NFT LIMITED 
The following discussion and analysis should be read in conjunction with our financial statements and related notes thereto.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, our management as well as estimates and assumptions made by our management. When used in the report the words "anticipate", "believe", "estimate", "expect", "future", "intend", "plan" or the negative of these terms and similar expressions as they relate to us or our management identify forward-looking statements. Such statements reflect the current view of our management with respect to future events and are subject to risks, uncertainties, assumptions and other factors as they relate to our industry, our operations and results of operations, and any businesses that we may acquire. Should one or more of the events described in these risk factors materialize, or should our underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including theU.S. federal securities laws, we do not intend to update any of the forward-looking statements to conform them to actual results unless required by applicable securities regulations or rules. The following discussion should be read in conjunction with our financial statements and the related notes
filed
herein.
Overview
We, through our wholly owned subsidiary, NFT Exchange, operate an electronic
online platform located at https://www.nftoeo.com/for artists, art dealers and
art investors to offer and trade valuable artwork. We offer online listing and
trading services that allow artists, art dealers and owners to access a much
bigger art trading market where they can engage with a wide range of investors
that they might not encounter without our platform.
In
In
NFT Market Insights Digital artwork based on NFT technology is becoming a hot asset. The earliest NFT projects can be traced back to the 2017 bull market CryptoKitties (the encrypted cats), which had the properties of scarcity and value anchoring of ownership. At its peak, a virtual cat could sell for more than$100,000 . In terms of NFT artwork, inMarch 2021 , artist Beeple's NFT work "Every Day: The First 5,000 Days" sold for$69.346 million , making it the third-highest price for a living artist. According to a report by Invezz, the NFT market was worth$338 million in 2020, and it has grown to reach$490 million in 2021. With the help of the bull market wave, NFT has grown rapidly., As of the first quarter of 2021, the total transaction volume of the NFT market has exceeded1.5 billion US dollars , an increase of more than 2627% from the previous quarter. InApril 2021 , the total market value of NFTs exceeded$30 billion for the first time, setting a new all-time high. Currently, NFTs can be used in the fields including games, artworks, domain names, insurance, collectibles, virtual assets, real assets, identities, etc. With the vigorous development of the digital world, many businesses will appear in the form of digital original ecology, and the huge application space and technological imagination of NFT are expected to become more and more attractive in the new digital economy world. New Business Model TKAT's business model revolves around the theme of "free circulation of value and creation of a unique digital work exchange platform," allowing each user to create, buy and sell various irreplaceable digital works to realize the value of works. 20 New Business Services A. Providing consulting services such as artwork valuation/appreciation potential TKAT taps into the needs of users to provide comprehensive consulting services such as labor cost, artist influence, artistic value of works, and channels for obtaining works, which not only serves customers but also creates value for
the company. B. NFT trading service
TKAT has built a fully functional NFT trading platform, which was launched inMay 2022 . The platform carries the categories of digital works including artwork, music videos, collectibles, game props, sports, metaverse, virtual world, social tokens, and meet the needs of various users as much as possible. Users are able to complete the whole business process including user registration, certification, work uploading, work casting, and work trading through the platform. The platform was launched and placed in service inMay 2022 . In the transaction process, it not only meets the needs of customers for uploading and purchasing digital works, but the company also extracts a portion of the handling fee (including token minting, first sale, and second sale)
to create value. C. Advertising service Once the TKAT platform has accumulated a larger user base, it can provide advertising and publicity services for users or the company itself. The business model is not limited to categories and industries, such as investment promotion, work promotion, and industry promotion. New Strategic Direction TKAT is committed to creating a digital original ecological platform that integrates games, artworks, domain names, insurance, collectibles, virtual assets, real assets, identity and other fields, and changes the market status of traditional industries through its own efforts. Strategic goals include basic platform building, targeted population entry, providing services (consulting services, transaction services, advertising services), optimizing the platform and expanding the scope of services. Competitor analysis
Opensea is an NFT market exchange. It has more than 20,000 users. Compared with
projects in the popular decentralized finance ("DeFi") field, it is second only
to Uniswap, kyber and Compound, and higher than maker, 0x, etc. As a trading
platform with a relatively high status in the NFT field, OpenSea has a complete
range of collections, equivalent to Taobao in the NFT world. At present, the
trading market of OpenSea has nearly 40,000 users, and the monthly transaction
volume exceeds 5 million US dollars . Coinbase's new NFT platform hits 1.4
million signups. The Coinbase platform has an active population of 50,000 users.
