UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________________ to____________________________________________ 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 Harcourt Road, Central, Hong Kong
(Address of principal executive offices) (Zip Code)
Office Q 11th Floor, Kings Wing Plaza 2, No. 1 Kwan Street, Sha Tin, New Territories, Hong Kong | ||
(Address of principal executive offices) | (Zip Code) |
+852 3158 097786-13020144962
(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.x ☒ Yes¨ ☐ 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). x☒ Yes¨ ☐ 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 company |
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)As of November 16, 2022, 34,991,886 shares 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 ofCompany’s common stock, as of the latest practicable date.
The number of shares of common stock$0.001 par value, were issued and outstanding as of November 14, 2017 is 11,188,882.outstanding.
FORM 10-Q
TAKUNG ART CO,CO., LTD
INDEX
i
PART I –FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
TAKUNG ART CO., LTD AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars except Number of Shares)
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 14,887,890 | $ | 13,395,337 | ||||
Restricted cash | 19,057,733 | 21,743,360 | ||||||
Account receivables, net | 3,732,569 | 3,058,568 | ||||||
Prepayment and other current assets | 870,231 | 968,446 | ||||||
Loan receivables | 6,806,623 | 6,374,046 | ||||||
Total current assets | 45,355,046 | 45,539,757 | ||||||
Non-current assets | ||||||||
Property and equipment, net | 2,104,107 | 2,065,182 | ||||||
Intangible assets | 20,394 | 20,546 | ||||||
Deferred tax assets | 294,676 | 243,772 | ||||||
Other non-current assets | 535,420 | 428,764 | ||||||
Total non-current assets | 2,954,597 | 2,758,264 | ||||||
Total assets | $ | 48,309,643 | $ | 48,298,021 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
LIABILITIES | ||||||||
Current liabilities | ||||||||
Accrued expenses and other payables | $ | 780,800 | $ | 608,883 | ||||
Customer deposits | 19,057,733 | 21,743,360 | ||||||
Advance from customers | - | 360,248 | ||||||
Short-term borrowings from third parties | 6,371,900 | 6,308,513 | ||||||
Amount due to related party | 1,085,480 | 1,031,805 | ||||||
Taxes payable | 1,094,885 | 549,897 | ||||||
Total current liabilities | 28,390,798 | 30,602,706 | ||||||
Deferred tax liabilities | 45,301 | 62,618 | ||||||
Total non-current liabilities | 45,301 | 62,618 | ||||||
Total liabilities | 28,436,099 | 30,665,324 | ||||||
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 | ||||||
Additional paid-in capital | 5,928,455 | 5,532,426 | ||||||
Retained earnings | 14, 229,809 | 13,172,671 | ||||||
Accumulated other comprehensive loss | (295,909 | ) | (1,083,569 | ) | ||||
Total stockholders’ equity | 19,873,544 | 17,632,697 | ||||||
Total liabilities and stockholders’ equity | $ | 48,309,643 | $ | 48,298,021 |
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 62,764,182 | $ | 1,503,153 | ||||
Restricted cash | 3,239,525 | - | ||||||
Account receivables, net | - | 120,000 | ||||||
Prepayment and other current assets, net | 5,557 | 169,908 | ||||||
Current assets – discontinued operations | 1,323,575 | 373,479 | ||||||
Total current assets | 67,332,839 | 2,166,540 | ||||||
Non-current assets | ||||||||
Property and equipment, net | - | 6,883 | ||||||
Intangible assets | 140 | 140 | ||||||
Non-marketable investment, net | 3,030,928 | 9,296,614 | ||||||
Non-current assets – discontinued operations | 105,206 | 183,559 | ||||||
Total non-current assets | 3,136,274 | 9,487,196 | ||||||
Total assets | $ | 70,469,113 | $ | 11,653,736 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
LIABILITIES | ||||||||
Current liabilities | ||||||||
Accrued expenses and other payables | $ | 2,432,361 | $ | 143,429 | ||||
Current liabilities - discontinued operations | 8,904,974 | 8,733,624 | ||||||
Advance from customers | 3,239,525 | - | ||||||
