NFT (MI) - 2022 Q3 - Quarterly Report

PART I Financial Statements The financial statements reflect a strategic shift to NFT operations, showing substantial increases in cash and total assets from $60 million in PIPE financing, alongside a $7.1 million net loss primarily due to a $6.27 million impairment Condensed Consolidated Balance Sheets As of September 30, 2022, total assets surged to $70.5 million, primarily driven by a $62.8 million increase in cash from financing activities, with total shareholders' equity growing to $55.7 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2022 ($) | Dec 31, 2021 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $62,764,182 | $1,503,153 | | Non-marketable investment, net | $3,030,928 | $9,296,614 | | Total current assets | $67,332,839 | $2,166,540 | | Total assets | $70,469,113 | $11,653,736 | | Liabilities & Equity | | | | Total current liabilities | $14,816,618 | $8,877,053 | | Total liabilities | $14,816,618 | $8,877,053 | | Total shareholders' equity | $55,652,495 | $2,776,683 | Condensed Consolidated Statements of Operations and Comprehensive Loss For the nine months ended September 30, 2022, continuing operations generated $2.33 million in commission revenue, resulting in a net loss of $7.1 million, primarily due to an $8.14 million general and administrative expense including an impairment charge Statement of Operations Summary (Nine Months Ended Sep 30) | Metric | 2022 (Unaudited, $) | 2021 (Unaudited, $) | | :--- | :--- | :--- | | Revenue-Continuing operations | $2,329,135 | $0 | | Revenue-Discontinued operations | $0 | $4,531,280 | | Gross profit-continuing operations | $1,961,275 | $0 | | Net Profit/(loss) from continuing operations | $(6,421,188) | $(8,234,124) | | Net Loss from discontinued operations | $(683,540) | $(1,556,975) | | Net profit/(loss) | $(7,104,728) | $(9,791,099) | | Profit/(Loss) from continuing operations per share - basic ($) | $(0.30) | $(0.69) | | Profit/(Loss) from continuing operations per share - diluted ($) | $(0.15) | $(0.69) | Condensed Consolidated Statements of Changes in Equity Shareholders' equity significantly increased from $2.8 million to $55.7 million, primarily driven by approximately $60 million from private placement and restricted stock awards, partially offset by a $7.1 million net loss - The company executed a private placement raising $30 million in the third quarter of 2022[11] - Issued 10,238,910 shares for restricted stock awards, valued at approximately $30 million, in the second quarter of 2022[11] Changes in Equity (Dec 31, 2021 to Sep 30, 2022) | Account | Balance, Dec 31, 2021 ($) | Balance, Sep 30, 2022 ($) | | :--- | :--- | :--- | | Common Stock | $14,372 | $34,992 | | Additional Paid-in capital | $32,547,585 | $92,526,972 | | Accumulated deficit | $(29,444,185) | $(36,548,913) | | Total Equity | $2,776,683 | $55,652,495 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2022, net cash from operating activities was $5.0 million, while financing activities provided $60.3 million, primarily from PIPE financings, leading to an ending cash balance of $66.0 million for continuing operations Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2022 (Unaudited, $) | 2021 (Unaudited, $) | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,030,729 | $43,471,227 | | Net cash provided by/(used in) investing activities | $85,236 | $(111,771) | | Net cash provided by financing activities | $60,300,007 | $5,180,485 | | Ending Cash (Continuing Operations) | $66,003,706 | $679,555 | - Net cash from financing activities for continuing operations was $60,000,007 in the first nine months of 2022, compared to zero in the same period of 2021[13] Notes to the Condensed Consolidated Financial Statements The notes detail the company's transformation, classifying the legacy art trading platform as discontinued operations, focusing on the new NFT business, and noting a $6.27 million impairment on a non-marketable investment and subsequent plans for redomicile and sale of discontinued operations for $1 million - The company's business has shifted to an online platform for NFT trading (www.nftoeo.com) and related services, operated through new subsidiaries like NFT Exchange Limited[15][22][61] - The legacy artwork trading business (Hong Kong Takung) was classified as a discontinued operation due to the suspension of its Tianjin Takung subsidiary by local authorities and the company's plan to dispose of it[33] - A non-marketable investment in Cultural Objects Provenance Holdings Limited was further impaired by $6,265,686 during the first nine months of 2022, reducing its carrying value to $3,030,928[26][85] - Subsequent to the quarter end, on November 1, 2022, the company entered into an agreement to sell its discontinued operations (TKTJ, TKHK, TKMQ) for $1 million and also planned a redomicile merger into a Cayman Islands entity[116][117] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic pivot to the NFT market, with continuing operations generating $2.3 million in revenue but a $6.4 million net loss, primarily due to a $6.27 million impairment, while liquidity significantly improved with $60 million from PIPE financings - The company launched its new blockchain NFT online trading platform at www.nftoeo.com in May 2022, marking a strategic shift towards digital assets[122][123] Results of Operations (Nine Months Ended Sep 30) | Metric | 2022 (Continuing Ops, $) | 2021 (Continuing Ops, $) | | :--- | :--- | :--- | | Revenue | $2,329,135 | $0 | | Cost of Revenue | $(367,860) | $0 | | Gross Profit | $1,961,275 | $0 | | General & Admin Expenses | $(8,142,254) | $(8,453,469) | | Net Loss | $(6,421,188) | $(8,234,124) | - General and administrative expenses for continuing operations in the first nine months of 2022 included a $6,265,686 impairment loss on a non-marketable investment[165] - The company's liquidity was significantly improved by two PIPE financing events, raising a total of $60 million, which is intended to fund the new NFT business[173][176] - Management acknowledges risks related to PRC capital controls, which may limit the ability to transfer funds from its PRC subsidiaries to the parent company[177] Quantitative and Qualitative Disclosures About Market Risk The company indicates this item is not applicable - Not applicable[184] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control over financial reporting during the quarter - The Company's management concluded that disclosure controls and procedures were effective as of September 30, 2022[184] - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[185] PART II. OTHER INFORMATION Legal Proceedings The company reports its PRC subsidiary, Tianjin Takung, operating an artwork unit trading platform, was suspended by local authorities around November 8, 2021, for investigation, with no new developments as of the report date - The artwork unit trading platform operated by the PRC subsidiary, Tianjin Takung, was suspended by local PRC authorities around November 8, 2021, to facilitate an investigation[187] 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[188] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for this item - None[188] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[188] Mine Safety Disclosures This item is not applicable to the company - Not applicable[188] Other Information This item is not applicable - Not applicable[189] Exhibits The report lists several exhibits filed, including securities purchase agreements, warrants, officer certifications, and Inline XBRL data files - Exhibits filed include Securities Purchase Agreements, Warrants, Sarbanes-Oxley Certifications, and Inline XBRL documents[190] Signatures