The service rates for each service are as follows: 1. Rarible's minting fees are
borne by the creators themselves, and the royalties are also set by the creators
themselves, with default amounts of 10%, 20% and 30%. 2. VIV3's NFT minting
costs and profits come from the 12.5% service fee it collects on the first and
second sales. 3. OpenSea does not need gas fee to mint NFT. 4. Rarible charges a
2.5% service fee on the first sale. On the SuperRare platform, a 15% commission
is charged on the first sale and a 3% fee (paid by the buyer) is charged on
the
second sale.
21
Competitive Advantages
The advantages of Takung in the NFT transaction and blockchain market are as follows:
Innate industry advantages In recent years, digital artworks of NFT technology based on blockchain technology are becoming popular assets. The NFT online platform the Company built can effectively solve the current situation such as unclear ownership of property, difficulty in distinguishing authenticity and low efficiency of artwork circulation. Converting the business development from offline to online operation, so that the value of digital works can be freely circulated online.
Advantages of the core management team
The core team members of Takung have experience in blockchain technology development and NFT trading platform operation, which can ensure a smoother development and business operation in the later stage.
Takung's platform advantages The currently developed and launched NFT online trading platform supports multi-category product uploads, including Digital art, Digital oil painting, Produced by Gallery, Personal products, Artist signature, Oil on canvas, Print, Paper ink, Device, Comprehensive media, Derivative, and it will be continuously enriched and improved according to customer interests. The NFT trading platform has stable performance, high security and is easy to maintain. At the front end of the system, the Company will continuously improve the operability and user experience of the system focusing on improving the user experience. Technical advantages
Takung's digital works exchange platform that has been launched is built by a professional technical team. Each technician has rich industry experience, can work under a short development cycle or high pressure, and has a number of relevant industry benchmarking projects experience. The capability of the technical team ensures the strong technical support in later system optimization and iterative updates. Marketing advantages The Company has a professional marketing team. After the platform goes online, it can be promoted online and offline simultaneously, so as to quickly increase the popularity of the platform, and use professional marketing solutions to attract more creators and purchasers to join in the platform.
We expect that we will generate revenue from the offering and trading of NFT on the Company's system, primarily consisting of membership fee, trading commissions, and advertising fees.
22
THREE MONTHS ENDED
The following tables set forth our interim condensed consolidated statements of income data with a percentage:
Three Months Ended June 30,
% of % of
2022 Revenue 2021 Revenue
(Unaudited) (Unaudited)Revenue-Continuing operations$ 694,175 100 $ - - Revenue-Discontinued operations - - 1,143,495 100 Cost of revenue-Continuing operations (150,930 ) (22 ) - - Cost of revenue-Discontinued operations - - (452,465 ) (40 ) Selling expenses-Continuing operations - - - - Selling expenses-Discontinued operations - - (131,558 ) (12 ) General and administrative expenses-Continuing operations (7,578,425 ) (1092 ) (7,182,662 ) - General and administrative expenses-Discontinued operations (73,419 ) - (769,652 ) 67 Total costs and expenses-Continuing opertions (7,729,355 ) (1113 ) (7,182,662 ) - Total costs and expenses-Discontinuing opertions (73,419 ) - (1,353,675 ) (118 ) Loss from continuing operations (7,035,180 ) (1013 ) (7,182,662 ) - Other(expenses)income - Continuing opertions (177 ) (0 ) 161,762 - Other(expenses)income - Discontinuing opertions 2 - 16,615 1 Loss before income taxes -Continuing operations (7,035,357 ) (1,013 ) (7,020,900 ) - Income tax expense 48,996 7 0 -
Net loss from Continuing operation
-
Loss before income tax-Discontinued
operatons (73,417 ) - (193,565 ) (17 )
Income tax expenses-Discontinued
operations
Tax expense - - 24,334 2
Deferred tax benefit - - (35,700 ) (3 )Net loss from Discontinued operations (73,417 ) -
(204,931 ) (18 ) Net loss (7,157,770 ) (1,031 ) (7,225,831 ) (632 ) Revenue
For the three months ended
The following table sets forth our interim condensed consolidated revenue by
revenue source:
Three Months Ended
June 30,
2022 2021
(Unaudited) (Unaudited)
Listing fee-Continuing operations $ - $ -
Listing fee-Discontinued operations - 283,302
Commission-Continuing operations 694,175 -
Commission-Discontinued operations - 648,310
Management fee-Continuing operations - -
Management fee-Discontinued operations - 211,883
Total Revenue-Continuing operations
- 1,143,495
23
(i) Listing fee revenue
Listing fee revenue is calculated based on a percentage of the listing value and transaction value of artworks.
