UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2016March 31, 2017

or

For the transition period from _________________________ to_________________________

Commission File Number: 000-55500001-38036

TAKUNG ART CO., LTD

(Exact name of registrant as specified in its charter)

Flat/RM 03-04 20/F Hutchison House 10 Harcourt Road, Central, Hong Kong

(Address of principal executive offices) (Zip Code)

+852 3158 0977

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.x Yes¨No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactiventeractive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).xYes¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨YesxNo

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

¨Yes¨ No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of common stock issued and outstanding as of November 9, 2016May 12, 2017 is 11,119,276.11,188,882.

FORM 10-Q

TAKUNG ART CO, LTD

INDEX

PART 1 - FINANCIALI –FINANCIAL INFORMATION

Item 1. Financial Statements

TAKUNG ART CO., LTD AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Stated in USU.S. Dollars except Number of Shares)

 The accompanying notes are an integral part of these consolidated financial statements.  

TAKUNG ART CO., LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Stated in U.S. Dollars except Number of Shares)

(UNAUDITED)

The accompanying notes are an integral part of these consolidated financial statements.

TAKUNG ART CO., LTD AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Stated in U.S. Dollars)

(UNAUDITED)

The accompanying notes are an integral part of these consolidated financial statements.

TAKUNG ART CO., LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Stated in US Dollars except Number of Shares)

TAKUNG ART CO., LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATEDFINANCIALCONSOLIDATED FINANCIAL STATEMENTS

(Stated in USU.S. Dollars except Number of Shares)

(UNAUDITED)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Takung Art Co., Ltd.Ltd and Subsidiaries (the “Company” or “Takung”), a Delaware corporation (formerly Cardigant Medical Inc.) through Hong Kong Takung Assets and Equity of Artworks Exchange Co., Ltd. (“Hong Kong Takung”), a Hong Kong company and our wholly owned subsidiary, operates an electronic online platform located at www.takungae.com for artists, art dealers and art investors to offer and trade in valuable artwork.

Hong Kong Takung Assets & Equity of Artworks Exchange Co., Ltd. was incorporated in Hong Kong on September 17, 2012 and operates an electronic online platform for offering and trading artwork. For the period from September 17, 2012 (inception) to December 31, 2012, there werewas no operationsoperation except the issuance of shares for subscription receivable. We generate revenue from our services in connection with the offering and trading of artwork on our system, primarily consisting of listing fees, trading commissions, and management fees. We conduct our business primarily in Hong Kong, People’s Republic of China.

Takung (Shanghai) Co., Ltd (“Shanghai Takung”) is a limited liability company, with a registered capital of $1 million, located in the Shanghai Pilot Free Trade Zone. Shanghai Takung was incorporated on July 28, 2015. It is engaged in providing services to its parent company Hong Kong Takung Assets and Equity of Artworks Exchange Co. Ltd. by receiving deposits from and making payments to online artwork traders of Takung for and on behalf of Takung. It also provides provides research and development services to Takung.

Shanghai Takung set up a new office in Hangzhou, PRC on November 20, 2016 for technology development.  Takung Cultural Development (Tianjin) Co., Ltd (“Tianjin Takung”) is a limited liability company, with a registered capital of $1 million located in Pilot Free Trade Zone. Tianjin Takung was incorporated on January 27, 2016.

Tianjin Takung provides technology developmentsupport services to Hong Kong Takung and Shanghai Takung and also carries out marketing and promotion activities in mainland China.

REVERSE MERGER

On October 20, 2014, Cardigant Medical Inc. (or “Cardigant”) acquired all the issued and outstanding shares of Hong Kong Takung, a privately held Hong Kong corporation, pursuant to the Share Exchange Agreement and Hong Kong Takung became the wholly owned subsidiary of Cardigant in a reverse merger, or the Merger. Pursuant to the Merger, all of the issued and outstanding shares of Hong Kong Takung common stock were converted, at an exchange ratio of 10.4988-for-1, into an aggregate of 8,399,040 (209,976,000 pre-reverse split) shares of Cardigant common stock and Hong Kong Takung became a wholly owned subsidiary of Cardigant. The holders of Cardigant’s common stock as of immediately prior to the Merger held an aggregate of 933,227 (23,330,662 pre-reverse split)933,236 shares of Cardigant’s common stock, The accompanying financial statements share and per share information has been retroactively adjusted to reflect the exchange ratio in the Merger. Subsequent to the Merger, Cardigant’s name was changed from “Cardigant Medical Inc.” to “Takung Art Co., Ltd.”Ltd and Subsidiaries”.

Under generally accepted accounting principles generally accepted in the United States, (“U.S. GAAP”) because Hong Kong Takung’s former stockholders received the greater portion of the voting rights in the combined entity and Hong Kong Takung’s senior management represents all of the senior management of the combined entity, the Merger was accounted for as a recapitalization effected by a share exchange, wherein Hong Kong Takung is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of Hong Kong Takung have been brought forward at their book value and no goodwill has been recognized. Accordingly, the assets and liabilities and the historical operations that are reflected in Hong Kong Takung's consolidated financial statements are those of Hong Kong Takung and are recorded at the historical cost basis of Hong Kong Takung.

Unless otherwise indicated or the context otherwise requires, references to “the Company” refer to Takung Art Co., Ltd.Ltd and Subsidiaries Disclosures relating to the pre-merger business of Takung, unless noted as being the business of Cardigant prior to the Merger, pertain to the business of Takung prior to the Merger. The Company is currently trading on the OTC market with the ticker “TKAT”.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated balance sheet as of December 31, 2015,2016, which has been derived from audited financial statements, and the unaudited interim consolidated financial statements as of September 30, 2016, 2015March 31, 2017 and for the three and nine months ended September 30,March 31, 2017 and 2016 and 2015 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures, which are normally included in financial statements prepared in accordance with U.S. GAAP, have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K/A10-K for the fiscal year ended December 31, 2015,2016, previously filed with the SEC.

