| Summary of significant accounting policies | Note 2 – Summary of significant accounting
policies Basis of presentation The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
and information pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). Principles of consolidation The consolidated financial statements include
the accounts of the Company, its subsidiaries, and their VIEs. All intercompany transactions and balances are eliminated upon consolidation. Recapitalization On November 8, 2019, the Company effected a 2
for 1 forward share split of all issued and outstanding ordinary shares of the Company. In addition, all existing shareholders agreed
to surrender to the Company as treasury shares, 12.5% of the then outstanding ordinary shares (3,100,000 ordinary shares) for no consideration.
On May 28, 2020, all existing shareholders of the Company agreed to surrender an aggregate of 6,510,000 ordinary shares, or 30% of our
then outstanding ordinary shares, at no consideration to be reserved as treasury shares of the Company. These transactions were treated
as a recapitalization prior to the Company’s initial public offering. All share and per share amounts have been retroactively adjusted
for this recapitalization for all periods presented. Use of estimates and assumptions The preparation of consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s consolidated
financial statements include revenue recognition, allowance for doubtful accounts, the useful lives of property and equipment and intangible
assets and impairment of long-lived assets. Actual results could differ from these estimates. Foreign currency translation and transactions The reporting currency of the Company is the
U.S. dollar. In the PRC, the Company conducts its businesses in the local currency, Renminbi (RMB), as its functional currency. Assets
and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. In
Hong Kong, the Company conducts its business in the local currency, Hong Kong dollar (HKD), as its functional currency. Assets and liabilities
are translated at the unified exchange rate as quoted by the Federal Reserve at the end of the period. The statements of income and cash
flows are translated at the average translation rates during the reporting periods and the equity accounts are translated at historical
rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income (loss). Transaction
gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency
are included in the results of operations as incurred. Translation adjustments are included in accumulated
other comprehensive income. The balance sheet amounts, with the exception of shareholder’s equity at December 31, 2020 and December
31, 2019 were translated at RMB 6.52 and RMB 6.98 to one U.S. dollar (USD), respectively. The average translation rates applied to the
consolidated statements of income and cash flows for years ended December 31, 2020 and 2019 were RMB 6.90 to one USD. The balance sheet
amounts, with the exception of shareholder’s equity at December 31, 2020 and 2019 were translated at HKD 7.75 and HKD 7.79 to one
USD, respectively. The average translation rates applied to the consolidated statements of income and cash flows for years ended December
31, 2020 and 2019 were HKD 7.76 and HKD 7.84 to one USD, respectively. The shareholder’s equity accounts were translated at their
historical rates. Amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances
on the consolidated balance sheets. Fair value measurement The accounting standards regarding fair value
of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value
of financial instruments held by the Company. The accounting standards define fair value, establish
a three-level valuation hierarchy for disclosures of fair value measurements and enhance disclosure requirements for fair value measures.
The three levels are defined as follows:
●
Level 1 inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
● Level 2 inputs to the valuation
methodology include quoted prices, other than those included in Level 1, for similar assets and liabilities in active markets, and
inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial
instruments.
