Executive Summary / Key Takeaways

• Strategic Pivot to Digital Assets: NFT Limited (MI) has undergone a significant transformation, divesting its legacy art trading operations to focus entirely on the burgeoning Non-Fungible Token (NFT) market, offering an online platform for art trading, consulting services, and exploring NFT gaming.
• Recent Profitability Driven by Non-Operating Factors: The company reported a net profit of $6.30 million in 2024, a notable improvement from $1.70 million in 2023, primarily due to a substantial gain on the change in fair value of warrant liabilities, rather than core operational revenue growth.
• Declining Core Revenue Amidst Market Evolution: Commission revenue from its NFT trading platform experienced a sharp decline, falling from $2.15 million in 2023 to $740,701 in 2024, reflecting the broader NFT market's shift from speculative trading towards utility-driven applications.
• Substantial Cash Position and Strategic Capital Allocation: NFT Limited holds a strong cash position of $82.27 million as of December 31, 2024, bolstered by $20.00 million from recent Convertible Notes. These proceeds are earmarked for technology upgrades, market expansion, operations, and compliance, signaling a clear strategic investment in its future.
• Significant Regulatory and Operational Risks: The company faces considerable risks, including evolving regulatory scrutiny in the NFT space, potential intervention from the PRC government concerning its Hong Kong operations, and liquidity risks associated with a large cash deposit in a foreign bank without explicit deposit insurance.

The Digital Canvas: NFT Limited's Strategic Evolution

NFT Limited (MI) stands at a pivotal juncture, having strategically repositioned itself from a traditional art trading platform to a focused player in the dynamic Non-Fungible Token (NFT) ecosystem. This transformation, rooted in a history of significant shifts, now sees the company operating an electronic online platform (www.nftoeo.com) for artists, art dealers, and investors to trade valuable artwork as NFTs. Beyond its marketplace, MI extends its reach through NFT consulting services, guiding clients on blockchain technology utilization and NFT launches, and is actively exploring the burgeoning NFT gaming sector, including sales of in-game characters and membership packs. This overarching strategy aims to diversify revenue streams and capitalize on the evolving digital asset landscape.

The company's journey began far from the digital art world, incorporated in 2009 as Cardigant Medical Inc., focused on vascular disease treatments. A decisive change in control in 2014 led to the acquisition of Hong Kong Takung and a pivot to art trading, culminating in the name change to Takung Art Co., Ltd. Subsequent years saw expansion into mainland China for art trading, followed by streamlining efforts and the eventual suspension of its Tianjin artwork trading platform in 2021 due to PRC regulatory scrutiny. This historical context underscores MI's adaptability and its current strategic imperative to operate internationally, primarily through its Cayman Islands holding company and subsidiaries in New York, Wyoming, and Hong Kong, with no operations in mainland China. The company's recent redomicile to the Cayman Islands in September 2023 and the divestiture of its legacy art trading subsidiaries for $1.50 million in June 2023 further solidify this strategic pivot.

The broader NFT market is undergoing a profound evolution, moving beyond purely speculative trading. Industry trends indicate a growing emphasis on utility-driven applications, notably in play-to-earn gaming models, tokenized real-world assets (RWAs), and AI-generated dynamic NFTs. While Ethereum maintains its dominance, it faces increasing competition from scaling solutions like Solana and Layer 2 networks such as Arbitrum, which now host 35% of new NFT projects. Regulatory scrutiny is intensifying globally, with the SEC, in particular, focusing on NFT fractionalization as potential securities. Despite overall trading volumes being down 40% year-on-year, the global NFT market size was $15.20 billion in 2023 and is projected to reach $21.6 billion by 2025, representing a Compound Annual Growth Rate (CAGR) of 19.30%. This indicates a market that, while stabilizing from its 2021 peak, is still poised for significant expansion, albeit with shifting dynamics.

Technological Edge and Strategic Differentiation

NFT Limited's competitive positioning is significantly bolstered by its technological foundation and strategic approach to the digital art market. The company's online trading platform is designed to address fundamental challenges in the traditional art world, such as unclear ownership, difficulty in authenticating artworks, and inefficient circulation. By leveraging blockchain technology, the platform provides a verifiable and immutable record of ownership for NFTs, enhancing transparency and trust for both artists and investors. This technological capability allows for the conversion of traditional art business from offline to online operations, facilitating the free circulation of digital work value.

