Starting in early 2017, while continuing to support our YOD business, we began transitioning our business model to become a next-generation financial technology (“fintech”) company, with the intention of offering customized products and services based on best-in-class blockchain, artificial intelligence (“AI”) and other technologies to mature and emerging businesses across various industries. To do so, we are building a technology ecosystem through license agreements, joint ventures and strategic acquisitions, which we refer to as our “Fintech Ecosystem.” In parallel, through strategic acquisitions, equity investments and joint ventures, we are building a network of businesses, operating across industry verticals, that we believe have significant potential to recognize benefits from blockchain and AI technologies including, for example, enhancing operations, addressing cost inefficiencies, improving documentation and standardization, unlocking asset value and improving customer engagement.

Our core business strategy is to promote the use, development and advancement of blockchain- and AI-based technologies, and our positioning in the fintech industry overall, by bringing technology leaders together with industry leaders and creating synergies between the businesses in our expanding Fintech Ecosystem and the businesses in our network of industry verticals, which we refer to as our “Industry Ventures.” Specifically, we believe that the technologies being developed in our Fintech Ecosystem can be customized and leveraged to address various use cases presented by our Industry Ventures, which we believe will not only enhance the performance of our Industry Ventures, but also enhance the capabilities of our Fintech Ecosystem. For example, in 2017, we acquired a crude oil trading business and a consumer electronics trading business with the goal of gaining experience in the traditional logistics management and financing business, providing an initial use case for technologies in our Fintech Ecosystem, and enabling the application of our learning from operating these businesses to the development of an AI- and blockchain-enabled platform for more efficient logistics management and finance generally.

We refer to our YOD business as our legacy YOD segment and all our other operations, including the development of our Fintech Ecosystem and our Industry Ventures, as our Wecast Services segment, to suggest the wide net we are casting in identifying promising technologies and use cases for operations as a next-generation fintech company. The commodities trading component of the logistics management and financing businesses we acquired in 2017 provided 99.7% of our revenue for the year ended December 31, 2018. As we further develop our FinTech services business and this business continues to mature, we have been gradually phasing out of our logistics management and financing business for strategic reasons, as further described in the Management Discussion and Analysis. During the fourth quarter of 2018 we began experiencing market demand for non-logistics management revenue generating opportunities and have begun focusing our efforts on these new market FinTech services opportunities, while phasing out of the oil trading and electronics trading businesses. These new FinTech services market opportunities are in line with our FinTech Ecosystem and Industry Ventures strategy. While we intend to continue to capitalize on our efforts and learnings from the overall logistics management business it is not intended to be our core business. Various other aspects of the development of our Fintech Ecosystem and our Industry Ventures, as described below, are still in the planning and testing phase and are generally not operational or revenue generating.

Fintech Ecosystem

We primarily rely upon third-party intellectual property (“IP”) for the AI and blockchain technology being developed for our Wecast Services segment. In evaluating prospective technologies we seek to acquire, in-license or promote through joint ventures, we are focused on identifying industry leaders with strong and established engineering teams and technologies that are substantially developed. In doing so, we believe we can reduce the risks of reliance on a single technology with speculative functionality and adoption potential, while enhancing our flexibility and adaptability in a rapidly evolving technological environment.

Our strategy is to leverage the technology and teams that comprise our Fintech Ecosystem to create customized solutions for the use cases presented to us by our Industry Ventures. The customization of these business applications would be undertaken by our acquired subsidiaries or the joint ventures, as applicable, with the business development efforts of our parent company focused on expanding the network of technologies in our Fintech Ecosystem and facilitating other synergies between our Fintech Ecosystem and our Industry Ventures. While the development and expansion of our Fintech Ecosystem is primarily driven by a desire to match specific technologies with specific use applications in our Industry Ventures, we believe that many of the technologies in our Fintech Ecosystem will have applications outside of our own Industry Ventures, and that the work in customizing technology to our Industry Ventures can be leveraged to develop products and services for third parties.