This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. The Company’s financial statements are expressed in U.S. dollars.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of September 30, 2016,March 31, 2017, its consolidated results of operations and cash flows for the nine-monththree-month periods ended September 30,March 31, 2017 and 2016, and 2015, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Use of Estimates

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 disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amount of revenues and expenses during the reporting periods. Actual results could differ materially from those results.

PrinciplesBasis of consolidationConsolidation

The consolidated financial statements include the accountsfinancial statements of Takung Art, Co.,the Company, and its subsidiaries.subsidiaries, Hong Kong Takung, Shanghai Takung and Tianjin Takung. All significant inter-company accountsintercompany transactions, balances and transactionsunrealized profit and losses have been eliminated inon consolidation.

Reverse stock split

On August 10, 2015, the Company’s board of directors and a majority of the Company’s shareholders approved a reverse stock split of its issued and outstanding shares of common stock at a ratio of 1-for-25.

Upon filing of the Certificate of Amendment, every twenty-five shares of the Company’s issued and outstanding common stock were automatically converted into one issued and outstanding share of common stock, without any change in par value per share. All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the 1-for-25 reverse stock split.

Fair Value Measurements

The Company applies the provisions of ASC Subtopic 820-10, “Fair Value Measurements”, for fair value measurements of financial assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements.  ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

There were no assets or liabilities measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of September 30, 2016March 31, 2017 and December 31, 2015, respectively.2016.

Comprehensive Income

Recognized revenue, expenses, gains and losses are included in net income or loss. Although certain changes in assets and liabilities are reported as separate componentsThe Company follows the provisions of the equity section ofFinancial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 220 “Reporting Comprehensive Income”, and establishes standards for the consolidated balance sheet, such items, along with net income or loss, are componentsreporting and display of comprehensive income, or loss. Theits components and accumulated balances in a full set of othergeneral purpose financial statements. For the period ended March 31, 2017 and the year ended December 31, 2016, the Company’s comprehensive income or loss are consisted solely ofincludes net income and foreign currency translation adjustments, net of the income tax effect.adjustment.

Foreign Currency Translation and Transaction

The functional currency of the Hong Kong Takung and Shanghai Takung are the Hong Kong Dollar (“HKD”).

The functional currency of Tianjin Takung is the Renminbi (“RMB”).

The reporting currency of the Company is the United States Dollar (“USD”).

Transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at the end of the reporting periods. Exchange differences arising on the settlement of monetary items and on re-translation of monetary items at period-end are included in income statement of the period.

For the purpose of presenting these financial statements, the Company’s assets and liabilities with functional currency of HKD are expressed in USD at the exchange rates on the balance sheet dates, which are 7.75557.7714 and 7.75077.7534 as of September 30, 2016March 31, 2017 and December 31, 20152016 respectively; stockholder’s equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rates during the years,periods, which are 7.76357.7608 and 7.75307.7740 for the period ended September 30,March 31, 2017 and 2016 and 2015 respectively. For Renminbi currency, the Company’s assets and liabilities are expressed in USD at the exchange rate on the balance sheet dates, which are 6.6685is 6.8832 and 6.47786.9430 as of September 30, 2016March 31, 2017 and December 31, 2015;2016 respectively; stockholder’s equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rates during the years,periods, which are 6.5785is 6.8853 and 6.24776.5394 for the period ended September 30,March 31, 2017 and 2016 and 2015.respectively. 

The resulting translation adjustments are reported under accumulated other comprehensive incomeloss in the stockholders’stockholder’s equity section of the balance sheets.

Cash and Cash Equivalents

The Company considers highly liquid investments with maturities of three months or less, when purchased, to be cash equivalents. As of September 30, 2016 and December 31, 2015, the Company’s cash and cash equivalents amounted to $16,831,035 and $10,769,456, respectively. All of the Company’s cash deposits are held in the financial institutions located in Hong Kong and China where there are currently regulations mandated on obligatory insurance of bank accounts.

Restricted Cash

Restricted cash represents the cash deposited by the traders (“buyers and sellers”) into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading ownership unitsshares of the artwork. The buyers are required to have their funds transferred to the broker’s account before the trading take place. Upon the delivery of the ownership units,shares, the seller canwill send instructions to the bank, requesting the amount to be transferred to their personal accounts.account. After deducting the commission and the management fee as per Takung’s instruction,Takung, the bank will transfer the remainder to the seller’s personal account. Except for instructing the bank to deduct the commission and management fee, Takung has no right to manipulate any funds in the broker’s account except the Company statements of intention with regard to particular deposits. The whole process was monitored and approved by a third party accounting firm. Restricted cash amounted to $25,448,772 which includes $10,497,113 deposits with a 7-day maturity date with principal guaranteed by Bank of China, and $16,195,289 as of September 30, 2016 and December 31, 2015, respectively.

Short-term investments

Short term investments consist of held-to-maturity investments and available-for-sale investments.

The Company’s held-to-maturity investments consist of financial products purchased from banks, which are not allowed for the early withdrawal. The Company’s short term held-to-maturity investments are classified as short-term investments on the consolidated balance sheets based on their contractual maturity dates which are less than one year and are stated at their amortized costs.

Investments classified as available-for-sale investments are carried at their fair values and the unrealized gains or losses from the changes in fair values are reported net of tax in accumulated other comprehensive income until realized.

The Company reviews its investments for other-than-temporary impairment (“OTTI”) based on the specific identification method. The Company considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an investment exceeds the investment’s fair value, the Company considers, among other factors, general market conditions, expected future performance of the investees, the duration and the extent to which the fair value of the investment is less than the cost, and the Company’s intent and ability to hold the investment. OTTI is recognized as a loss in the income statement.

As of March 31, 2017, all short-term investments under held-to-maturity and available-for-sale investments were redeemed with a nil balance.

AccountsAccount Receivables and Allowance for Doubtful Accounts

AccountsAccount receivables are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. The Company makesWe make estimates for the allowance for doubtful accounts based upon our assessment of various factors, including historical, experience, the age of the accountsaccount receivable balances, credit quality of our customers, current economic conditions, and other factors that may affect customers' ability to pay.

