NFT (MI) - 2019 Q1 - Quarterly Report

PART I. Financial Information Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) The unaudited Q1 2019 financial statements show a significant performance deterioration, with revenue plummeting 86.5% and resulting in a net loss of $0.71 million Interim Condensed Consolidated Balance Sheets Total assets increased to $27.5 million while shareholders' equity decreased to $9.8 million, driven by a significant rise in restricted cash and customer deposits Consolidated Balance Sheet Highlights (As of March 31, 2019 vs. December 31, 2018) | Balance Sheet Item | March 31, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $27,467,882 | $24,569,225 | | Cash and cash equivalents | $7,740,711 | $7,974,884 | | Restricted cash / Customer deposits | $10,372,455 | $4,549,202 | | Total Liabilities | $17,695,857 | $14,099,778 | | Total Shareholders' Equity | $9,772,025 | $10,469,447 | - The company adopted ASC 842, Leases, on January 1, 2019, resulting in the recognition of operating lease right-of-use assets of $356,418 and corresponding lease liabilities[8][22][23] Interim Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income A dramatic 86.5% year-over-year revenue decline to $535,701 resulted in a net loss of $708,793, a sharp reversal from the prior year's net income Statement of Operations Summary (Three Months Ended March 31) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Total Revenue | $535,701 | $3,974,284 | | Gross Profit | $268,422 | $3,040,691 | | Loss from Operations | ($1,036,975) | ($211,785) | | Net (Loss) Income | ($708,793) | $423,290 | | (Loss) Earnings Per Share (Basic) | ($0.06) | $0.04 | Interim Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $6.2 million, while the total cash, cash equivalents, and restricted cash balance decreased to $18.1 million Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,175,680 | $3,039,614 | | Net cash provided by investing activities | $2,416,019 | $7,878 | | Net cash used in financing activities | ($2,499,500) | $0 | | Ending Cash, Cash Equivalents, and Restricted Cash | $18,113,166 | $40,914,429 | Notes to Consolidated Financial Statements The notes detail the company's artwork trading platform business, adoption of ASC 842, significant related-party loans, and a sharply lower effective tax rate - The company operates an electronic online platform for artists, art dealers, and investors to offer and trade in valuable artwork, with business conducted primarily in Hong Kong and the PRC[14][15] - The company has significant related party balances with Wang Song, a director and general manager, including offsetting interest-free loans of approximately $6.4 million and $6.1 million extended to May 2020[32][33][34] - The company adopted the new lease accounting standard ASC 842 on January 1, 2019, recognizing operating lease right-of-use assets and liabilities of $0.36 million[22][23] - The effective tax rate for Q1 2019 was (1.2)%, a sharp contrast to 51.5% in Q1 2018[43] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management attributes poor Q1 2019 performance to a temporary suspension of new artwork listings and depressed market sentiment in China, leading to a net loss despite cost-cutting measures Results of Operation Total revenue decreased by 89% to $0.5 million due to suspended listings and lower trading volumes, resulting in a net loss of $708,793 despite a 57.6% reduction in G&A expenses Revenue by Source (Three Months Ended March 31) | Revenue Source | 2019 | 2018 | | :--- | :--- | :--- | | Listing fee | $289,072 | $1,978,667 | | Commission | $178,358 | $1,635,517 | | Management fee | $68,271 | $168,315 | | Authorized agent subscription | $0 | $191,623 | | Total Revenue | $535,701 | $3,974,284 | - The decrease in revenue was primarily due to the temporary suspension of new artwork listings in Q2 2018, which was a response to decreased trading volume and customer deposits; new listings resumed in January 2019[76][103] - Gross profit margin decreased to 50.1% in Q1 2019 from 76.5% in Q1 2018, driven by the significant drop in total revenue[92][93] - General and administrative expenses fell by $1.73 million, mainly due to a $960,040 decrease in salary and welfare from redundancies, and reduced rental, professional, and travel fees[95] Liquidity and Capital Resources The company's liquidity, with a cash balance of $18.1 million, is subject to uncertainties from PRC capital controls that restrict fund transfers from its Chinese subsidiaries - The company's ability to use revenue generated in Renminbi to fund business activities outside of the PRC or pay dividends is limited by PRC capital controls, which restrict currency exchange under the "capital account"[108] - PRC law requires operating subsidiaries in China to set aside a portion of their net income to fund general reserves until the reserve reaches 50% of registered capital; these reserves are not distributable as cash dividends[109] - Management believes it has sufficient cash from operations to fund the business organically but may conduct equity sales for future expansion, which could dilute existing stockholders[112] Item 3. Quantitative and Qualitative Disclosures About Market Risk. This section is not applicable for the reporting period - The company has indicated that Quantitative and Qualitative Disclosures About Market Risk are not applicable[115] Item 4. Controls and Procedures. Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[116] - No changes occurred during the fiscal quarter ended March 31, 2019, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[117] PART II. Other Information Item 6. Exhibits. This section lists filed exhibits, including corporate governance documents, officer certifications required by the Sarbanes-Oxley Act, and XBRL data files - The report includes standard corporate governance documents and required officer certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[119][120]