● Level 3 inputs to the valuation
methodology are unobservable and significant to the fair value. The carrying amounts included in current assets
and current liabilities in the consolidated balance sheets approximate their fair values because of the short-term nature of such instruments. Fair value
disclosure:
December 31, 2020
Cost Level 1 Level 2 Level 3
Short-term investment $ 1,056,286 $ - $ 1,056,286 $ -
December 31, 2019
Cost Level 1 Level 2 Level 3
Short-term investment $ 1,749,092 $ - $ 1,749,092 $ - The Company values its short-term investment
using alternative pricing sources and market observable inputs, and accordingly the Company classifies the valuation techniques that
use these inputs as Level 2. This investment has original maturities of less than 1 year and the carrying value approximates its
fair value. Cash and cash equivalents Cash and cash equivalents consist of cash in
bank and money market funds which are unrestricted as to immediate withdrawal and use. Cash and cash equivalents also consist of
funds which are held in our trading platform trust account entrusted with Nanjing Jinwang Art Purchase E-commerce Co., Ltd., our
related party which are unrestricted as to immediate withdrawal and use. Cash and cash equivalents consist of the following:
December
31, December 31,
Cash in bank $ 18,230,118 $ 911,770
Cash held in trading platform trust account 2,727,082 1,130,383
Money market funds 3,078,974 7,142,518
Total cash and cash equivalents $ 24,036,174 $ 9,184,671 Short-term investment The short-term investment represents an investment
in a bank-issued wealth management product with underlying investments in cash, bonds and equity funds. The investment product is issued
by Ping An Bank. The investment has a maturity of less than 1 year and its carrying value approximates its fair value. The gain from
sale of this investment is recognized in the statements of income and comprehensive income. Gain from investment for the years ended
December 31, 2020 and 2019 amounted to $93,007 and $29,008, respectively. Accounts receivable, net Accounts receivable represents amounts due from
the Company’s customers. An allowance for doubtful accounts may be established and recorded based on management’s assessment
of potential losses based on the credit history and relationships with the customers. Management reviews its receivables on a regular
basis to determine if the allowance for doubtful accounts is adequate and adjusts the allowance when necessary. Delinquent account balances
are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not
probable. The Company also considered the economic implications of COVID-19 on its estimates and provided an allowance for doubtful accounts
of approximately $117,000 and then wrote off same amount for the year ended December 31, 2020. Other receivables and prepaid expenses Other receivables that are short term in nature
includes employee travel advances in the normal course of business and other miscellaneous items. An allowance for doubtful accounts may
be established and recorded based on management’s assessment of the likelihood of realization or collection. Management reviews
these items on a regular basis to determine if the allowance for doubtful accounts is adequate, and adjusts the allowance when necessary.
Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood
of realization or collection is not probable. No allowance was required as of December 31, 2020 and 2019. Prepaid expenses include advance payments made
to vendors for certain prepaid services such as system service fees, prepaid rent for our office and prepaid taxes. Escrow In connection with the Company’s initial public offering in December
2020, $600,000 of the net proceeds was deposited into an escrow account for underwriters for 24 months from the closing
of the offering to cover any potential claims related to the offering. If no claims are made, the funds will be released by the underwriters
to the Company in December 2022. Deposit The Company entered into a memorandum of understanding
(“MOU”) to acquire office buildings and the related land use rights in November 2020 with a third-party seller. The close
of the transaction was dependent on the seller obtaining a permit regarding the proposed use of the site. Subsequent to December 31,
2020, the Company terminated the MOU as the seller was unable to obtain the required permit and the Company received a full refund of
the deposit (see Note 6). Property and equipment, net Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated
useful lives of the assets with no residual value. The estimated useful lives are as follows:
Useful Life
Office equipment
and furnishings 1 - 5 years
Electronic equipment 2 - 5 years
Server room equipment 5 years
Vehicles 5 years
Leasehold improvements lesser
of remaining lease term or expected useful life The cost and related accumulated depreciation
and amortization of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated
statements of income and other comprehensive income. Expenditures for maintenance and repairs are charged to expense as incurred, while
additions, renewals and betterments, which are expected to extend the useful life of an asset, are capitalized. The Company also re-evaluates
the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates of useful
lives. Intangible assets, net Intangible assets, net, are stated at cost, less
accumulated amortization. Amortization expense is recognized on the straight-line basis over the estimated useful lives of the assets
as follows:
Classification Estimated
Artwork trading platform 5 years
Software 5 years Impairment of long-lived assets Long-lived assets, including property and equipment
with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market
conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company
assesses the recoverability of the asset based on the undiscounted future cash flows the asset is expected to generate and recognize
an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected
from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company reduces
the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate,
to comparable market values. As of December 31, 2020 and 2019, no impairment of long-lived assets was recognized. Investments Entities in which the Company has the ability
to exercise significant influence, but does not have a controlling interest, are accounted for using the equity method. Significant influence
is generally considered to exist when the Company has voting shares representing 20% to 50%, and other factors, such as representation
on the board of directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity
method of accounting is appropriate. Under this method of accounting, the Company records its proportionate share of the net earnings
or losses of equity method investees and a corresponding increase or decrease to the investment balances. Dividends received from the
equity method investments are recorded as reductions in the cost of such investments. The Company generally considers an ownership interest
of 20% or higher to represent significant influence. The Company accounts for the investments in entities over which it has neither control
nor significant influence, and no readily determinable fair value is available, using the investment cost minus any impairment, if necessary. Investments are evaluated for impairment when
facts or circumstances indicate that the fair value of the long-term investment is less than its carrying value. An impairment loss is
recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether
a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration
of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near-term prospects of the investment;
and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. No events have
occurred that indicated another-than-temporary differences for the years ended December 31, 2020 and 2019. Deferred revenue Payments received from customers before all of the relevant criteria
for revenue recognition are recorded as deferred revenue.
