NFT (MI) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The financial statements for the period ended June 30, 2022, reflect a strategic shift to the NFT business, classifying legacy operations as discontinued, with increased cash from financing despite a net loss Condensed Consolidated Balance Sheets As of June 30, 2022, total assets significantly increased to $40,670,640, driven by a rise in cash, while total liabilities and shareholders' equity also grew due to financing activities Condensed Consolidated Balance Sheet Highlights (USD) | Account | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $40,670,640 | $11,653,736 | | Cash and cash equivalents | $32,538,211 | $1,503,153 | | Non-marketable investment, net | $3,030,928 | $9,296,614 | | Total Liabilities | $15,641,361 | $8,877,053 | | Current liabilities - discontinued operations | $8,939,854 | $8,733,624 | | Total Shareholders' Equity | $25,029,278 | $2,776,683 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the six months ended June 30, 2022, continuing operations generated $694,175 in revenue but incurred a $7,695,927 net loss, primarily due to a significant impairment charge Six Months Ended June 30 (Unaudited, USD) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Continuing Operations | | | | Revenue | $694,175 | $0 | | Net Loss | $(7,695,927) | $(7,380,942) | | Discontinued Operations | | | | Revenue | $0 | $1,922,603 | | Net Loss | $(253,182) | $(417,477) | | Total Net Loss | $(7,949,109) | $(7,798,419) | | Loss Per Share (Basic) | $(0.425) | $(0.683) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash provided by financing activities significantly increased to $30,300,007, leading to an ending cash balance of $37,306,462 Cash Flow Summary for Six Months Ended June 30 (Unaudited, USD) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,382,086 | $9,831,372 | | Net cash used in investing activities | $(1,656) | $388,967 | | Net cash provided by financing activities | $30,300,007 | $180,485 | | Ending Cash and Restricted Cash | $37,306,462 | $24,296,838 | Notes to the Condensed Consolidated Financial Statements The notes detail a significant corporate restructuring, pivoting to the NFT business, classifying legacy operations as discontinued, and highlight a $6,265,686 investment impairment and a subsequent $30 million financing agreement - The company is shifting its business focus to blockchain and non-fungible tokens (NFTs) through subsidiaries like NFT Exchange and NFT Digital, and has launched a new NFT trading platform[16][18][56] - Due to the suspension of operations of Tianjin Takung by local authorities, the company has classified its legacy art trading business, Hong Kong Takung, as a discontinued operation and is actively seeking a buyer[29] - The company recorded a further impairment charge of $6,265,686 against its non-marketable investment in Cultural Objects Provenance Holdings Limited during the six months ended June 30, 2022, reducing its carrying value to $3,030,928[22][79][80] - Subsequent to the quarter end, on July 27, 2022, the company entered into an Amended Securities Purchase Agreement to sell 10,380,623 units at $2.89 per unit, for gross proceeds of approximately $30 million[111] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic pivot to the NFT market, the launch of its new platform, and the financial performance of continuing operations, highlighting initial revenue, significant losses due to impairment, and strengthened liquidity from a $30 million financing New Business Model and Strategy The company has shifted its focus to the NFT market, launching www.nftoeo.com in May 2022, aiming to build a comprehensive digital ecological platform by leveraging its blockchain expertise - In May 2022, the company launched its blockchain NFT online platform at www.nftoeo.com[118](index=118&type=chunk) - The new business model focuses on creating a digital works exchange platform, offering services like artwork valuation consulting, NFT trading, and advertising[120][122][123] - The company aims to leverage its core management team's experience in blockchain and a professional marketing team to gain a competitive advantage[129][132] Results of Operations For the six months ended June 30, 2022, continuing operations generated $694,175 in revenue but incurred a $7,949,109 net loss, primarily due to $8,400,000 in G&A expenses, including a $6,300,000 impairment loss Revenue Comparison - Six Months Ended June 30 (USD) | Revenue Source | 2022 (Continuing Ops) | 2021 (Discontinued Ops) | | :--- | :--- | :--- | | Commission | $694,175 | $1,006,396 | | Listing Fee | $0 | $557,094 | | Management Fee | $0 | $359,113 | | Total | $694,175 | $1,922,603 | - General and administrative expenses for the six months ended June 30, 2022 were $8,400,000, with the largest component being a $6,300,000 impairment loss on a non-marketable investment[162][163] - The company recorded a net loss of $7,949,109 for the six months ended June 30, 2022, compared to a net loss of $7,798,419 for the same period in 2021[167] Liquidity and Capital Resources The company's liquidity significantly improved, with cash and restricted cash reaching $37,200,000 due to $30,000,000 in PIPE financing, despite acknowledging potential PRC capital control risks - As of June 30, 2022, cash and restricted cash from continuing operations was $37,200,000, a significant increase driven by $30,000,000 in PIPE financing[170][171] - The continuing operations had a working capital of $30,700,000 as of June 30, 2022[174] - The company acknowledges risks related to PRC capital controls, which may restrict the ability of its PRC subsidiaries to transfer cash or pay dividends[176][177] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company - Not applicable[183] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of June 30, 2022[183] - No material changes to internal control over financial reporting occurred during the fiscal quarter ended June 30, 2022[184] PART II. OTHER INFORMATION Legal Proceedings The company's PRC subsidiary, Tianjin Takung, operating an artwork unit trading platform, was suspended by local authorities around November 8, 2021, for an unannounced investigation - The artwork unit trading platform operated by the PRC subsidiary, Tianjin Takung, was suspended by local authorities around November 8, 2021, to facilitate an investigation[186] Risk Factors No material changes to the risk factors previously disclosed in the annual report on Form 10-K filed on April 15, 2022 - No material changes to the risk factors disclosed in the annual report on Form 10-K filed on April 15, 2022[187] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for the period - None[187]