UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2019
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________________________ to_________________________
Commission File Number: 001-38036
TAKUNG ART CO., LTD
(Exact name of registrant as specified in its charter)
Delaware | 26-4731758 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Flat/RM 03-04 20/F Hutchison House 10 HarcourtRoom 1105 Wing On Plaza, 62 Mody Road, Central,Tsim Sha Tsui, Kowloon, 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | TKAT | NYSE American |
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.xYes¨No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactiveInteractive 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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer¨ | Accelerated filer¨ |
Non-accelerated filer | Smaller reporting companyx |
Emerging growth company¨ |
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).¨Yesx No
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 14, 2017May 15, 2019 is 11,188,882.11,255,129.
FORM 10-Q
TAKUNG ART CO,CO., LTD
INDEX
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars except Number of Shares)
September 30, | December 31, | March 31, | December 31, | |||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 14,887,890 | $ | 13,395,337 | $ | 7,740,711 | $ | 7,974,884 | ||||||||
Restricted cash | 19,057,733 | 21,743,360 | 10,372,455 | 4,549,202 | ||||||||||||
Account receivables, net | 3,732,569 | 3,058,568 | 254,784 | 568,757 | ||||||||||||
Prepayment and other current assets | 870,231 | 968,446 | 699,093 | 955,249 | ||||||||||||
Amount due from a related party | 6,052,420 | 5,907,789 | ||||||||||||||
Loan receivables | 6,806,623 | 6,374,046 | - | 2,391,350 | ||||||||||||
Total current assets | 45,355,046 | 45,539,757 | 25,119,463 | 22,347,231 | ||||||||||||
Non-current assets | ||||||||||||||||
Property and equipment, net | 2,104,107 | 2,065,182 | 1,275,624 | 1,445,679 | ||||||||||||
Intangible assets | 20,394 | 20,546 | 22,230 | 22,284 | ||||||||||||
Deferred tax assets | 294,676 | 243,772 | ||||||||||||||
Operating lease right-of-use assets | 356,418 | - | ||||||||||||||
Deferred tax assets, net | 607,824 | 611,738 | ||||||||||||||
Other non-current assets | 535,420 | 428,764 | 86,323 | 142,293 | ||||||||||||
Total non-current assets | 2,954,597 | 2,758,264 | 2,348,419 | 2,221,994 | ||||||||||||
Total assets | $ | 48,309,643 | $ | 48,298,021 | $ | 27,467,882 | $ | 24,569,225 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIES | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accrued expenses and other payables | $ | 780,800 | $ | 608,883 | $ | 569,754 | $ | 641,692 | ||||||||
Customer deposits | 19,057,733 | 21,743,360 | 10,372,455 | 4,549,202 | ||||||||||||
Advance from customers | - | 360,248 | 13,376 | 8,995 | ||||||||||||
Short-term borrowings from third parties | 6,371,900 | 6,308,513 | - | 2,499,500 | ||||||||||||
Amount due to related party | 1,085,480 | 1,031,805 | ||||||||||||||
Taxes payable | 1,094,885 | 549,897 | ||||||||||||||
Amount due to a related party | 6,369,589 | 6,385,288 | ||||||||||||||
Operating lease liabilities – current | 181,126 | - | ||||||||||||||
Tax payables | 14,265 | 15,101 | ||||||||||||||
Total current liabilities | 28,390,798 | 30,602,706 | 17,520,565 | 14,099,778 | ||||||||||||
Deferred tax liabilities | 45,301 | 62,618 | ||||||||||||||
Total non-current liabilities | 45,301 | 62,618 | ||||||||||||||
Non-current liabilities | ||||||||||||||||
Operating lease liabilities, non-current | 175,292 | - | ||||||||||||||
Total liabilities | 28,436,099 | 30,665,324 | 17,695,857 | 14,099,778 | ||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||||||
Common stock (1,000,000,000 shares authorized; $0.001 par value; 11,188,882 shares issued and outstanding as of September 30, 2017; 11,169,276 shares issued and outstanding as of December 31, 2016) | 11,189 | 11,169 | ||||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||
Common stock (1,000,000,000 shares authorized; $0.001 par value; 11,226,025 shares issued and outstanding as of March 31, 2019; 11,226,025 shares issued and outstanding as of December 31, 2018) | 11,226 | 11,226 | ||||||||||||||
Additional paid-in capital | 5,928,455 | 5,532,426 | 6,298,641 | 6,281,790 | ||||||||||||
Retained earnings | 14, 229,809 | 13,172,671 | 3,770,340 | 4,479,133 | ||||||||||||
Accumulated other comprehensive loss | (295,909 | ) | (1,083,569 | ) | (308,182 | ) | (302,702 | ) | ||||||||
Total stockholders’ equity | 19,873,544 | 17,632,697 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 48,309,643 | $ | 48,298,021 | ||||||||||||
Total shareholders’ equity | 9,772,025 | 10,469,447 | ||||||||||||||
Total liabilities and shareholders’ equity | $ | 27,467,882 | $ | 24,569,225 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(Stated in U.S. Dollars except Number of Shares)
(UNAUDITED)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenue | ||||||||||||||||
Listing fee revenue | $ | 1,455,498 | $ | 2,968,534 | $ | 4,606,649 | $ | 8,166,072 | ||||||||
Commission revenue | 1,496,826 | 1,669,698 | 4,970,651 | 3,739,958 | ||||||||||||
Gross management fee revenue | 402,547 | 781,219 | 967,518 | 1,341,294 | ||||||||||||
Annual fee revenue | 140 | 440 | 859 | 869 | ||||||||||||
Authorized agent subscription revenue | - | 322,318 | - | 966,059 | ||||||||||||
Total revenue | 3,355,011 | 5,742,209 | 10,545,677 | 14,214,252 | ||||||||||||
Cost of revenue | (292,168 | ) | (285,252 | ) | (822,335 | ) | (822,735 | ) | ||||||||
Gross profit | 3,062,843 | 5,456,957 | 9,723,342 | 13,391,517 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative expenses | (2,498,848 | ) | (1,744,965 | ) | (7,311,128 | ) | (5,076,689 | ) | ||||||||
Selling expenses | (624,151 | ) | (652,207 | ) | (1,272,010 | ) | (1,993,782 | ) | ||||||||
Income(loss)from operations | (60,156 | ) | 3,059,785 | 1, 140,204 | 6,321,046 | |||||||||||
Other income and expenses: | ||||||||||||||||
Other income | 186,259 | 163,738 | 440,470 | 314,268 | ||||||||||||
Loan interest expense | (152,059 | ) | (62,670 | ) | (455,762 | ) | (62,670 | ) | ||||||||
Exchange gain (loss) | 177,652 | (112,384 | ) | 526,603 | (530,934 | ) | ||||||||||
Total other income (loss) | 211,852 | (11,316 | ) | 511,311 | (279,336 | ) | ||||||||||
Income before income taxes | 151,696 | 3,048,469 | 1,651,515 | 6,041,710 | ||||||||||||
Income tax (expense) benefit | (124,662 | ) | (596,732 | ) | (594,377 | ) | (1,377,078 | ) | ||||||||
Net income | $ | 27,034 | $ | 2,451,737 | $ | 1,057,138 | $ | 4,664,632 | ||||||||
Foreign currency translation adjustment | 311,485 | 10,172 | 787,660 | 18,322 | ||||||||||||
Comprehensive income | $ | 338,519 | $ | 2,461,909 | $ | 1,844,798 | $ | 4,682,954 | ||||||||
Earnings per common share– basic | $ | 0.00 | $ | 0.23 | $ | 0.10 | $ | 0.44 | ||||||||
Earnings per common share– diluted | 0.00 | 0.22 | 0.09 | 0.41 | ||||||||||||
Weighted average number of common shares outstanding-basic | 11,188,882 | 10,632,276 | 11,039,880 | 10,632,276 | ||||||||||||
Weighted average number of common shares outstanding-diluted | 11,248,688 | 11,365,597 | 11,398,082 | 11,277,845 |
Three Months | Three Months | |||||||
Ended March 31, | Ended March 31, | |||||||
2019 | 2018 | |||||||
Revenue | ||||||||
Listing fee | $ | 289,072 | $ | 1,978,667 | ||||
Commission | 178,358 | 1,635,517 | ||||||
Authorized agent subscription revenue | - | 191,623 | ||||||
Management fee | 68,271 | 168,315 | ||||||
Annual fee | 162 | |||||||
Total revenue | 535,701 | 3,974,284 | ||||||
Cost of revenue | (267,279 | ) | (933,593 | ) | ||||
Gross profit | 268,422 | 3,040,691 | ||||||
Operating expenses | ||||||||
General and administrative expenses | (1,274,585 | ) | (3,008,885 | ) | ||||
Selling expenses | (30,812 | ) | (243,591 | ) | ||||
Total operating expenses | (1,305,397 | ) | (3,252,476 | ) | ||||
Loss from operations | (1,036,975 | ) | (211,785 | ) | ||||
Other income and expenses: | ||||||||
Other (expenses) income | (21,990 | ) | 239,403 | |||||
Loan interest expense | - | (154,783 | ) | |||||
Exchange gain | 358,734 | 992,895 | ||||||
Total other income | 336,744 | 1,077,515 | ||||||
(Loss) income before income tax expenses | (700,231 | ) | 865,730 | |||||
Income tax expenses | (8,562 | ) | (442,440 | ) | ||||
Net (loss) income | (708,793 | ) | 423,290 | |||||
Foreign currency translation adjustment | (5,480 | ) | (17,167 | ) | ||||
Comprehensive (loss) income | $ | (714,273 | ) | $ | 406,123 | |||
(Loss) earnings per common share – basic | $ | (0.06 | ) | $ | 0.04 | |||
(Loss) earnings per common share – diluted | $ | (0.06 | ) | $ | 0.04 | |||
Weighted average number of common shares outstanding –basic | 11,226,025 | 11,204,215 | ||||||
Weighted average number of common shares outstanding –diluted | 11,226,025 | 11,223,408 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN EQUTIY
(Stated in U.S. Dollars except Number of Shares)
(UNAUDITED)
Number | Common | Additional Paid-in | Retained | Accumulated other comprehensive | ||||||||||||||||||||
of shares | stock | capital | earnings | loss | Total | |||||||||||||||||||
Balance, December 31, 2018 | 11,226,025 | 11,226 | 6,281,790 | 4,479,133 | (302,702 | ) | 10,469,447 | |||||||||||||||||
Issuance of ordinary shares for restricted stock award | - | - | - | - | - | - | ||||||||||||||||||
Shared-based compensation | - | - | 16,851 | - | - | 16,851 | ||||||||||||||||||
Net loss | - | - | - | (708,793 | ) | - | (708,793 | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (5,480 | ) | (5,480 | ) | ||||||||||||||||
Balance, March 31, 2019 | 11,226,025 | 11,226 | 6,298,641 | 3,770,340 | (308,182 | ) | 9,772,025 |
Number | Common | Additional Paid-in | Retained | Accumulated other comprehensive | ||||||||||||||||||||
of shares | stock | capital | earnings | loss | Total | |||||||||||||||||||
Balance, December 31, 2017 | 11,188,882 | 11,189 | 6,116,216 | 12,111,096 | (320,290 | ) | 17,918,211 | |||||||||||||||||
Issuance of ordinary shares for restricted stock award | 20,000 | 20 | (20 | ) | - | - | - | |||||||||||||||||
Shared-based compensation | - | - | 73,749 | - | - | 73,749 | ||||||||||||||||||
Net income | - | - | - | 423,290 | - | 423,290 | ||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (17,167 | ) | (17,167 | ) | ||||||||||||||||
Balance, March 31, 2018 | 11,208,882 | 11,209 | 6,189,945 | 12,534,386 | (337,457 | ) | 18,398,083 |
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
(UNAUDITED)
For the Nine Months | For the Nine Months | |||||||
Ended | Ended | |||||||
September 30, | September 30, | |||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net cash provided by operating activities | 1,028,524 | 5,635,391 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (455,255 | ) | (976,460 | ) | ||||