BDCG Joint Venture

Between December 2017 and April 2018, we formed BBD Digital Capital Group Ltd., a New York corporation (“BDCG”), as a joint venture with management partner Seasail, an affiliate of Big Business Data (“BBD”). We hold approximately 60% of the equity interest of BDCG and have the power to appoint three of the five directors of the board of BDCG. BDCG intends to capitalize on commodity and energy providers’ needs for more precise risk management services, more informed operational planning and more strategic decision-making, specifically in the trading of index funds, futures and commodities. BDCG focuses on developing AI-driven financial data services as well as building transactional platforms for index, futures and derivative trading, for both global commodity and energy clients. Planned financial data services also include risk management solutions, platforms for trading derivatives and indices, and debt and credit product offerings, with the primary objective being enhancing trading and risk management strategies.

BDCG leverages Pluto, Seasail’s AI technology, which Seasail licenses to BDCG.Pluto takes in dynamic, multi-variable inputs, such as, in the case of crude oil, information regarding trading, production origination, economic data and weather,and processes them according to flexible programmed models. For debt and credit products, BDCG has focused on data collection and integration capabilities based on “massive public data” and “acquired third-party data,” including credit and multi-party loans. BBD has accumulated the information of over 100 million companies. Such information contains more than 150 data tables and over 3,700 data fields, and the amount of data continues to grow rapidly. BDCG can use the data accumulated by BBD to create risk and index models. Once these models are layered into a rating and risk management system and loan approval system for trade finance, the AI system can make informed recommendations as to trading and risk management. Pluto is then sold and licensed to third party financial product stakeholders for these services.

We believe we can leverage BDCG’s AI services for the creation of financial products, risk ratings and indexing, and selection and recommendation systems on behalf of key stakeholders. By using AI technology to analyze the digital securitized assets we intend to develop, we aim to elevate not only the quality of the financial product, but also interactions amongstakeholders. We also intend to design thedigital securitized assets we develop to have data attributes that can be integrated into BDCG’s approach for processing financial data.

Fundamental Interactions

In June 2018, we entered into a non-exclusive, royalty-bearing licensing agreement with Fundamental Interactions, Inc. (“FI”), which currently expires on June 25, 2021, with respect to certain blockchain technologies, including FI’s Velocity Ledger, a blockchain-based, software-as-a-service (SaaS) platform that operates as a private blockchain solution for financial services. Through this agreement, we intend to leverage core FI technology and the Velocity Ledger platform to support the tokenization, secondary trading and settlement of new blockchain-based securities.

FinTalk

In September 2018, we entered into an agreement for the acquisition of FinTalk, a secure mobile messaging, collaboration and information services platform that delivers encrypted text and media messaging, with high performance large file transfer capabilities.

Industry Ventures

We believe there are a number of industries that can benefit from the application of next-generation technologies, such as blockchain, AI, machine learning and big data. Our strategy is not only to promote the development of promising technologies through our Fintech Ecosystem, but also to acquire, invest in and form joint ventures with businesses in the various industries that we believe can be well served by our Fintech Ecosystem. In so doing, we believe that we can benefit both from growth in the Industry Ventures themselves, as well as from the enhanced potential for monetizing the technologies in our Fintech Ecosystem that would come with refining these technologies for our Industry Ventures.

Logistics Management and Financing

Our first group of Industry Ventures has focused on the logistics management and financing industry. Logistics management is the component of supply chain management that helps organizations plan, manage and implement processes to store and move goods from origin to destination. Logistics financing supports businesses where the order-to-delivery cycle may not correlate with cash flow needs. We believe that by ensuring that information is transparent, accurate and verifiable at various stages during the shipping process, blockchain-enabled logistics management platforms can streamline and standardize the product flow from sellers to buyers and eliminate standard transactional intermediaries in the freight and shipping industry. Further, we believe that by decreasing middle-man costs, we can greatly improve the efficiency of capital utilization, expand margins and accelerate inventory turnover for companies shipping and ordering goods. In addition, we believe that the transparency and security provided by blockchain technologies, combined with the computing power of AI technologies, can reduce existing logistics financing costs, including by improving risk management and decision making, and enable alternative logistics financing solutions.

