This past March 17, 2021 was St. Patrick’s Day, but if you happened to be trading the market that afternoon, it also could have been called Chinese stock day. What started as an otherwise sleepy trading session later exploded as investors rushed into a number of stocks they hoped were linked to non-fungible tokens (NFTs). Chinese tickers such as OCG, IMTE, JFIN and SINO all saw impressive intraday gains. Most prominent among these might have been the stock of Takung Art Company, Ltd. (TKAT). At around 11 am EST the stock started picking up steam from its opening price of $5.26 and reached an intraday high of $24.90 before closing the day at $22.60. And the NFT catalyst proved to have additional staying power as TKAT reached a high of $74.11 several days later. That’s an incredible increase of over 1300%!
So what is a NFT? And why did TKAT, owner of an online marketplace for artwork, respond so spectacularly? We can’t know the latter question for certain but it does show why traders shouldn’t fight prevailing trends in the short-term. It also didn’t hurt that TKAT is a low float stock. Checking TKAT on FloatChecker gives us a stock float between 4.68 and 6.05 million shares.
Let’s look more into NFTs and calculate the float of TKAT ourselves.
- What are NFTs?
- How is TKAT related to NFTs?
- TKAT Quarterly Report 10-Q
- Definitive Proxy Statement Schedule 14A
What are NFTs?
NFTs are a type of cryptocurrency that stand for “non-fungible tokens.” Other cryptocurrencies, such as bitcoin, are considered fungible since they are interchangeable with other bitcoins and therefore can be traded or exchanged for other bitcoins of equal value. In contrast, each NFT is unique and has its own value. NFTs rely on blockchain technology, but for our purposes, think of NFTs as a way to assign ownership of digital artwork, music and video.
Putting aside whether they are a passing fad, NFTs have definitely been having a moment. You’ve probably heard of the artist Beeple who auctioned off a digital collage of images for over $69 million. Then there’s the founder of Twitter, Jack Dorsey, who sold his first tweet from March 2006 for $2.9 million. And Elon Musk’s musician partner Grimes recently sold her digital artwork for around $6 million. All of this activity most certainly caught the eyes of investors, especially those who feel they may have missed out on the rise of bitcoin. As a result, traders started piling into a number of stocks, regardless of whether or not they were actually linked to NFTs. This shows the potential profits available to those who follow the news and keep their eyes on popular trends.
How is TKAT related to NFTs?
Takung Art is a Hong Kong company that operates a website at www.takungae.com, which provides an online platform to sell artwork over the internet. Based on its most recent 10-Q quarterly report filed November 13, 2020, the company generates revenue from listing fees, trading commissions, and management fees. There is no indication in the financial statement that Takung Art actually deals with NFTs. In fact, on March 18, 2021 the company issued a Form 8-K press release stating it was unaware of any changes or developments in its business to account for the recent activity surrounding its shares. The 10-Q also notes that the company was previously known as Cardigant Medical Inc., whose focus was on the “development of novel biologic and peptide based compounds and enhanced methods for local delivery for the treatment of vascular disease including peripheral artery disease and ischemic stroke.” At some point the company pivoted to becoming an online artwork marketplace. Again, the connection to NFTs is less than clear, but due to the recent news catalysts, traders didn’t seem to care. Combining the recent NFT headlines with this low float stock likely helped push the price of TKAT to new heights.
Let’s walk through the company’s financial filings located at www.sec.gov and determine the float ourselves. We can then compare that to the results returned from FloatChecker.
TKAT Quarterly Report 10-Q
The first page of Takung Art’s most recent 10-Q filed November 13, 2020 states that the company has 11,271,379 outstanding shares. Outstanding shares represent all the shares the company has issued and theoretically made available to the public. But the number also includes restricted shares that can have trade limitations. In general, the shares available for trading minus the restricted shares equals the float.
Looking further into the 10-Q on the table titled “Interim Condensed Consolidated Statements of Changes in Equity,” 6,250 shares were issued as a restricted stock award. RSAs, or restricted stock awards, give the holder the right to trade the stock in the future when the shares vest. Vesting periods can be time-based or performance-based. Assuming these shares are still restricted, we’ll subtract them from the outstanding shares for a remaining float of 11,265,129 shares.
Definitive Proxy Statement Schedule 14A
Next we’ll look at TKAT’s proxy statement filed October 28, 2020. The DEF 14A is commonly filed to provide shareholders with information on matters that require their vote. Fortunately for us it can also contain a lot of information about executive compensation and share ownership. For example, the company’s 14A contains a beneficial owners table that sets out the holders of 5% or more of the outstanding shares. These shareholders are required to file a Schedule 13G/D setting out the reasons for their investment. Importantly, they are also required to update these forms if their ownership changes by 1%. Because we don’t see any amended 13G/D forms, we’ll assume these shares are still closely held. Subtracting these combined shares from our prior total gives us a remaining float of 4,672,917 shares (11,265,129 – 6,592,212).
The Schedule 14A also discusses the remaining stock options issued by the company. Stock options give the holder, such as an employee, the right to buy the stock in the future at a specified price. They are issued as a way to incentivize employees to stay and help the company succeed. As of December 31, 2019, there were 100,890 options outstanding and 80,534 options exercisable. Exercisable shares can be purchased by the employee and freely traded, while outstanding shares are not yet “exercisable” and therefore remain restricted. Consequently, we will subtract the 100,890 options from our running total to give us a remaining float of 4,572,027 shares. We can’t be sure if the exercisable shares were in fact “exercised,” but we will assume they are no longer restricted and finish our calculation here.
The recent NFT storylines proved to provide a compelling enough catalyst to launch a number of stocks to impressive new highs. In the case of stocks like TKAT, it didn’t seem to matter whether there was any actual connection to the NFT technology at all. The new market for digital collectibles likely spurred early investors who may have missed the advent of bitcoin. The recent gains in TKAT were also likely helped by its low float. Our float calculation of 4,572,027 shares is slightly lower than the results returned from the financial websites compiled by FloatChecker. The discrepancy may be due to differing analysis of the beneficial owners and associated Schedule 13 G/D financial filings, which we didn’t fully review. Regardless of the actual float number, it is likely that volatility in stocks such as TKAT will continue as long as NFTs remain in the news.