Purchase of held-to-maturity investments | - | (14,995,876 | ) | |||||
Purchase of available-for-sales investment | (53,501,874 | ) | (299,918 | ) | ||||
Maturity and redemption of available-for-sales investment | 53,501,874 | - | ||||||
Maturity and redemption of held-to-maturity investments | - | 14,995,876 | ||||||
Loan to third parties | (3,518,325 | ) | - | |||||
Repayment from loan to third parties | 3,412,070 | - | ||||||
Net cash used in investing activities | (561,510 | ) | (1,276,378 | ) | ||||
Cash Flows from financing activities: | ||||||||
Proceeds from short-term borrowings | - | 3,519,580 | ||||||
Proceeds from related party loans | - | 2,340,895 | ||||||
Loan to third parties | - | (3,513,534 | ) | |||||
Net cash provided by financing activities | - | 2,346,941 | ||||||
Effect of exchange rate change on cash and cash equivalents | 1,025,539 | (644,375 | ) | |||||
Net increase in cash and cash equivalents | 1,492,553 | 6,061,579 | ||||||
Cash and cash equivalents, beginning balance | 13,395,337 | 10,769,456 | ||||||
Cash and cash equivalents, ending balance | $ | 14,887,890 | $ | 16,831,035 | ||||
Supplemental cash flows information: | ||||||||
Cash paid for interest | $ | 212,954 | $ | - | ||||
Cash paid for income tax | $ | 136,453 | $ | 562,994 |
Three Months | Three Months | |||||||
Ended | Ended | |||||||
March 31, | March 31, | |||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net cash provided by operating activities | 6,175,680 | 3,039,614 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (27,233 | ) | (231,478 | ) | ||||
Purchase of available-for-sale investments | (10,633,534 | ) | (28,173,448 | ) | ||||
Maturity and redemption of available-for-sale investments | 10,633,534 | 28,173,448 | ||||||
Repayment from loan to third party | 2,443,252 | 239,356 | ||||||
Net cash provided by investing activities | 2,416,019 | 7,878 | ||||||
Cash flows from financing activities: | ||||||||
Repayment of loan from third party | (2,499,500 | ) | - | |||||
Net cash used in financing activities | (2,499,500 | ) | - | |||||
Effect of exchange rate change on cash, cash equivalents and restricted cash | (503,119 | ) | 726,355 | |||||
Net increase in cash, cash equivalents and restricted cash | 5,589,080 | 3,773,847 | ||||||
Cash, cash equivalents and restricted cash, beginning balance | 12,524,086 | 37,140,582 | ||||||
Cash, cash equivalents and restricted cash, ending balance | $ | 18,113,166 | $ | 40,914,429 | ||||
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets | ||||||||
Cash and cash equivalents as of March 31, 2019 and 2018, respectively | 7,740,711 | 12,809,609 | ||||||
Restricted cash as of March 31, 2019 and 2018, respectively | 10,372,455 | 28,104,820 | ||||||
Total cash, cash equivalents, and restricted cash as of March 31, 2019 and 2018, respectively | 18,113,166 | 40,914,429 | ||||||
Supplemental cash flows information: | ||||||||
Cash paid for interest | $ | - | $ | 74,601 | ||||
Cash paid for income tax | $ | - | $ | 108,393 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
5
TAKUNG ART CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars except Number of Shares)
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Takung Art Co., Ltd and Subsidiariessubsidiaries (“Takung”, or the “Company”, “we”, “us” and “our”), a Delaware corporation (formerly Cardigant Medical Inc.) through Hong Kong Takung Art Company Limited (formerly Hong Kong Takung Assets and Equity of Artworks Exchange Co., Ltd.) (“Hong Kong Takung”), a Hong Kong company (“Hong Kong Takung”) 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 was incorporated in Hong Kong on September 17, 2012 and operates an electronic online platform for offering, selling and trading artwork. For the period from September 17, 2012 (inception) to December 31, 2012, there wasthe company had no operation except for the issuance of shares for subscription receivable. We generatereceivables. The Company generates revenue from ourits services in connection with the offering and trading of artwork on ourits system, primarily consisting of listing fees, trading commissions, and management fees. We conduct ourThe Company conducts its business primarily in Hong Kong, People’s Republic of China.China (the “PRC”).
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, 2015.2015 in the PRC. It is engaged in providing services to its parent company, Hong Kong Takung by receiving deposits from and making payments to online artwork traders of Takung for and on behalf of 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 the Pilot Free Trade Zone.Zone in Tianjin. Tianjin Takung was incorporated on January 27, 2016. 2016 and is a direct wholly-owned subsidiary of Hong Kong Takung.
Tianjin Takung provides technology supportdevelopment services to Hong Kong Takung and Shanghai Takung and also carries out marketing and promotion activities in mainland China.
Hong Kong Takung Art Holdings Company Limited (“Takung Art Holdings”) was formed in Hong Kong on July 20, 2018 and operates as a holding company to control an online platform for offering, selling and trading whole piece of artwork.
Art Era Internet Technology (Tianjin) Co., Ltd (“Art Era”) was formed in Tianjin on September 7, 2018, isa directly wholly owned subsidiary of Takung Art Holdings, and formed as a limited liability company with a registered capital of $2 million located in the Pilot Free Trade Zone in Tianjin. Art Era mainly focuses on developing our e-commerce platform for art.
7 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated balance sheet as of December 31, 2016,2018, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of September 30, 2017March 31, 2019 and for the three months ended March 31, 2019 and nine months ended September 30, 2017 and 20162018 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 United States (“U.S. GAAP,”) generally accepted accounting principles (“GAAP”), have been condensed or omitted pursuant to such rules and regulations, although the managementregulations. Management believes that the disclosures made are adequate to provide fora fair presentation. The interim financial information should be read in conjunction with the Financial Statementsfinancial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2018, 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.Dollars.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited interim condensed consolidated financial position as of September 30, 2017,March 31, 2019, its consolidated results of operations and cash flows for the nine-monththree-month periods ended September 30, 2017March 31, 2019 and 2016,2018, 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.
Recent Accounting Pronouncements
Recently Adopted Accounting Standards
On January 1, 2019, the Company adopted ASC 842, Leases, using the modified retrospective method which allows for the application of the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in these condensed consolidated financial statements. As permitted by the guidance, the Company elected to retain the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date and did not reassess contracts entered into prior to the adoption date for the existence of a lease. The Company also did not recognize ROU assets and lease liabilities for short-term leases, which are leases in existence as of the adoption date with an original term of twelve months or less.
As a result of the adoption of the standard, the Company recognized operating lease right-of-use assets and operating lease liabilities of $0.36 million, on its condensed consolidated balance sheet as of March 31, 2019. The assets and liabilities recognized upon application of the transition provisions were primarily associated with existing office and storage leases.
Except for the ASUs issued but not yet adopted disclosed in Note 2 to the financial statements on Form 10-K for the fiscal year ended December 31, 2018, previously filed with the SEC, there is no ASU issued by the FASB that is expected to have a material impact on the condensed consolidated financial statements upon adoption.
8 |
3. PREPAYMENT AND OTHER CURRENT ASSETS
Prepayment and other current assets mainly consistconsisted of the prepaid services for development, maintenance of online trading system, the advertising and promotional services, prepaid financial advisory and banking services, as well as other current assets.following:
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | ||||||||
Advertising and promotional services | 438,741 | 296,163 | ||||||
Prepaid professional fee | 144,706 | - | ||||||
Prepaid rental expense | 82,793 | 60,822 | ||||||
Prepaid insurance | 54,875 | 31,082 | ||||||
Prepaid maintenance of trading system | 78,784 | 17,514 | ||||||
Staff advance | 11,263 | 28,806 | ||||||
Prepaid financial advisory and banking services | 39,153 | 201,808 | ||||||
Short-term borrowings to third party | - | 259,254 | ||||||
Other current assets | 19,916 | 72,997 | ||||||
Prepayment and other current assets | $ | 870,231 | $ | 968,446 |
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
(Unaudited) | ||||||||
Prepaid taxes | $ | 401,351 | $ | 399,026 | ||||
Deposit | 10,803 | 241,827 | ||||||
Prepaid service fee | 94,224 | 140,934 | ||||||
Staff advance | 88,109 | 93,676 | ||||||
Prepaid repair and maintenance | 1,360 | 1,201 | ||||||
Short-term borrowings to third parties | 53,505 | - | ||||||
Other current assets | 49,741 | 78,585 | ||||||
Prepayment and other current assets | $ | 699,093 | $ | 955,249 |
4. ACCOUNT RECEIVABLES, NET
Account receivables consisted of the following:
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | ||||||||
Listing fee | $ | 1,562,924 | $ | 1,403,255 | ||||
Authorized agent subscription revenue | 924,100 | 995,453 | ||||||
Monthly commission fee | 1,422,750 | 605,677 | ||||||
Others | 63,323 | 54,183 | ||||||
Less: allowance for doubtful accounts | (240,528 | ) | - | |||||
Account receivables, net | $ | 3,732,569 | $ | 3,058,568 |
March 31, 2019 | December 31, 2018 | |||||||
(Unaudited) | ||||||||
Listing fee | $ | 254,784 | $ | 568,757 | ||||
Authorized agent subscription revenue | 556,465 | 557,837 | ||||||
Monthly commission fee | 1,374,760 | 1,378,148 | ||||||
Others | 53,494 | 53,626 | ||||||
Less: allowance for doubtful accounts | (1,984,719 | ) | (1,989,611 | ) | ||||
Account receivables, net | $ | 254,784 | $ | 568,757 |
Management reviewed the collectability of the receivables periodically, and identified certain inactive traders during this quarter. Management considered the receivables due from these traders are uncertain and provided bad debt provision of $240,528 for the three and nine months ended September 30, 2017.
