NFT (MI) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited interim statements show the company's shift to an NFT business and the discontinuation of its legacy art trading platform Condensed Consolidated Balance Sheets Total assets and liabilities increased due to customer advances for the new NFT business, while equity declined from the net loss Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $13,382,043 | $11,653,736 | | Cash and cash equivalents | $1,533,468 | $1,503,153 | | Restricted Cash | $2,028,416 | $0 | | Non-marketable investment, net | $9,296,614 | $9,296,614 | | Total Liabilities | $11,375,640 | $8,877,053 | | Advance from customers | $2,028,416 | $0 | | Short-term borrowing from a third party | $300,000 | $0 | | Current liabilities – discontinued operations | $8,671,980 | $8,733,624 | | Total Stockholders' Equity | $2,006,403 | $2,776,683 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported zero revenue from continuing operations and a widened net loss due to higher G&A expenses for the new NFT venture Q1 2022 vs Q1 2021 Statement of Operations (Unaudited) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Revenue (Continuing Operations) | $0 | $0 | | General and administrative expenses | ($611,475) | ($359,990) | | Net loss from continuing operations | ($611,574) | ($360,042) | | Net loss from discontinued operations | ($179,765) | ($212,546) | | Net loss | ($791,339) | ($572,588) | | Comprehensive Loss | ($770,280) | ($610,351) | | Loss per share (Continuing - Basic) | ($0.043) | ($0.032) | | Loss per share (Discontinued - Basic) | ($0.013) | ($0.019) | Condensed Consolidated Statements of Changes in Equity Stockholders' equity decreased by approximately $0.77 million during the quarter, primarily driven by the period's total net loss - Stockholders' equity fell by approximately $0.77 million during Q1 2022, moving from $2.78 million to $2.01 million[8] - The primary drivers of the equity decrease were the net loss from continuing operations ($611,574) and discontinued operations ($179,765)[8] Condensed Consolidated Statements of Cash Flows Cash from operations was positive due to customer advances, and a new loan boosted financing cash flow, increasing total cash Q1 2022 vs Q1 2021 Cash Flow Highlights (Unaudited) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $1,560,096 | $1,651,695 | | Net cash from investing activities | ($1,153) | $389,171 | | Net cash from financing activities | $300,000 | $0 | | Net increase in cash | $1,845,274 | $2,019,423 | | Cash at end of period | $3,686,969 | $15,862,168 | Notes to the Condensed Consolidated Financial Statements Notes detail the strategic pivot to NFTs, the discontinuation of legacy operations, and a going concern warning mitigated by post-quarter financing - The company is shifting its focus to blockchain and non-fungible tokens (NFT) businesses, including developing an NFT marketplace and blockchain-based games[16][89] - Due to the suspension of Tianjin Takung's operations by local authorities, the company has classified its legacy art trading subsidiary, Hong Kong Takung, as a discontinued operation and is seeking a buyer[29][83] - Management has concluded there is substantial doubt about the company's ability to continue as a going concern, addressed by a $30 million PIPE transaction in April 2022[84][88][150] - The company holds a non-marketable investment in Cultural Objects Provenance Holdings Limited with a carrying value of $9,296,614[22][98][101] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to the NFT market, the financial impact of this transition, and the company's liquidity position Overview The company is transitioning to an NFT business model, launching its platform in May 2022 with a focus on consulting and trading services - The company launched its blockchain NFT online platform at www.nftoeo.com in May 2022[156] - The new business model includes three main revenue streams: consulting services, NFT trading services, and advertising services[160][161][162] - The company expects to generate revenue from member fees, trading commissions, and advertising fees on its new NFT platform[169] Results of Operations The Q1 net loss widened year-over-year due to increased G&A expenses for the new NFT business and zero revenue from discontinued operations - Continuing operations generated no revenue in Q1 2022 or Q1 2021 as the NFT platform launched in May 2022[171] - General and administrative expenses for continuing operations increased by $251,485 year-over-year, mainly due to higher consultancy fees and salaries for NFT platform development[194] - The net loss from continuing operations grew to $611,574 in Q1 2022 from $360,042 in Q1 2021[204] Discontinued Operations Revenue Breakdown (Unaudited) | Revenue Category | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Listing fee revenue | $0 | $273,792 | | Commission revenue | $0 | $358,086 | | Management fee revenue | $0 | $147,230 | | Total | $0 | $779,108 | Liquidity and Capital Resources The company secured $30 million in post-quarter financing to address a working capital deficit in discontinued operations and fund its new venture - As of March 31, 2022, continuing operations had cash and restricted cash of $3,561,884 and working capital of $1,808,968[218] - The discontinued operations had a working deficit of $8,528,910 as of March 31, 2022[218] - In April 2022, the company raised approximately $30 million in gross proceeds from a securities purchase agreement to fund operations[218] - The company acknowledges risks related to PRC capital controls, which may limit its ability to transfer funds from its PRC subsidiaries[221] Critical Accounting Policies The company's critical accounting policies are detailed in Note 2 of the consolidated financial statements - The discussion of critical accounting policies is incorporated by reference from Note 2, "Summary of Significant Accounting Policies"[226] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this item is not applicable - Not applicable[227] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, 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, 2022[228] - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected the company's internal controls[229] PART II. OTHER INFORMATION Item 1. Legal Proceedings A legal case was settled favorably, while a PRC subsidiary's platform remains suspended pending a local authority investigation - A legal claim against Hong Kong Takung in Shanghai was settled and closed in the company's favor[231] - The trading platform of the PRC subsidiary, Tianjin Takung, was suspended by local authorities around November 8, 2021, for an investigation[232] Item 1A. Risk Factors No material changes to risk factors have occurred since the company's last Annual Report filing - No material changes to risk factors from the annual report on Form 10-K filed on April 15, 2022[233] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[233] Item 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities - None[233] Item 4. Mine Safety Disclosure This disclosure requirement is not applicable to the company's operations - Not applicable[233] Item 5. Other Information The company has indicated that this item is not applicable - Not applicable[233] Item 6. Exhibits This section lists all exhibits filed with the report, including corporate documents and officer certifications - Lists various exhibits filed with the Form 10-Q, including corporate governance documents, agreements, and certifications[236]