The platform's core technology supports multi-category product uploads, including digital art, digital oil paintings, collectibles, and derivatives, demonstrating its versatility and capacity to cater to diverse artistic expressions. While specific quantifiable performance metrics like "superior energy yield" or "lower degradation rate" are not explicitly detailed, the platform's stated benefits include "stable performance, high security and easy to maintain." These attributes are critical in the volatile and security-conscious digital asset space, contributing directly to user confidence and operational reliability. The company's professional technical team, with "rich industry experience" and a track record of "relevant industry benchmarking projects experience," ensures robust technical support for system optimization and iterative updates. This expertise is a key differentiator, enabling the company to adapt quickly to market demands and technological advancements.

MI's strategic initiatives include exploring NFT gaming, which aims to integrate games, artworks, virtual assets, and other fields into an original digital platform. This vision extends beyond a simple marketplace, seeking to create a comprehensive ecosystem that leverages blockchain for various applications. The planned use of proceeds from the Convertible Notes, with approximately 35% allocated to Technology Research and System Upgrades, underscores the company's commitment to continuous technological innovation. This investment is crucial for maintaining a competitive moat, potentially leading to enhanced platform capabilities, improved user experience, and the ability to capture new market segments, thereby contributing to long-term growth and potentially higher margins through superior service offerings.

Financial Performance and Liquidity: A Closer Look

NFT Limited's financial performance in 2024 reflects a period of strategic transition and non-operating gains. The company reported a net profit of $6.30 million for the year ended December 31, 2024, a substantial increase from a net profit of $1.70 million in 2023. This positive shift was primarily driven by a significant gain on the change in fair value of warrant liabilities, which contributed $6.64 million in 2024 compared to $1.74 million in 2023.

Despite the overall net profit, the company's core revenue from commissions, derived from its NFT trading platform, experienced a notable decline. Commission revenue fell from $2.15 million in 2023 to $740,701 in 2024, representing a decrease of approximately 65.6%. Similarly, gross profit decreased from $1.60 million in 2023 to $548,653 in 2024. This trend suggests challenges in the company's primary operational revenue stream, aligning with the broader market's shift away from speculative NFT trading. Operating expenses for continuing operations, however, saw a reduction from $2.47 million in 2023 to $1.45 million in 2024, indicating some cost management efforts. The effective tax rate for continuing operations was 5.60% in 2024.

In terms of liquidity, NFT Limited maintains a robust cash position. As of December 31, 2024, the company held $82.27 million in cash and cash equivalents, alongside $4.35 million in restricted cash. The restricted cash represents client advance payments held in a broker's account by Metaverse HK, the company's Hong Kong subsidiary, specifically for facilitating artwork trading. These funds are held in trust for clients and cannot be used for the company's general operations.

Further bolstering its capital resources, NFT Limited recently received $20.00 million from the sale of Convertible Notes to selling shareholders. These proceeds are strategically allocated to support future growth and operational stability: approximately 35% for Technology Research and System Upgrades, 30% for Market Expansion and User Acquisition, 25% for Operations and Team Building, and 10% for Compliance and Risk Control Construction. This allocation underscores a forward-looking approach to strengthening its technological infrastructure and market presence, crucial for its evolving business model. The company's cash management policy dictates how funds are transferred, and its Hong Kong subsidiary, Metaverse HK, is permitted to transfer cash to other subsidiaries and U.S. investors without restrictions on the amount. However, a significant portion of the company's cash, $86.62 million as of December 31, 2024, is deposited with the Silkroad International Bank, which lacks a formal deposit insurance system. This concentration of funds, coupled with potential foreign currency reserve shortages and stringent foreign exchange regulations in Djibouti, presents a notable liquidity risk.

Competitive Landscape and Strategic Positioning

NFT Limited operates within a highly competitive and rapidly evolving digital asset market, facing both established global players and niche platforms. Key direct competitors include OpenSea, Rarible, Foundation, and SuperRare, each with distinct market positioning and strengths.

OpenSea, a dominant global NFT marketplace, boasts a vast user base and supports multiple blockchains, offering broad liquidity and strong network effects. While OpenSea's global scale and ecosystem integration provide a significant advantage in user engagement and transaction volume, MI's regional focus on China and specialized consulting services offer a qualitative edge in localized market access and cultural relevance. Rarible, known for its community-driven and decentralized approach, appeals to creators seeking autonomy. MI's integrated consulting services could foster stronger customer loyalty in its target regions, potentially leading to more resilient revenue streams compared to Rarible's more transaction-fee-dependent model.