December 31, December 31,
Beginning balance $ 176,457 $ 823,290
Customer advances 18,134,308 10,035,537
Recognized as revenues (18,079,616 ) (10,670,840 )
Effect of exchange rate 12,206 (11,530 )
Ending balance $ 243,355 $ 176,457 Business combination The purchase price of an acquired company is
allocated between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated
fair values. The results of operations of the acquired business are included in the Company’s operating results from the date of
acquisition. Revenue recognition On January 1, 2019, the Company adopted FASB
ASC 606, Revenue from Contracts with Customers using the modified retrospective method for all contracts not completed as of the date
of adoption. The core principle underlying the revenue recognition
standard is that the Company will recognize revenue to represent the transfer of services to customers in an amount that reflects the
consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance
obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of services transfers
to a customer. Under the guidance of ASC 606, the Company is required to (a) identify the contract(s) with a customer, (b) identify
the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the
performance obligations in the contract and (e) recognize revenue when (or as) the Company satisfies its performance obligation.
Revenues are recorded, net of sales related taxes and surcharges. The adoption of ASC 606 did not significantly
change (i) the timing and pattern of revenue recognition for all of the Company’s revenue streams, and (ii) the presentation
of revenue as gross versus net. Therefore, the adoption of ASC 606 did not have a significant impact on the Company’s financial
position, results of operations, equity or cash flows as of the adoption date and for the years ended December 31, 2020 and 2019. The
Company continues to derive its revenues from service contracts with its customers with revenues being recognized upon performance of
services. Persuasive evidence of an arrangement is demonstrated via service contract and invoice; and the consideration to the customer
is fixed upon acceptance of the sales contract. At times, the Company offers incentives and rebates to its customers directly and
the Company accounts for these incentives payable to customers as a reduction of contract price. The Company’s revenues are recognized at
a point in time or over time after the performance obligations are satisfied. In addition, the Company took the practical expedient to
recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the
entity otherwise would have recognized is one year or less. The Company’s commission expenses to its sales agents are expensed
when incurred. The Company is an online provider of services related to the listing
and sale of collectibles and artwork e-commerce services, which allows artists and art dealers and owners to access the art trading market
with a wider range of artwork investors through the Company’s platforms. The Company currently facilitates trading by individual
and institutional customers of stamps, coins, and all kinds of artwork and collectibles on the Company’s online platforms. In addition
to collectibles and artwork, the Company has also expanded its platform to trade commodities principally teas, Yunan Ham and mitten crabs. The Company generates revenue from its services
in connection with the trading of artwork and commodities on its platforms, primarily consisting of listing service fees, transaction
fees, marketing services fees and other revenues collected from traders (the Company’s customers). Starting in July 2019, the Company had signed cooperative agreements
with third parties who are experts and possess new ideas and resources for collectibles/artwork and commodities business to co-develop
certain niche markets (such as vintage coins and teas) to be traded on the Company’s online platforms. These parties are required
to place a security deposit with the Company until termination of the cooperative agreements and required deposit amounts will be increased
as the trading volume increases. Revenue generated from these niche markets will be shared between the Company and these parties based
on pre-agreed rates and trading volume. The Company accounted for the portion of revenue that needs to be reimbursed to the third parties
as a reduction of total contract revenue to be received from customers. $62,009 and $171,272 of gross revenue generated from these contracts
had been recorded as a reduction of revenue and payables to these parties for the years ended December 31, 2020 and 2019, respectively. Listing service fees One-time nonrefundable listing service fees are
collected from traders for listing their products on the platform. The Company’s only performance obligation is to provide the
listing on the Company’s platform over the period requested. The Company recognizes the related revenue upon the completion of
its performance obligations. The fees are determined by contracts with the customers as a fixed percentage of the listing price. Transaction fee revenue Transaction fee revenue is generally calculated
