| Summary of significant accounting policies | Note 2 – Summary of significant accounting
policies Basis of presentation The accompanying consolidated financial statements
were 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 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 in consolidation. 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 credit losses, 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. The functional currency for our holding 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, 2023 and December
31, 2022 were translated at RMB 7.08 and RMB 6.96 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, 2023, 2022 and 2021 were RMB 7.05, RMB 6.73 and RMB 6.45
to one USD. The balance sheet amounts, with the exception of shareholder’s equity at December 31, 2023 and 2022 were translated
at HKD 7.81 and HKD 7.80 to one USD, respectively. The average translation rates applied to the consolidated statements of income and
cash flows for years ended December 31, 2022, 2021 and 2020 were HKD 7.83, HKD 7.83 and HKD 7.77 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, 2023
Cost Level 1 Level 2 Level 3
Short-term investment (including restricted) $ 4,988,772 $ - $ 4,988,772 $ -
December 31, 2022
Cost Level 1 Level 2 Level 3
Short-term investment (including restricted) $ 4,703,323 $ - $ 4,703,323 $ - 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 equivalents Cash and equivalents consist of cash in bank and
money market funds which are unrestricted as to immediate withdrawal and use. Restricted cash On July 1, 2022, Mr. Huajun Gao and Mr. Aiming
Kong, each an major shareholder of Oriental Culture Holding LTD (the “Company”), were detained by Nan County Public Safety
Bureau of Yiyang City, Hunan Province, China. On July 26, 2022, Nan County People’s Procuratorate approved the arrest of Mr. Gao
and Mr. Kong with a charge of illegal business operation of Nanjing Jinwang, a company controlled by Mr. Gao and Mr. Kong. On July 1,
2022, Nan County Public Safety Bureau froze certain bank accounts of Kashi Longrui, Kashi Dongfang, and Nanjing Yanyu, all subsidiaries
of Jiangsu Yanggu Culture Development Co., Ltd., the VIE of the Company in China because they, each had business relationship with Nanjing
Jinwang. The total restricted cash was $14,740,676 as of December 31, 2023 and $11,796,388 as of December 31, 2022. Short-term investments The short-term investment is an investment in
a bank-issued wealth management product with underlying investments in cash, bonds and equity funds. The investment products are issued
by banks in the PRC. The investments have a maturity of less than 1 year and their carrying value approximates their fair value. The gain
from sale of these investments is recognized in the statements of income and comprehensive income. Earnings from these investments for
the years ended December 31, 2023, 2022 and 2021 was $89,474, $156,066 and $169,065, respectively. Due to the issue mentioned in Restricted
cash, all short-term investments issued by Ping An Bank were restricted which amounted to $1,741,423 and $4,703,323 as of December 31,
2023 and 2022, respectively, was restricted. Accounts receivable, net (including related
parties) Accounts receivable is amounts due from the Company’s
customers. An allowance for credit losses may be established and recorded based on management’s assessment of potential losses based
on the credit history and relationships with the customers. Management also periodically evaluates individual customer’s financial
condition and the current economic conditions to make adjustments in the allowance when it is considered necessary. Management reviews
its receivables on a regular basis to determine if the allowance for credit losses is adequate and adjusts the allowance when necessary.
Delinquent account balances are written-off against the allowance for credit losses after management has determined that the likelihood
of collection is not probable. Other receivables and prepaid expenses Other receivables that are short term include
employee advances, such as travel advance, advance to purchase office supplies in the normal course of business and certain short-term
deposits. An allowance for credit losses 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 credit losses is adequate, and adjusts
the allowance when necessary. Delinquent account balances are written-off against the allowance for credit losses after management has
determined that the likelihood of realization or collection is not probable. No allowance was required as of December 31, 2023 or 2022. Prepaid expenses include advance payments made
to vendors for certain prepaid services such as system service fees, prepaid rent for our office (with lease under one year) and prepaid
taxes. Other receivables – related party Other receivables – related party consist of
funds which are held on a trading platform trust account with Nanjing Jinwang Art Purchase E-commerce Co., Ltd., which is owned by Huajun
Gao and Aimin Kong, each is an 10.7% beneficial owners of the Company. The funds are not restricted and can be withdrawn and used after
the Company completes the necessary administrative procedures. The Company normally makes withdrawals from this account monthly. Approximately
$0.2 million of the outstanding balance was paid back to the Company by March 2024. 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 as security for the underwriters for
24 months from the closing of the offering to cover any potential claims related to the offering. The full amount of $600,000 was released
to the Company in January 2023. Property and equipment 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
Office building 35 years
Leasehold improvements lesser of 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 expensed 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. Construction-in-progress represents material,
contractor and labor costs, design fees and inspection fees in connection with the construction of the Company’s office building
in Jiangsu, China. See Note 7 for details. 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 and collectible trading platform 5 years
Software 5 years Impairment for 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. For the years ended December 31, 2023, 2022 and 2021, the Company recorded nil nil Cost method 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 of 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. The Company’s
investment of 18% ownership of Zhongcang Warehouse Co., Ltd. was $493,435 and $501,802 as of December 31, 2023 and 2022, respectively,
and is accounted for using the cost method. In March 2022, the Company’s VIE Jiangsu
Yanggu entered into an equity subscription agreement to purchase 11.875% equity interest of Beijing Jiu Yu Ling Jing Technology
Co., Ltd. (“JYLJ”), a company incorporated in the PRC, which primarily engages in wine and alcohol product merchants and customers,
as well as product launch, brand showcase, marketing and promotion and it is currently in the process of developing a “Wine and
Spirits” metaverse, and the amount raised through increase of share capital are mainly used for this development. JYLJ’s total
registered capital is RMB 60 million (approximately USD 9.2 million). Jiangsu Yanggu’s subscription amount is
RMB 6 million and RMB 3 million was paid in March 2022. The remaining RMB 3 million is to be paid upon further
resolution from the board of JYLJ. As of December 31, 2023 and 2022, the Company’s investment in YLJ was $423,567 and $430,750,
respectively, and is accounted for using the cost method. The Company’s cost method investments are
as summarized below as of years ended:
December 31, December 31,
Zhongcang Warehouse Co., Ltd. $ 493,435 $ 501,802
Beijing Jiu Yu Ling Jing Technology Co., Ltd. 423,567 430,750
Total cost method investments $ 917,002 $ 932,552 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 in fair value. No events have occurred
that indicated a decline in fair value that is other-than-temporary for the years ended December 31, 2023 and 2022. Deferred revenue Payments received from customers before all the relevant criteria for
revenue recognition are recorded as deferred revenue.