Loan receivablesReceivables

Loan to third partyparties is presented under current asset of the balance sheets based on the nature and loan period of time.

Prepayment and Other Current Assets

Prepayment and other current assets mainly consist of the prepayment for development, maintenance of online trading system, the advertising and promotional services, prepaid financial advisory and banking services, as well as other current assets.

Other Non-current Assets

A portion of the other assets, such as prepayments and deposits, are presented under the non-current section of the balance sheets based on the nature of the amounts.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and impairment losses. Gains or losses on dispositions of property and equipment are included in other income.operating income or expense. Major additions, renewals and betterments are capitalized, while maintenance and repairs are expensed as incurred.

Depreciation and amortization are provided over the estimated useful lives of the assets using the straight-line method from the time the assets are placed in service. Estimated useful lives are as follows, taking into account the assets' estimated residual value:

Long-lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When these events occur, the Company assesses the recoverability of these long-lived assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the future undiscounted cash flow is less than the carrying amount of the assets, the Company recognizes an impairment equal to the difference between the carrying amount and fair value of these assets.

No impairments were recorded during the periods ended September 30,March 31, 2017 and 2016, and December 31, 2015, respectively.

Intangible Assets

Intangible assets represent the licensing cost for our trademark registration. For intangible assets with indefinite lives, the Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. For intangible assets with definite lives, they are amortized over estimated useful lives, and are reviewed annually for impairment. The Company has not recorded impairment of intangible assets as of September 30, 2016March 31, 2017 and December 31, 2015.2016.

Customer deposits

Customer depositsdeposit represents the cash deposited by the traders (“buyers and sellers”) into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading ownership units of the artwork. The buyers are required to have their funds transferred to the broker’s account before the trading takestake place. Customer deposits were $25,448,772 and $16,195,289 as of September 30, 2016 and December 31, 2015, respectively.

Advance from customers

Advance from customers represent trading commissions one month in advance charge to the VIP traders. Starting from April 1, 2016, the Company charges a monthly commission to VIP traders, instead of charging per transaction.

Short-term borrowings from third parties

The Company made twofour short-term borrowings from third parties, both with 8% annual interest rate and due on December 31, 2016. Two borrowings were extended with to a maturity date on March 31, 2017 and then further extended on April 4, 2017 to a maturity date of December 31, 2017.

Revenue Recognition

The Company generates revenue from its services in connection with the offering and trading of artwork on our system, primarily consisting of listing fees, trading commissions, and management fees.

We recognize revenue once all of the following criteria have been met:

Listing fee – The-The Company collects arecognizes the listing fee revenue once the ownership shares of the artwork are listed and successfully traded on the Company’sour system, based on the agreed percentage of the total offering price. The listing fee revenue is collected from either the money raised from the issuance of such shares, or separately at a pre-determined amount. When the ownership shares of the artwork is listed and starts trading on the Company’sour system, the Original Owner and/or the Offering Agent shall pay the Companyus a one-time offering fee and a listing deposit. The offering fee is determined based on many factors, such as the type of artwork and the offering size. The CompanyWe generally chargescharge approximately 22.5-48.5% of the total offering price for calligraphies, paintings and jewelry, which are the major types of artwork listed and traded on the Company’sour system as of September 30, 2016. Listing fee revenue was $2,968,534 and $439,811 for the three months ended September 30, 2016 and 2015, respectively, and $8,166,072 and $1,549,587 for the nine months ended September 30, 2016 and 2015, respectively.March 31, 2017.

Commission – The Company charges- 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 0.3% of the total amount of each transaction, but as an initial promotion, we currently charge a reduced fee of 0.2% (resulting in an aggregate of 0.4%) for both buy and sell transactions) of the total transaction amount with the minimum charge of $0.13 (HK$1). 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 rebate programs are offered to the traders and service agents. As part of the referral incentiveFor selected VIP Traders, we ran a discount program the Company would rebate 15% of the commission earnedfor them starting from the transactions of new traders referred by the existing traders. In addition, the Company rebates 40% to 60% to the service agents when they bring in the agreed number of traders to the trading platform. Such commission rebate is recognized as reduction of the commission revenue. Commission rebated program is also offered to VIP traders ,April 1, 2015, when their trading volumes of the certain artworks reachreached an agreed level in each month, a contractually determined flat rate of trading commission was applied to the transactions of these certain artworks. Any trading commission charges incurred by the VIP tradersTraders over the flat rate would be waived and deducted from the commission revenue. Startingwaived. The discounted rate varied between selected artworks. This discount program ended on March 31, 2016.

For selected Traders, starting from April 1, 2016, the Company chargeswe charged a predetermined monthly fee (unlimited trade for specific artworks) for specific artworks. These Traders are selected by authorized agents and reviewed by us. After review, we negotiate individually with each one of them to determine a fixed monthly commission based on class of certain artworkfee. Different Traders may have different rates but once negotiated and agreed to, VIP traders, instead of charging per transaction.the monthly fee is fixed.

Commission revenue (netrebate programs are offered to Traders and service agents. We would rebate 5% of applicablethe commission earned from the transactions of new Traders referred by the existing Traders. The rebate rate was adjusted from 15% to 5%, starting from January 1, 2017. For service agents, we rebate a total of 40% to 60% of the commission earned from transactions with new Traders to the service agents when they bring in an agreed number of Traders to the trading platform. For service agents who have individual referrers referring Traders to us, we will, after rebating such individual referrers 15% of the commission earned from the transactions of new Traders they referred, deduct such 15% of the commission from the rebates payable to the service agents to which such individual referrers belong. The commission rebate is recognized as reduction of the commission revenue.

The rebates and discounts) was $1,669,698 and $2,239,526 fordiscounts are recognized as a reduction of revenue in the three months ended September 30, 2016 and 2015, respectively, and $3,739,958 and $3,267,516 forsame period the nine months ended September 30, 2016 and 2015, respectively.related revenue is recognized.

