NFT (MI) - 2018 Q4 - Annual Report

PART I Business Takung Art operates an online platform for trading artwork ownership units, generating revenue from fees and expanding offerings - Takung Art Co., Ltd. operates an electronic online platform (http://eng.takungae.com/) for artists, art dealers, and art investors to offer and trade in ownership units of valuable artwork[15] - The platform aims to make high-end and expensive artwork investment more accessible to ordinary people[16] - The company generates revenue from listing fees, trading commissions, and management fees, with additional revenue from premium services and authorized agent subscriptions[17][44] - Takung has expanded its trading platform access to residents of Russia, Mongolia, Australia, and New Zealand, and introduced new product categories like 'A' tier portfolios for high-liquidity artworks and 'Unit+' for collectibles, including sports memorabilia[316][317][318] - The company's corporate structure includes subsidiaries Hong Kong Takung, Shanghai Takung, Tianjin Takung, Takung Art Holdings, and Art Era, with plans to merge Shanghai Takung's operations with Tianjin Takung's to save costs[13][25][27][28][319] - As of December 31, 2018, 279 pieces of artwork were listed on the platform, including paintings, calligraphies, jewelry, precious stones, amber, antique mammoth ivory carvings, porcelain pastel paintings, porcelains, Unit+ products, Yixing collectables, and Sports memorabilia[47][60] - The company's trading platform is linked to China Merchants Bank, Hong Kong Branch (CMB) for timely settlement, and also connects to Bank of China and Ping An Bank for RMB settlements in China[36] - The company's intellectual property includes registered trademarks for 'Takung' in Hong Kong, Mainland China, Macau, and the United States, and various registered domain names[124][153][155] Overview - Takung Art Co., Ltd. operates an electronic online platform (http://eng.takungae.com/) for artists, art dealers, and art investors to offer and trade in ownership units of valuable artwork[15] - The platform aims to make high-end and expensive artwork investment more accessible to ordinary people[16] - Revenue is generated from listing fees, trading commissions, and management fees[17] Corporate History and Structure - The company was incorporated in Delaware as Cardigant Medical Inc. on April 17, 2009, initially focusing on vascular disease treatments[18] - A change in control occurred on August 28, 2014, with Yong Li purchasing approximately 95% of the company's common stock[19] - The company divested its original Cardigant Business and acquired Hong Kong Takung's art trading business on October 20, 2014, subsequently changing its name to Takung Art Co., Ltd. on November 5, 2014[21][22][24][25] - Subsidiaries include Shanghai Takung (incorporated July 2015 for trader deposits/payments), Tianjin Takung (incorporated January 2016 for technology development and marketing), Takung Art Holdings (incorporated July 2018 for e-commerce of whole artworks), and Art Era (incorporated September 2018 for e-commerce platform development)[25][27][28] - Management plans to merge Shanghai Takung's operations with Tianjin Takung's and eventually dissolve Shanghai Takung to save costs[25] Our Trading Platform - The proprietary platform is an all-electronic trading system for artwork ownership units, developed by a third party and customized for Takung, with ongoing development by an internal team in Hangzhou[31] - Key functions include a matching system, transaction monitoring, account management, and settlement system[31][32] - The platform is linked to China Merchants Bank, Hong Kong Branch (CMB) for timely settlement, and also connects to Bank of China and Ping An Bank for RMB settlements in China[36] - The trading system involves Original Owners, Offering Agents, and Traders, with additional parties like insurers, appraisal firms, and custodians[37][38][39][40][41] - The trading system hardware is hosted by Ali Cloud in Singapore, the clearing system in Hong Kong, and disaster recovery in CITIC Telecom IDC in Hong Kong, ensuring real-time data synchronization[42] Revenue - Revenue is primarily generated from listing fees, trading commissions, and management fees[44] - Additional revenue sources include annual fees for premium services and authorized agent subscription fees[44] Offering and Trading Process - Eligible artwork includes calligraphy, paintings, sculptures, crafts, jade, jewelry, metal ware, ceramics, and antique furniture, primarily from renowned living artists[46] Artwork Listed on Platform (as of Dec 31, 2018) | Artwork Type | Number of Sets/Pieces | Total Listing Value (USD) | | :----------------------------- | :-------------------- | :------------------------ | | Paintings and Calligraphies | 54 sets | $24,637,636 | | Jewelry | 35 pieces | $9,270,692 | | Precious Stones | 134 pieces | $16,272,831 | | Amber | 29 pieces | $12,695,207 | | Antique Mammoth Ivory Carvings | 4 pieces | $663,468 | | Porcelain Pastel Paintings | 2 pieces | $331,734 | | Porcelains | 7 pieces | $1,084,515 | | Unit+ products | 6 sets | $1,315,964 | | Yixing Collectable | 1 piece | $127,590 | | Sports Memorabilia | 7 pieces | $1,085,714 | - Artwork is presented for listing by the owner/artist (Original Owner) and an Offering Agent, who assists with appraisal, initial valuation, marketing, and promotional activities[49] - Accepted artwork is divided into equal ownership units, making investment accessible to a wider range of investors[51] - The offering fee generally ranges from 22.5% to 48.5% of the total offering price for major artwork types, earned upon successful subscription and trading[57] - The company requires insurance coverage and storage at qualified facilities for all listed artwork, with fees paid from management fees charged to Traders[73][76] - Trading commissions are typically 0.3% of each transaction, currently reduced to 0.2% for both buy and sell sides (aggregate 0.4%)[81] - Trading can be halted due to irregular activities, legal proceedings, material information release, ownership disputes, or other circumstances deemed unfit for listing[83] - Artwork can be delisted through voluntary withdrawal, successful auction sale at term end, or due to loss, damage, or ownership adjudication[84][87] Regulation of Market Participants - Original Owners and Offering Agents must comply with company rules and disclose true, accurate, complete, and non-misleading information[91] - The company monitors Trader conduct daily through a real-time system and may take actions for violations, including warnings, fines, trading suspension, or revocation of qualifications[92] Sales and Marketing - Marketing efforts include participation in culture and art exhibitions, internet advertising, and encouraging existing Traders to introduce new ones[93] Trader Referral Commission Rebate (2017) | Number of Referees | Accumulated Total Gross Trade Amount (in HKD) | Rebate Ratio | | :----------------- | :-------------------------------------------- | :--------------------------- | | ≥ 1 person | > $0 | 5% of Referee's commission | - A trader service organization program offers up to 68% of trading commissions from referred new Traders, with an additional 10% for referring other service organizations[94][95] - Discount programs are offered to VIP Traders, including flat trading commission rates and waived trading management fees during promotions[96][97] Customers - Customers include Traders, Original Owners