10
9 |
5. LOAN RECEIVABLES
The following table sets forth a summary of the loan agreements in loan receivables balance:
Date | Borrower | Lender | Original Amount (RMB) | September 30, (USD) | December 31, (USD) | Annual Interest Rate | Repayment Due Date | |||||||||||||||
(Unaudited) | ||||||||||||||||||||||
7/15/2016 | Xiaohui Wang | Shanghai Takung | 10,080,000 | $ | - | $ | 1,451,822 | 0 | % | 3/31/2017 | ||||||||||||
8/24/2016 | Xiaohui Wang | Shanghai Takung | 13,350,000 | $ | - | $ | 1,922,800 | 0 | % | 3/31/2017 | ||||||||||||
11/14/2016 | Xiaohui Wang | Shanghai Takung | 10,275,000 | $ | 1,544,346 | $ | 1,479,908 | 0 | % | 10/31/2017 | ||||||||||||
12/9/2016 | Xiaohui Wang | Tianjin Takung | 10,550,000 | $ | 1,585,680 | $ | 1,519,516 | 0 | % | 11/30/2017 | ||||||||||||
1/4/2017 | Xiaohui Wang | Tianjin Takung | 24,461,505 | $ | 3,676,597 | $ | - | 0 | % | 12/31/2017 | ||||||||||||
Total | $ | 6,806,623 | $ | 6,374,046 |
All the transactions were aimed to meet the Company’s working capital needs in US Dollar, which is freely convertible to Hong Kong Dollar.
Through an understanding between Ms. Wang and Merit Crown, the US Dollar Loans are “secured” by the RMB Loans. It is the understanding between the parties that when the US Dollar Loans are repaid, the RMB Loans will be repaid at the same time.
6. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | ||||||||
Furniture, fixtures and equipment | $ | 157,736 | $ | 100,386 | ||||
Leasehold improvements | 402,597 | 298,965 | ||||||
Computer trading and clearing system | 3,220,318 | 2,802,430 | ||||||
Sub-total | 3,780,651 | 3,201,781 | ||||||
Less: accumulated depreciation | (1,676,544 | ) | (1,136,599 | ) | ||||
Property and equipment, net | $ | 2,104,107 | $ | 2,065,182 |
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
(Unaudited) | ||||||||
Furniture, fixtures and equipment | $ | 157,294 | $ | 156,656 | ||||
Leasehold improvements | 345,398 | 447,048 | ||||||
Computer trading and clearing system | 3405,085 | 3,382,168 | ||||||
Transport equipment | 107,189 | 104,628 | ||||||
Sub-total | 4,014,966 | 4,090,500 | ||||||
Less: accumulated depreciation | (2,739,342 | ) | (2,644,821 | ) | ||||
Property and equipment, net | $ | 1,275,624 | $ | 1,445,679 |
Depreciation expense amounted to $190,626was $156,779 and $133,608$228,704 for the three months ended September 30, 2017March 31, 2019 and 2016, respectively, and $538,532 and $373,308 for the nine months ended September 30, 2017 and 2016,2018, respectively.
7.6. ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables as of September 30, 2017March 31, 2019 and December 31, 20162018 consisted of:of the following:
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
Trading and clearing system | $ | 54,688 | $ | 61,735 | ||||
Accruals for professional fees | 19,972 | 49,952 | ||||||
Accruals for consulting fees | 297,461 | 290,773 | ||||||
Payroll payables | 295,722 | 141,022 | ||||||
Accruals for business trip expense | 23,722 | - | ||||||
Other payables | 89,235 | 65,401 | ||||||
Total accrued expenses and other payables | $ | 780,800 | $ | 608,883 |
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
(Unaudited) | ||||||||
Accruals for consulting fees | $ | 264,142 | $ | 264,793 | ||||
Payroll payables | 99,838 | 104,437 | ||||||
Trading and clearing system | 52,507 | 86,208 | ||||||
Accruals for professional fees | 113,593 | 49,518 | ||||||
Other payables | 39,674 | 136,736 | ||||||
Total accrued expenses and other payables | $ | 569,754 | $ | 641,692 |
8. SHORT-TERM BORROWINGS FROM THIRD PARTIES
The following table sets forth a summary of the loan agreements in loan receivables balance:
Date | Borrower | Lender | Original Amount (HKD) | September 30, 2017 (USD) | December 31, 2016 (USD) | Annual Interest Rate | Repayment Due Date | |||||||||||||||
(Unaudited) | ||||||||||||||||||||||
7/15/2016 | Hong Kong Takung | Merit Crown Limited | 11,700,000 | $ | 1,497,888 | $ | 1,509,015 | 8 | % | 12/31/2017 | ||||||||||||
8/24/2016 | Hong Kong Takung | Merit Crown Limited | 15,596,100 | $ | 1,996,684 | $ | 2,011,518 | 8 | % | 12/31/2017 | ||||||||||||
11/18/2016 | Hong Kong Takung | Merit Crown Limited | 11,479,102 | $ | 1,469,607 | $ | 1,480,525 | 8 | % | 10/31/2017 | ||||||||||||
12/9/2016 | Hong Kong Takung | Merit Crown Limited | 11,787,600 | $ | 1,509,103 | $ | 1,520,314 | 8 | % | 11/30/2017 | ||||||||||||
Less: Discount loan payable | $ | 101,382 | $ | 212,859 | ||||||||||||||||||
Total | $ | 6,371,900 | $ | 6,308,513 |
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 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.
The weighted average interest rate of outstanding short-term borrowings was 8% per annum as of September 30, 2017 and December 31, 2016. The fair values of the short-term borrowings approximate their carrying amounts. The weighted average short-term borrowing was $6,419,099 and $1,678,803 for the nine months period ended September 30, 2017 and year ended December 31, 2016, respectively. The interest expenses for the short-term borrowings were $133,174 and $62,670 for the three months ended September 30, 2017 and 2016, respectively and $394,295 and $62,670 for the nine months ended September 30, 2017 and 2016, respectively.
On October 30, 2017, Hong Kong Takung entered into agreements with both Merit Crown Limited and Ms. Wang to extend the US Dollar Loan and RMB Loan (see Note 5) with the original maturity date on October 31, 2017, to October 31, 2018.
9.7. RELATED PARTY BALANCES AND TRANSACTIONS
The following is a list of director and related parties to which the Company has transactions with:
(a) Jianping MaoWang Song (“Mao”Wang”), the wife of the Vice General Manager of Tianjin Takung and Shanghai Takung, and Director of Hong Kong Takung, Tianjin Takung and Shanghai Takung.
(b) Liu Zhenying (“Liu”), the former Vice President of Hong Kong Takung. Liu resigned from the Company on September 30, 2018.
Amount due from a related party consisted of the following as of the years indicated:
March 31, 2019 | December 31, 2018 | |||||||
(Unaudited) | ||||||||
Wang (a) | $ | 6,052,420 | $ | 5,907,789 | ||||
Total | 6,052,420 | 5,907,789 |
10 |
Amount due to related party
Amount due to related party consisted of the following as of the periodsyears indicated:
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | ||||||||
Mao (a) | $ | 1,085,480 | $ | 1,031,805 | ||||
Total | 1,085,480 | 1,031,805 |
March 31, 2019 | December 31, 2018 | |||||||
(Unaudited) | ||||||||
Wang (a) | $ | 6,369,589 | $ | 6,385,288 | ||||
Total | 6,369,589 | 6,385,288 |
The interest rate of the outstanding short-term loan from Mao was 8% per annum as of September 30, 2017 and December 31, 2016. The interest expense was $61,283 and $19,941 for the nine months ended September 30, 2017 and 2016, respectively, and $20,652 and $19,941 for the three months ended September 30, 2017 and 2016, respectively.
On October 26, 2017,May 16, 2018, Hong Kong Takung entered into a supplementaryan interest-free loan agreement (the "HK Dollar Loan") with MaoLiu that aswas transferred to Wang on October 18, 2018 for the loan of 30 September 2017, the outstanding principal amount$6,369,589(HK$50,000,000) to Hong Kong Takung. The purpose of the Loan (as defined in the Loan Agreement)loan is to be repaid byprovide Hong Kong Takung with sufficient Hong Kong Dollar-denominated currency to Mao is HK$8,000,000 (Hong Kong Dollars Eight Million) (“Outstanding Principal Loan Amount”), and the accrued interest of the Outstanding Principal Loan Amount is HK$478,685 (“Accrued Interest”). Mao hereby agreed to extendmeet its working capital requirements with the maturity date of the Outstanding Principal Loan Amount and the interest thereof byloan is May 15, 2019. On May 15, 2019, Hong Kong Takung as below: (i) HK$4,500,000entered into an extension agreement with Wang to extend the HK Dollar Loan with a due date on May 15, 2020.
In the meantime, Tianjin Takung entered into an interest-free loan agreement (the "RMB Loan") with Liu that was transferred to Wang on October 18, 2018 for the loan of $6,052,420 (RMB40,619,000) to Wang with the maturity date of the loan is May 15, 2019. On May 15, 2019, Tianjin Takung entered into an extension agreement with Wang to extend the RMB Loan with a due date on May 15, 2020.
Through an understanding between Wang and the interest thereof, together withCompany, the Accrued InterestHK Dollar Loan is "secured" by the RMB Loan. It is the understanding between the parties that the HK Dollar Loan and the RMB Loan will be repaid simultaneously.
8. INCOME TAXES
Takung was incorporated in the State of Delaware and is subject to be dueUnited States income tax. Hong Kong Takung was incorporated in Hong Kong S.A.R. People’s Republic of China and payable by November 30, 2017;is subject to Hong Kong profits tax. Shanghai Takung and (ii) HK$3,500,000 together withTianjin Takung are PRC corporations and are subject to enterprise taxes in the interest thereof to be due and payable by December 31, 2017.
10. INCOME TAXESPRC.
United States of America
Tax Cuts and Jobs Act Enacted in 2017
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate income taxes on dividends from foreign subsidiaries; and (4) providing modification to subpart F provisions and new taxes on certain foreign earnings such as Global Intangible Low-Taxed Income (GILTI). Except for the one-time transition tax, most of these provisions went into effect starting January 1, 2018.
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB118”) was issued to provide guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. As of December 22, 2018, the Company has completed the assessment of the income tax effect of the Tax Act and there were no adjustments recorded to the provisional amounts.
The Global Intangible Low-taxed Income (GILTI) is a new provision introduced by the Tax Cuts and Jobs Act. U.S. shareholders, who are domestic corporations, of controlled foreign corporations (CFCs) are eligible for up to an 80% deemed paid foreign tax credit (FTC) and a 50% deduction of the current year inclusion with the full amount of the Section 78 gross-up subject to limitation. This new provision is effective for tax years of foreign corporations beginning after December 31, 2017. The Company has evaluated whether it has additional provision amount resulted by the GILTI inclusion on current earnings and profits of its foreign controlled corporations. The Company has made an accounting policy choice of treating taxes due on future U.S. inclusions in taxable amount related to GILTI as a current period expense when incurred. For the three months ended March 31, 2019 and 2018, the Company does not have any aggregated positive tested income; and as such, does not have additional provision amount recorded for GILTI tax.
As of September 30, 2017March 31, 2019 and December 31, 2016,2018, the Company in the United States had $4,008,459$248,945 and $2,212,890$1,332,488 in net operating loss carried forwardcarry forwards available to offset future taxable income, respectively. FederalFor net operating losses can generallyarising after December 31, 2017, the Tax Act limits the Company’s ability to utilize NOL carryforwards to 80% of taxable income and carryforward the NOL indefinitely. Carrybacks are now prohibited. NOLs generated prior to January 1, 2018 will not be carried forward twenty years. The federal corporate net operating loss carryover is expired in 20 taxable years followingsubject to the taxable year of the loss.income limitation and will begin to expire in 2033 if not utilized.
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Hong Kong
The Company believes thattwo-tier profits tax rates system was introduced under the Inland Revenue (Amendment)(No.3) Ordinance 2018 (“the Ordinance”) of Hong Kong became effective for the assessment year 2018/2019. Under the two-tier profit tax rates regime, the profits tax rate for the first HKD 2 million (approximately $255,180) of assessable profits of a corporation will be subject to the lowered tax rate, 8.25% while the remaining assessable profits will be subject to the legacy tax rate, 16.5%. The Ordinance only allows one entity within a group of “connected entities” is eligible for the two-tier tax rate benefit. An entity is a connected entity of another entity if (1) one of them has control over the other; (2) both of them are under the control (more than 50% of the issued share capital) of the same entity; (3) in the case of the first entity being a natural person carrying on a sole proprietorship business-the other entity is the same person carrying on another sole proprietorship business. Since Hong Kong Takung and Takung Art Holdings are wholly owned and under the control of Takung U.S, both entities are connected entities. Under the Ordinance, it is more likely than notan entity’s election to nominate the entity that these net accumulated operating losses will not be utilized insubject to the future. Therefore, the Company has provided a full valuation allowance for the deferredtwo-tier profits tax assets arising from the losses at the U.S. during the nine months ended September 30, 2017 and year ended December 31, 2016 amounting to $1,414,445 and $962,012, respectively. Accordingly, the Company has no net deferred tax assets under the US entity.
rates on its Profits Tax Return. The election is irrevocable. We elected Hong Kong Takung to be subject to the two-tier profits tax rates.
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 ninethree months ended September 30, 2017March 31, 2019 and 2016,the year ended December 31, 2018, 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 were subject to income tax at a rate of 25%.
The income tax provision consists of the following components:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Current | $ | 159,281 | $ | 684,801 | $ | 662,598 | $ | 1,561,728 | ||||||||
Deferred | (34,619 | ) | (88,069 | ) | (68,221 | ) | (184,650 | ) | ||||||||
Total provision for income taxes | $ | 124,662 | $ | 596,732 | $ | 594,377 | $ | 1,377,078 |
For the Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
Current: | ||||||||
Federal | $ | - | $ | - | ||||
State | - | - | ||||||
Foreign | - | 356,281 | ||||||
Total Current | $ | - | $ | 356,281 | ||||
Deferred: | ||||||||
Federal | $ | - | $ | 37,398 | ||||
State | - | - | ||||||
Foreign | 8,562 | 48,761 | ||||||
Total Deferred | $ | 8,562 | $ | 86,159 | ||||
Total income tax (benefit) expense | $ | 8,562 | $ | 442,440 |
A reconciliation between the Company’s actual provision for income taxes and the provision at the Hong Kong statutory rate is as follow:follows:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Income before income tax expense | $ | 151,697 | $ | 3,048,469 | $ | 1,651,515 | $ | 6,041,710 | ||||||||
Computed tax expense with statutory tax rate | 25,030 | 502,998 | 271,806 | 994,688 | ||||||||||||
Impact of different tax rates in other jurisdictions | (73,258 | ) | (24,505 | ) | (230,651 | ) | (254,199 | ) | ||||||||
Non-deductible items: | ||||||||||||||||
Tax effect of non-deductible expenses | 25,896 | 11,117 | 100,789 | 32,742 | ||||||||||||
Changes in valuation allowance | 146,994 | 107,122 | 452,433 | 603,847 | ||||||||||||
Actual income tax expense | $ | 124,662 | $ | 596,732 | $ | 594,377 | $ | 1,377,078 |
For the Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
(Loss) income before income tax expense | $ | (700,231 | ) | $ | 865,730 | |||
Computed tax expense with statutory tax rate | (115,494 | ) | 142,845 | |||||
Impact of different tax rates in other jurisdictions | 39,483 | 20,700 | ||||||
Non-deductible items: | ||||||||
Tax effect of non-deductible expenses | 6,825 | 141,310 | ||||||
Changes in valuation allowance | 77,748 | 137,585 | ||||||
Total income tax expense | $ | 8,562 | $ | 442,440 |
The Company's effective tax rate was 82.2%(1.2)% and 19.6%51.5% for the three months ended September 30, 2017March 31, 2019 and 2016, respectively, and 36.0% and 22.8% for the nine months ended September 30, 2017 and 2016,2018, respectively.
11. COMMITMENTS AND CONTINGENCIES
12 |
Operation Commitments9. LEASES
The total future minimumCompany has operating leases for its office facilities and artwork storages. The Company's leases have remaining terms of less than one year to approximately six years.Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease payments underexpense for these leases on a straight-line basis over the non-cancellablelease term. The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes.
The following table provides a summary of leases by balance sheet location as of March 31, 2019:
Assets/liabilities | Classification | As of March 31, 2019 | ||||
Assets | ||||||
Operating lease right-of-use assets | Operating lease assets | $ | 356,418 | |||
Liabilities | ||||||
Current | ||||||
Operating lease liability - current | Current operating lease liabilities | $ | 181,126 | |||
Long-term | ||||||
Operating lease liability - non-current | Long-term operating lease liabilities | 175,292 | ||||
Total lease liabilities | $ | 356,418 |
The operating lease with respect to the office and the dormitory as of September 30, 2017 are payable as follows:
Three months ending December 31, 2017 | $ | 244,960 | ||
Year ending December 31, 2018 | 761,175 | |||
Year ending December 31, 2019 | 223,026 | |||
Year ending December 31, 2020 | 39,999 | |||
Year ending December 31, 2021 | 15,030 | |||
Year ending December 31, 2022 and thereafter | 53,232 | |||
Total | $ | 1,337,422 |
Rental expense of the Company was $293,338 and $199,514expenses for the three months ended September 30, 2017 and 2016, respectively, and $721,492 and $428,440 for the nine months ended September 30, 2017 and 2016, respectively.March 31, 2019 were as follows:
Three months ended | ||||||
Lease Cost | Classification | March 31, 2019 | ||||
Operating lease cost | Cost of revenue, general and administrative expenses | $ | 50,778 | |||
Total lease cost | $ | 50,778 |
Maturities of operating lease liabilities at March 31, 2019 were as follows:
Maturity of Lease Liabilities | Operating Leases | |||
2019 (remaining) | $ | 152,321 | ||
2020 | 177,200 | |||
2021 | 14,900 | |||
2022 | 14,900 | |||
2023 | 14,900 | |||
Thereafter | 22,352 | |||
Total lease payments | $ | 396,573 | ||
Less: interest | (40,155 | ) | ||
Present value of lease payments | $ | 356,418 |
15
13 |
12.
Future minimum lease payments as of December 31, 2018 were as follows:
Lease (1) | ||||
Year ending December 31, 2019 | $ | 396,243 | ||
Year ending December 31, 2020 | 230,683 | |||
Year ending December 31, 2021 | 14,737 | |||
Year ending December 31, 2022 | 14,737 | |||
Year ending December 31, 2023 and thereafter | 37,457 | |||
Total | $ | 693,857 |
(1) Amounts are based on ASC 840, Leases that was superseded upon our adoption of ASC 842, Lease on January 1, 2019.
Lease Term and Discount Rate | March 31, 2019 | |||
Weighted-average remaining lease term (years) | ||||
Operating leases | 2.60 | |||
Weighted-average discount rate (%) | ||||
Operating leases | 8 | % |
Three months | ||||
ended March 31, | ||||
Other Information | 2019 | |||
Cash paid for amounts included in the measurement of lease liabilities | ||||
Operating cash flows from operating leases | $ | 41,063 | ||
Leased assets obtained in exchange for new operating lease liabilities | 275,189 |
.
10. 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.
For the Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
Numerator: | ||||||||
Net (loss) income | $ | (708,793 | ) | $ | 423,290 | |||
Denominator: | ||||||||
Weighted-average shares outstanding - Basic | 11,226,025 | 11,204,215 | ||||||
Stock options and restricted shares | - | 19,193 | ||||||
Weighted-average shares outstanding - Diluted | 11,226,025 | 11,223,408 | ||||||
(Loss) earnings per share | ||||||||
-Basic | (0.06 | ) | 0.04 | |||||
-Diluted | (0.06 | ) | 0.04 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 27,034 | 2,451,737 | $ | 1,057,138 | 4,664,632 | ||||||||||
Denominator: | ||||||||||||||||
Weighted-average shares outstanding | ||||||||||||||||
Weighted-average shares outstanding - Basic | 11,188,882 | 10,632,276 | 11,039,880 | 10,632,276 | ||||||||||||
Stock options and restricted shares | 59,806 | 733,321 | 358,202 | 645,569 | ||||||||||||
Weighted-average shares outstanding - Diluted | 11,248,688 | 11,365,597 | 11,398,082 | 11,277,845 | ||||||||||||
Earnings per share | ||||||||||||||||
-Basic | 0.00 | 0.23 | 0.10 | 0.44 | ||||||||||||
-Diluted | 0.00 | 0.22 | 0.09 | 0.41 |
14 |
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.
ForDue to the loss from continued operations for the three months ended September 30, 2017,March 31, 2019, approximately 149,323 and 15,000 options and restricted shares, respectively, were excluded from the calculation of diluted earningsnet loss per share calculation did not include options to purchase up to 109,160 sharesshare.
11. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date of issuance of the Company's common stock, because they were out of money. It has no such impact for three months ended September 30, 2016, nine months ended September 30, 2017 and 2016 respectively.