To support the development of blockchain- and AI-based technologies for the logistics management and financing industries, we entered the commodities trading business, with the primary goal of learning about the needs of buyers and sellers in industries that rely heavily on the shipment of goods to inform our understanding of the features a blockchain platform would need in order to serve this industry vertical. Specifically, we elected to focus on the crude oil and consumer electronics businesses, which are industries that we estimate are sufficiently commoditized and high volume, in order to (i) serve as meaningful controls, (ii) identify inefficiencies in the logistics management and finance industries and (iii) generate data to support the potential future application of AI solutions.

Our crude oil trading business commenced in October 2017, when we formed our Singapore joint venture, Seven Stars Energy Pte. Ltd. (“SSE”), which is 51% owned by us. The other partner in the joint venture is a businessman based in Singapore with extensive experience in the oil trading industry and ownership or control of several large oil tankers. Our consumer electronics trading business commenced on January 2017, and is operated by our subsidiary Amer Global Technology Limited (“Amer”), in which we have a 55% interest. The end customers in our crude oil and consumer electronics trading businesses include about 15 to 20 corporations across the world. Our crude oil trading business does not currently integrate blockchain- or AI-based logistics solutions.

While we have begun phasing out of the crude oil trading business and the electronics trading business, we intend to continue to capitalize on our efforts and learning from these businesses so that we can leverage the applications of our technologies and FinTech Ecosystem across this business and as part of our Industry Ventures strategy.

Consumer Digital Products

Our second group of Industry Ventures focuses on consumer digital products. We believe that existing communities of consumers, merchants and service providers can significantly benefit from platforms that leverage blockchain technologies to aggregate content and services and products, such as blockchain-based digital membership cards, digital wallets, and loyalty programs that offer cash or other token-based rewards to users within these communities.

In September 2018, we purchased a 65.65% equity interest in Grapevine Logic Inc. (“Grapevine”), and an affiliate of Dr. Bruno Wu, our Chairman of the Board has an option to require us to acquire the remaining stake in Grapevine. Grapevine is an end-to-end influencer marketing platform that facilitates collaboration between advertisers and brands with video based social influencers and content creators. Through the Grapevine platform, more than 4,700 companies have been able to hire the services of over 177,000 social influencers, ultimately helping these companies to promote their products and strengthen their brand. We believe that Grapevine will help us develop strength in the consumer digital products industry vertical by providing the platform for connecting brands with content-producing influencers and their large-scale audience of consumer-driven followers to whom digital tokens, loyalty and discount cards, multi-purpose digital wallets, and other services may be marketed via Grapevine on behalf of Ideanomics, brand advertisers and influencers, all according to a follower’s areas of interest.

Also in September 2018, we announced the proposed joint venture with Asia Times Holdings (“AT”), a Hong Kong company which owns the Asia Times newspaper, to be named Asia Times Financial Limited (“ATF”). Effective February 20, 2019, the Company and AT agreed to terminate their subscription agreement so that the Company will retain approximately 4.0% interest in AT, and not be obligated to make any further investment into AT. In addition, the parties have agreed to terminate the Shareholder’s Agreement for the joint venture, Asia Times Financial.

Financial Services

As evidenced by the proliferation of offerings of blockchain-based tokens in recent years, and the rapid growth of an industry to support these offerings, we believe that a core use case for blockchain and AI technology lies in financial services, digital asset securitization, and blockchain-enabled trading platforms. We plan to provide consulting services to companies seeking financing both through the sales of blockchain based instruments, such as securitized assets represented by digital tokens, which we refer to as “digital securitized assets,” as well as through conventional means, such as sales of traditional equity and debt securities. We believe that this dual approach to financial transactions, coupled with a related AI and blockchain enabled financial services platform, will provide us with flexibility to address the needs of issuers and investors. We also aim to use AI-powered analytics from our technology investments for different use cases, such as the trading, pricing, indexing and ratings of digital tokens (including digital securitized assets). Although we do not yet offer products or services in this industry vertical, we believe that ultimately, the Industry Ventures we form, acquire, or invest in this area will become the core of our business.

DigitalAsset Securitization

We believe that we can use AI- and blockchain-enabled technology to provide a seamless method and platform for the creation and trading of digital securitized assets. Specifically, we plan to facilitate the securitization of tangible and intangible assets, such as data and IP, into new financial products, to “tokenize” these financial products by digitally recording them on a blockchain, to enable advanced platforms and capabilities using AI and blockchain technology, and to support the distribution and monetization of digital securitized assets. In so doing, we can be a leader in the transition of traditional financial products, such as commodities, currencies, credit, leasing, real estate and other asset classes, into the asset digitalization era.