December 31, December 31,
Beginning balance $ 449,037 $ 697,863
Customer advances 1,302,736 16,803,450
Recognized as revenues (1,363,629 ) (16,993,268 )
Refunds (194,841 ) -
Effect of exchange rates (11,373 ) (59,008 )
Ending balance $ 181,930 $ 449,037 Revenue recognition The Company follows FASB ASC 606, Revenue from
Contracts with Customers, for recognizing its revenue. 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 requires the Company to identify contractual performance obligations and determine whether
revenue should be recognized 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 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 contracts and invoices; 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 the contract price. The Company’s revenues are recognized when
all performance obligations are satisfied. The Company’s commission expenses to its sales agents are expensed when incurred. The Company is an online provider 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 artwork, collectibles and commodities on the Company’s online platforms. In addition to collectibles and artwork, the Company
has also expanded its platform to trade commodities principally teas. 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). The Company has cooperative agreements with third
parties who are experts and possess new ideas and resources for collectibles/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
deposits with the Company until termination of the cooperative agreements and deposit amounts will need to increase 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 accounts 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. Approximately nil nil Listing service fees One-time nonrefundable listing service fees are
collected from owners and 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 and commodities per transaction. Transaction value is the dollar amount of the
purchase or sale of the collectibles, artwork and commodities 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 have 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. There is no liability for unredeemed awards. Transaction fee revenue from the trading of reward points amounted to approximately
$1,800, $1.1 million, and $3.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. The Company considers itself as provider of the
services as it has control of the specified services at any time before it is transferred to the customers which is evidenced by (1) the
Company is primarily responsible to its customers for services offered where the Company owns the trading platform and the Company has
customer services team to directly service the customers; and (2) having latitude in establish pricing. Therefore, the Company acts
as the principal of these arrangements and reports revenue earned and costs incurred related to transaction fees on a gross basis. Predetermined transaction fees received in advance
of the specified service period are recorded as deferred revenue. Marketing service fees Marketing service fees 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 his/her listing and trading of his/her 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 related parties of $144,609,
$166,325, and $233,157 for the years ended December 31, 2023, 2022 and 2021, 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 traders/agents for them to be qualified. Upon completion of the training
and consultation, these qualified traders/agents may introduce the Company’s platform 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:
Years Ended
2023 2022 2021
Listing service fees $ 457,176 $ 1,244,251 $ 6,900,561
Transaction fees 806,794 13,643,958 24,462,861
Marketing service fees 166,444 2,749,224 5,750,901
Other revenues* 149,644 175,706 482,137
Total $ 1,580,058 $ 17,813,139 $ 37,596,460 * Including $144,609, $166,325, and $233,157 for the years ended December 31, 2023, 2022 and 2021, respectively, from related parties. Cost of revenues Cost of revenues consist of compensation including
social welfare and benefits for the Company’s IT, risk management and customer services team, appraisal fees, online cloud service
fees, storage fees paid to related party, 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 for 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 trading platforms. Website advertising expenses which are included
in selling and marketing expenses to related party were nil Value added taxes (“VAT”) Revenue is 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 VAT returns filed
by the Company’s subsidy, VIE and its 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 FASB ASC Topic 740, “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
incurred related to underpayment of income taxes are classified as income tax expense in the period incurred. PRC tax returns filed in
2022 are subject to examination by the applicable tax authorities. Tax returns filed in Hong Kong from 2019 to 2022 are subject to examination. Leases The Company adopted FASB ASU 2016-02, “Leases”
(Topic 842) for the year ended December 31, 2021, and elected the practical expedients that does not require us to reassess: (1)
whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3)
initial direct costs for any expired or existing leases. For lease terms of twelve months or less, a lessee is permitted to make an accounting
policy election not to recognize lease assets and liabilities. The Company also adopted the practical expedient that allows lessees to
treat the lease and non-lease components of a lease as a single lease component. Upon adoption, the Company recognized $34,608 of
a right of use (“ROU”) assets and same amount of lease liabilities based on the present value of the future minimum rental
payments of leases, using an incremental borrowing rate of 4.75% based on the duration of lease terms. Operating lease ROU assets and lease liabilities
are recognized at the adoption date or the commencement date, whichever is earlier, based on the present value of lease payments over
the lease term. Since the implicit rate for the Company’s leases is not readily determinable, the Company used its incremental borrowing
rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing
rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments,
in a similar economic environment and over a similar term. Lease terms used to calculate the present value
of lease payments generally do not include any options to extend, renew, or terminate the lease, as the Company does not have reasonable
certainty at lease inception that these options will be exercised. The Company generally considers the economic life of its operating
lease ROU assets to be comparable to the useful life of similar owned assets. The Company has elected the short-term lease exception,
therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. Its leases generally
do not provide a residual guarantee. The operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line basis
over the lease term. The Company reviews for impairment of its ROU
assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its long-lived assets
when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment
of possible impairment is based on its ability to re |
