Oriental Culture(OCG) - 2021 Q4 - Annual Report

Revenue Recognition - The company recognizes revenue from service contracts upon performance of services, with approximately $62,000 and $119,000 recorded as revenue reductions for cooperative agreements in 2020 and 2021, respectively [237]. - Transaction fee revenue from trading points amounted to approximately $2.6 million and $3.4 million for the years ended December 31, 2020 and 2021, respectively [241]. - Marketing service fees are charged on a fixed fee basis and recognized upon completion of all performance obligations [242]. - Other revenues included $233,157 and $213,172 from related parties for the years ended December 31, 2021 and 2020, respectively [243]. - The company generates revenue primarily from listing service fees, transaction fees, and marketing services fees related to collectibles and artwork [237]. - The company has signed cooperative agreements with third parties to co-develop niche markets, with revenue shared based on pre-agreed rates and trading volume [237]. - The company recognizes transaction fee revenue at the time when the transaction is completed, based on the transaction value of collectibles, artwork, and commodities [239]. Financial Position - As of December 31, 2021, the company had approximately $33.1 million in cash and cash equivalents and short-term investments, with working capital of approximately $32.5 million [251]. - The company may require additional cash resources in the future for investments, acquisitions, or capital expenditures if business conditions change [251]. - All revenue is denominated in RMB, and the company relies on dividends from its PRC subsidiary to fund cash requirements [251]. - The company is exposed to liquidity risk and may seek short-term funding from financial institutions if necessary [259]. - The company has not entered into any hedging transactions to mitigate foreign currency exchange risk, as its operations are primarily denominated in RMB [261]. Operating Activities - Net cash provided by operating activities for the year ended December 31, 2021, was approximately $9.0 million, primarily due to a net income of approximately $11.4 million [255]. - The company experienced a decrease in accounts payable of approximately $4.5 million, indicating a reduction in vendor payments [255]. - The company has not declared or paid cash dividends and intends to retain available funds for business operations and expansion [310]. - The company has not experienced any major labor disputes and maintains good relationships with employees [293]. - The company has implemented safety measures in response to the COVID-19 pandemic to protect employees [291]. Investment and Financing Activities - The company used approximately $2.8 million in investing activities for the year ended December 31, 2021, mainly for the purchase of short-term investments and a certificate of deposit [256]. - Net cash used in investing activities was approximately $11.8 million for the year ended December 31, 2020, primarily due to a deposit of approximately $12.6 million for a proposed real estate purchase [258]. - Net cash provided by financing activities was approximately $2.0 million for the year ended December 31, 2021, primarily from a private placement [258]. - Net cash provided by financing activities was approximately $18.1 million for the year ended December 31, 2020, primarily from proceeds of the initial public offering [258]. Employee Information - As of December 31, 2021, the company had a total of 51 full-time employees, an increase from 47 in 2020 and a decrease from 56 in 2019 [289]. - The employee breakdown as of December 31, 2021, was 45.10% in Technology and Research, 19.61% in Sales & Marketing, and 35.29% in General & HR and Administration [290]. - The company paid approximately RMB2.0 million (US$0.3 million) in cash to executive officers and US$0.4 million to non-executive directors during the fiscal year ended December 31, 2021 [278]. - The company has made adequate employee benefit payments as required by PRC regulations, including contributions to various social insurance funds [293]. - The company has not set aside or accrued any amounts for pension or retirement benefits for executive officers and directors [278]. Corporate Governance - The audit committee consists of three members, all of whom satisfy the independence standards set by the SEC and NASDAQ [285]. - The compensation committee is responsible for overseeing executive compensation and has the authority to approve compensation principles for all employees [286]. - The corporate governance and nominating committee is tasked with identifying potential director nominees and reviewing corporate governance policies [288]. - The board of directors currently consists of 5 members, with no female representation [284]. - The company has established an audit committee, a compensation committee, and a corporate governance and nominating committee, all composed of independent directors [285][286][288]. Related Party Transactions - Total net revenues from related parties for the year ended December 31, 2021, amounted to $233,157, an increase from $213,172 in 2020 [302]. - The total rental expense for office premises with Nanjing Culture and Artwork Property Exchange Co., Ltd. was $157,927 in 2021, compared to $147,703 in 2020, showing an increase of about 6.5% [306]. - Related party accounts payable totaled $1,665 as of December 31, 2021, down from $1,229,381 in 2020, indicating a significant decrease [300]. - The company has entered into various contracts with related parties for services and office space, with total rental expenses of $157,927 for the year ended December 31, 2021 [306]. Risk Factors - The company is exposed to liquidity risk and may seek short-term funding from financial institutions to meet liquidity shortages [259]. - The company has not entered into any derivative contracts indexed to its shares or retained interests in assets transferred to unconsolidated entities [264]. - The company is not currently involved in any material legal or administrative proceedings, minimizing potential financial and management resource expenditures [308]. - The company relies on dividends from its PRC and Hong Kong subsidiaries for cash requirements, which may be restricted by PRC regulations [310]. - The board of directors has discretion over dividend distribution, which will depend on future operations, earnings, and other relevant factors [310].