Management fee – The-The Company charges management fees for covering the insurance, storage, and transportation for an artwork and trading management of artwork units, which are calculated at $0.0013 (HK$0.01) per 100 artwork ownership unitsshares per day. The management fee is accounted for as revenue, and immediately deducted from the proceeds from the sales of artwork ownership unitsshares when a transaction is completed. ManagementA discount program is offered to waive the management fee during certain promotion periods. Such discount is recognized as a reduction of the revenue was $781,219 and $26,889 forupon the three months ended September 30, 2016 and 2015, respectively, and $1,341,294 and $98,674 forcompletion of the nine months ended September 30, 2016 and 2015, respectively.transactions.

Annual fee income – The-The Company charges an annual fee for providing traders with premium services, including more in-depth information and tools, on the trading platform. This revenue is recognized ratably over the service agreement period. Annual fee income was $440 and $162 for the three months ended September 30, 2016 and 2015, respectively, and $869 and $1,591 for the nine months ended September 30, 2016 and

Authorized agent subscription revenue– The Company charges an authorized agent subscription fee which is an annual service fee paid by authorized agents to grant them the right to bring their network of artwork owners to list their artwork on our trading platform. This revenue is recognized ratably over the annual agreement period.

Cost of Revenue

CostOur cost of revenue consists primarily of expenses associated with the delivery the Company’sof our service. These include expenses related to the operation of our data centers, such as facility and lease of the server equipment, development and maintenance of the Company’sour platform system, as well as the cost of insurance, storage and transportation of the artworks. Cost of revenue was $285,252 and $214,530 for the three months ended September 30, 2016 and 2015, respectively, and $822,735 and $592,342 for the nine months ended September 30, 2016 and 2015, respectively.

Income Taxes

The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

Under ASC 740, a 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 evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigations based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.

There are uncertain tax positions regarding whether the income of Hong Kong Takung should be deemed as the taxable income of Shanghai Takung under the law of the People's Republic of China on Enterprise Income Tax ("EIT") as of September 30, 2016March 31, 2017 and December 31, 2015.2016. Such income will be subject to EIT with 25% tax rate once it is deemed as the taxable income of Shanghai Takung and Tianjin Takung; otherwise it is subject to Hong Kong's Profits Tax with 16.5% tax rate.

The Company currently recognizes such income as taxable income under Hong Kong's Profits Tax rather than taxable income under EIT, and the Company holds that it is more-likely-than-not that this tax position will be sustained upon examination, including the resolution of any related appeals or litigations based on the technical merits of that position.

The Company did not have any interest and penalties related to uncertain tax positions in our provision for income taxes line of the Company’sour consolidated statements of operations for the period ended September 30, 2016March 31, 2017 and 2015.2016. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months.

Earnings per share

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period.periods. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and dilutive potential common shares outstanding during the period.periods.

As of September 30, 2016 and December 31, 2015, respectively, there were options, which would have a dilutive effect on earnings per share.

Concentration of Risks

Concentration of credit risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, short-term investments, deposits, accountsaccount receivables, prepayment and other current assets. The Company places its cash and cash equivalents and restricted cash and short-term investments with financial institutions with high-credit ratings and quality. AccountsAccount receivables primarily comprise of amounts receivablesreceivable from the trader customers. With respect to the prepayment to service suppliers, the Company performs on-going credit evaluations of the financial condition of these suppliers. The Company establishes an allowance for doubtful accounts based upon estimates, factors surrounding the credit risk of specific service providers and other information.

Concentration of customers

There are no revenues from customers that individually represent greater than 10% of the total revenues during the three-month period ended September 30, 2016March 31, 2017 and 2015, and also during the nine-month period ended September 30, 2016 and 2015.2016.

ReclassificationsReclassification

Certain amounts in the 2015prior period financial statements may have been reclassified to conform to the 2016current period presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

Recent Accounting Pronouncements

Revenue recognition

Recognition:     In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for us in our first quarter of fiscal 2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09;2014-09 (full retrospective method); or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09.2014-09 (modified retrospective method). We are continuingcurrently assessing the impact to evaluate the impacts of our pending adoption of Topic 606.consolidated financial statements, and have not yet selected a transition approach.

Disclosure of Going Concern Uncertainties

:     In August 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for us in our fourth quarter of fiscal 2017 with early adoption permitted. We do not believe the impact of our pending adoption of ASU 2014-15 on the Company’s financial statements will be material.

Financial Instrument

instrument: In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is not permitted. Accordingly, the standard is effective for us on September 1, 2018. The Company isWe are currently evaluating the impact that the standard will have on the Company’sour consolidated financial statements.

Leases

: In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-2”), which provides guidance on lease amendments to the FASB Accounting Standard Codification. This ASU will be effective for us beginning in May 1, 2019. The Company isWe are currently in the process of evaluating the impact of the adoption of ASU 2016-2 on the Companyour consolidated financial statements.

Stock-based Compensation

:    In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09 changes how companies account for certain aspects of stock-based awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 is effective for us in the first quarter of 2018, and earlier adoption is permitted. We are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

Financial Instruments - Credit Losses

Losses: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is still evaluating the effect that this guidance will have on the Company’s consolidated financial statements and related disclosures.

Statement of Cash Flows

Flows: In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The amendments in this Update apply to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The amendments in this Update provide guidance on the following eight specific cash flow issues. The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity in practice described above. ASU 2016-15 is effective for the Company for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is still evaluating the effect that this guidance will have on the Company’s consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash”(“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This update is effective in fiscal years, including interim periods, beginning after December 15, 2017 and early adoption is permitted. The adoption of this guidance will result in the inclusion of the restricted cash balances within the overall cash balance and removal of the changes in restricted cash activity, which are currently recognized in Other financing activities, on the Statements of Consolidated Cash Flows. Furthermore, an additional reconciliation will be required to reconcile Cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets to sum to the total shown in the Statements of Consolidated Cash Flows. The Company anticipates adopting this new guidance effective January 1, 2018. The Company is currently evaluating this guidance and the impact it will have on the Consolidated Financial Statements and disclosures. 

In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01), which revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities is a business. This guidance will be effective for us in the first quarter of 2018 on a prospective basis, and early adoption is permitted. We do not expect the standard to have a material impact on our consolidated financial statements.