Creating digital securitized assets requires the conversion of illiquid, tangible and intangible assets into blockchain enabled securities that we anticipate will, subject to future regulatory approval, be easily traded via exchanges, and as such, are more liquid than the underlying asset. We refer to this process as “digital asset securitization.”

As a first step in this process, we are identifying and engaging in discussions, negotiations and, in some cases, joint ventures, with third parties that own the specific tangible and intangible assets to be securitized, who we refer to as “asset originators,” or that have relationships with asset originators. We may also elect to securitize assets owned by our Company. Next, we will work with domestic and international securities market professionals, including licensed broker-dealers, merchant banks, ratings agencies and financial institutions, to structure and document the securitization of the assets, creating an asset backed financial product that can be more easily distributed and traded. This securitization process may include the pooling of assets, whether within the same asset class or across asset classes or asset originator types, or fractionalization of ownership of individual assets.

Once assets have been securitized, the new asset backed financial product will be represented in the form of digital, blockchain based tokens. We refer to this process as “digital tokenization.” Digital tokens are representative units of value, analogous to a stock certificate or a book-entry position, each of which reflects a holder’s ownership of a security, the terms of which are established in the investment documentation. Each of these tokens will be created by a “smart contract,” a self-executing agreement whose lines of code will reflect the economic and governance terms determined in the asset securitization process.

We intend for our digital tokenization process largely to rely upon technologies already in use and accessible in today’s blockchain market, such as Ethereum’s ERC-20 tokens, thus reducing the need, costs and execution risks of new technology development. We also intend to enter into leverage our Fintech Ecosystem to use blockchains that may be optimized for tokenization of assets in specific industry verticals, including, potentially basing these technologies on FI’s Velocity Ledger. We believe there are myriad benefits that can potentially be afforded by tokenizing securities via Velocity Ledger, including new product creation and market exposure, competitive fees, fast deal execution, and access to institutional investors and broker dealers.

Trading and Financial Services Platforms

We believe that regulated alternative trading systems (“ATSs”) and sophisticated risk management software are important for the development of trading markets for blockchain based digital tokens, including the digital securitized assets we plan to originate as part of our financial services business. Accordingly, we are making strategic investments that are intended to promote the development of regulated ATSs that will enhance the blockchain token trading ecosystem and AI-based ratings systems to enhance the market viability of our digital securitized assets.

Between August 2017 and December 2018, we acquired approximately 36.92% of the capital stock of Delaware Board of Trade Holdings, Inc. (“DBOT”), which is a FINRA member firm and has filed an initial operations report on Form ATS to give notice of operations of DBOT ATS, LLC (“DBOT ATS”), and which we believe is well positioned to develop blockchain-enabled transactional platforms. DBOT operates three business lines, (i) DBOT ATS, which is intended to be an ATS for equity securities not listed on the New York Stock Exchange or the Nasdaq, (ii) DBOT Issuer Services LLC, which is focused on setting and maintaining issuer standards, as well as the provision of issuer services to DBOT designated issuers, and (iii) DBOT Technology Services LLC, which is focused on the provision of market data and marketplace connectivity.

DBOT has entered into agreements with FI (which is also a licensor to Ideanomics), pursuant to which FI is developing a blockchain enabled primary issuance and secondary trading platform for DBOT ATS using the Velocity Ledger. Under the agreements, DBOT will maintain licensing rights for the technology.

Our Fintech Revenue Model:

As part of our transitioning to a next-generation fintech company, we began developing our revenue and business model to be closely aligned with the technologies and industries that we support in our FinTech Ecosystem and Industry Ventures in a way that we can capitalize on the market demand for these products and services.