Listing value is the total offering price of an artwork when the ownership units are initially listed on our trading platform. We utilize an appraised value as a basis to determine the appropriate listing value for each artwork, or portfolio of artworks. For the three months endedJune 30, 2021 and 2022, listing fee was$283,302 and $nil from discontinued and continued operations respectively.
(ii) Commission fee revenue For non-VIP Traders, the commission revenue was calculated based on a percentage of transaction value of artworks, which we charge trading commissions for the purchase and sale of the ownership shares of the artworks. The commission is typically 5% of the total amount of each transaction. The commission is accounted for as revenue and immediately deducted from the proceeds from the sales of artwork units when a transaction is completed.
Commission revenue for the three months ended
(iii) Management fee revenue Our legacy online trading platform from discontinued operations charges Traders a management fee to cover the costs of insurance, storage, and transportation for an artwork and trading management of artwork units. The management fee is recognized when the artwork is sold and is deducted from proceeds from the sale of artwork ownership shares when there is a purchase and sale transaction. Our operations did not generate management fee revenue from our legacy trading platform for the three months endedJune 30, 2022 and had$211,883 for the three months ended June,30, 2021. Revenue by customer type
The following table presents our revenue by customer type:
Three months ended
June 30,
2022 2021
(Unaudited) (Unaudited)
Artwork owners $ - $ 283,302
Non - VIP Traders 694,175 645,954
Selected Traders - 214,239
Total $ 694,175 $ 1,143,495
24
Cost of Revenue
Three months ended
June 30,
2022 2021
(Unaudited) (Unaudited)
Commissions paid to service agents $ - 351,352
Depreciation - $ 45,482
Internet service charge 150,930 26,808
Artwork insurance - 12,731
Artwork storage - 16,092
Total $ 150,930 $ 452,465 Cost of revenue of our continued and discontinued operations for the three
months ended
Gross Profit
Gross profit for our operations was
Operating Expenses
General and administrative expenses for the three months ended
The following table sets forth the main components of the Company's general and administrative expenses for the three months endedJune 30, 2022 andJune 30, 2021 . Three months ended June 30, 2022 % of Total 2021 % of Total (Unaudited) (Unaudited)
Salary and welfare$ 767,214 10.0$ 234,071 2.9 Office, insurance and rental expenses 34,682 0.5 172,986 2.2 Legal and professional fees 339,836 4.4 239,685 3.0 Non-deductible input VAT expense - - 48,739 0.6 Travel and accommodation fees - -
24,639 0.3
Consultancy fee 170,892 2.2 315,214 4.0
Depreciation 115 0.0 25,547 0.3Share based compensation expense - -
6,864,150 86.3
Impairment loss 6,265,686 81.9 - -
Others 73,419 1.0 27,283 0.4Total general and administrative expense$ 7,651,844 100.0$ 7,952,314 100.0 Deduct:General and administrative expense-Discontinued operations (73,419 ) 1.0 (769,652 ) 9.7 General and administrative expense-Discontinuing operations 7,578,425 99.0
7,182,662 90.3
25
Other (expenses) income
Other expenses for the operations for the three months ended
Loss before income taxes
Our continuing operations incurred loss before income taxes
Our discontinued operations incurred loss before income taxes,
Income tax expense
For the three months ended
The income tax expense from the discontinued operations for the three months
ended
Net Loss As a result of our operations aforementioned, our net losses after income taxes for continuing operations for the three months endedJune 30, 2022 and 2021 were$7,084,353 and$7,020,900 , respectively. Our discontinued operations generated net loss after income tax$73,417 and$204,931 for the three months endedJune 30, 2022 and 2021, respectively.