Except for the ASU above, in the period from January 1, 20162017 to November 6, 2016,May 12, 2017, the FASB has issued ASU No. 2016-012017-01 through ASU 2016-17,2017-08, which are not expected to have a material impact on the consolidated financial statements upon adoption.

3. PREPAYMENT AND OTHER CURRENT ASSETS

Prepayment and other current assets mainly consistsconsist of the prepaid service feeservices for the development, and maintenance of online trading system,   as well as the advertising and promotional services.services, prepaid financial advisory and banking services, as well as other current assets. The prepayment was $932,045 and $968,446 as of March 31, 2017 and December 31, 2016, respectively.

4. ACCOUNT RECEIVABLES, NET

Account receivables consisted of the following:

4.

5. LOAN RECEIVABLES

The following table sets forth a summary of the loan agreements in loan receivables balance:

In order

All the transactions were aimed to meet the Company’s working capital needs in US Dollars, the Company entered into the following transactions:Dollars.

The US$1.5 million and US$2 million are collectively the US Dollar Loan (the “US Dollar Loans”). The RMB10.08 million and RMB13.35 million are collectively the RMB Loan (the “RMB Loans”).

Through an understanding between Ms. Wang and Merit Crown, the US Dollar Loans are “secured” by the RMB Loans. Further details on the RMB Loans are disclosed in Note 10. It is the understanding between the parties that when the US Dollar Loans are repaid, the RMB Loans will similarly be repaid.

As of September 30, 2016 and December 31, 2015, the Company has $3,513,534 and nil of loan receivable from Xiaohui Wang.

5. SHORT TERM INVESTMENTS

Short term investments consist of held-to-maturity investments and available-for-sale investments.

Held-to-maturity investments

Held-to-maturity investments consist of various financial products purchased from Bank of China, which are classified as held-to-maturity investments as the Company has the positive intent and ability to hold the investments to maturity. The maturities of these financial products range from thirty to seventy days, with contractual maturity dates from July 14, 2016, to September 26, 2016 and estimated annual interest rates ranging from 1.90% to 3.45%. They are classified as short term investments on the consolidated balance sheets as its contractual maturity dates are less than one year. The repayments of principal of the financial products are not guaranteed by the Bank of China from which the financial products were purchased. Historically, the Company has received the principal and the interest in full upon maturity of these investments. As of September 30, 2016, there were no outstanding held-to-maturity investments.

While these financial products are not publicly traded, the Company estimated that their fair value approximate their amortized costs considering their short term maturities and high credit quality. No OTTI loss was recognized for the periods ended September 30, 2016 and 2015.

Available-for-sale investments

Investments other than held-to-maturity are classified as available-for-sale investments, which consist of various adjustable-income financial products purchased from Bank of China. All the available for sale investments did not have maturity date. They are classified as short-term investments on the consolidated balance sheets as management intend to hold them for a period less than one year.

Available-for-sale securities are carried at their fair values and the unrealized gains or losses from the changes in fair values are included in accumulated other comprehensive income. The aging of all the available-for-sale investments were less than 12 months as of September 30, 2016. No OTTI loss was recognized for the periods ended September 30, 2016 and 2015.

6. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

Depreciation expense was $133,608$168,142 and $83,981$102,973 for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively, and $373,308 and $240,921 for the nine months ended September 30, 2016 and 2015, respectively.

7. INTANGIBLE ASSETS

Intangible assets consist of the Company’s trademarks with indefinite useful life. The intangible asset was $20,540 and $22,194 as of September 30, 2016 and December 31, 2015, respectively.

8.7. OTHER NON-CURRENT ASSETS

Other non-current assets as of September 30, 2016March 31, 2017 and December 31, 20152016 consisted of:

9.8. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables as of September 30, 2016March 31, 2017 and December 31, 20152016 consisted of:

10.

9. SHORT-TERM BORROWINGS FROM THIRD PARTIES

On July 15, 2016, Hong Kong Takung entered intoThe following table sets forth a loan agreement with Merit Crown Limited, a Hong Kong company, to borrow US$1.5 million to meet its working capital needs. Interest shall accrue at a ratesummary of 8% per annum pro-rated to the actual loan period, which shall be from the date the loan amount is made through December 31, 2016. Merit Crown is a non-related party to the Company.

agreements in loan receivables balance:

On August 24, 2016, an additional US$2 million was borrowed by Hong Kong Takung from Merit Crown to meet its working capital needs. Interest shall accrue at a rate of 8% per annum pro-rated to the actual loan period, which shall be from the date the loan amount is made through December 31, 2016.

The US Dollar Loans are to provide Hong Kong Takung with sufficient US Dollar-denominated currency to meet its working capital requirements. It is “secured” by the aforementioned RMB Loans (See Note 4)5) of equivalent amount by its subsidiary to an individual and guarantor affiliated with the lender of the US Dollar Loans. It is the understanding between the parties that when the US Dollar Loans are repaid, the RMB Loans will similarly be repaid.

As of September 30, 2016 and December 31, 2015, the Company has $3,519,580 of and nil short-term borrowings from Merit Crown Limited, respectively.

The weighted average interest rate of outstanding short-term borrowings outstanding was 8% and nil per annum as of September 30, 2016March 31, 2017 and December 31, 2015.2016. The fair values of the short-term borrowings approximate their carrying amounts. The weighted average short-term borrowingsborrowing was $742,251$6,354,147 and nil$1,678,803 for the ninethree months period ended September 30,March 31, 2017 and year ended December 31, 2016, respectively. The interest expenses for the loan agreements were $129,557 and 2015 respectively, $2,226,753 and nil$0 for the three months ended September 30, 2016March 31, 2017 and 2015.2016.

11.10. RELATED PARTY BALANCES AND TRANSACTIONS

The following is a list of director and related parties to which the GroupCompany has transactions with:

(a) Di Xiao, the director of the Company;

(b) Jianping Mao (“Mao”), the wife of the Vice General Manager of Hong Kong Takung.