Our FinTech business and revenue model is directly connected with the agreements and partnerships that we engage in. The underlying economics vary on a case by case basis (due to the particular industry that they are a part of, and specific facts and circumstances for each agreement), but generally they have the following characteristics:

Digital Assets, Blockchain and AI:

Asia Operations:

Lease Financing:

U.S. Operations:

Licensing of Technologies / FinTech Village:

Equity Investments:

Additionally, we benefit from the various equity interests that we have in our various subsidiaries, joint ventures, and partnerships across our Fintech Ecosystem and Industry Ventures. In cases where valuable intellectual property is generated by through these strategic investments, the Company will consider strategic licensing agreements and additional business models in exchange for our services to further enhance revenue.

Legacy YOD Segment

Since 2010, we have provided premium content and integrated value-added service solutions for the delivery of VOD and paid video programming to digital cable providers, IPTV providers, OTT streaming providers, mobile manufacturers and operators, as well as direct customers. The core revenues were generated from both minimum guarantee payments and revenue sharing arrangements with distribution partners as well as subscription or transactional fees from subscribers.

In October 2016, we signed an agreement to form a five year partnership with Zhejiang Yanhua Culture Media Co., Ltd., a company organized2004 under the laws of the PRC (“Yanhua”), where Yanhua willState of Nevada. Our evolution has been driven by technological innovation and numerous strategic acquisitions of businesses to act as our operating subsidiaries that expanded our product offerings and complemented our existing solutions. Currently, Ideanomics conducts its operations globally in one segment with two business units – Ideanomics Mobility and Ideanomics Capital. Ideanomics Mobility has as its mission the exclusiveacceleration of commercial adoption of electric vehicles. Ideanomics Capital is the Company’s fintech business unit, which focuses on leveraging technology and innovation to improve efficiency, transparency, and profitability for the financial services industry.

Pursuant to the Yanhua Partnership, the existing legacy Hollywood studio paid contentcrowdfunding as well as other IP content specifiedassociated offerings.

Management Team with Significant FinTech, Blockchain and AI Experience

To support our transition to a next-generation AI and blockchain enabled fintech company, we have strategically secured a management team with diversified expertise in operations, technology, fintech, blockchain, AI, capital markets and the financial services industry, and largely transitioned our operations towardvarious jurisdictions including the United States, having 18 U.S. employeesPeople’s Republic of China, Hong Kong, Malaysia, and England and Wales, and nine (9) subsidiaries with no operations acting solely as holding companies. Currently, there are fifteen (15) operating subsidiaries of December 31, 2018 compared to three as of December 31, 2017. AsIdeanomics in the United States and five (5) PRC subsidiaries. In addition, twenty (20) of the date of this filing, key members of our management team include:

Dr. Bruno Wu. Our Chairmansubsidiaries of the BoardCompany are referred to as dormant subsidiaries that ceased their operations, remain not liquidated solely for the purpose of compliance with administrative formalities, and are expected to be liquidated within 6 months of the consummation of the merger.

Mr. Alf Poor. Our Chief Executive Officer, and President of the Connecticut Fintech Village, is a former Chief Operating Officer at Global Data Sentinel, a cybersecurity company that specializes in identity management, file access control, protected sharing, reporting and tracking, AI and thread response, and backup and recovery. He is the former President and Chief Operating Officer of Agendize Services Inc., a company with an integrated suite of applications that help businesses generate higher quality leads, improve business efficiency and customer engagement. Mr. Poor is a client-focused and profitability-driven management executive with a track record of success at both rapidly-growing technology companies and large, multi-national, organizations.

Mr. Federico Tovar. Our Chief Financial Officer is a seasoned business professional and subject matter expert in AI, fintech, blockchain, IoT and cybersecurity. He was previously the Chief Financial and Strategy Officer of Global Data Sentinel Inc, a privately held and high growth cybersecurity and AI technology company that supports data security across domains, including network, cloud, mobile and IoT, with AI capabilities and next-generation applications in fintech, blockchain, energy, insurance, healthcare, and media industries, amongst others. Mr. Tovar has developed strategic plans and business models, structured various IP and technology licensing deals, closed on various M&A transactions and debt and equity financing rounds, and formulated corporate growth and financial strategies for technology companies which have resulted in measurable execution strategies.