Foreign currency translation gain (loss)
We had a foreign currency translation gain (loss) for the three months ended
Comprehensive loss
As a result of the above, we posted a comprehensive loss of
26
SIX MONTHS ENDED
The following tables set forth our condensed consolidated statements of income
data:
Six Months Ended June 30,
% of % of
2022 Revenue 2021 Revenue
(Unaudited) (Unaudited)Revenue-Continuing operations 694,175 100 - - Revenue-Discontinued operations - - 1,922,603 100 Cost of revenue-Continuing operations (150,930 ) (22 ) - - Cost of revenue-Discontinued operations (704,702 ) (37 ) Selling expenses-Continuing operations - - - - Selling expenses-Discontinued operations - - (236,469 ) (12 ) General and administrative expenses-Continuing operations (8,189,900 ) (1,180 ) (7,542,652 ) - General and administrative expenses-Discontinued operations (253,017 ) - (1,422,820 ) (74 ) Total costs and expenses-Continuing operations (8,340,830 ) (1,202 ) (7,542,652 ) - Total costs and expenses-Discontinued operations (253,017 ) - (2,363,991 ) (123 ) Loss from continuing operations (7,646,655 ) (1,102 ) (7,542,652 ) -
Other(expenses)income-Continuing
operations (276 ) - 161,710 -
Other(expenses)income-Discontinued
operations (165 ) - 30,504 2 Loss before income taxes-Continuing operations (7,646,931 ) (1,102 ) (7,380,942 ) - Income tax expenses-Continuing operations 48,996 7 - -
Net loss from Continuing operations
-
Loss before income tax-Discontinued
operatons (253,182 ) - (410,884 ) (21 )
Income tax expenses-Discontinued
operations
Tax expense - - 4,126 -
Deferred tax benefit - - (10,719 ) (1 )Net loss from Discontinued operations (253,182 ) -
(417,477 ) (22 )
Net loss (7,949,109 ) (1,145 ) (7,798,419 ) (406 )
Revenue
The following table sets forth our condensed consolidated revenue by revenue
source:
Six months ended
June 30,
2022 2021
(Unaudited) (Unaudited)
Listing fee-Continuing operations $ - $ -
Listing fee-Discontinued operations 557,094
Commission-Continuing operations 694,175 -
Commission-Discontinued operations 1,006,396
Management fee-Continuing operations - -
Management fee-Discontinued operations - 359,113
Revenue-Continuing operations $ 694,175 $ -
Revenue-Discontinued operations - 1,922,603
(i) Listing fee revenue
Listing fee revenue is calculated based on a percentage of the listing value and transaction value of artworks.
Listing value is the total offering price of an artwork when the ownership units are initially listed on our trading platform. We utilize an appraised value as a basis to determine the appropriate listing value for each artwork, or portfolio of artworks. For the six months endedJune 30, 2021 and 2022, listing fee was$557,094 and $nil from discontinued and continued operations respectively.
(ii) Commission fee revenue For non-VIP Traders, the commission revenue was calculated based on a percentage of transaction value of artworks, which we charge trading commissions for the purchase and sale of the ownership shares of the artworks. The commission is typically 5% of the total amount of each transaction. The commission is accounted for as revenue and immediately deducted from the proceeds from the sales of artwork units when a transaction is completed.
Commission revenue for the six months ended
27
(iii) Management fee revenue
Our legacy online trading platform charges Traders a management fee to cover the
costs of insurance, storage, and transportation for an artwork and trading
management of artwork units. The management fee is recognized when the artwork
is sold and is deducted from proceeds from the sale of artwork ownership shares
when there is a purchase and sale transaction.