Amount due from director

Amount due from director consisted of the following for the periods indicated:

Amount due to related party

Amount due to related party consisted of the following as of the periods indicated:

Related party transactions

Unsecured borrowings fromInterest expenses to related parties consisted of the following for the periods indicated:

Interest expenses from related parties consisted of the following for the periods indicated:

On August 25, 2016, Hong Kong Takung entered into a loan agreement with Mao for the loan of HK$18,000,000 (US$2,320,934)$2,318,990 (HK$18,000,000) to Hong Kong Takung. Interest shall accrue at a rate of 8% per annum pro-rated to the actual loan period, which shall be from the date the loan amount is made through December 31, 2016. The loan is to provide Hong Kong Takung with sufficient Hong Kong Dollar-denominated currency to meet its working capital requirements. $1,287,185 (HK$10,000,000) was repaid on December 31, 2016. The remaining $1,029,416 (HK $ 8,000,000) was extended with a due date on September 30, 2017. The interest expenses during the periods ended March 31, 2017 and 2016 were $20,334 and $0.

11. INCOME TAXES

12. INCOME TAXESThe Company was incorporated in the State of Delaware under the name of Cardigant Medical Inc. on April 17, 2009. After the Company had acquired the business of Hong Kong Takung through the acquisition of all the share capital of Hong Kong Takung under a Share Exchange Agreement dated September 23, 2014 on October 20, 2014, it became a holding company and do not conduct any substantial operations or business of its own in the State of Delaware and in the U.S.

The Company also does not provide for U.S. taxes or foreign withholding taxes on undistributed earnings from its non-U.S. subsidiaries, either owned directly or indirectly, because it was elected to indefinitely reinvest such earnings outside the U.S to support non-U.S. liquidity needs to fund operations and growth of its foreign subsidiaries and acquisitions.

United States of America

As of September 30,March 31, 2017 and 2016, and December 31, 2015, the Company in the United States had $2,676,324$3,454,521 and $900,301$1,612,604 in net operating loss carry forwardscarryforwards available to offset future taxable income.income, respectively. Federal net operating losses can generally be carried forward twenty years. The federal corporate net operating loss carryover is expired in 20 taxable years following the taxable year of the loss.

The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided a full valuation allowance for the deferred tax assets arising from the losses at US.the U.S. during the three months ended March 31, 2017 and year ended December 31, 2016 amounting to $1,207,533 and $962,012, respectively. Accordingly, the Company has no net deferred tax assets under the US entity.

Hong Kong

The provision for current income taxes of the subsidiary operating in Hong Kong has been calculated by applying the current rate of taxation of 16.5%, for the three months ended March 31, 2017 and 2016, if applicable.

PRC

In accordance with the relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable tax rate on taxable income. All the PRC subsidiaries that are not entitled to any tax holiday were subject to income taxestax at a rate of 25%.

The income tax expenses were $596,732 and $343,512 for the three months ended September 30, 2016March 31, 2017 and 2015, respectively, and $1,377,078 and $480,414 for the nine months ended September 30, 2016 and 2015, respectively.2016.

The income tax provision consists of the following components:

A reconciliation between the Company’s effective tax rateactual provision for income taxes and the expectedprovision at the statutory rate is as follow:

The Company's effective tax rate was 19.6%26.1% and 23.1%26.8% for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively, and 22.8% and 21.9% for the nine months ended September 30, 2016 and 2015, respectively.

The approximate tax effects of temporary differences, which give rise to the deferred tax assets and liabilities, are as follows:

13.12. COMMITMENTS AND CONTINGENCIES

Capital Commitments

The Company purchased property, plant and equipment which the payment was due within one year. As of September 30, 2016March 31, 2017 and December 31, 2015,2016, the Company has capital commitments of $31,280$69,929 and $60,571,$90,315, respectively.

Operation Commitments

The total future minimum lease payments under the non-cancellable operating lease with respect to the office and the dormitory as well as hardware trading platform as of September 30, 2016March 31, 2017 are payable as follows:

Rental expense of the Company was $199,514$224,547 and $181,214$116,593 for the three months ended September 30,March 31, 2017 and 2016, and 2015, respectively, and $428,440 and $308,400 for the nine months ended September 30, 2016 and 2015, respectively.

14.13. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and dilutive potential common 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 common stock were exercised and converted into common stock.

487,000 restricted shares of Common Stock (the “Compensation Shares”) related to the Consulting Agreement with Regeneration Capital Group, LLC (“Regeneration”) entered on November 20, 2015. These shares were placed in an escrow account and were subject to Regeneration’s performance condition. There was awere dilutive effecteffects of 487,000 shares for the three months period ended March 31, 2017 and nine months ended September 30, 2016. (See Note 15)The 487,000 shares were released from escrow account and transferred to Regeneration since the Company successfully listed on NYSE on March 22, 2017.

During the nine months ended September 30, 2016, the Company granted an aggregate of 431,525 stock options under the 2015 Incentive Stock Plan (the “2015 Plan”). In addition, on December 1, 2015 and March 1, 2016, 12,143 and 7,463 of restricted stock-based awards were granted. There was a dilutive effect of 246,321 and 158,569 shares for the three and nine months ended September 30, 2016. (See Note 15)

15.14. STOCKHOLDERS’ EQUITY

On July 7, 2015, the Board granted 300,000 shares of fully vested common stock to a third party for consulting services. The shares were subsequently issued on August 26, 2015 and the Company fair valued the shares at grant date and recorded $186,000 as stock-based compensation expense during the year ended December 31, 2015.

On August 10, 2015, the Company filed a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse stock split of our issued and outstanding shares of Common Stock at a ratio of 1-for-25 (the “Reverse Stock Split”). Upon filing of the Certificate of Amendment, every twenty-five shares of the Company’s issued and outstanding Common Stock were automatically converted into one issued and outstanding share of Common Stock, without any change in par value per share. No fractional shares will be issued as a result of the Reverse Stock Split. Stockholders who would otherwise be entitled to receive a fractional share will be entitled to rounding up their fractional shares to the nearest whole number. Prior period consolidated financial statement is adjusted to reflect the impact of the one-for-twenty five reverse stock split.