Ms. Kate Lam is Managing Director, Digital Capital Markets. Ms. Lam has more than twenty years of financial markets experience in marketing multiple asset classes to Propellr, a fintech platform for multi-asset financing. She successfully obtained the SEC broker dealer license for Propellr Securities and integrated regulatory best practices into the platform. As CEO of the broker dealer, she worked closely with engineers and product managers to design specifications for investor vetting, as well as perform due diligences on financing deals. She was also the Head of Institutional Sales and Investor Relations for the company. Prior to Propellr, Ms. Lam held senior management positions at Deutsche Bank, Bear Stearns and Standard Chartered Bank with a client base spanning central banks, global and regional banks, asset managers, global insurance companies and hedge funds.

Dr. George Yuan. Dr. George Yuan is the Chief Technology Officer of BBDCG. Dr. Yuan is a world leading expert on dynamic ontology for credit risk assessment and risk management. He served as the leader for risk management consulting at KPMG (US) and the Director of China / Hong Kong Deloitte Financial Consulting. Dr. Yuan was selected as a National Distinguished Expert in Shanghai’s and Sichuan’s “The Thousand Talents Plan” in 2013 and 2018, and he is the Chief Editor for The Journal of Financial Engineering. Dr. Yuan’s is leading BDCG’s focus on AI driven financial data services as well as transactional platforms for index, futures and derivative trading, for both global commodity and energy clients. Dr. Yuan is the Chief Risk Officer and Chief Engineer of BDCG. Dr. Yuan has held a professorship at the Institute of Risk Management at Tongji University. Dr. Yuan’s study and work has centered around the valuation of financial derivatives and value-at-risk (“VaR”) modeling for market risk, credit risk and operational risk under the framework of the Basel II (Basel III) Accord, financial and credit derivatives pricing, portfolio optimization, risk limit design, commodity forward price curve design, complex position, commodity price risk assessment and asset valuation.

Corporate Structure

fifty-four (62) subsidiaries. The following chart depicts our corporate structure as of December 31, 2018: 

VIE Structure and Arrangements

To comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provide value-added telecommunication services, we provide services through Sinotop Beijing and SSF, which hold the licenses and approvals to provide digital distribution and Internet content services in the PRC. We have the ability to control Sinotop Beijing and SSF through a series of contractual agreements, as described below, entered into among YOD WFOE, YOD Hong Kong, Sinotop Beijing, SSF and the respective legal shareholders of Sinotop Beijing and SSF.

Through these contractual arrangements, we have acquired both control over and rights to, 100% of the economic benefit of Sinotop Beijing and SSF. Accordingly, Sinotop Beijing and SSF are each considered a VIE, and are therefore consolidated in our financial statements. Pursuant to the below contractual agreements, YOD WFOE can have the assets transferred freely out of each VIE without any restrictions. Therefore, YOD WFOE considers that there is no asset of the respective VIE that can be used only to settle obligation of such VIE, except for the registered capital of each respective VIE, amounting to RMB10.6 million (approximately $1.6 million) for Sinotop Beijing, and RMB27.6 million (approximately $4.2 million) has been injected as of December 31, 2018. As Sinotop Beijing and SSF are incorporated as limited liability companies under PRC Company Law, creditors of these two entities do not have recourse to the general credit of our other entities.

The following is a summary of the common contractual arrangements that provide us with effective control our VIEs and that enable us to receive substantially all of the economic benefits from their operations:

Equity Pledge Agreement

Pursuant to the Equity Pledge Agreement among YOD WFOE and the respective nominee shareholders, the nominee shareholders pledge all of their capital contribution rights in the VIEs to YOD WFOE as security for the performance of the obligations of the VIEs to make all the required technical service fee payments pursuant to the Technical Services Agreement and for performance of the nominee shareholders’ obligation under the Call Option Agreement. The terms of the Equity Pledge Agreement expire upon satisfaction of all obligations under the Technical Services Agreement and Call Option Agreement.

Call Option Agreement

Pursuant to the Call Option Agreement among YOD WFOE, the VIEs and the respective nominee shareholders, the nominee shareholders grant an exclusive option to YOD WFOE, or its designee, to purchase, at any time and from time to time, to the extent permitted under PRC law, all or any portion of the nominee shareholders’ equity in the VIEs. The exercise price of the option shall be determined by YOD WFOE at its sole discretion, subject to any restrictions imposed by PRC law. The term of the agreement is until all of the equity interest in the VIEs held by the nominee shareholders is transferred to YOD WFOE, or its designee and may not be terminated by any party to the agreement without consent of the other parties.