Our operations did not generate management fee revenue from our legacy trading
platform for the six months ended
Revenue by customer type
The following table presents our revenue by customer type:
Six months ended
June 30,
2022 2021
(Unaudited) (Unaudited)
Artwork owners $ - $ 557,094
Non - VIP traders 694,175 958,593
Selected traders - 406,916
Total $ 694,175 $ 1,922,603
Cost of Revenue
Six months ended
June 30,
2022 2021
(Unaudited) (Unaudited)
Commissions paid to service agents $ - $ 486,526
Depreciation - 114,544
Internet service charge 150,930 45,977
Artwork insurance - 25,475
Artwork storage - 32,180
Total $ 150,930 $ 704,702
Cost of revenue for the six months ended June 30, 2022 and June 30, 2021 was
$150,930 and $704,702 , respectively. The decline in cost of revenue for the six
months ended June 30, 2022 compared to June 30, 2021 was mainly due to the
continuing operations from the new NFT business is on the start stage and legacy
business is treated as discontinued operations.
Gross Profit
Gross profit was$543,245 or 78.3% of the total revenue for the six months endedJune 30, 2022 , compared to$1,217,901 or 63.3% of the total revenue for the six months endedJune 30, 2021 . Gross profit amount was reduced by$674,656 while the gross profit margin was increased by 15%. 28
Overall total revenue for the six months ended
Operating Expenses
General and administrative expenses for the six months ended
The following table sets forth the main components of the Company's general and administrative expenses for the six months endedJune 30, 2022 andJune 30, 2021 . Six months ended June 30, 2022 % of Total 2021 % of Total (Unaudited) (Unaudited)
Salary and welfare$ 857,266 10.2$ 460,313 5.1 Legal and professional fees 644,869 7.6 500,663 5.6 Office, insurance and rental expenses 123,888 1.5 299,244 3.3 Consultancy fee 297,726 3.5 550,145 6.1 Non-deductible input VAT expense - - 84,881 0.9 Depreciation 465 - 53,098 0.6 Traveling and accommodation fees - - 33,206 0.4 Share Based Compensation Expense - -
6,867,867 76.6
Impairment loss 6,265,686 74.2 - -
Others 253,017 3.0 116,055 1.4Total general and administrative expense$ 8,442,917 100.0$ 8,965,472 100.0 Deduct: General and administrative expense-Discontinued operations (253,017 ) 3.0 (1,422,820 ) 15.9 General and administrative expense-Continuing operations 8,189,900 97.0
7,542,652 84.1
Other income (expenses)
During the six months ended June 30, 2022 , the Company incurred other income in
an amount of $(441) whilst it incurred other income in an amount of $192,214 for
the six months ended June 30, 2021 . The Company incurred exchange gain, of
$201,697 in the six months ended June 30, 2022 whereas it incurred exchange loss
of $33,830 in the same period in 2021. The exchange gain or loss was
attributable to the fluctuations of the Renminbi against the US dollar.
29
Income tax expense
The Company's effective tax rate varies due to the multiple jurisdictions in
which it books its pretax income or losses. The Company was subject to a U.S.
income tax rate of 21%, Hong Kong profits tax rate of 8.25% for the first HK$ 2
million (approximately $257,676 ) assessable profits and at 16.5% for assessable
profits above HK$ 2 million (approximately $257,676 ) and PRC enterprise income
tax rate of 25%.