On August 26, 2015, the 2015 Incentive Stock Plan (“2015 Plan”) was approved by the Board of Directors for rewarding the Company’s directors, executives and selected employees and consultants for making major contributions to the success of the Company. 1,037,000 shares were registered on August 27, 2015.

On November 16, 2015, we entered into various subscription agreements with and sold to the selling stockholders a total of 1,000,000 shares of Common Stock at a price of $1.58 per share for aggregate gross proceeds of $1,580,000 (the “Private Placements”). The shares were offered and sold without registration under the Securities Act, in reliance upon the exemption from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D and/or Rule 903 of Regulation S promulgated there under. No commissions were paid by the Company in connection with the Private Placements.

On November 20, 2015, we entered into a Consulting Agreement with Regeneration for the provision of certain consulting and advisory services, including without limitation, assisting in the preparation of Company financial projections, business plans, executive summaries and website, and recruiting qualified directors and officers. In consideration for providing such services, the Company issued to Regeneration the Compensation Shares which are placed in an escrow account maintained with the Company’s attorneys until either (i) the Company has successfully listed its securities on the NASDAQ or other U.S. securities exchange on or before DecemberMarch 31, 2016,2017, whereupon the Compensation Shares shall be forthwith delivered to Regeneration or (ii) if the Company is unsuccessful in listing its securities on the NASDAQ or other U.S. securities exchange on or before DecemberMarch 31, 2016,2017, the Compensation Shares shall be returned to the Company for cancellation. Regeneration shall be entitled to “piggy-back” registration rights with respect to the Compensation Shares. The Compensation Shares were issued in reliance on an exemption from registration under Section 4(a)(2) of the Securities Act. The stock-based compensation related to this consulting agreement was $76,613 and $571,266 during the three and nine months ended September 30, 2016. Pursuant to ASC 505-50-30, this transaction was measured based on the fair value of the equity instruments issued as the Company determined that the fair value of the equity instruments issued in a share-based payment transaction with nonemployees was more reliably measurable than the fair value of the consideration received. The Company would measuremeasured the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions on the date at which the Regeneration’s commitment for performance is complete.reached. The Company recognized (as appropriate relative to the periods and manner that Company would recognize cash payments under the same arrangement) the cost of the appropriate number of the 487,000 shares at the current fair value as of November 20, 2015, and subsequently each financial reporting date until Regeneration has completed its performance. The performance was completed during the quarter ended March 31, 2017 and the remaining stock-based compensation was fully recognized as of March 31, 2017.

On October 27, 2016, the Company entered into a Financial Advisory Agreement with Maxim Group, LLC (“Maxim”) to provide general financial advisory and banking services, including, assisting and advising the Company with respect to its strategic planning process, business plans and capitalization, helping the Company broaden its shareholder base, increasing shareholder awareness through non-deal roadshows and other value-added services such as making strategic introductions, advising the Company on potential financing alternatives and merger and acquisition criteria and activity. As consideration of the provision of such services, the Company agreed to issue to Maxim or its designees 50,000 restricted shares of the Company’s common stock (“Compensation Shares”) with unlimited piggyback registration rights. Maxim shall also be entitled to additional fees in connection with any financings and transactions arranged by Maxim and reimbursement of reasonable expenses. As additional consideration, the Company shall, during the term of the Financial Advisory Agreement and for twelve (12) months thereafter, offer to retain Maxim as lead book running manager if it were to propose to effect a public offering of its securities on a US exchange, private placement of its securities or other financing. The Company fair valued the shares at grant date and recorded $45,193 as share-based compensation expense during the period of three months ended March 31, 2017.

Stock-based Compensation Plans

During the nine months ended September 30, 2016,As of March 31, 2017, the Company granted an aggregate of 431,525 stock options under the 2015 Plan. 268,600 were granted effective on February 2, 2016, 50,000 were granted effective on February 29, 2016 and 112,925 of the options were granted effective on March 30, 2016. In addition, on December 1, 2015, March 1, 2016 and March 1, 2016,2017, 12,143, 7,463 and 7,46315,000 of restricted stock-based awards were granted. Each of the awards is subject to service-based vesting restrictions. The February 2, 2016 grant included a grant of 50,000 shares to a non-employee who became an employee on March 2, 2016.

The exercise price of stock options was ranged from $2.91 to $3.65 and the requisite service period was ranged from two to five years. 46,172131,619 stock options have been vested and 9,765 stock options were cancelled during the three months ended March 31, 2017, and 33,333 stock options have been vested during ninethe three months ended September 30, 2016, and noMarch 31, 2016.

Stock Option Valuation Assumptions:

The fair value of stock option grants is estimated on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used to value grants made in 2016.

The Company estimated the risk free rates based on the yield to maturity of U.S. Treasury Bill as at the option respective valuation dates. The expected terms of the stock options were exercisedis based on the contract life of the option. The expected volatility at the date of grant date and each option valuation date was estimated based on historical volatility of comparable companies for the period before the grant date with length commensurate with the expected term of the options. The Company has no history or cancelled during the nine months ended September 30, 2015.expectation of paying dividends on its common shares.

Stock Options:

The number of stock options as of March 31, 2017 is as follows:

The following table sets forth changes in compensation-related restricted stock awards during nine monthsperiod ended September 30, 2016, and 12,838 shares are exercisable as of September 30, 2016.March 31, 2017.

The stock-based compensation recognized is $186,928were $286,670 and $186,000$440,736 during the three monthsperiods ended September 30,March 31, 2017 and 2016, and 2015, respectively, while it is $846,703 and $186,000 during the nine months ended September 30, 2016 and 2015, respectively.

16.15. SUBSEQUENT EVENT

 On April 4, 2017, Hong Kong Takung and Merit Crown entered into an extension of loan agreements to amongst other things, extended the term of the US$1.5 million and US$2 million loans through December 31, 2017 (the "Extension of Loan Agreement"). US$213,081 should be paid (being the interest at a rate of 8% per annum for the period from April 1, 2017 to December 31, 2017) in a lump sum to Merit Crown by April 10, 2017, which has been paid on April 27, 2017. The Company evaluated and concluded that no subsequent events have occurred that would require recognition or disclosure in the consolidated financial statements.principal loan amounts shall be payable on December 31, 2017.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our financial statements and related notes thereto.