Power of Attorney

Pursuant to the Power of Attorney agreements among YOD WFOE, each VIE and each of the respective nominee shareholders, each nominee shareholder grants YOD WFOE the irrevocable right, for the maximum period permitted by law, to all of its voting rights as shareholder of the VIE. The nominee shareholders may not transfer any of their equity interest in the VIE to any party other than YOD WFOE. The Power of Attorney agreements may not be terminated except until all of the equity in the VIE has been transferred to YOD WFOE or its designee.

Technical Service Agreement

Pursuant to the Technical Service Agreement, between YOD WFOE and each VIE, YOD WFOE has the exclusive right to provide technical service, marketing and management consulting service, financial support service and human resource support services to VIE, and VIE is required to take all commercially reasonable efforts to permit and facilitate the provision of the services by YOD WFOE. As compensation for providing the services, YOD WFOE is entitled to receive service fees from VIE equivalent to YOD WFOE’s cost plus 20-30% of such costs as calculated on accounting policies generally accepted in the PRC. YOD WFOE and VIE agree to periodically review the service fee and make adjustments as deemed appropriate. The term of the Technical Services Agreement is perpetual, and may only be terminated upon written consent of both parties.

Spousal Consent

Pursuant to the Spousal Consent, undersigned by the respective spouse of the nominee shareholders, the spouses unconditionally and irrevocably agree to the execution of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney agreement. The spouses agree to not make any assertions in connection with the equity interest of VIE and to waive consent on further amendment or termination of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney agreement. The spouses further pledge to execute all necessary documents and take all necessary actions to ensure appropriate performance under these agreements upon YOD WFOE’s request. In the event the spouses obtain any equity interests of VIE which are held by the nominee shareholders, the spouses agreed to be bound by the VIE agreements, including the Technical Services Agreement, and comply with the obligations thereunder, including sign a series of written documents in substantially the same format and content as the VIE agreements.

Letter of Indemnification

Pursuant to the Letter of Indemnification among YOD WFOE and each nominee shareholder, YOD WFOE agrees to indemnify such nominee shareholder against any personal, tax or other liabilities incurred in connection with their role in equity transfer to the greatest extent permitted under PRC law. YOD WFOE further waives and releases the nominee shareholders from any claims arising from, or related to, their role as the legal shareholder of the VIE, provided that their actions as a nominee shareholder are taken in good faith and are not opposed to YOD WFOE’s best interests. The nominee shareholders will not be entitled to dividends or other benefits generated therefrom, or receive any compensation in connection with this arrangement. The Letter of Indemnification will remain valid until either the nominee shareholder or YOD WFOE terminates the agreement by giving the other party hereto sixty (60) days’ prior written notice.

Management Services Agreement

In addition to VIE agreements described above, our subsidiary and the parent company of YOD WFOE, YOU On Demand (Asia) Limited, a company incorporated under the laws of Hong Kong (“YOD Hong Kong”) has entered into a Management Services Agreement with each VIE.

Pursuant to such Management Services Agreement, YOD Hong Kong has the exclusive right to provide to the VIE management, financial and other services related to the operation of the VIE’s business, and the VIE is required to take all commercially reasonable efforts to permit and facilitate the provision of the services by YOD Hong Kong. As compensation for providing the services, YOD Hong Kong is entitled to receive a fee from the VIE, upon demand, equal to 100% of the annual net profits as calculated on accounting policies generally accepted in the PRC of the VIE during the term of the Management Services Agreement. YOD Hong Kong may also request ad hoc quarterly payments of the aggregate fee, which payments will be credited against the VIE’s future payment obligations.