There were dilutive effects of 487,000 shares for the nine months period ended September 30, 2017 and 2016. The 487,000 restricted shares of Common Stock (the “Compensation Shares”) related to the Consulting Agreement with Regeneration Capital Group, LLC (“Regeneration”) were placed in an escrow account and were subject to Regeneration’s performance condition. The shares were released from escrow account and transferred to Regeneration since the Company successfully listed on NYSE on March 22, 2017.
13. SUBSEQUENT EVENT
Otherconsolidated financial statements, other than the newly signed extension agreements asdebt settlement disclosed in Note 8, and the supplementary agreement with related party as disclosed in Note 9 above, the Company does not identify any7, there were no other subsequent events with material financial impact onoccurred that would require recognition or disclosure in the unauditedinterim condensed consolidated financial statements.
15 |
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 STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and other reports filed by us from time to time with the Securities and Exchange Commission (collectively the “Filings”) containcontains 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 filingsreport 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.results unless required by applicable securities regulations or rules. The following discussion should be read in conjunction with our pro forma financial statements and the related notes that will be filed herein.
Overview
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.
Hong Kong Takung is a limited liability company incorporated on September 17, 2012 under the laws of Hong Kong, Special Administrative Region, China. Although Takung was incorporated in 2012, it did not commence business operations until late 2013.
16 |
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 now our only operating wholly-owned subsidiary.
Hong Kong Takung operates an electronic online platform located at http://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.
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 engagedassists in providing services to its parent company Hong Kong TakungTakung’s operations by receiving deposits from and making payments to online artwork traders for andin mainland China on behalf of Hong Kong Takung.
On January 27, 2016, Hong Kong Takung incorporated anothera wholly owned subsidiary, Takung Cultural Development (Tianjin) Co., Ltd (“Tianjin Takung”), a limited liability company, in the Tianjin Free Trade Zone (TJFTZ) in Tianjin, China with a registered capital of $1 million in Tianjin Pilot Free Trade Zone in Tianjin, People’s Republic of China.million. Tianjin Takung provides technology development services to Hong Kong Takung and Shanghai Takung, and also carries out marketing and promotion activities in mainland China. Management has recently determined to merge the operations of Shanghai Takung with Tianjin Takung’s and eventually dissolve Shanghai Takung in order to save costs.
Recently ShanghaiHong Kong Takung set upArt Holdings Company Limited (“Takung Art Holdings”) was incorporated in Hong Kong on July 20, 2018 and operates as a holding company to operate an office in Hangzhou to carry out technology development.e-commerce platform for offering, selling and trading whole pieces of artwork instead of units of artwork.
Since July 28, 2016, we have expanded access toArt Era Internet Technology (Tianjin) Co., Ltd (“Art Era”) was incorporated in Tianjin, China on September 7, 2018, and is a directly wholly-owned subsidiary of Takung Art Holdings. It is a limited liability company with a registered capital of $2 million located in the Pilot Free Trade Zone in Tianjin. Art Era will focus on developing 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 199 artworks including three Russian painting portfolios and fifteen Mongolian paintings. e-commerce platform.
Our headquarters are located in Hong Kong, Special Administrative Region, People’s Republic of China and we conduct our business primarily in Hong Kong, 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 HarcourtRoom 1105 Wing On Plaza, 62 Mody Road, CentralTsim Sha Tsui, Kowloon, Hong Kong.
Our common stock began trading on the NYSE American under the symbol “TKAT” on March 22, 2017.
Results of Operation of Takung
The following discussion should be readHong Kong Takung operates a platform for offering and trading artwork. We generate revenue from our services in conjunctionconnection with the unaudited condensed consolidated Financial Statementsoffering and trading of the Company for the three-monthartwork ownership units on our system, primarily consisting of listing fees, trading commissions, and nine-month period ended September 30, 2017 and 2016 and related notes thereto.management fees.
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THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2017MARCH 31, 2019 COMPARED TO THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2016
RevenueMARCH 31, 2018
The following tables set forth our condensed consolidated statements of income data:data with a percentage:
Three Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||||||||
2017 | 2016 | 2019 | % of Revenue | 2018 | % of Revenue | |||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||
Revenue | $ | 3,355,011 | $ | 5,742,209 | $ | 535,701 | 100 | $ | 3,974,284 | 100 | ||||||||||||||
Cost of revenue | (292,168 | ) | (285,252 | ) | (267,279 | ) | (50 | ) | (933,593 | ) | (23 | ) | ||||||||||||
Selling expense | (624,151 | ) | (652,207 | ) | (30,812 | ) | (6 | ) | (243,591 | ) | (6 | ) | ||||||||||||
General and administrative expenses | (2,498,848 | ) | (1,744,965 | ) | (1,274,585 | ) | (238 | ) | (3,008,885 | ) | (76 | ) | ||||||||||||
Total costs and expenses | (3,415,167 | ) | (2,682,424 | ) | (1,572,676 | ) | (294 | ) | (4,186,069 | ) | (105 | ) | ||||||||||||
Income from operations | (60,156 | ) | 3,059,785 | |||||||||||||||||||||
Interest and other income (loss), net | 211,852 | (11,316 | ) | |||||||||||||||||||||
Income before income taxes | 151,696 | 3,048,469 | ||||||||||||||||||||||
Income tax benefit (expense) | (124,662 | ) | (596,732 | ) | ||||||||||||||||||||
Net income | $ | 27,034 | $ | 2,451,737 | ||||||||||||||||||||
Loss from operations | (1,036,975 | ) | (194 | ) | (211,785 | ) | (5 | ) | ||||||||||||||||
Interest and other income, net | 336,744 | 63 | 1,077,515 | 27 | ||||||||||||||||||||
(Loss) income before income tax expenses | (700,231 | ) | (131 | ) | 865,730 | 22 | ||||||||||||||||||
Income tax expenses | (8,562 | ) | (2 | ) | (442,440 | ) | (11 | ) | ||||||||||||||||
Net (loss) income | $ | (708,793 | ) | (133 | ) | $ | 423,290 | 11 |
Revenue
Beginning January 1, 2018, we adopted the modified retrospective approach under Topic 606 to all uncompleted contracts as of that date. Results for reporting periods beginning after January 1, 2018 are accounted for and presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with Topic 605. The Company assessed the adoption of this standard to have a material impact on its consolidated financial statements, primarily related to the accounting for rebating commission earned from the transaction to the relevant referrer, including both traders and service agents. The Company recorded the rebate as a reduction of revenue under ASC 605, while under the new standard, the Company records the rebate as a cost of revenue. As this is a classification between revenue and cost of revenue, it would have no impact on the opening balances for the year beginning January 1, 2018. The discussion of our adoption of ASC606 contained in Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies”, on Form 10-K for the fiscal year ended December 31, 2018, previously filed with the SEC, is incorporated herein by reference.
The following tables settable sets forth our condensed consolidated statements of income data (as a percentage of revenue):revenue by revenue source:
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenue | 100 | % | 100 | % | ||||
Cost of revenue – Direct revenue | (9 | ) | (5 | ) | ||||
Selling expense | (18 | ) | (11 | ) | ||||
General and administrative expenses | (74 | ) | (30 | ) | ||||
Total costs and expenses | (101 | ) | (46 | ) | ||||
Income from operations | (1 | ) | 54 | |||||
Interest and other income (loss), net | 6 | - | ||||||
Income before income taxes | 5 | 54 | ||||||
Income tax expense | (4 | ) | (10 | ) | ||||
Net income | 1 | % | 44 | % |
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
Listing fee revenue | $ | 289,072 | $ | 1,978,667 | ||||
Commission | 178,358 | 1,635,517 | ||||||
Management fee revenue | 68,271 | 168,315 | ||||||
Authorized agent subscription revenue | - | 191,623 | ||||||
Annual fee revenue | - | 162 | ||||||
Total | $ | 535,701 | $ | 3,974,284 |
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Listing fee revenue was $1,455,498 and $2,968,534; commission revenue was $1,496,826 and $1,669,698, gross management fee revenue was $402,547 and $781,219, annual fee revenue was $140 and $440 , authorized agent subscription revenue was $nil and $322,318 for the three months ended September 30, 2017 and 2016, respectively.
(i) | Listing fee revenue |
Listing fee revenue is calculated based onAs of March 31, 2019, a percentagetotal of the listing value and transaction value285 sets of artworks.
Listing value is the total offering price of an artwork when the ownership units are initiallywere listed for trade 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.
Takung Unit+ is a new unit trading platform for collectibles. It allows investors to buy and trade shared ownership units of portfolios of collectibles, however, unlike the Company's standard Unit trading platform, each Takung Unit+ portfolio will contain multiple numbers of the same item, and traders will have the option of direct ownership with physical delivery by trading the units they own for one or more of the items in the portfolio. Takung will collect listing fees on the initial listing values of new portfolios, commissions on trades made by investors using the platform, and management fees for the storage, transportation, and insurance of the items in the portfolio.
During the three months ended September 30, 2017, there were 6—comprising 60 sets of paintings and calligraphies 9from famous Chinese, Russian and Mongolian artists, with a total listing value of $25,758,348 (HK$202,100,000); 35 pieces of jewelry with a total listing value of $9,260,770 (HK$72,660,000); 134 pieces of precious stones 1with a total listing value of $16,828,957 (HK$132,040,000); 29 pieces of jewelry and 1 set of Unit+ product listed on our platform. Theiramber with a total listing values were $2,118,726value of $12,108,081 (HK$16,500,000) for the95,000,000); 4 pieces of antique mammoth ivory carvings with a total listing value of $662,758 (HK$5,200,000); 2 pieces of porcelain pastel paintings with a total listing value of $331,379 (HK$2,600,000); 7 pieces of porcelains with a total listing value of $1,083,355 (HK$8,500,000); 6 sets of paintingsUnit+ products with a total listing value of $1,314,555 (HK$10,314,000); 1 piece of Yixing collectable with a listing value of $127,453 (HK$1,000,000); and calligraphies, $1,132,5557 pieces of Sports memorabilia with a listing value of $1,084,553 (HK$ 8,820,000) for8,509,400), of which 22.5%-48% (for 60 sets of paintings), 24%-48.5% (for the 9134 pieces of precious stones, $46,227 (HK$360,000) forstones), 29%-48% (for the 135 pieces of jewelry and $152,578 (HK$1,188,000) forjewelry), 47%-48.5% (for 4 piece of antique mammoth ivory carvings), 32%-48% (for the 1 set29 pieces of Unit+ product,amber), 45%-46% (for the 2 pieces of which 41.5%-47%porcelain pastel paintings), 25%-48% (for the 7 pieces of porcelains), 30.25%-45% (for the 6 sets of paintingsUnit+ products), 45% (1 piece of Yixing collectable) and calligraphies), 26%-46%45% (for the 97 pieces of precious stones), 43% (for the 1 pieces of jewelry) and 30.3% (for the 1 set of Unit+ product)Sports memorabilia) of the listed values were charged as listing fees, respectively.
Compared toDuring the corresponding periodthree months ended September 30, 2016,March 31, 2019, there were 76 sets of paintings and calligraphies, 7 pieces of amber, 14 pieces of precious stones, 5 pieces of jewelry successfully listed on our system. Theplatform. Their total listing values were $1,802,475$1,147,081 (HK$14,000,000)9,000,000) for the 7 sets of paintings, and calligraphies, $2,974,083 (HK$23,100,000) for the 7 pieces of amber, $1,042,860 (HK$8,100,000) for the 14 pieces of precious stones, $746,739 (HK$5,800,000) for 5 pieces of jewelry, of which 47.75%-48%22.9%-28% (for the 7 sets of paintings and calligraphies) ,46% (for the 7 pieces of amber), 32%-48.5% (for the 14 pieces of precious stones), 29%-48% (for the 5 pieces of jewelry)paintings) of the listed values were charged as listing fees, respectively.fees.
The decrease in number of pieces listed, listing values and corresponding listing fees charged decreased to $289,072 during the three months ended September 30, 2017March 31, 2019 compared to $1,978,667 for the same period ended September 30, 2016 resulted inMarch 31, 2018. During the second quarter of 2018, we announced the temporary suspension of all new listings of artwork on our platform because of a decrease in listing fee revenuetrading volume and customer deposits, leading indicators of available cash from our traders for investment in new offerings. We attribute this depressed market sentiment to the recent under-performance of financial stock markets in China as well as the fall-out from the P2P (peer-to-peer) lending market. We have since resumed new listings in January 2019 with six new listings in the current period. The decrease in numberfirst quarter of pieces listed was due to a new listing category (“A-tier”) implemented on July 3, 2017. A-tier is aim to meet an elevated set of standards including higher levels of liquidity, market value, number of owners and number of VIP traders. Therefore, the listing schedule of some artworks were deferred to a later time.2019.
(ii) | Commission fee revenue |
We generate commission fee from non-VIP traders and selected traders as follows:
For non-VIP Traders,traders, the commission revenue was calculated based on a percentage of transaction value of artworks, whichwhere 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. On November 7, 2018 we lowered the minimum charge to $0.0013 (HK$1).
For selected VIP Traders, we ran a discount program for them starting from April 1, 2015, when their trading volumes of the certain artworks reached 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 Traders over the flat rate would be waived. The discounted rate varied between selected artworks. This discount program ended on March 31, 2016.
For selected Traders,traders, starting from April 1, 2016, we charged a predetermined monthly fee (unlimited trades for specific artworks) for specific artworks. These Traderstraders are selected by authorized agents and reviewed by us. After review, we negotiate individually with each one of them to determine a fixed monthly fee. Different Traderstraders may have different rates but once negotiated and agreed to, the monthly fee is fixed. Using the output method, we recognize the monthly commission revenue when the selected traders receive access to our trading platform to make unlimited trades for specific artwork.
We define traders as “inactive” if they meet the following criteria;
· | The trader defaults in payment over three months; |
· | The trader did not incur any transactions in the month of reassessment; |
· | The service agent has confirmed with the relevant trader that he/she was inactive. |
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Once an inactive trader has been assessed and identified, his/her contract will be reassessed pursuant to ASC 606-10-25-5 because there has been a significant change in fact and circumstances and pursuant to ASC 606-10-25-1)e), his/her contract will not be deemed to exist and revenue will not be recognized until consideration is received in accordance with ASC 606-10-25-7(a) as we would have already performed our obligations ahead of receiving consideration.
Commission rebate programs are offered to Traderstraders and service agents. We would rebatepay to existing traders 5% of the commission earned from the transactions of new Traderstraders referred by the existing Traders.them. 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%75% of the commission earned from transactions with new Traderstraders to the service agents when they bring in an agreed number of Traderstraders to the trading platform. For service agents who have individual referrers referring Traderstraders to us, we will, after rebating such individual referrers 15%5% of the commission earned from the transactions of new Traderstraders they referred, deduct such 15%5% of the commission from the rebates payable to the service agents to which such individual referrers belong.relate. The commission rebate is recognized as reduction of the commission revenue. revenue prior to January 1, 2018 under Topic 605. Starting January 1, 2018, we account for the commission rebate as cost of revenue under Topic 606.
The rebates and discounts are recognized as a reduction of revenue in the same period the related revenue is recognized.
In spite
Our trading volume and transaction value amounts increased significantly from 2016 when we commenced operations in Shanghai and consequently added a significant number of this, totaltraders from mainland China as they could now settle their trades in Renminbi. This trend continued into 2017. However, there was a decrease in our trading volume and transaction value amounts during the second half of 2018 because of the deteriorating economy in China due to the under-performance of its financial stock markets as well as the fall-out from the P2P (peer-to-peer) lending market.
Total commission revenue decreased by $172,872$1,457,159 or 10%89% for the three months ended September 30, 2017March 31, 2019 to $1,496,826$178,358 compared to $1,669,698$1,635,517 for the three months ended September 30, 2016March 31, 2018 primarily because of the change insuspension of new listings of artwork and decreased trading activity on our commission fee policy and the decrease of transaction volume of non VIP traders and non-selected traders. From April 1, 2016 onwards, selected Traders pay a predetermined monthly fixed fee for their trades in specific artworks while our other non-VIP Traders continue to pay a commission calculated based on a percentage of transaction value of artworks.platform.
(iii) | Management fee revenue |
We charge Traderstraders a management fee to cover the costs of 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 units per day. On November 7, 2018 we lowered the minimum charge to $0.0013 (HK$1). The management fee is deducted from proceeds from the sale of artwork units.
During the three-month period ended September 30, 2017,March 31, 2019, management fee revenue decreased by $378,672,$100,044, from $781,219$168,315 for the three months ended September 30, 2016March 31, 2018 to $402,547. From September 1, 2016, we waived management fees for certain VIP Traders. We recognized these promotions as a reduction of revenue, which was recognized upon$68,271, due to the completion ofdecrease in trading transactions in the transactions. Although the listed artworks increased, the management fee decreased by the promotions.current quarter.
(iv) |
During the three-month period ended September 30, 2017,March 31, 2019, there is no annual fee revenue, decreased by $300, from $440compared to $162 for the three-month period ended September 30, 2016 to $140.March 31, 2018
(v) | Authorized agent subscription revenue |
(v) Authorized
During the three-month period ended March 31, 2019, there is no authorized agent subscription revenue,
Authorized agent subscription revenue was nil compared to $191,623 for the three-month period ended September 30, 2017 compared to $322,318 for the three-month period ended September 30, 2016. We have ceased charging new authorized agent with subscriptionMarch 31, 2018
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Revenue by customer type
The following table presents our revenue in order to encourage high quality authorized agent to sign up with our platform.by customer type:
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
Artwork owners | $ | 289,072 | $ | 1,978,667 | ||||
Non - VIP traders | 154,645 | 1,101,535 | ||||||
VIP traders | 91,984 | 702,459 | ||||||
Authorized agents | - | 191,623 | ||||||
Total | $ | 535,701 | $ | 3,974,284 |
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Cost of Revenue
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
Commission rebate to service agent | $ | 54,916 | $ | 606,491 | ||||
Depreciation | 122,032 | 159,137 | ||||||
Internet service charge | 50,674 | 92,438 | ||||||
Artwork insurance | 11,962 | 53,694 | ||||||
Artwork storage | 27,242 | 21,582 | ||||||
Others | 453 | 251 | ||||||
Total | $ | 267,279 | $ | 933,593 |
Cost of revenue for the three months ended September 30, 2017March 31, 2019 and 2016March 31, 2018 was $292,168$267,279 and $285,252,$933,593, respectively. OurThe decrease in cost of revenue primarily includes internetfor the three months ended March 31, 2019 compared to March 31, 2018, was mainly due to the decrease in the commission rebates to service fee,agents by $551,575. Management was focused on resuscitating interest in the listed artwork and only listed six new artwork the first quarter of 2019.Besides the decrease in commission rebates, the decrease in cost of revenue was also due to a decrease in the depreciation and amortization of hardware and software foron our trading platform.platform by $37,105 as a result of the suspension of e-commence and impairment of all online software development assets in 2018, the decrease in internet services charges by $41,764 due to the termination of two network lines between Macau and Hong Kong, the decrease in artwork insurance by $41,732 due to a negotiated discount in our new insurance contract for 2019, offset by an increase in artwork storage costs by $5,660.
Gross Profit
Gross profit was $3,062,843$268,422 for the three months ended September 30, 2017,March 31, 2019, compared to $5,456,957$3,040,691 for the three months ended September 30, 2016.March 31, 2018. The decrease was due to the less artworks listed on our platform, the changedecrease in our commission fee policy and the decrease of transaction volume of non VIP traders and non-selected traders.total revenue.
Listing fees contributed 43.4%54% of the total revenue for the three monthsquarter ended September 30, 2017March 31, 2019 compared to 51.7%49.8% in the corresponding period in 2016,2018, while commission revenue contributed 44.6%33.3% for the quarter ended March 31, 2019 compared to 41.2% in the corresponding period in 2018. Compared to the same period in 2018, there was a significant decrease in listing fee revenue and commission revenue. Consequently, we posted a gross profit margin of 50.1% for the three months ended September 30, 2017March 31, 2019 compared to 29% in the corresponding period in 2016. While there was a decrease in commission revenue in the current period, the negative factors were catalyzed by a decrease in listing fees due to less artworks listing on the platform during the current period. Consequently, we posted a comparable gross profit margin of 91% for the three months ended September 30, 2017 compared to 95%76.5% for the same period in 2016.2018.
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Operating Expenses
Selling expenses were $624,151, or 20% of net sales, for the three months ended September 30, 2017 compared to $652,207, or 12% of net sales, for the comparable period in 2016, a decrease by $28,056. Selling expenses consist primarily of marketing expenses.
General and administrative expenses for the three months ended September 30, 2017March 31, 2019 were $2,498,848$1,274,585 compared to $1,744,965$3,008,885 for the three months ended September 30, 2016.March 31, 2018. The substantial increasesignificant plunge in general and administrative expense by $1,734,300 was primarilyattributed a decrease in salary and welfare by $960,040 due to redundancies since July 2018, a decrease in insurance and rental expenses by $236,998 due to the relocation of our Hong Kong office to a non-central district, a decrease in legal and professional fees by $99,924, a decrease in traveling and accommodation expenses by $302,179 as a result of fewer marketing events, a decrease in non-deductible input VAT by $114,923, a decrease in consultancy fees by $21,080, share-based compensation by $68,398, depreciation by $34,819 and also other expenses by $23,003. The decrease in general and administrative expenses is offset by an increase in salaries by $258,469 because of an increase in employee headcount, accrual of doubtful account by $241,248, office, insurancethe following expense items: research and rental expense by $141,281 and an increase in travellingdevelopment expenses by $116,220 which were incurred to attend to the listing of our common stock on the NYSE American.$50,540 and bad debt expenses by $76,524.