CAUTIONARY NOTESTATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q or Form 10-Q and other reports filed by us from time to time with the Securities and Exchange Commission (collectively the “Filings”) contain 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 filings 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 the U.S. federal securities laws, we do not intend to update any of the forward-looking statements to conform them to actual results. The following discussion should be read in conjunction with our pro forma financial statements and the related notes that will be filed herein.

OVERVIEWOverview

We were incorporated in Delaware under the name Cardigant Medical Inc. on April 17, 2009.  Our initial business plan was to focus 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.

Pursuant to the Stock Purchase Agreement dated as of July 31, 2014, Yong Li, an individual purchased a total of 887,409 restricted shares of common stock of the Company from a group of three former shareholders of the Company. In consideration for the shares, Mr. Li paid the sellers $399,344 in cash which came from his own capital. The sellers were Jerett A. Creed, the Company’s former Chief Executive Officer, Chief Financial Officer, director and formerly a controlling shareholder of the Company, the Creed Family Limited Partnership and Ralph Sinibaldi. The shares represented approximately 95% of the Company’s then issued and outstanding common stock. The sale was consummated on August 28, 2014. As a result of the transaction, there was a change in control of the Company.

On August 27, 2014, we entered into a Contribution Agreement with Cardigant Neurovascular. Pursuant to the Contribution Agreement, we assigned all our assets, properties, rights, title and interest used or held for use by our business, (except for certain excluded assets set forth therein) which was the treatment of atherosclerosis and plaque stabilization in both the coronary and peripheral vasculature using systemic and local delivery of large molecule therapeutics and peptide mimetics based on high density lipoprotein targets (“Business”). In consideration for such contribution of capital, Cardigant Neurovascular agreed to assume all our liabilities raising from the Business prior to the date of the Contribution Agreement and thereafter with regard to certain contributed contacts. We granted Cardigant Neurovascular an exclusive option for a period of 6 months to purchase the excluded assets for $1. Cardigant Neurovascular exercised this option October 20, 2014 and the excluded assets were assigned to Cardigant Neurovascular on October 20, 2014.

Also on October 20, 2014, we acquired the business of Hong Kong Takung Assets and Equity of Artworks Exchange Co., Ltd (“Hong Kong Takung”) through the acquisition of all the share capital of Hong Kong Takung under a Share Exchange Agreement dated September 23, 2014 in exchange for 8,339,040 newly-issued restricted shares of our common stock to the shareholders of Hong Kong Takung.

Hong Kong Takung is a limited liability company incorporated on September 17, 2012 under the laws of Hong Kong, Special Administrative Region, China. Although Hong Kong Takung was incorporated in late 2012, it did not commence business operations until late 2013.

As a result of the transfer of the excluded assets pursuant to the Contribution Agreement and the acquisition of all the issued and outstanding shares of Hong Kong Takung, we are no longer conducting the Cardigant Business and have now assumed Hong Kong Takung’s business operations as it is now our only operating wholly-owned subsidiary.

Hong Kong Takung operates an electronic online platform located at www.takungae.comhttp://eng.takungae.com for artists, art dealers and art investors to offer and trade in valuable artwork.

Through Hong Kong Takung, we offer on-line listing and trading services that allow artists/art dealers/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. Our platform also makes investment in high-end and expensive artwork more accessible to ordinary people without substantial financial resources.

We generate revenue from our services in connection with the offering and trading of artwork on our system, primarily consisting of listing fees, trading commissions, management fees and authorized agent subscription.

We conduct our business primarily in Hong Kong, Special Administrative Region, People’s Republic of China. Our principal executive offices are located at Flat/RM 03-04, 20/F, Hutchison House, 10 Harcourt Road, Central Hong Kong.

On July 28, 2015, Hong Kong Takung incorporated a wholly owned subsidiary, Takung (Shanghai) Co., Ltd. (“Shanghai Takung”), in Shanghai Free-Trade Zone (SFTZ) in Shanghai, China, with a registered capital of $1 million. Shanghai Takung is engaged in providing services to its parent company Hong Kong Takung by receiving deposits from and making payments to online artwork traders for and on behalf of Hong Kong Takung.

On January 27, 2016, Hong Kong Takung incorporated another subsidiary, Takung Cultural Development (Tianjin) Co., Ltd (“Tianjin Takung”), a limited liability company, with a registered capital of $1 million in Tianjin Pilot Free Trade Zone in Tianjin, People’s Republic of China. Tianjin Takung provides technology development services to Hong Kong Takung and Shanghai Takung, and also carries out marketing and promotion activities in mainland China.

Recently Shanghai Takung set up an office in Hangzhou to carry out technology development.

Since July 28, 2016, we have expanded access to our trading platform to residents of Russia, Mongolia, Australia and New Zealand – our first major expansion of operations outside of China. To further stimulate trading interest, we have added selected portfolios from these countries to our platform, which now numbers 157199 artworks including three Russian painting portfolios and fourteenfifteen Mongolian paintings.

RESULTS OF OPERATIONSOur headquarters are located in Hong Kong, Special Administrative Region, People’s Republic of China and we conduct our business primarily in Hong, Shanghai and Tianjin. Recently, we set up a new office in Hangzhou to conduct technology development. Our principal executive offices are located at Flat/RM 03-04, 20/F, Hutchison House, 10 Harcourt Road, Central Hong Kong.

Our common stock began trading on the NYSE MKT under the symbol “TKAT” on March 22, 2017.

Results of Operation of Takung

The following discussion should be read in conjunction with the unaudited consolidated Financial Statements of the Company for the three and nine monththree-month period ended September 30,March 31, 2017 and 2016 and 2015 and related notes thereto.

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2016MARCH 31, 2017 COMPARED TO THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2015.MARCH 31, 2016

Revenue

The following tables set forth our consolidated statements of income data: