which may divert attention from operating activities and growing our business. If we fail to achieve some or all of the expected benefits of these activities, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. Such transformations may lead to a significant fluctuation in operating results and they may vary materially from market expectations.

The success of the Company’s efforts to develop its Ideanomics Mobility business unit is highly dependent upon suitable financing structures being developed.

The market for commercial fleets of EVs is in the early stage of development and provides unique challenges to fleet owners trying to finance the purchase of fleets of EV and the related charging, storage and battery infrastructure. Unlike vehicles powered by Internal Combustion Engines, the power source in an EV, the battery, can be separated from the vehicle which creates unique challenges for lenders in valuing the collateral for any loan. Additionally, the market for commercial EVs is very new and consequently there is no reliable history of resale values to support lending decisions. Large scale adoption of EVs will require a range of borrowing options and loan types to be available to fund purchases and leasing of EV similar to those that currently exist to finance the purchasing and leasing of traditional internal combustion engine vehicles. Additionally, in some of the Company’s target markets there is no well developed market for lending to private enterprises and this may further slow down the adoption of EVs. The Company is working with banks and insurance companies to create lending structures and pools of capital that can be used to finance fleet purchases of commercial EVs. Even if the Company can create the necessary pools of capital and lending structures there is no guarantee that any regulatory approvals required for these new structures will be obtained. If the Company is not able to develop a solution for the funding of fleet purchases of EVs and related charging and battery infrastructure then the Company’s Ideanomics Mobility business may not be successful and generate minimal revenues and incur substantial losses.

The transformation of our business will put added pressure on our management and operational infrastructure, impeding our ability to meet any potential increased demand for our services and possibly hurting our future operating results.

Our business plan is to significantly grow our operations to meet anticipated growth in demand for the services that we offer, and by the introduction of new goods or services. Growth in our businesses will place a significant strain on our personnel, management, financial systems and other resources. The evolution of our business also presents numerous risks and challenges, including:

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To accommodate any such growth and compete effectively, we will need to obtain additional funding for working capital and to improve develop supply chain and logistics capabilities, information systems, procedures and controls and expand, train, motivate and manage our employees, and such funding may not be available in sufficient quantities, if at all. If we are not able to manage these activities and implement these strategies successfully to expand to meet any increased demand, our operating results could suffer.

The success of our business is dependent on our ability to hire and retain key employees with the specialists skills that we need for our business.

We depend on the services of our key employees. Our success will largely depend on our ability to hire and retain these key employees and to attract and retain qualified senior and middle level managers to our management team.

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We have recruited executives and management both in the United States and the in our operations outside of the United States to assist in our ability to manage the business and to recruit and oversee employees. While we believe we offer compensation packages that are consistent with market practice, we cannot be certain that we will be able to hire and retain sufficient personnel to support our business. The loss of any of our key employees, or failure to find a suitable successor, would significantly harm our business. Our future success will also depend on our ability to identify, hire, develop and retain skilled key employees. We do not maintain key person life insurance on any of our employees. Future sales or acquisitions by us may also cause uncertainty among our current employees and employees of an acquired entity, which could lead to the departure of key employees. Such departures could have an adverse impact on our business and the anticipated benefits of a sale or acquisition.

Our international operations expose us to a number of risks.

Our international activities are significant to our revenues and profits, and we plan to further expand internationally. In certain international market segments, we have relatively little operating experience and may not benefit from any first-to-market advantages or otherwise succeed. It is costly to establish, develop, and maintain international operations and platforms, and promote our brand internationally.

Our international sales and operations are subject to a number of risks, including:

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We may face challenges in expanding our international and cross-border businesses and operations.

As we expand our international and cross-border businesses into an increasing number of international markets, we will face risks associated with expanding into markets in which we have limited or no experience and in which we may be less well-known. We may be unable to attract a sufficient number of customers and other participants, fail to anticipate competitive conditions or face difficulties in operating effectively in these new markets. The expansion of our international and cross-border businesses will also expose us to risks inherent in operating businesses globally, including:

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As we acquire, dispose of or restructure our businesses, product lines, and technologies, we may encounter unforeseen costs and difficulties that could impair our financial performance.

An important element of our management strategy is to review acquisition prospects that would complement our existing products, augment our market coverage and distribution ability, or enhance our capabilities. As a result, we may seek to make acquisitions of companies, products, or technologies, or we may reduce or dispose of certain product lines or technologies that no longer fit our business strategies. For regulatory or other reasons, we may not be successful in our attempts to acquire or dispose of businesses, products, or technologies, resulting in significant financial costs, reduced or lost opportunities, and diversion of management’s attention. Managing an acquired business, disposing of product technologies, or reducing personnel entails numerous operational and financial risks, including, among other things, (i) difficulties in assimilating acquired operations and new personnel or separating existing business or product groups, (ii) diversion of management’s attention away from other business concerns, (iii) amortization of acquired intangible assets, (iv) adverse customer reaction to our decision to cease support for a product, and (v) potential loss of key employees or customers of acquired or disposed operations. There can be no assurance that we will be able to achieve and manage successfully any such integration of potential acquisitions, disposition of product lines or technologies, or reduction in personnel or that our management, personnel, or systems will be adequate to support continued operations. Any such inabilities or inadequacies could have a material adverse effect on our business, operating results, financial condition, and/or cash flows.

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In addition, any acquisition could result in changes, such as potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities, the amortization of related intangible assets, and goodwill impairment charges, any of which could materially adversely affect our business, financial condition, results of operations, cash flows, and/or the price of our common stock.

Intellectual property litigation could cause us to spend substantial resources and could distract our personnel from their normal responsibilities.

Even if resolved in our favor, litigation or other legal proceedings relating to IP claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development, sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of IP litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

Our ability to conduct our businesses may be materially adversely impacted by catastrophic events, including natural disasters, pandemics and other international health emergencies, weather-related events, terrorist attacks, and other disruptions.

We may encounter disruptions involving power, communications, transportation or other utilities or essential services depended on by us or by third parties with whom we conduct business. This could include disruptions as the result of natural disasters, pandemics, other international health emergencies, or weather-related or similar events (such as fires, hurricanes, earthquakes, floods, landslides and other natural conditions including the effects of climate change), political instability, labor strikes or turmoil, or terrorist attacks. The global coronavirus pandemic had a significant impact on global commerce. Similar potential disruptions may occur in any of the locations in which we, our counterparties or our customers do business. We continue to assess the potential impact on our counterparties and customers of such events, and what impact, if any, these events could have on our businesses, financial condition, results of operations and prospects.

If we fail to develop and maintain effective disclosure controls and an effective system of internal control over financial reporting, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and market price of our shares may be adversely impacted.

Our reporting obligations as a public company place a significant strain on our management and our operational and financial resources and systems and will continue to do so for the foreseeable future. We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act,”) which requires us to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Material weaknesses and significant deficiencies may be identified during the audit process or at other times.

If we fail to develop and maintain effective internal control over financial reporting, our management may not be able to conclude that we have effective internal control over financial reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our financial statements. If we fail to timely achieve and maintain the adequacy of our internal control over financial reporting, we may not be able to produce reliable financial reports. Any failure to improve and maintain the effectiveness of our internal controls over financial reporting could lead to future errors in our financial statements that could require a restatement or untimely filings, which could cause investors to lose confidence in our reported financial information, and result in a decline in our stock price.