The following table sets forth the main components of the Company’s general and administrative expenses for the three months ended March 31, 2019 and September 30, 2017 and 2016.2018.
Three months ended September 30, 2017 | Three months ended September 30, 2016 | Three months ended | Three months ended | |||||||||||||||||||||||||||||
(Unaudited) | (Unaudited) | 31-Mar-19 | 31-Mar-18 | |||||||||||||||||||||||||||||
Amount($) | % of Total | Amount($) | % of Total | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
Consultancy fee | $ | 46,059 | 2 | % | $ | 92,809 | 5 | % | ||||||||||||||||||||||||
Legal and professional fees | 218,066 | 9 | % | 247,278 | 14 | % | ||||||||||||||||||||||||||
Amount ($) | % of Total | Amount ($) | % of Total | |||||||||||||||||||||||||||||
Salary and welfare | 1,008,736 | 40 | % | 750,267 | 43 | % | 447,497 | 35.1 | 1,407,537 | 46.8 | ||||||||||||||||||||||
Office, insurance and rental expenses | 430,047 | 17 | % | 288,766 | 17 | % | 180,140 | 14.1 | 417,138 | 13.9 | ||||||||||||||||||||||
Non-deductible input VAT expenses | 6,924 | 0 | % | - | - | % | ||||||||||||||||||||||||||
Legal and professional fees | 274,098 | 21.5 | 374,022 | 12.4 | ||||||||||||||||||||||||||||
Traveling and accommodation fees | 187,780 | 8 | % | 71,560 | 4 | % | 21,358 | 1.7 | 323,537 | 10.7 | ||||||||||||||||||||||
Share-based compensation | 138,161 | 6 | % | 186,928 | 11 | % | ||||||||||||||||||||||||||
Bad debt expenses | 241,248 | 10 | % | - | - | % | ||||||||||||||||||||||||||
Non-deductible input VAT expense | 45,031 | 3.5 | 159,954 | 5.3 | ||||||||||||||||||||||||||||
Consultancy fee | 105,158 | 8.3 | 126,238 | 4.2 | ||||||||||||||||||||||||||||
Share based compensation expense | 16,851 | 1.3 | 85,249 | 2.8 | ||||||||||||||||||||||||||||
Depreciation | 34,747 | 2.7 | 69,566 | 2.3 | ||||||||||||||||||||||||||||
R&D expense | 50,540 | 4.0 | 0 | 0.0 | ||||||||||||||||||||||||||||
Bad debt expense | - | 0.0 | (76,524 | ) | -2.5 | |||||||||||||||||||||||||||
Others | 221,827 | 8 | % | 107,357 | 6 | % | 99,165 | 7.8 | 122,168 | 4.1 | ||||||||||||||||||||||
Total general and administrative expenses | $ | 2,498,848 | 100.0 | % | $ | 1,744,965 | 100.0 | % | ||||||||||||||||||||||||
Total general and administrative expense | $ | 1,274,585 | 100.0 | $ | 3,008,885 | 100.0 |
Other income
Other income for the three-month period ended March 31, 2019 was $336,744, compared to other income of $1,077,515 for the same period in 2018. There was a significant decrease in exchange gain by $634,161, arising from the appreciation of Renminbi against US dollar.
Income tax expenses
The Company’s effective tax rate varies due to its multiple jurisdictions in which the pretax book incomes or losses incur. The Company was subject to a U.S. income tax rate of 21% (34 % prior to January 1, 2018), Hong Kong profits tax rate at 8.25% for the first HKD 2 million (approximately $254,907) assessable profits and at 16.5% for assessable profits above HKD 2 million (approximately $254,907) (16.5% prior to January 1, 2018) and PRC enterprise income tax rate at 25%.
The effective tax rates for the three months ended March 31, 2019 and 2018 were (1.2)% and 51.1%, respectively.
Income taxes expenses for the three months ended March 31, 2019 and 2018 were $8,562 and $442,440, respectively.
23 |
Net (Loss) Income
We had a net incomeloss for the three months ended September 30, 2017March 31, 2019 of $27,034$708,793 compared to net income of $2,451,737$423,290 for the three months ended September 30, 2016.March 31, 2018.
The decrease in net income by $2,424,703 during this current period was primarilypredominately due to a decrease offall in revenue by $2,387,198 as discussed$3,438,583, an increase cost-cutting on operating expenses by $1,947,079 and an increase of exchange losses by $634,161.
We announced on August 13, 2018 the suspension of new listings of artwork. We were on the downside of a downturn in the previous paragraphs.
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2017 COMPARED TO NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016
Revenue
The following tables set forth our condensed consolidated statementsonline fine art and collectibles platform space, a by-product of income data:
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenue | $ | 10,545,677 | $ | 14,214,252 | ||||
Cost of revenue | (822,335 | ) | (822,735 | ) | ||||
Selling expense | (1,272,010 | ) | (1,993,782 | ) | ||||
General and administrative expenses | (7,311,128 | ) | (5,076,689 | ) | ||||
Total costs and expenses | (9,405,473 | ) | (7,893,206 | ) | ||||
Income from operations | 1,140,204 | 6,321,046 | ||||||
Interest and other income (loss), net | 511,311 | (279,336 | ) | |||||
Income before income taxes | 1,651,515 | 6,041,710 | ||||||
Income tax expense | (594,377 | ) | (1,377,078 | ) | ||||
Net income | $ | 1,057,138 | $ | 4,664,632 |
The following tables set forth our condensed consolidated statements of income data (as a percentage of revenue):
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenue | 100 | % | 100 | % | ||||
Cost of revenue – Direct revenue | (8 | ) | (6 | ) | ||||
Selling expense | (12 | ) | (14 | ) | ||||
General and administrative expenses | (69 | ) | (36 | ) | ||||
Total costs and expenses | (89 | ) | (56 | ) | ||||
Income from operations | 11 | 44 | ||||||
Interest and other income (loss), net | 5 | (2 | ) | |||||
Income before income taxes | 16 | 42 | ||||||
Income tax expense | (6 | ) | (10 | ) | ||||
Net income | 10 | % | 32 | % |
Listing fee revenue was $4,606,649 and $8,166,072; commission revenue was $4,970,651 and $3,739,958, gross management fee revenue was $967,518 and $1,341,294, annual fee revenue was $859 and $869, authorized agent subscription revenue was $nil and $966,059, fordownturn in A-shares on the nine months ended September 30, 2017 and 2016, respectively.
During the nine months ended September 30, 2017, there were 49 sets of artwork listed for trade on our platform —comprising 8 sets of paintings and calligraphies, with a total listing value of $2,632,356 (HK$20,500,000), 16 pieces of jewelry with a total listing value of $5,567,754 (HK$43,360,000), 23 pieces of precious stones with a total listing value of $3,212,759 (HK$25,020,000), 1 piece of porcelains with a total listing value of $38,522 (HK$300,000) and 1 set of Unit+ product which was listed in Unit+ trading platform, with a total listing value of $152,548 (HK$1,188,000), of which 41.5%-47% (for 8 sets of paintings and calligraphies), 33.5%-48% (for the 16 pieces of jewelry), 26%-47% (for the 23 pieces of precious stones), 46% (for the 1 pieces of porcelains) and 43% (for the 1 set of Unit+ product) of the listed values were charged as listing fees, respectively.
Compared to the corresponding period ended September 30, 2016, there were 15 pieces of painting, 59 pieces of precious stones, 11 pieces of jewelry, 3 pieces of ivory, 18 pieces of amber and 2 pieces of porcelain pastel paintings successfully listed on our system. The total listing values were $3,349,005 (HK$26,000,000) for the 15 pieces of painting, $5,744,832 (HK$44,600,000) for the 59 pieces of precious stones, $1,816,191 (HK$14,100,000) for the 11 pieces of jewelry, $515,232 (HK$4,000,000) for the 3 pieces of ivory, $7,239,003 (HK$56,200,000) for the 18 pieces of amber, and $334,900 (HK$2,600,000) for the 2 pieces of porcelain pastel paintings, of which 47.75%-48% (for the 15 pieces of painting), 29%-48.5% (for the 59 pieces of precious stones), 29%-48% (for the 11 pieces of jewelry), 47% (for the 3 pieces of ivory), 45%-48% (for the 18 pieces of amber), and 45%-46% (for 2 pieces of porcelain pastel paintings ) of the relevant listed values were charged as listing fees, respectively.
The decrease in number of pieces listed, listing values and corresponding listing fees charged during the nine months ended September 30, 2017 compared to the same period ended September 30, 2016 resulted in a decrease in listing fee revenue in the current period. The decrease in number of pieces listed was due to a new listing category (“A-tier”) implemented on July 3, 2017. A-tier is aim to meet an elevated set of standards including higher levelsChinese markets tightening of liquidity market value, number of owners and number of VIP traders. Therefore,in China, declines in both the rigorous listing requirements of A-tier led some artworks listing deferred.
Our trading volume and transaction value amounts increased significantly from 2015 when we commenced operations in Shanghai and consequently added a significant number of Traders from mainland China as they could now settle their trades in Renminbi. This trend continued into 2017. Trading volume increased by 193% and trading amount increased by 178% for the nine months ended September 30, 2017 compared to corresponding period in 2016.
In spite of this, total commission revenue increased by $1,230,693 or 33% for the nine months ended September 30, 2017 to $4,970,651 compared to $3,739,958 for the nine months ended September 30, 2016 primarily because of the change in our commission fee policyShenzhen stock exchanges and the decrease of transaction volume of non VIP traders and non-selected traders . From April 1, 2016 onwards, selected Traders pay a predetermined monthly fixed fee for their tradesfallout from increased peer-to-peer (P2P) loan defaults. We slowly resumed new listings in specific artworks while our other non-VIP Traders continue to pay a commission calculated based on a percentage of transaction value of artworks.
During the nine month period ended September 30, 2017, management fee revenue decreased by $373,776, from $1,341,294 for the nine months ended September 30, 2016 to $967,518. From September 1, 2016,January 2019 but there is no guarantee that we waived management fees for certain VIP Traders. We recognized these promotions as a reduction of revenue, which was recognized upon the completion of the transactions.
During the nine-month period ended September 30, 2017, annual fee revenue increased by $10, from $869 for the nine-month period ended September 30, 2016 to $859.