based on the transaction value of collectibles, artwork, commodities and points per transaction. Transaction value is the dollar amount
of the purchase or sale of the collectibles, artwork, commodities and points after they are listed on the Company’s platforms. The
Company’s performance obligation is to facilitate the trading transactions. Transaction fee revenue is recognized and collected
at the point-in-time when the transaction is completed. Transaction fee revenue also includes predetermined monthly transaction fees for
select traders with large transactions and are negotiated on a case-by-case basis. Predetermined transaction fees are recognized and earned
over the specified service period. In 2018, the Company started a customer reward
points program, pursuant to which reward points were issued for opening a new account or referring customers to open accounts with us
during our promotion period. In that regard, customers are required to redeem certain reward points for new listings along with the regular
listing services fees. If a customer does not own any reward points, he/she can purchase them from other customers on our platform. The
Company does not record revenue when customers redeem any points as it is considered as a prerequisite for a new listing in addition to
the regular services fees. The points are traded by and among our customers on the platform and the Company charges a transaction fee
from such points trading. The Company assessed if a material right existed when the Company initially issued the reward points and if
the points represent a separate performance obligation. In general, the points were given to customers based on existing accounts or promotions
without the customers having to acquire services from the Company, therefore there was no material right and no separate performance obligation
exists. Transaction fee revenue from the trading of reward points amounted to approximately $2.6 million and $0.3 million for the years
ended December 31, 2020 and 2019, respectively. Predetermined transaction fees received in advance
of the specified service period are recorded as deferred revenue. Marketing service fees Marketing service fees (including $0 and $68,082
from a related party for the years ended December 31, 2020 and 2019, receptively) are usually collected after the Company completes its
services and includes the following type of services:
(1) For certain marketing service
agreements, the Company promises to assist its customer in connection with their listing and trading of their collectible/artwork
or commodities on the Company’s platforms, which mainly includes consultation and supporting services of the marketability
for the collectible/artwork; assessing its market value and market acceptance for the collectible/artwork or commodities; and assisting
in the application and legal protection required for the customer’s collectible/artwork or commodities to be approved for listing
on the Company’s platforms. For marketing service contracts in which the related performance obligations can be completed within
a short period of time, the Company recognizes the related revenue upon the completion of its performance obligations.
(2) Marketing service
agreements also includes providing promotional services for customers’ items as where to place ads on well-known cultural and
art exchange websites in China, to provide online and offline marketing services including cooperation with auction houses and
participate in industry-related exhibitions and fairs. The marketing service fees are charged based
on the type of listing session that the customer applies for and whether the customer has listed and sold collectibles on other platforms
before, and they are not tied to the type or value of the underlying collectible/artwork. Marketing service contracts and fees are recognized
upon the completion of the performance obligation. Other revenues Other revenues (including $213,172 and $178,304
from related parties for the years ended December 31, 2020 and 2019, respectively) primarily includes service fees for IT technical support
to customers and other revenues from agency recommendation fees. IT technical support fees are negotiated on a case-by-case basis and
are recognized when the related services have been performed based on the specific terms of the contract. Agency recommendation fees
are mainly training and consulting services provided to certain qualified traders/agents. Upon completion of the training and consultation,
these qualified traders/agents may introduce the Company’s platforms and services to potential customers to list their collectibles
and artwork with the Company for a fee or promote their own products on the Company’s platforms. The Company’s performance
obligation is completed and revenue is recognized upon completion of training and consultation services. The Company disaggregated its revenue into the
following four categories:
For
the Years Ended
2020 2019
Listing service fees $ 8,405,211 $ 1,501,645
Transaction fees 7,075,283 4,742,565
Marketing service fees* 1,370,164 6,729,736
Other revenues** 588,144 475,489
Total $ 17,438,802 $ 13,449,435
* Including $0 and $68,082
for the years ended December 31, 2020 and 2019, respectively, from a related party.