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The Sarbanes-Oxley Act also requires that we maintain effective disclosure controls and procedures. As a publicly traded company, we are required to file periodic reports containing our consolidated financial statements with the SEC within a specified time following the completion of quarterly and annual periods. Maintaining effective disclosure controls and procedures is necessary to identify information we must disclose in our periodic reports. Our disclosure controls and procedures have been ineffective in the past, and to the extent that our disclosure controls and procedures are found to be ineffective in the future, such finding could result in the loss of investor confidence in the reliability of our disclosures, harm our business, and negatively impact the trading price of our common stock.

We are currently, and may in the future be, subject to substantial litigation, investigations and proceedings that could cause us to incur significant legal expenses and result in harm to our business.  

The Company and certain of its former officers and directors are defendants in a purported class action captioned Rudani v. Ideanomics, Inc., et al, pending in the United States District Court for the Southern District of New York against the Company.   The Amended Complaint alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934.  Among other things, the Amended Complaint alleges purported misstatements made by the Company in 2017 and 2018.  The Company and certain of its current and former officers and directors are also defendants in a consolidated purported securities class action captioned In Re Ideanomics, Inc. Securities Litigation, pending in the United States District Court for the Southern District of New York, which alleges violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 arising from certain purported misstatements by the Company beginning in March 2020 regarding its MEG division.  The Company is also a nominal defendant, and certain of its former officers and directors are named as defendants, in a consolidated shareholder derivative action pending in the United States District Court for the Southern District of New York, captioned In re Ideanomics, Inc. Derivative Litigation which alleges violations of violations of Section 14(a) of the Securities Exchange Act of 1934, breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and corporate waste and seeks monetary damages and other relief on behalf of the Company. The Company is also a nominal defendant, and certain of its former officers and directors are named as defendants, in a shareholder derivative action pending in the United States District Court for the District of Nevada, captioned Zare v. Wu, et al., 20-cv-608, which alleges breach of fiduciary duties, gross mismanagement, and contribution against certain defendants under Section 10(b) and 21D of the Securities Exchange Act of 1934. While the Company believes that these lawsuits are without merit and plans to vigorously defend itself against these claims, there can be no assurance that the Company will prevail in the lawsuits. The Company cannot currently estimate the possible loss or range of losses, if any, that it may experience in connection with these litigations.  There is currently a mediation scheduled for April 2021 for all of the pending actions that have been filed and discussed above.

As reported previously, the Company is subject to an investigation by the SEC and has responded to various information requests and subpoenas from the SEC. The Company is fully cooperating with the SEC’s requests, and cannot predict the outcome of this investigation.

We are exposed to potential liabilities and reputational risk associated with litigation, regulatory proceedings and government investigations and enforcement actions. In addition, we are obligated to indemnify and advance expenses to certain individuals involved in certain of these proceedings. Further, volatility in our stock price may also make us vulnerable to future class action litigation.  Any adverse judgment in or settlement of any pending or any future litigation or investigation could result in payments, fines and penalties that could adversely affect our business, results of operations and financial condition. Regardless of the merits of the claims and the outcome, legal proceedings have resulted in, and may continue to result in, significant legal fees and expenses, diversion of management’s time and other resources, and adverse publicity. Such proceedings could also adversely affect our business, results of operations and financial condition.

RISKS RELATED TO OUR IDEANOMICS MOBILITY BUSINESS UNIT

We experience significant competitive pressure in the Ideanomics Mobility business unit, which may negatively impact our business, financial condition, and results of operations.

The Company’s Ideanomics Mobility business unit is operating in the fleet commercial EV market globally. The commercial EV market is still in its development stage and the rate at which the operators of fleets of commercial vehicles replace their internal combustion engine (ICE) vehicles with EV is very dependent upon (i) environmental and clean air regulations that mandate conversion to EV, (ii) the subsidies that government bodies make available to cover the cost of conversion and (iii) the availability of financing to cover some or all of the cost of conversion, (iv) regulations governing the amount of locally manufactured content required in vehicles sold in a particular market, (v) the availability of charging and battery swap infrastructure, (vi) the rate at which EV technologies evolve.

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Environmental and clean air regulations drive the timing and rate at which fleet operators convert to EV and by extension the size of the market and the type of vehicles that are in demand at any time. The Company’s revenues and profits may be adversely impacted if demand for EV is lower than expected due to a change in regulation or regulations favor conversion of vehicle types that have lower profit margins.

Converting fleets to EV is very capital intensive and most operators require substantial amounts of funding in the form of government and municipal subsidies and bank financing. The amount and form of subsidies are subject to change from time to time as government bodies adjust subsidies to influence consumer behavior. The mechanisms for financing of EV are still being developed and large scale conversion from internal combustion engines to EV is highly dependent upon the amount and terms of financing available for the conversion to EV.

We currently have limited intellectual property rights related to our Ideanomics Mobility business unit, and primarily rely on third parties through agreements with them to conduct research and development activities and protect proprietary information.

Although we believe our success will depend in part on our ability to acquire, invest in or develop proprietary technology to effectively compete with our competitors, we currently have, and for the foreseeable future will have, limited direct IP rights related to our new Ideanomics Mobility business unit. The IP relevant to the products and services we plan to provide is held primarily by third-parties, including our strategic partners. Accordingly, we will rely on these third parties for research and development activities, which will present certain risks. For example, we will have limited control over the research and development activities of the business of our partners, and may require licenses from these third parties if we wish to develop products directly. If these businesses are unable to effectively maintain a competitive edge relative to the market with their technologies and IP, it may adversely affect our business and financial position.

Our reliance on third parties also presents risks related to ownership, use and protection of proprietary information. We are required to rely on the terms of the related agreements, including the partnership agreements to protect our interests, as well as our investments and partners’ trade secret protections, non-disclosure agreements, and invention assignment agreements to protect confidential and proprietary information. If the IP and other confidential information of our investments and strategic partners are not adequately protected, competitors may be able to use their proprietary technologies and information, thereby eroding any competitive advantages that IP provides to us.

RISKS RELATED TO DOING BUSINESS IN THE PRC

U.S. financial regulatory and law enforcement agencies, including without limitation the SEC, U.S. Department of Justice and U.S. national securities exchanges, have limited ability, and in fact may have no ability, to conduct investigations within the PRC concerning our Company, our PRC-based officers, directors, market research services or other professional services or experts.

A substantial part of our assets and our current operations are conducted in the PRC, and some of our officers, directors and other professional service providers are nationals and residents of the PRC. U.S. financial regulatory and law enforcement agencies, including without limitation the SEC, U.S. Department of Justice and U.S. national securities exchanges, have limited ability, and in fact may have no ability, to conduct investigations within the PRC concerning our Company, and the PRC may have limited or no agreements in place to facilitate cooperation with the SEC’s Division of Enforcement for investigations within its jurisdiction.

Adverse changes in political, economic and other policies of the Chinese government could have a material adverse effect on the overall economic growth of the PRC, which could materially and adversely affect the growth of our business and our competitive position.

Our business operations have a material dependency on the PRC for both revenues generated with the PRC and as a source of finished products and components for our global operations. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in the PRC. The Chinese economy differs from the economies of most developed countries in many respects, including:

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While the Chinese economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and across various sectors of the economy. The Chinese economy has also experienced certain adverse effects due to the global financial crisis. In addition, the growth rate of the PRC’s gross domestic product has materially slowed in recent years, according to the National Bureau of Statistics of China. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments, foreign currency exchange restrictions or changes in tax regulations that are applicable to us.

The continued control of these assets and other aspects of the national economy by the Chinese government could materially and adversely affect our business. The Chinese government also exercises significant control over Chinese economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

Any adverse change in the economic conditions or government policies in the PRC could have a material adverse effect on overall economic growth, which in turn could lead to a reduction in demand for our products and consequently have a material adverse effect on our businesses.

Uncertainties with respect to the PRC legal system could limit the legal protections available to you and to us, which could cause material adverse effects to our business operations.

We conduct part of our business through our subsidiaries in the PRC. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in the PRC and, in particular, laws applicable to FIEs. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in the PRC. However, there could be a change of law and it is uncertain whether business industries in which our China subsidiaries operate will be subject to the foreign investment restrictions or prohibitions.

Since the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations, and rules are not always uniform, and enforcement of these laws, regulations, and rules involve uncertainties, which may limit legal protections available to you and to us. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.

In addition, any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management’s attention. In addition, some of our executive officers and directors are residents of the PRC and not of the United States, and substantially all the assets of these persons are located outside the United States. As a result, it could be difficult for investors to affect service of process in the United States or to enforce a judgment obtained in the United States against our Chinese operations and entities.

You may have difficulty enforcing judgments against us.

Most of our operations are located outside of the United States and part of our current operations are conducted in the PRC. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, that are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Courts in the PRC may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based on treaties between the PRC and the country where the judgment is made or on reciprocity between jurisdictions. The PRC does not have any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our

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directors and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security, or the public interest.

Our results could be adversely affected by the trade tensions between the United States and the PRC.

Restrictions on currency exchange may limit our ability to use cash generated from sales in the PRC to fund our business activities outside of the PRC.

At present, a substantial part of our sales will be settled in RMB, and any future restrictions on currency exchanges may limit our ability to use revenue generated in RMB to fund any future business activities outside the PRC or to make dividend or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain, including primarily the restriction that FIEs may only buy, sell or remit foreign currencies after providing valid commercial documents, at those banks in the PRC authorized to conduct foreign exchange business. In addition, foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities and companies are required to open and maintain separate foreign exchange accounts for capital account items. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries and the VIEs. Recent volatility in the RMB foreign exchange rate as well as capital flight out of the PRC may lead to further foreign exchange restrictions and policies or practices which adversely affect our operations and ability to convert RMB. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB.

Restrictions under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our business.

At present, part of our sales are earned by our PRC operating entities. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to their offshore parent companies. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said fund reaches 50% of their registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

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We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we violated these laws could have a material adverse effect on our business.

We are subject to the Foreign Corrupt Practice Act (“FCPA”) and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have operations and agreements with third parties, and make most of our sales in the PRC. The PRC also strictly prohibits bribery of government officials. Our activities in the PRC create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents, or distributors of our Company, which may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents, or distributors of our company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

Our operations in foreign countries are subject to risks that could adversely impact our financial results, such as economic or political volatility, foreign legal and regulatory requirements, international trade factors (export controls, trade sanctions, duties, tariff barriers and other restrictions), protection of our proprietary technology in certain countries, potentially burdensome taxes, crime, employee turnover, staffing, managing personnel in diverse culture, labor instability, transportation delays, and foreign currency fluctuations.

If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.

Over the past several years, U.S. public companies that have substantially all of their operations in the PRC, particularly companies like ours which have completed so-called reverse merger transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity is in connection with financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what affect this sector-wide scrutiny, criticism and negative publicity will have on our Company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or not, we will have to expend significant resources to investigate such allegations and/or defend our Company. This situation will be costly and time consuming and distract our management from growing our Company.

The disclosures in our reports and other filings with the SEC and our other public announcements are not subject to the scrutiny of any regulatory bodies in the PRC. Accordingly, our public disclosure should be reviewed in light of the fact that no governmental agency that is located in the PRC, where part of our operations and business are located, has conducted any due diligence on our operations or reviewed or cleared any of our disclosure.

We are regulated by the SEC and our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Unlike public reporting companies whose operations are located primarily in the United States, however, substantially all of our operations are located in the PRC, Hong Kong and Singapore. Since substantially all of our operations and business takes place outside of United States, it may be more difficult for the staff of the SEC to overcome the geographic and cultural obstacles that are present when reviewing our disclosure. These same obstacles are not present for similar companies whose operations or business take place entirely or primarily in the United States. Furthermore, our SEC reports and other disclosure and public announcements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review of the CSRC. Accordingly, you should review our SEC reports, filings and our other public announcements with the understanding that no local regulator has done any due diligence on our Company and with the understanding that none of our SEC reports, other filings or any of our other public announcements has been reviewed or otherwise been scrutinized by any local regulator.

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RISKS RELATED TO OUR STOCK

The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you may want to sell your holdings.

The market price of our common stock is volatile, and this volatility may continue. Numerous factors, many of which are beyond our control or are not discernible or determinable by our Company, may cause the market price of our common stock to fluctuate significantly. In addition to market and industry factors, the price and trading volume for our common stock may be highly volatile for specific business reasons. Factors such as variations in our revenues, earnings and cash flow, announcements of new investments, cooperation arrangements or acquisitions, and fluctuations in market prices for our products could cause the market price for our shares to change substantially. Following periods of such volatility in the market price of a company’s securities, securities class action as well as derivative litigation has often been brought against that company and its officers and directors. Because of the potential volatility of the Company’s common stock price, it may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from its business.

Moreover, the trading market for our common stock will be influenced by research or reports that industry or securities analysts publish about us or our business. If one or more analysts who cover us downgrade our common stock, the market price for our common stock would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price for our common stock or trading volume to decline.

The market price of our common stock could be also subject to volatility if the value of our business and common stock is viewed as being linked to the price and value of digital assets. If investors view our business and the value of our common stock as dependent upon or linked to the value or growth of digital assets, whether or not tokenized on our blockchain platforms, the price of such digital assets may influence significantly the market price of shares of our common stock.

Furthermore, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests in our Company at a time when you want to sell your interest in us.

Provisions in our articles of incorporation and bylaws or Nevada law might discourage, delay or prevent a change of control of us or changes in our management and, therefore, depress the trading price of our common stock.

Our articles of incorporation authorize our Board to issue up to 50,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board without further action by the shareholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our Board to issue preferred stock could make it more difficult, delay, discourage, prevent or make it costlier to acquire or effect a change-in-control, which in turn could prevent our shareholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.

In addition, Section 78.438 of the Nevada Revised Statutes prohibits a publicly-held Nevada corporation from engaging in a business combination with an interested stockholder (generally defined as a person which together with its affiliates owns, or within the last three years has owned, 10% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder) unless the business combination is approved in a prescribed manner. The existence of the foregoing provisions and other potential anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.

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Certain of our shareholders hold a significant percentage of our outstanding voting securities.

As of March 29, 2021, Dr. Wu, is the beneficial owners of approximately 11.1% of our outstanding voting securities (through their ownership of the Common Stock and 100% our Series A Preferred Stock, which entitle the holder to cast ten votes for every share of common stock that is issuable upon conversion of a share of Series A Preferred Stock (each share of Series A Preferred Stock is convertible into 0.1333333 shares of common stock), or a total of 9,333,330 votes). Mr. Shane McMahon, our Vice Chairman, is the beneficial owner of approximately 2.2% of our outstanding voting securities. As a result, each possesses significant influence over the election of our directors and the authorization of any proposed significant corporate transactions. Their respective ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.

We do not intend to pay dividends for the foreseeable future.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock or Series A preferred stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our Board and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our Board deems relevant. In addition, our ability to declare and pay dividends is dependent on our ability to declare dividends and profits in our subsidiaries domiciled outside of the United States. Rules in other jurisdictions may greatly restrict and limit the ability of our subsidiaries to declare dividends to us which, in addition to restricting our cash flow, limits our ability to pay dividends to our shareholders.

Even if we are able to pay dividends on our common stock or Series A preferred stock, our Board may choose not to declare dividends on our capital stock. In addition, financing agreements that we may enter into in the future may limit our ability to pay cash dividends. Fluctuations in exchange rates could adversely affect our business and the value of our securities.

The value of our common stock will be indirectly affected by the foreign exchange rate between the U.S. dollar and those currencies in which our sales may be denominated. Appreciation or depreciation in the value of currencies in which are sales are denominated relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars, as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

Very limited hedging transactions are available in the PRC to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions to reduce our exposure to exchange rate fluctuations. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all.

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In response to the COVID-19 pandemic the company closed its New York City office at 55 Broadway in the first quarter of 2020. The Company concluded that it did not require the 55 Broadway office and terminated the lease in the third quarter of 2020. The Company has entered into a short term lease for a very limited amount of office space at 1441 Broadway, New York, NY 10018. The Company has a 15 year lease on showroom and office space in the city of Qingdao in the PRC. The Company's Tree Technologies subsidiary has office space in Kuala Lumpur in Malaysia and a long term lease on 250 acres of vacant land zoned for industrial development on the Gebeng Industrial Estate, Kuantan, Pahang Darul Makmur,Malaysia which is near the port of Kuantan.

Except for FinTech Village, the Company believes that all its properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.

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Dividend Policy

The Company has never declared or paid a cash dividend. Any future decisions regarding dividends will be made by the Company’s Board. The Company currently intends to retain and use any future earnings for the development and expansion of the business and does not anticipate paying any cash dividends in the foreseeable future. The Company’s Board has complete discretion on whether to pay dividends, subject to the approval of the Company’s shareholders. Even if the Company’s Board decides to pay dividends, the form, frequency and amount will depend upon future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board may deem relevant. In addition, the Company’s ability to declare and pay dividends is dependent on the Company’s ability to declare dividends and profits in the PRC subsidiaries. PRC rules greatly restrict and limit the ability of the Company’s subsidiaries to declare dividends which, in addition to restricting the Company’s cash flow, limits its ability to pay dividends to its shareholders.

Securities Authorized for Issuance Under Equity Compensation Plans

See Part III—Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters—“Securities Authorized for Issuance Under Equity Compensation Plans.”

Recent Sales of Unregistered Securities

The Company did not sell any equity securities during the fiscal year ended December 31, 2020 that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the 2020 fiscal year.

Purchases of Equity Securities

No repurchases of the Company’s common stock were made in the year ended December 31, 2020.

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Liquidity Improvements

In the year ended December 31, 2020, the Company improved its liquidity position by raising a total of $225.5 million: $191.4 million through the issuance of common stock and exercise of warrants, $7.1 million from noncontrolling interest shareholders, and $27.0 million through the issuance of senior secured convertible notes. The Company converted senior secured convertible notes of $34.4 million plus accrued interest of $0.3 million to common stock. Additionally, the Company converted $4.6 million of convertible notes payable and accrued interest to related parties and an additional $1.5 million due to related parties to common stock. As a result of these actions, the Company reduced its the principal amount of its indebtedness by $50.9 million, and as of December 31, 2020, had cash and cash equivalents of $165.8 million, $163.8 million of which is held in U.S. financial institutions.

Based upon its business projections and its cash and cash equivalents balance as of December 31, 2020, the Company believes it has the ability to continue as a going concern.

Effects of COVID-19

Novel Coronavirus 2019 (“COVID-19”) is an infectious disease cause by severe acute respiratory syndrome coronavirus.  The disease was first identified in December 2019 in Wuhan, the capital of China’s Hubei province, and has since spread globally, resulting in the ongoing COVID-19 pandemic. As of March 21, 2021, over 122.9 million cases had been reported across the globe, resulting in 2.7 million deaths.

The spread of COVID-19 has caused significant disruption to society as a whole, including the workplace. The resulting impact to the global supply chain has disrupted most aspects of national and international commerce, with government-mandated social distancing measures imposing stay-at-home and work-from-home orders in almost every country. The effects of social distancing have shut down significant parts of the local, regional, national, and international economies, for limited or extended periods of time, with the exception of government designated essential services.

In many parts of the world, stay-at-home and work-from-home orders were relaxed during the summer of 2020 as the effects of the Coronavirus appeared to lessen, and economic activity began to recover.  However, commencing in the autumn and fall of 2020, the U.S. as well as countries in Europe, South America and Asia began to experience an increase in new COVID-19 cases, and in some cases local, state, and national governments began to reinstate restrictive measures to stem the spread of the virus.  The U.S. and other countries also experienced an increase in new COVID-19 cases after the fall and winter holiday season, with new, more infectious variants of COVID-19 identified.  Various vaccines have been developed, with vaccinations programs in effect worldwide, though reaching acceptable levels for worldwide immunization against COVID-19 remains challenging.

The future effects of the virus are difficult to predict, due to uncertainty about the course of the virus, different variants that may evolve, and the supply  of the vaccine on a local, regional, and global basis, as well as the ability to implement vaccination programs in a short time frame.

Many of the Company’s operations are in the development or early stage, have not had significant revenues to date, and the Company does not anticipate significant adverse effects on its operations’ revenue as compared to its business plan in the near- or mid-term, although the future effects of COVID-19 may result in regional restrictive measures which may constrain the Company’s operations.

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The Company continues to monitor the overall situation with COVID-19 and its effects on both local, regional and global economies.

Information about segments

The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. Therefore, the Company operates in one segment with two business units: Ideanomics Mobility and Ideanomics Capital.

Our Unconsolidated Equity Investments

The investments where the Company exercises significant influence, but not control, are classified as long-term equity investments and accounted for using the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for our share of undistributed earnings or losses of the investee. Investment losses are recognized until the investment is written down to nil, provided that we do not guarantee the investee’s obligations or we are committed to provide additional funding. Refer to Note 10 of the Notes to Consolidated Financial Statements included in Part IV, Item 8 of this Annual Report on Form 10-K for further information.

Taxation

United States

Ideanomics, Inc., M.Y. Products, LLC, Grapevine Logic, Inc., Delaware Board of Trade Holdings, Inc., Fintech Village, LLC are United States companies subject to the provisions of the Internal Revenue Code. No provision for income taxes has been provided as none of the companies had taxable profit since inception. At the acquisition of Grapevine Logic, Inc. in 2018, deferred tax liabilities were recorded relating to intangible assets recorded for financial reporting purposes but not recognized for income tax purposes. The intangible assets consequently could not provide deductible amortization expense for income tax purposes. The deferred tax liabilities were recorded on the acquisition date to the extent that they could not be offset by usable net operating loss carryforwards acquired in the acquisition. These deferred tax liabilities were reduced, providing an income tax benefit, to the extent that the intangible assets were reduced by amortization expense and additional net operating loss carry forwards were created to offset the liabilities. These benefits include $152,875 in 2019. The 2019 amount related to activities in the first two quarters of 2019. Ideanomics, Inc. increased its ownership in Grapevine Logic, Inc. such that beginning with the third quarter of 2019, the result of which was that Grapevine Logic, Inc. activities would be included in the consolidated tax return of Ideanomics, Inc. As a result, the valuation allowance provided against Ideanomics’ deferred tax assets were reduced by $361,059, the amount of Grapevine Logic, Inc.’s remaining deferred tax liabilities as that portion of Ideanomics Inc.’s net operating loss carryovers could now be utilized to offset these liabilities.

The Tax Cut and Jobs Act (“TCJA”) of 2017 includes provision for Global Intangible Low-Taxed Income (“GILTI”) under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries. TCJA also enacted the Base Erosion and Anti-Abuse Tax (“BEAT”) under which taxes are imposed on certain base eroding payments to related foreign companies, subject to certain requirements.

Based on current year financial results, the company has determined that there is no GILTI nor BEAT tax liability.

In addition, the TCJA now entitles U.S. companies that owns 10.0% or more of a foreign corporation a 100% dividends-received deduction for the foreign-source portion of dividends paid by such foreign corporation. Also, net operating losses (“NOLs”) arising after December 31, 2017 are deductible only to the extent of 80.0% of the taxpayer’s taxable income, and may be carried forward indefinitely but generally not allowed to be carried back.

Cayman Islands and the British Virgin Islands

Under current laws of the Cayman Islands and the British Virgin Islands, the Company is not subject to tax on its income or capital gains. In addition, dividend payments are not subject to withholding tax in the Cayman Islands or British Virgin Islands.

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Hong Kong

The Company’s subsidiaries incorporated in Hong Kong are subject to Profits Tax of 16.5%. Tax expense of $0.1 million  was recorded in the year ended December 31, 2019 relating to the income on one Hong Kong subsidiary relating to a gain recorded on the sale of VIE related assets. All other Hong Kong subsidiaries had losses for 2019 and the resulting deferred tax assets relating to the loss carryovers were fully offset by a valuation allowance.

The People’s Republic of China

Under the PRC’s Enterprise Income Tax Law, the company’s Chinese subsidiaries and VIEs are subject to an EIT of 25.0%.

The Company’s future effective income tax rate depends on various factors, such as tax legislation, geographic composition of its pre-tax income and non-tax deductible expenses incurred. The Company’s management regularly monitors these legislative developments to determine if there are changes in the statutory income tax rate.

During the year ended December 31, 2019, one of the Company’s PRC subsidiaries incurred a tax obligation of $0.6 million relating to its EV sales. The entity did not have operating loss carryovers and is not able to utilize the loss carryovers of other subsidiaries. The transactions under which the VIE agreements were terminated resulted in gains to one VIE entity, prior to deconsolidation, that triggered a tax expense of $0.2 million. Other PRC entities either had losses that created additional operating loss carryovers, where the related deferred tax assets were offset by a valuation allowance, or had income that would have resulted in a current tax liability, except that they were able to offset those liabilities with operating loss carryovers from prior years. The use of prior year carryovers, in all cases for which the related deferred tax assets all had previously been offset by a valuation allowance, avoided $0.2 million of income tax expense.

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n/m = Not Meaningful

Revenue for the year ended December 31, 2020 was $26.8 million as compared to $44.6 million for the same period in 2019, a decrease of $17.8 million, or 40%. The decrease was due to a change to our business focus from digital asset management services to the EV business. The Company generated $19.5 million from the sale of EVs as compared to $2.7 million in the prior year, an increase of $16.8 million. In the current year, the Company earned revenues of $5.2 million from the sale of combustion engine vehicles; the sale of combustion engine vehicles is not the Company’s primary focus, however, from time to time, the Company will sell combustion engine vehicles if a client places an order. During 2020, the Company made its first sales of charging and battery equipment. The Company believes this is very encouraging development as the provision of charging, battery and battery swap services is an important strategic focus for the Company. Revenues from Grapevine, the Company’s business focused on digital advertising services were $1.6 million as compared to $1.2 million in the prior year, an increase of $0.5 million or 39%. Grapevine is considered a non-core asset for Ideanomics.

The revenues for the years ended December 31, 2020 and 2019 were recorded on either a Principal or Agent basis, depending on the terms of the underlying transaction, including the ability to control the product and the level of inventory risk taken. The majority of the revenue from the sale of EVs, as well as revenue from the sale of the combustion engine vehicles and charging and batteries for the year ended December 31, 2020 were recorded on a Principal basis because the Company has inventory risk in the transactions. The revenue from the sale of EVs for the year ended December 31, 2019 was recorded on an Agent basis due to the terms of the transaction.

Cost of revenue (USD in thousands)

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n/m = Not Meaningful

Cost of revenues was $24.7 million for the year ended December 31, 2020, as compared to $1.5 million for the year ended December 31, 2019. The cost of revenues increased by $23.2 million. From a comparability perspective, the cost of revenue during 2019 is not indicative of the new business in 2020. The cost of revenue during 2019 was primarily associated with the digital asset management services and creator payments from the Grapevine business. The cost of revenue from the sale of EVs was $18.0 million; there was no cost of revenue recorded for the sale of EVs during 2019 as the company acted as agent in the sale of EVs in 2019 and consequently revenues were recorded on “net” basis without any corresponding cost of revenues. Cost of revenues from the sale of combustion engine vehicles was $5.1 million; there were no sales of combustion engine vehicles in the prior year. Cost of revenues for charging and batteries was $0.5 million; there were no sales of charging and batteries in the prior year. The cost of revenues for the digital advertising services provided by Grapevine were $1.1 million as compared to $1.0 million in the prior year, an increase of almost $0.1 million or 6.7%.

Gross profit (USD in thousands)

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n/m = Not Meaningful

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Gross profit ratio

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The gross profit for the year ended December 31, 2020 was $2.1 million, as compared to $43.1 million during the same period in 2019, a decrease of $41.1 million. The decrease was due to the Company recorded service revenue from digital asset management services in 2019 which was not repeated in 2020 and had a low cost of revenue. The gross profit earned from the sale of EVs was $1.4 million a decrease of $1.3 million from the prior year. The Company acted in an agent capacity in the sale of EVs in 2019 and consequentially the revenue was recorded on a “net” basis without any cost of revenue which resulted in a higher gross profit and gross margin.

Selling, general and administrative expenses

Our selling, general and administrative expense for the year ended December 31, 2020 was $32.4 million as compared to $24.9 million for the same period in 2019, an increase of $7.5 million or 30%. The majority of the increase was due to increased stock based compensation expense, bonuses and sales commissions and salaries resulting from the increase in employee numbers and sales activity, and bad debt expense which was partially offset by lower spending on travel and entertainment due to the restrictions on travel and entertaining arising from COVID-19 and lower severance expense.

Research and development expense

Research and development expense for the year ended December 31, 2020 represents the fees paid for EV technical development and design.

Professional fees

Professional fees for the year ended December 31, 2020 were $12.5 million as compared to $5.8 million for the same period in 2019, an increase of $6.7 million. The majority of this increase was due to increased expense for investor relations programs, legal fee expense related to regulatory enquires, fund raising and merger and acquisition activities, and class action lawsuits.  Expenses for  consultants and contractors increased as a result of the Company’s continued expansion.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was $ 5.3 million as compared to $2.2 million for the same period in 2019, an increase of $3.1 million. The increase was mainly due to the increase in amortization expense of $2.1 million arising from the shortening of the useful life on an intellectual property intangible asset.

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Impairment losses

The following table summarizes the impairment losses recorded in the years ended December 31, 2020 and 2019 (in thousands):

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Additional information related to the impairment losses recorded in the years ended December 31, 2020 and 2019 is as follows:

Year Ended December 31, 2020

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Year Ended December 31, 2019

Change in fair value of contingent consideration, net

For the year ended December 31, 2020, Change in fair value of contingent consideration, net of $5.5 million represents the remeasurement loss of $1.5 million of the contingent consideration payable to the former DBOT shareholder and remeasurement gain of $7.0 million of the contingent consideration payable to the Tree Technology shareholders.

For the year ended December 31, 2019, Change in fair value of contingent consideration, net of $5.1 million represents the remeasurement of the contingent consideration payable to the former DBOT shareholders due to the decline in Ideanomics’ stock price.

Loss from operations

Loss from operations for the year ended December 31, 2020 was $86.9 million as compared to loss of $68.6 million for the year ended December 31, 2019 an increase of $18.3 million. The increased Loss from Operations is due to number of factors, the gross profit for 2019 included revenues from digital asset services which had a gross profit margin of almost 100% which was not repeated in 2020, increased expenses for selling, general and administrative, research and development, professional fees, and depreciation and amortization expense partially offset  by lower impairment charges and a gain resulting from a change in the fair value of contingent consideration.

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Interest expense, net

Our interest expense increased $10.4 million to $16.0 million for the year ended December 31, 2020, from $5.6 million during 2019. The interest expense increase during 2020 was primarily due to the amortization of beneficial conversion features and the interest associated with convertible notes issued in 2020. The following table summarizes the breakdown of the interest expense (in thousands):

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Expense due to conversion of notes

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Expense due to conversion of notes for the year ended December 31, 2020 represents the expense recognized as a result of the reduction of conversion price to induce the conversion of the convertible notes from the related parties.

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Gain (loss) on extinguishment of debt

In the year ended December 31, 2020, the Company recorded a gain on the extinguishment of debt of $8.9 million, as it paid a promissory note prior to its scheduled maturity.  The Company also settled several outstanding balances with vendors and recorded a gain of $0.5 million.

In the year ended December 31, 2019, the Company recorded a loss on extinguishment of debt of $3.9 million which resulted from modifications made to various convertible notes.

Impairment of and equity in loss of equity method investees

Impairment of and equity in loss of equity method investments increased by $3.0 million to $16.7 million in the year ended December 31, 2020 from $13.7 million in the year ended December 31, 2019. The increase was due to impairments losses of $16.7 million recorded in the year ended December 31, 2020, as compared to an impairment loss of $13.1 million recorded in the year ended December 31, 2019.  Refer to “Impairment losses” above.

Gain (loss) on disposal of subsidiaries, net

The following table summarizes gains and (losses) recorded in “Gain (loss) on disposal of subsidiaries, net” in the years ended December 31, 2020 and 2019 (in thousands):

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Gain (loss) on disposal of subsidiaries was a gain of $0.3 million for year ended December 31, 2020 as compared to a loss of $1.0 million in the same period in 2019.

Loss on remeasurement of DBOT investment

In the year ended December 31, 2019, the Company increased its ownership in DBOT and consolidated DBOT in July 2019.  Immediately prior to the consummation of the acquisition, the Company’s investment in DBOT had a fair value of $3.1 million, and the Company recorded a loss of $3.2 million to record the investment in DBOT to its fair value.

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Other income (expense), net

Other income (expense), net increased $7.0 million for the year ended December 31, 2020 in comparison to the same period of 2019 mainly because of a gain of $4.9 million from the lease settlement of its New York City headquarters at 55 Broadway with the landlord, a gain of $0.8 million from the DBOT lease settlement with the landlord and sublease income $0.1 million.

Net (income)/loss attributable to non-controlling interest

Net (income)/loss attributable to non-controlling interests was a $7.8 million loss in 2020 as compared to a net income of $0.9 million in 2019. The loss in 2020 is primarily due to net loss from our investments in entities formed and acquired in 2019. The gain in 2019 is primarily due to the taxis commission revenue recognized in an entity we have 51% ownership during the third quarter of 2019.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2020, we had cash of $165.8 million. Approximately $164.5 million was held in our Hong Kong, U.S., Malaysia  and Singapore entities and $1.2 million was held in our PRC entities.

Due to the strict regulations governing the transfer of funds held in the PRC to other jurisdictions, the Company does not consider funds held in its PRC entities to be available to fund operations and investment outside of the PRC and consequently does not include them when evaluating the liquidity needs of its businesses operating outside of the PRC.

As a broker-dealer, DBOT has minimum capital requirements. DBOT had cash of $0.2 million as of December 31, 2020, which was necessary for DBOT to meet its minimum capital requirements. The Company consolidates a 51.0% owned investment in an entity which is based in Singapore. This entity venture had cash of $0.6 million as of December 31, 2020. The agreement of the Company’s partner in this entity is required prior to disbursement of this entity’s funds for certain defined expenditures.

The following table provides a summary of our net cash flows from operating, investing, and financing activities (in thousands).

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Operating Activities

Cash used in operating activities decreased by $27.7 million for the year ended December 31, 2020 compared to 2019, primarily due to (1) an increase in net loss from $96.8 million in 2019 to $106.0 million in 2020, (2) total non-cash adjustments to net loss was $75.9 million and $67.9 million for the years ended December 31, 2020 and 2019, respectively; and (3) total changes in operating assets and liabilities resulted in an increase of $11.3 million and $15.1 million in cash used in operating activities for the years ended December 31, 2020 and 2019, respectively.

Investing Activities

Cash used in investing activities was $3.5 million for the year ended 2020 mainly due to the investment to Solectrac. Cash used in investing activities was $1.8 million for the year ended December 31, 2019 primarily due to the payment of $1.8 million for Fintech Village.

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Financing Activities

For the year ended December 31, 2020. The Company received $182.5 million from the issuance of common stock, $8.9 million from warrant and option exercise, $27.0 million from the issuance of convertible notes, $7.1 million from noncontrolling shareholders contribution and made repayments of $17.5 million, primarily of a $12.0 million convertible note and other borrowings. For the year ended December 31, 2019, the Company received $9.1 million from the issuance of convertible notes, $2.8 million in proceeds in a private placement from the issuance of common shares, warrant and options for the year ended December 31, 2019.

Effects of Inflation

Inflation and changing prices have had an effect on our business and we expect that inflation or changing prices could materially affect our business in the foreseeable future. Our management will closely monitor the price change and make efforts to maintain effective cost control in operations.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements are obligations the Company has with nonconsolidated entities related to transactions, agreements or other contractual arrangements. The Company holds variable interests in investments accounted for under the equity method of accounting. The Company does not control these investments and therefore does not consolidate them.

We do not have other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Contractual Obligations

The tabular presentation of contractual obligations is not required for Smaller Reporting Companies.

Seasonality

The Company expects that orders and sales will be influenced by the amount and timing of budgeted expenditure by its customers. Typically, the Company would expect to see higher sales at the start of the year when companies start executing on their capital programs and at the end of the year when companies are spending any surplus or uncommitted budget before the new budget cycle commences. The Company’s operating businesses are in the early stage of their development and consequently do not have sufficient trading histories to project seasonal buying patterns with any degree of confidence.

OUTLOOK

The Company believes that the investment made to build out its sales capacity in China and a related capability in sourcing and supply chain and related logistics in China will help drive growth in China using the Company's S2F2C business model and enable the Company to source high quality components and completed vehicles at competitive prices for its Medici, Treeletrik, WAVE and Solectrac businesses outside of China. The global focus on climate change and the related regulatory changes to encourage the adoption of EVs is very favorable for the Company's business, particularly the charging and battery businesses, which are critical to the widespread adoption of EVs. Providing customers with easy access to financing options for their purchases of vehicles, batteries and charging infrastructure is an important enabler for the deployment of EV and related technologies and the Company will continue to work to develop funding sources in conjunction with manufactures and established lenders.

Fintech continues to provide opportunities which could generate high rates of return through the deployment of technology to disrupt existing business models. The Company's acquisition of Timios in the first quarter of 2021 marks the first entrance into the real estate title agency and closing market. Management believes that through deployment of advanced technology and complimentary acquisitions it can increase Timios' value. The regulatory environment for the adoption of digital securities is improving with regulators and central bankers in the world's most developed economies acknowledging that digital securities should be part of the financial ecosystem. This change favors companies like Ideanomics that have assets such as DBOT that are fundamental building blocks of any move towards digital securities.

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Environmental Matters

We are subject to various federal, state and local laws and regulations governing, among other things, hazardous materials, environmental contamination and the protection of the environment. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. We may also incur fines and penalties from time to time associated with noncompliance with such laws and regulations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the Company’s management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. Company management has identified certain accounting policies that are significant to the preparation of its financial statements. These accounting policies are important for an understanding of the Company’s financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of its financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. Company management believes the following critical accounting policies involve the most significant estimates and judgments used in the preparation of its financial statements. Company management has reviewed the critical accounting policies and estimates with the Audit Committee of our Board of Directors.

Variable Interest Entities

The Company accounts for variable interest entities in accordance with Financial Accounting Standards Boards (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation. Management evaluates the relationships between the Company and the various VIEs and the economic benefit flow of the contractual arrangement with the VIEs. In connection with such evaluation, management also considers whether or not, as a result of such contractual arrangements, the Company controls the legal shareholders’ voting interests and has power of attorney in the VIEs, and therefore which counterparty is able to direct all business activities of the VIEs. As a result of such evaluation, management concluded that the Company is the primary beneficiary of certain VIEs, which are consolidated, and that the Company is not the primary beneficiary of one investment in which the Company holds a 60.0% interest, and of one investment in which the Company holds a 34.0% investment and which had a supply agreement with a consolidated entity. Both of these investments are accounted for as an equity method investments.

As of December 31, 2019, the Company has terminated the agreements with the PRC VIEs and will not consolidate them beyond that date.

Revenue Recognition

The Company recognizes revenue when its customer obtains control of the promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine the amount and timing of revenue recognition for the arrangements that the Company determines are within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606,”) the Company performs the following five steps: (1) identify the contract(s) with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the Company satisfies the respective performance obligations.

A performance obligation may be satisfied over time or at a point in time.  Revenue from a performance obligation satisfied over time is generally evaluated by measuring our progress in satisfying the performance obligation as evidenced by the transfer of the goods or services to the customer.  Revenue from a performance obligation satisfied at a point in time is recognized at the point in time when the customer obtains control over the promised good.

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The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for the promised goods or services, or the transaction price.  In determining the transaction price, we evaluate consideration promised in a contract that includes a variable amount, or variable consideration, and estimate the amount of consideration that is due to us.  Variable consideration is included in the transaction price only to the extent that we believe it is probable that a significant reversal in the amount of revenue recognized will not occur.

Additionally, an analysis is performed in order to evaluate whether the Company is acting as a principal, in which case revenue is reported on a gross basis, or as an agent, in which case revenue is reported on a net basis. This analysis considers whether or not the Company obtains control of the specified goods or services before they are transferred to the customer, as well as other indicators such as the party primarily responsible for fulfillment, inventory risk, and discretion in establishing price.

The Company’s contracts are typically with large enterprises and consequently are heavily negotiated as to the services to be provided; consequently the accounting treatment for the reporting of revenues may vary materially between contracts including whether the revenue is reported on a gross or net basis.

Long-lived Assets

Long-lived assets, including property and equipment and intangible assets, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets. An impairment loss would be recognized when estimated undiscounted future cash flows generated from the assets are less than their carrying amount.

Factors which could result in the Company performing an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in the manner of use of the assets or the strategy for our business, and significant negative industry or economic trends.

The Company received a specific type of digital currency, GTB, as a result of two transactions in the three months ended March 31, 2019, and recorded the GTB currency as indefinite-lived intangible assets. On October 29, 2019, GTB had an unexpected significant decline in quoted price, from $17.00 to $1.84. This decline continued through the fourth quarter of 2019, and on December 31, 2020 the quoted price was $0.23. As a result of this decline in quoted price, and its inability to convert GTB into other digital currencies which were more liquid, or fiat currency, the Company performed an impairment analysis in the fourth quarter of 2019 and recorded an impairment loss of $61.1 million.

The assumptions and estimates used to determine future values and remaining useful lives of our intangible and other long-lived assets are complex and subjective. They can be affected by various factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our forecasts for future expansion development.

As a result of the impairment analyses performed in the year ended December 31, 2020, the Company recorded impairment losses related to land, asset retirement costs, influencer networks, a membership agreement, and a marketing and distribution agreement of $22.5 million.

As part of the impairment analyses discussed above in the year ended December 31, 2020, the Company also evaluated the remaining useful life of intangible assets, and determined that one intangible asset, intellectual property, no longer had a useful life and recorded amortization expense of $2.1 million.

As a result of the impairment analyses performed in the year ended December 31, 2019, the Company recorded an impairment loss related to a secure mobile financial information, social and messaging platform of $5.7 million.

Acquisition accounting

Our consolidated financial statements include the operations of acquired businesses subsequent to the closing of the transaction. We account for acquired businesses using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Transaction costs are expensed as incurred.

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Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date including the identification of and our estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies and contingent consideration, where applicable. Although we believe the assumptions and estimates we have made have been reasonable and appropriate, they are based in part on historical experience and information obtained from our management of the acquired companies and are inherently uncertain.

When estimating fair value, depending on the nature and complexity of the asset or liability, we may use one or all of the following techniques:

Fair value methodologies depend on the following types of inputs:

The determination of fair value is extremely subjective and complex, and requires judgements concerning future events, including future cash flows, the appropriate discount factors and weighted average cost of capital, and market comparables, among other factors.  Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

Goodwill

Goodwill represents the excess of cost over fair value of identifiable net assets acquired and liabilities assumed in a business combination. Application of goodwill impairment tests requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units and determination of fair value of each reporting unit. The Company performs goodwill impairment testing at the reporting unit level which is defined as the operating segment or one level below the operating segment. One level below the operating segment, or component, is a business for which discrete financial information is available and regularly reviewed by segment management. The Company tests goodwill for impairment annually (during the fourth quarter), or more frequently when events or changes in circumstances indicate it is more-likely-than-not that the fair value of a reporting unit has declined below its carrying amount. Goodwill is evaluated for impairment using qualitative and/or quantitative testing procedures.

The Company has the option to first perform qualitative testing to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. Judgment applied when performing the qualitative analysis includes consideration of macroeconomic, industry and market conditions, overall financial performance of the reporting unit, composition, personnel or strategy changes affecting the reporting unit and recoverability of asset groups within a reporting unit. If, after assessing the totality of events and circumstances, the Company determines it is not more-likely-than-not that the fair value of a reporting unit is greater than its carrying amount, then performing the quantitative impairment test is unnecessary. However, if the Company concludes otherwise, then it is required to perform the quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value of the reporting unit to its carrying amount.

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The fair value of a reporting unit may be determined using externally quoted prices (if available), a discounted cash flow model, or a market approach. Judgments applied when performing the quantitative analysis includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these judgments, estimates and assumptions could materially affect the determination of fair value for each reporting unit.

An impairment loss, if any, is recorded when the fair value of a reporting unit has declined below its carrying amount.

As a result of its goodwill impairment analyses performed in the year ended December 31, 2020, the Company recorded goodwill impairment losses of $9.3 million. The Company recorded no goodwill impairment losses in the year ended December 31, 2019.

Long-term Investments

The Company accounts for equity investments through which management exercises significant influence but does not have control over the investee under the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for the Company’s share of undistributed earnings or losses of the investee. The Company’s share of losses is not recognized when the investment is reduced to zero since the Company does not guarantee the investees’ obligations nor is the Company committed to providing additional funding.

The equity investments which are not consolidated or accounted for under the equity method are either carried at fair value or under the measurement alternative upon the adoption of the Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) (“ASU No 2016-01.”)

The Company utilizes the measurement alternative for equity investments that do not have readily determinable fair values and measures these investments at cost less impairment plus or minus observable price changes in orderly transactions for an identical or similar investment of the same issuer.

Management periodically reviews long-term investments for impairment whenever events or changes in business circumstances indicate that the carrying amount of the investment may not be fully recoverable. Management considers impairment indicators such as negative changes in industry and market conditions, financial performance, business prospects, and other relevant events and factors. If indicators exist, further analysis must be performed in order to determine if the impairment, if any, is other-than-temporary. If the impairment is deemed to be other-than-temporary, the fair value of the investment must be determined. In the absence of quoted market prices, management must use judgement to determine the fair value of the investment, considering such factors as current economic and market conditions, the operating performance of the entities, including current earnings trends and forecasted cash flows, and other company and industry specific information. If the fair value of the investment is below the carrying amount, an impairment loss is recorded to record the investment at fair value.

The Company recorded impairment losses of $0.2 million and $3.0 million in the years ended December 31, 2020 and 2019, respectively, for equity investments accounted for under the measurement alternative, and recorded impairment losses of $16.6 million and $13.1 in the years ended December 31, 2020 and 2019, respectively, for investments accounted for as equity method investments.

New Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note 2 of the Notes to the Consolidated Financial Statements included in Part IV, Item 8 of this Annual Report on Form 10-K.

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Critical Audit Matters

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The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Valuation of Accounts Receivable

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As described in Note 2 to the financial statements, the Company reviews its allowance for doubtful accounts receivable on an ongoing basis. In establishing the required allowance, management considers any historical losses, the customer’s financial condition, the accounts receivable aging, and the customer’s payment patterns. The Company has $7.4 million of accounts receivable carrying value as of December 31, 2020.

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The principal considerations for our determination that auditing management’s assessment of allowance for doubtful accounts is a critical audit matter are there was significant judgment made by management when considering factors in management’s assessment on collectability of the accounts receivables as described above, as well as the likelihood of the occurrence of these factors impacting the collectability. In turn, such management’s assessment led to challenging and subjective auditor judgment in performing our audit procedures.

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Our audit procedures included, among others, understanding of controls relating to management assessment of accounts receivable allowance, interviewing client account managers, examining transaction-related documents, testing historical collections for estimation accuracy, and reviewing collections subsequent to the balance sheet date. Our procedures also included confirming balances with clients, searching public information for the operating and financial conditions of the clients, and interviewing the business contacts of the Company. Our audit procedures also included testing their adequacy of footnote disclosures.

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Impairment assessment of intangible assets and goodwill

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As described in Note 2 to the financial statements, the Company performs an annual impairment assessment of its indefinite-lived intangible assets and goodwill, or more frequently if events or circumstances indicate that the carrying values exceeds its fair value. The Company reviews other intangible assets with estimable lives for impairment whenever indicators are present that the carrying value may not recoverable. These intangible assets and goodwill have carrying value of $29.7 million and $1.2 million as of December 31, 2020, respectively.

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Auditing the valuation of intangible assets and goodwill involved complex judgment due to subjective evaluation of indicators and significant estimation required in determining the recoverability or fair value of the intangible assets and goodwill. Specifically, the cash flow forecasts were sensitive to significant assumptions about future market and economic conditions. Significant assumptions used in the Company’s estimates included sales volume, growth rates, gross profits, operating expenditures, tax rates, and discount rate, as applicable.

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We obtained an understanding of the controls over the Company’s annual impairment assessments of intangible assets and goodwill. We compared, by searching online information, management’s assessment in qualitative factors, to public information including economic growth forecast, industry outlook, and business environment, relating to the intangible assets and goodwill. We also tested the estimated future cash flows, including but not limited to, comparing significant inputs to observable third party and industrial sources, comparing to the historical performance of the Company, and evaluating the reasonableness of management’s projected financial information by comparing to observable average industry historical trends and projections, and other internal and external data. For certain intangible asset with comparable current market value such of land use rights, we looked for nearby areas for their market value and price trending of similar lands. We performed sensitivity analyses of significant assumptions to evaluate the reasonableness of the Company’s cash flow forecasts. We assessed the Company’s disclosure of its impairment assessments included in Note 2 as well as the sufficiency of footnote disclosure of impairment assessment of intangible assets and goodwill in Note 9.

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Fair value measurement of acquisition contingent consideration

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As described in the Note 2 to the financial statements, accounting for business combinations requires management to make significant estimates and assumptions, especially at the acquisition date including the identification of and estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies and contingent consideration, where applicable. The Company recognized $5.5 million of remeasurement gain for the year ended December 31, 2020.

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Auditing the fair value of contingent liabilities, or earn-out liabilities, relating to business combination involved complex judgment due to subjective evaluation of indicators and significant estimation required in determining the fair value of the liabilities. Specifically, the discounted cash flow forecasts commonly used in the valuation were sensitive to significant assumptions about future market and economic conditions. Significant assumptions used in the Company’s estimates included sales volume, growth rates, gross profits, operating expenditures, tax rates, and discount rate, as applicable.

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We obtained an understanding of the controls over the Company’s financial reporting process for business acquisitions. We tested the estimated future cash flows, including but not limited to, comparing significant inputs to observable third party and industrial sources, and evaluating the reasonableness of management’s projected financial information by comparing to observable average industry historical trends and projections, and other internal and external data. We performed sensitivity analyses of significant assumptions to evaluate the reasonableness of management’s cash flow analyses of the fair value of the liabilities. We then agreed the Company’s conclusion to the relevant terms of contingent consideration in the business acquisition agreements. We assessed the Company’s disclosure of its business combination accounting policies and fair value measurement included in Note 2 as well as the sufficiency of footnote disclosures to the changes in contingent consideration in Note 23.

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/s/ B F Borgers CPA PC

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We have served as the Company’s auditor since 2018.

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Lakewood, Colorado

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March 31, 2021

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