(v) Authorized agent subscription revenue
Authorized agent subscription revenue for the nine-month period ended September 30, 2017 was nil compared to $966,059 for the nine-month period ended September 30, 2016. We have ceased charging new authorized agent with subscription revenue in order to encourage high quality authorized agent to sign up with our platform.
Cost of Revenue
Cost of revenue for the nine months ended September 30, 2017 and 2016 was $822,335 and $822,735, respectively. Our cost of revenue primarily includes internet service fee, depreciation and amortization of hardware and software for our trading platform.
In the third quarter of 2014, we entered into an agreement with a third party service provider, Shenzhen Qianrong Cultural Investment Development Co., Ltd (“Qianrong”), to provide software development services with a total contract amount of $902,592 (HK$6,995,000). The services contracted for are divided into different modules, according to different upgrades and new functionalities. As of September 30, 2017 and 2016, nine out of the ten modules have been completed and are operational. We capitalized (with a total cost of $1,069,853 (HK$8,295,000)) and amortized these costs once the modules were completed.
Gross Profit
Gross profit was $9,723,342 for the nine months ended September 30, 2017, compared to $13,391,517 for the nine months ended September 30, 2016. The decrease was due to the less artworks listed on our platform, the change in our commission fee policy and the decrease of transaction volume of non VIP traders and non-selected traders.
Operating Expenses
Selling expenses were $1,272,010, or 13% of net sales, for the nine months ended September 30, 2017 compared to $1,993,782 or 15% of net sales, for the comparable period in 2016, a decrease by 36%. Selling expenses consist primarily of marketing expenses.will never suspend them again.
General and administrative expenses for the nine months ended September 30, 2017 were $7,311,128 compared to $5,076,689 for the nine months ended September 30, 2016. The substantial increase by $2,234,439 or 44% was chiefly due to an increase in salaries by $1,314,324 because of an increase in employee headcount, accrual of doubtful accounts, by $241,248, office, insurance and rental expenses by $400,067 and an increase in travelling expenses by $495,715 which were incurred to attend to the listing of our common stock on the NYSE American.
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The following table sets forth the main components of the Company’s general and administrative expenses for the nine months ended September 30, 2017 and 2016.
Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Amount($) | % of Total | Amount($) | % of Total | |||||||||||||
Consultancy fee | $ | 187,230 | 3 | % | $ | 361,610 | 7 | % | ||||||||
Legal and professional fees | 733,466 | 10 | % | 728,856 | 14 | % | ||||||||||
Salary and welfare | 3,166,679 | 43 | % | 1,852,355 | 36 | % | ||||||||||
Office, insurance and rental expenses | 1,252,561 | 17 | % | 852,494 | 17 | % | ||||||||||
Non-deductible input VAT expense | 16,369 | - | % | - | - | % | ||||||||||
Traveling and accommodation fees | 679,950 | 9 | % | 184,235 | 4 | % | ||||||||||
Share-based compensation | 562,184 | 8 | % | 846,703 | 17 | % | ||||||||||
Bad debt expenses | 241,248 | 4 | % | - | - | % | ||||||||||
Others | 471,441 | 6 | % | 250,436 | 5 | % | ||||||||||
Total general and administrative expenses | $ | 7,311,128 | 100.0 | % | $ | 5,076,689 | 100.0 | % |
Net Income
We had a net income for the nine months ended September 30, 2017 of $1,057,138 compared to net income of $4,664,632 for the nine months ended September 30, 2016.
The decrease in net income by $3,607,494 during this current period was due to a fall of revenue by $3,668,575, and the increase of general and administrative expenses by $2,234,439 as discussed in the previous paragraphs.
Liquidity and Capital Resources
The following tables set forth our condensed consolidated statements of cash flow:
Nine months ended September 30 | ||||||||
2017 | 2016 | |||||||
(Unaudited) | (Unaudited) | |||||||
Net cash provided by operating activities | $ | 1, 028,524 | $ | 5,635,391 | ||||
Net cash used in investing activities | (561,510 | ) | (1,276,378 | ) | ||||
Net cash provided by financing activities | - | 2,346,941 | ||||||
Effect of exchange rate change on cash and cash equivalents | 1,025,539 | (644,375 | ) | |||||
Net increase in cash and cash equivalents | 1,492,553 | 6,061,579 | ||||||
Cash and cash equivalents, beginning balance | 13,395,337 | 10,769,456 | ||||||
Cash and cash equivalents, ending balance | $ | 14,887,890 | $ | 16,831,035 |
Three months ended | ||||||||
March 31, | ||||||||
2019 | 2018 | |||||||
(Unaudited) | (Unaudited) | |||||||
Net cash provided by operating activities | $ | 6,175,680 | $ | 3,039,614 | ||||
Net cash provided by investing activities | 2,416,019 | 7,878 | ||||||
Net cash used in financing activities | (2,499,500 | ) | - | |||||
Effect of exchange rate change on cash and cash equivalents | (503,119 | ) | 726,355 | |||||
Net increase in cash, cash equivalents and restricted cash | 5,589,080 | 3,773,847 | ||||||
Cash, cash equivalents and restricted cash, beginning balance | 12,524,086 | 37,140,582 | ||||||
Cash, cash equivalents and restricted cash, ending balance | $ | 18,113,166 | $ | 40,914,429 |
Sources of Liquidity
During the ninethree months ended September 30, 2017,March 31, 2019, net cash generated from operating activities totaled $1,028,524.$6,175,680, which resulted from the implementation of ASU2016-18 since the beginning of 2018. In fact, there was an increase in client deposits by $5,823,253 placed by the customers for upcoming transactions which influenced the increased amounts due to clients simultaneously. The Company assessed and evaluated that it was really a presentation issue and there should be no actual impact to the operating activities. Net cash generated from investing activities totaled $2,416,019. Net cash used in financing activities totaled $2,499,500. The resulting change in cash for the period was an increase of $5,589,080. The cash balance at the beginning of the period was $12,524,086. The cash balance on March 31, 2019 was $18,113,166.
During the three months ended March 31, 2018, net cash generated from operating activities totaled $3,039,614. Net cash generated from investing activities totaled $561,510.$7,878. No cash was generated from financing activities during the period. The resulting change in cash for the period was an increase of $1,492,553.$3,773,847. The cash balance at the beginning of the period was $13,395,337.$37,140,582. The cash balance on September 30, 2017March 31, 2018 was $14,887,890.$40,914,429.
During the nine months ended September 30, 2016, net cash provided by operating activities totaled $5,635,391. Net cash used in investing activities totaled $1,276,378. Net cash provided by financing activities totaled $2,346,941. The resulting change in cash for the period was an increase of $6,061,579. The cash balance at the beginning of the period was $10,769,456. The cash balance on September 30, 2016 was $16,831,035.
.
As of September 30, 2017,March 31, 2019, the Company had $28,390,798$17,520,565 in total current liabilities, which comprised of $780,800$569,754 in accrued expense and other payables, $19,057,733$10,372,455 in customers’ deposits, $6,371,900$13,376 in advance from customer, $6,369,589 in amount due to related party, $181,126 in lease liabilities and $14,265 in tax payables. As of December 31, 2018, the Company had $14,099,778 in total current liabilities, which included $641,692 in accrued expenses and other payables $8,995 in advance from customers, $4,549,202 in customers’ deposits, $2,499,500 in short-term borrowings from third parties, $1,085,480$6,385,288 in amount due to related party, and $1,094,885$15,101 in tax payables. As of December 31, 2016, the Company had $30,602,706 in total current liabilities, which included $608,883 in accrued expense and other accruals, $21,743,360 in customers’ deposits, $360,248 in advance from customers, $6,308,513 in short-term borrowings from third parties, $1,031,805 in amount due to related party and $549,897 in tax payables.VAT payable.
The Company had deferred tax liabilities as long-term liability of $45,301 as of September 30, 2017, and $62,618 as of December 31, 2016, respectively. The Company’s total liabilities as of September 30, 2017 and December 31, 2016 amounted to $28,436,099 and $30,665,324, respectively.
The Company is aware of events or uncertainties which may affect its future liquidity because of capital controls in the PRC. The RenminbiRMB is only currently convertible under the “current account”,"current account," which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account”,"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"current account transactions”,transactions," including payment of dividends to us, without the approval of the State 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 stockholders, 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 in China only out of their net income, if any, determined in accordance with PRC accounting standards and regulations. Our operating subsidiaries in China 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 of Hong Kong. Hence, our Hong Kong operating subsidiary is able to transfer cash without any limitation to the U.S. under normal circumstances.
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.
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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
WeAlthough we are suffering downside business including a decrease in trading volume and customer deposits, we are also undergoing a company restructuring, including re-evaluating the company’s Unit business and a downsize of the workforce. Our management forecasts that we have always been generating sufficient cash from our operationoperations to fund our business organically. However, we may conduct equity sales of our common shares in order to fund further expansion and growth of our business. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any sales of the equity securities to fund expansion and other activities, orand if we are able to, there is no guarantee that existing shareholders will not be substantially diluted. In essence, we do not need to rely on equity sales to fund our business operations.
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.
See Note 2 to the financial statements included herewith and Note 2 to the financial statements on Form 10-K for the fiscal year ended December 31, 2016,2018, previously filed with the SEC.
Recent Accounting Pronouncements
See Note 2 to the financial statements included herewith and Note 2 to the financial statements on Form 10-K for the fiscal year ended December 31, 2016,2018, previously filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, which presently comprises our Chief Executive Officer, Mr. Di XiaoChun Hin Leslie Chow and our Chief Financial Officer, Mr. Chun Hin Leslie Chow.Jehn Ming Lim. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of September 30, 2017March 31, 2019 were effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2017March 31, 2019 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
27
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None.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Not applicable.
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
32.1 | Certification of the Principal Executive Officer and the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | |
101.INS | XBRL Instance Document* | |
101.SCH | XBRL Taxonomy Extension Schema Document* | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document* | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* | |
101.LAB | XBRL Taxonomy Label Linkbase Document* | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document* |
(1) Incorporated by reference to the exhibit to our registration statement on Form S-1 filed with the SEC on August 16, 2011.
(2) Incorporated by reference to the exhibit to our current report on Form 8-K filed with the SEC on March 7, 2013.
(3) Incorporated by reference to the exhibit to our current report on Form 8-K filed with the SEC on October 22, 2014.
(4) Incorporated by reference to the exhibit to our current report on Form 8-K filed with the SEC on November 6, 2014.
*Filed herewith.
**Furnished herewith.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TAKUNG ART CO., LTD | ||
Date: | ||
By: | /s/ Chun Hin Leslie Chow | |
Chun Hin Leslie Chow | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: May 16, 2019 | By: | /s/ Jehn Ming Lim |
Jehn Ming Lim | ||
Chief Financial Officer | ||
(Principal Financial |
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