** Including $213,172 and
$178,304 for the years ended December 31, 2020 and 2019, respectively, from related parties. Cost of revenues Cost of revenues consist of compensation including social welfare and
benefits for the Company’s employees, such as IT, risk management and customer services team, appraisal fees, online cloud service
fees, storage fees, and depreciation and amortization of hardware and software for the Company’s trading platforms. Selling and marketing expenses: Selling and marketing expenses includes salary
and benefits of our employees in the sales and marketing department and marketing and advertising expenses. Selling expenses also include
incentive payments to third parties that refer new traders to utilize the Company’s e-commerce or trading platforms. Website advertising expenses which are included
in selling and marketing expenses-related party amounted to $1,762,652 and $124,857 for the years ended December 31, 2020 and 2019, respectively. Value added taxes (“VAT”) Revenue represents the invoiced value of services,
net of VAT. The VAT is based on the gross sales price and VAT rates range up to 6%, depending on the type of services provided. Entities
that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. The
net VAT balance between input VAT and output VAT is recorded in taxes payable or other receivables and prepaid expenses. All of the VAT
returns filed by the Company’s subsidiaries in China, have been and remain subject to examination by the tax authorities for five
years from the date of filing. Income taxes The Company accounts for income taxes in accordance
with U.S. GAAP for income taxes. Under the asset and liability method as required by this accounting standard, deferred income tax assets
and liabilities are recognized for the expected future tax consequences of temporary differences between the income tax basis and financial
reporting basis of assets and liabilities. Provision for income taxes consists of taxes currently due plus deferred taxes. The charge for taxation is based on the results
for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted
or substantively enacted by the balance sheet date. Deferred taxes are accounted for using the asset
and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities
in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax. Deferred tax liabilities
are recognized for all future taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that
taxable income will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax
rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred taxes are charged or credited in the
income statement, except when it is related to items credited or charged directly to equity. Net deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the net deferred
tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. An uncertain tax position is recognized as a
benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that has a greater than 50% likelihood of being realized
on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and
interest related to the underpayment of income taxes are classified as income tax expense in the period incurred. PRC tax returns filed
in 2019 and 2018 are subject to examination by the applicable tax authorities. Commitments and Contingencies In the normal course of business, the Company
is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of matters,
such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines it is probable
that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments
including historical factors and the specific facts and circumstances of each matter. Earnings per share Basic earnings per share are computed by dividing
income available to shareholders of the Company by the weighted average ordinary shares outstanding during the period. Diluted earnings
per share takes into account the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised
and converted into ordinary shares. As of December 31, 2020 and 2019, there were no dilutive shares. Statutory Reserves Pursuant to the laws applicable to PRC entities,
they are required to make appropriations from after-tax profits to a non-distributable statutory surplus reserve fund. Subject to certain
cumulative limits, the statutory surplus reserve fund requires annual appropriations of 10% of after-tax profits until the aggregated
appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC (“PRC
GAAP”) at each year-end). If the Company has accumulated losses from prior periods, the Company is able to use the current period
net income after tax to offset against the accumulated loss. For the years ended December 31, 2020 and 2019, the Company appropriated
$0 and $38,999 to the statutory reserve fund, respectively. The Company has met the required maximum contributions to the statutory reserves
for both of its operating entities, Kashi Dongfang and Kashi Longrui. Employee benefits Full-time employees of the Company are entitled
to staff welfare benefits including medical care, housing funds, pension benefits, unemployment insurance and other welfare, which are
government mandated defined contribution plans. The Company is required to accrue for these benefits based on certain percentages of
the employees’ respective salaries, subject to certain ceilings, in accordance with the relevant PRC regulations, and make cash
contributions to the state-sponsored plans. The expenses for the plans were $61,305 and $88,707 for the years ended December 31, 2020
and 2019, respectively. Segment FASB ASC 280, Segment Reporting, establishes
standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure
as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s
business segments. The Company uses the management approach to determine
reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s
chief operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The Company’s
CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing
performance of the Company. Based on management’s assessment, the |