In addition, at the sole discretion of YOD Hong Kong, the VIE is obligated to transfer to YOD Hong Kong, or its designee, any part or all of the business, personnel, assets and operations of the VIE which may be lawfully conducted, employed, owned or operated by YOD Hong Kong, including:

(a)           business opportunities presented to, or available to the VIE may be pursued and contracted for in the name of YOD Hong Kong rather than the VIE, and at its discretion, YOD Hong Kong may employ the resources of the VIE to secure such opportunities;

(b)           any tangible or intangible property of the VIE, any contractual rights, any personnel, and any other items or things of value held by the VIE may be transferred to YOD Hong Kong at book value;

(c)           real property, personal or intangible property, personnel, services, equipment, supplies and any other items useful for the conduct of the business may be obtained by YOD Hong Kong by acquisition, lease, license or otherwise, and made available to the VIE on terms to be determined by agreement between YOD Hong Kong and the VIE;

(d)           contracts entered into in the name of the VIE may be transferred to YOD Hong Kong, or the work under such contracts may be subcontracted, in whole or in part, to YOD Hong Kong, on terms to be determined by agreement between YOD Hong Kong and the VIE; and

(e)           any changes to, or any expansion or contraction of, the business may be carried out in the exercise of the sole discretion of YOD Hong Kong, and in the name of and at the expense of, YOD Hong Kong;

(f)           provided, however, that none of the foregoing may cause or have the effect of terminating (without being substantially replaced under the name of YOD Hong Kong) or adversely affecting any license, permit or regulatory status of the VIE.

The term of each Management Services Agreement is 20 years, and may not be terminated by the VIE, except with the consent of, or a material breach by, YOD Hong Kong.

Loan Agreement

Pursuant to the Loan Agreement among YOD WFOE and the nominee shareholders, YOD WFOE agrees to lend RMB19.8 million and RMB0.2 million, respectively, to the nominee shareholders of SSF for the purpose of establishing SSF and for development of its business. As of December 31, 2018, RMB27.6 million ($4.2 million) and RMB nil have been lent to Lan Yang and Yun Zhu, respectively. Lan Yang has contributed all of the RMB27.6 million ($4.2 million) in the form of capital contribution and accordingly the loan is eliminated with the capital of SSF upon consolidation. The loan can only be repaid by a transfer by the nominee shareholders of their equity interests in SSF to YOD WFOE or YOD WFOE’s designated persons, through (i) YOD WFOE having the right, but not the obligation to at any time purchase, or authorize a designated person to purchase, all or part of the Nominee Shareholders’ equity interests in SSF at such price as YOD WFOE shall determine (the “Transfer Price”), (ii) all monies received by the nominee shareholders through the payment of the Transfer Price being used solely to repay YOD WFOE for the loans, and (iii) if the Transfer Price exceeds the principal amount of the loans, the amount in excess of the principal amount of the loans being deemed as interest payable on the loans, and to be payable to YOD WFOE in cash. Otherwise, the loans shall be deemed to be interest-free. The term of the Loan Agreement is perpetual, and may only be terminated upon the nominee shareholders receiving repayment notice, or upon the occurrence of an event of default under the terms of the agreement.

Our Unconsolidated Equity Investments

We hold a 30% ownership interest in Shandong Media, which is our print based media business, and account for our investment in Shandong Media under the equity method. The business of Shandong Media includes a television programming guide publication, the distribution of periodicals, the publication of advertising, the organization of public relations events, the provision of information related services, copyright transactions, the production of audio and video products, and the provision of audio value added communication services.

We hold a 39% ownership interest in Hua Cheng, and account for our investment in Hua Cheng under the equity method. The business of Hua Cheng mainly includes distribution of content and VOD business on television terminal.

We hold a 50% ownership interest in Wecast Internet Limited, a Hong Kong company (“Wecast Internet”), and account for our investment in Wecast Internet under the equity method. The business of Wecast Internet mainly includes computer network technology development, integrated circuit of software and hardware technology development, technical consultation.

From August 2017 through December 31, 2018, we acquired 36.92% ownership interest in DBOT, and are accounting for our investment in DBOT under the equity method starting from October 2018. DBOT is a FINRA member firm, and filed an initial operations report on Form ATS to give notice of DBOT ATS’s operations. DBOT is powered through blockchain technology licensed from one of our strategic licensing partners.

In 2018, we signed a joint venture agreement to establish BDCG located in the United States for providing blockchain services for financial or energy industries by utilizing AI and big data technology in the United States.  We hold a 60% ownership and Seasail ventures limited (“Seasail”) holds 40% of BDCG.  The new entity is currently in the process of ramping up its operations.