The effective tax rates for the six months ended
The income tax expense were
Net loss
We recorded a net loss for the six months ended
The increase in the net loss by
Liquidity and Capital Resources
The following tables set forth our consolidated statements of cash flow:
Six months ended
June 30,
2022 2021
(Unaudited) (Unaudited)
Net cash provided by operating activities-continuing
operations $ 5,196,432 $ 8,844,238
Net cash provided by operating activities- discontinued
operations 185,654 987,134
5,382,086 9,831,372
Net cash provided by investing activities- continuing
operations (505) 145,824 Net cash provided by investing activities- discontinued operations
(1,151 ) 243,143
(1,656 ) 388,967
Proceeds from a short-term borrowing from a third party 300,000
Net cash provided by financing activities-continuing
operations 30,000,007 -
Net cash provided by financing activities-discontinued
operations - 180,485
30,300,007 180,485
Effect of exchange rate change on cash and cash equivalents, and restricted cash from continuing operations
184,573 19,976
Effect of exchange rate change on cash and cash equivalents, and restricted cash from discontinued operations
(400,243 ) 33,293
(215,670 ) 53,269
Net increase in cash and cash equivalents - continuing operations 35,680,507
9,010,038
Net increase in cash and cash equivalents and restricted cash- discontinued operations
(215,740 ) 1,444,055
35,464,767 10,454,093
Cash, cash equivalents and restricted cash, beginning balance- continuing operations
1,503,153 31,188
Cash and cash equivalents and restricted cash, beginning balance- discontinued operations
338,542 13,811,557
1,841,695 13,842,745
Cash and cash equivalents and restricted cash, ending balance- continuing operations
$ 37,183,660
122,802 15,255,612
37,306,462 24,296,838
30
Sources of Liquidity
The cash and cash equivalent and the restricted cash balances from the
continuing operations as of
The cash and cash equivalent balance from the discontinued operations as of
For the six months endedJune 30, 2022 , net cash provided by operating activities from continuing operation was$5,196,432 . While there was$505 cash outflow from investing activities from our continuing operations during the six months endedJune 30, 2022 , our continuing operations incur net cash provided by financing activities,$30,000,007 , as TKAT obtained a PIPE financing from investors. For the six months endedJune 30, 2022 , net cash provided by in operating activities by our discontinued operations was$185,654 , which was a result of net loss from discontinued operations,. Net cash used in investing activities by our discontinued operations was $nil. Our discontinued operations did not incur cash inflow or outflow from financing activities. As ofJune 30, 2022 , the total current liabilities from the continuing operations were$6,701,507 , which included accrued expense and account payables amounting to$2,007,062 and advance from customers amounting to 4,645,449. Total current liabilities from our discontinued operations amount to$8,939,854 .
As of
As of
In order to continue to maintain the liquidity requirements, the Company introduced NFT business in the fourth quarter of 2021 to developed service fee on NFT projects and has generated commission revenue of$694,175 by the end ofJune 30, 2022 . The Company also seeks to negotiate and extend financing arrangements with the related party and the third party. The Company is aware of events or uncertainties which may affect its future liquidity because of capital controls in the PRC. The RMB is only currently convertible under the "current account," which includes dividends, trade and service-related foreign exchange transactions, but not under the "capital account," which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries or variable interest entities. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of "current account transactions," including payment of dividends to us, without the approval of theState Administration of Foreign Exchange ("SAFE") by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. The existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders, including holders of our shares of common stock. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our PRC subsidiaries. Applicable PRC law permits payment of dividends to us by our operating subsidiaries inChina only out of their net income, if any, determined in accordance with PRC accounting standards and regulations. Our operating subsidiaries inChina are also required to set aside a portion of their net income, if any, each year to fund general reserves for appropriations until such reserves have reached 50% of the subsidiary's registered capital. These reserves are not distributable as cash dividends. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. In contrast, there is no foreign exchange control or restrictions on capital flows into and out ofHong Kong . Hence, ourHong Kong operating subsidiary is able to transfer cash without any limitation to theU.S. under normal circumstances. 31 If our operating subsidiaries were to incur additional debt on their own behalf in the future, the instruments governing the debt may restrict the ability of our operating subsidiaries to transfer cash to our U.S. investors.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support, and credit risk support or other benefits. Future Financings We may sell our common stock in order to fund our business growth. Issuances of additional shares will result in dilution to existing shareholders. There is no assurance that we will achieve sales of the equity securities or arrange for debt or other financing to fund our growth in case it is necessary, or if we are able to do so, there is no guarantee that existing shareholders will not be
substantially diluted. Critical Accounting Policies
We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management. The discussion of our critical accounting policies contained in Note 2 to our consolidated financial statements, "Summary of Significant Accounting Policies", is incorporated herein by reference.
Recent Accounting Pronouncements
The discussion of the recent accounting pronouncements contained in Note 2 to our consolidated financial statements, "Summary of Significant Accounting Policies", is incorporated herein by reference.
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