Foundation, with its curated, invitation-only model, targets high-end digital art collectors and artists, emphasizing prestige and quality. MI's platform, by contrast, aims for broader accessibility, serving a wider range of artists and dealers, which could give it an advantage in market volume and penetration in its target geographies. SuperRare, another premium platform, focuses on verified artists and high-quality collections, building trust through authenticity. MI's strategy of integrating traditional art forms into NFTs, coupled with its comprehensive trading and consulting services, offers a differentiated value proposition that could attract a distinct segment of the art market.

MI's competitive advantages, or "moats," are primarily its regional expertise in the China market and its proprietary platform technology. This localized focus can translate into stronger customer loyalty and recurring revenue from tailored services, potentially leading to superior growth in specific regional segments. Its platform technology, designed to address issues of property ownership and authenticity in art, provides a streamlined and secure environment for NFT trading. This technological foundation, coupled with a professional technical team, enables MI to differentiate itself by offering a more integrated and user-friendly experience, particularly for traditional art forms.

However, MI also faces competitive disadvantages. Its limited global presence makes it challenging to compete directly with the vast reach of platforms like OpenSea, potentially leading to higher customer acquisition costs outside its core regional markets. Furthermore, the company's operations in Hong Kong expose it to unique regulatory risks, including potential intervention from the PRC government, which could be a vulnerability compared to competitors with more diversified geographical operations or those based in less regulated environments. The evolving regulatory landscape for NFTs, particularly regarding their classification as securities, poses a significant industry-wide challenge that could impact all players, including MI.

Outlook, Guidance, and Persistent Risks

NFT Limited's forward-looking strategy is centered on diversifying its revenue streams and deepening its engagement within the evolving NFT market. The company aims to build an original digital platform that integrates games, artworks, domain names, insurance, collectibles, virtual assets, real assets, and identity. This ambitious strategic roadmap includes basic platform building, targeted population entry, expanding service offerings (consulting, transaction, advertising), and continuous platform optimization to achieve a "full service" model. This indicates a clear intent to move beyond a simple marketplace to a more comprehensive digital ecosystem. The company does not anticipate declaring or paying any cash dividends in the foreseeable future, intending to retain all available funds and future earnings for business operation and expansion.

Despite this strategic vision, significant risks persist. The nascent and evolving nature of the NFT market exposes MI to legal, regulatory, and operational uncertainties. The intensifying regulatory scrutiny, particularly from the SEC regarding NFT fractionalization as potential securities, could lead to new compliance requirements and impact the viability of certain business models. Furthermore, the company's facilitation of cryptocurrency transactions on its NFT platform exposes it to risks under U.S. and foreign tax laws, which are still developing. Cybersecurity threats remain a constant concern, as any breach could severely damage the company's reputation and financial condition.

Geopolitical and regulatory risks associated with its Hong Kong operations are also prominent. Although MI does not have operations in mainland China, the legal and operational risks associated with the PRC government's influence extend to Hong Kong. There is uncertainty regarding future approvals from Chinese authorities for listing on U.S. exchanges or offering securities, and potential intervention could significantly hinder MI's operations or affect the value of its securities. The Holding Foreign Companies Accountable Act (HFCAA) also poses a delisting risk if the company's auditor, Assentsure PAC, were to become uninspectable by the PCAOB due to foreign authority positions. The concentration of a substantial portion of the company's cash in the Silkroad International Bank, without deposit insurance and subject to potential foreign currency restrictions, presents a notable liquidity and operational risk.

Conclusion

NFT Limited is undergoing a profound transformation, shedding its legacy art trading business to embrace the dynamic and evolving world of Non-Fungible Tokens. The company's strategic pivot towards an NFT art trading platform, coupled with consulting services and an exploration into NFT gaming, positions it to capitalize on the growing utility-driven applications within the digital asset market. While recent profitability has been buoyed by non-operating gains, the decline in core commission revenue highlights the challenges and transitional nature of its current operational phase.

The company's substantial cash reserves and planned capital allocation towards technology and market expansion underscore a clear commitment to its future in the digital realm. Its technological foundation, focused on addressing fundamental issues of ownership and authenticity in art through blockchain, provides a crucial competitive edge, particularly within its regional focus. However, investors must weigh these opportunities against significant regulatory uncertainties in the NFT space and the geopolitical complexities surrounding its Hong Kong operations. NFT Limited's journey is a compelling narrative of adaptation and ambition in a frontier market, where technological leadership and strategic diversification will be paramount to long-term success amidst a volatile and highly scrutinized competitive landscape.