Tax payables | 239,758 | - | ||||||
Total current liabilities | 14,816,618 | 8,877,053 | ||||||
Non-current liabilities | ||||||||
Operating lease liabilities, non-current | - | - | ||||||
Total non-current liabilities | - | - | ||||||
Total liabilities | 14,816,618 | 8,877,053 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||
Common stock (1,000,000,000 shares authorized; $0.001 par value; 34,991,886 shares issued and outstanding as of September 30, 2022; 14,372,353 shares issued and outstanding as of December 31, 2021) | 34,992 | 14,372 | ||||||
Additional paid-in capital | 92,526,972 | 32,547,585 | ||||||
Accumulated deficit | (36,548,912 | ) | (29,444,185 | ) | ||||
Accumulated other comprehensive loss | (360,557 | ) | (341,089 | ) | ||||
Total shareholders’ equity | 55,652,495 | 2,776,683 | ||||||
Total liabilities and shareholders’ equity | $ | 70,469,113 | $ | 11,653,736 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
TAKUNG ART CO., LTD AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
OPERATIONS AND COMPREHENSIVE INCOMELOSS
(Stated in U.S. Dollars except Number of Shares)
(UNAUDITED)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenue | ||||||||||||||||
Listing fee-Continuing operations | $ | - | $ | - | $ | - | $ | - | ||||||||
Listing fee-Discontinued operations | - | 320,173 | - | 877,267 | ||||||||||||
Commission-Continuing operations | 1,634,960 | - | 2,329,135 | - | ||||||||||||
Commission-Discontinued operations | - | 1,083,976 | - | 2,090,372 | ||||||||||||
Management fee-Continuing operations | - | - | - | - | ||||||||||||
Management fee-Discontinued operations | - | 1,124,528 | - | 1,483,641 | ||||||||||||
Consultancy fee-Continuing operations | - | - | ||||||||||||||
Consultancy fee-Discontinued operations | 80,000 | 80,000 | ||||||||||||||
Revenue-Continuing operations | 1,634,960 | - | 2,329,135 | - | ||||||||||||
Revenue-Discontinued operations | - | 2,608,677 | - | 4,531,280 | ||||||||||||
Cost of revenue-continuing operations | (216,930 | ) | - | (367,860 | ) | - | ||||||||||
Cost of revenue-discontinued operations | - | (719,826 | ) | - | (1,424,528 | ) | ||||||||||
Gross profit-continuing operations | 1,418,030 | - | 1,961,275 | - | ||||||||||||
Gross profit-discontinued operations | - | 1,888,851 | - | 3,106,752 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative expenses-Continuing operations | (330,535 | ) | (910,817 | ) | (8,142,254 | ) | (8,453,469 | ) | ||||||||
General and administrative expenses-Discontinued operations | (60,729 | ) | (2,906,818 | ) | (691,927 | ) | (4,329,638 | ) | ||||||||
Selling expenses-Continuing operations | - | - | - | - | ||||||||||||
Selling expenses-Discontinued operations | - | (48,511 | ) | - | (284,980 | ) | ||||||||||
Total operating expenses - Continuing operations | (330,535 | ) | (910,817 | ) | (8,142,254 | ) | (8,453,469 | ) | ||||||||
Total operating expenses - Discontinued operations | (60,729 | ) | (2,955,329 | ) | (691,927 | ) | (4,614,618 | ) | ||||||||
Profit/(Loss) from continuing operations | 1,087,495 | (910,817 | ) | (6,180,979 | ) | (8,453,469 | ) | |||||||||
Other income and expenses: | ||||||||||||||||
Other(expenses) income-Continuing operations | (175 | ) | 57,635 | (451 | ) | 219,345 | ||||||||||
Other(expenses) income-Discontinued operations | 8,552 | 10,872 | 8,387 | 41,376 | ||||||||||||
Profit/(Loss) before income taxes-Continuing operations | 1,087,320 | (853,182 | ) | (6,181,430 | ) | (8,234,124 | ) | |||||||||
Income tax expenses-Continuing operations | (190,762 | ) | - | (239,758 | ) | - | ||||||||||
Net Profit/(loss) from continuing operations | 896,558 | (853,182 | ) | (6,421,188 | ) | (8,234,124 | ) | |||||||||
Loss before income tax-Discontinued operations | ||||||||||||||||
Loss from discontinued operations | (52,177 | ) | (1,055,606 | ) | (683,540 | ) | (1,466,490 | ) | ||||||||
Income tax expenses-Discontinued operations | ||||||||||||||||
Tax expense | - | (83,892 | ) | - | (90,485 | ) | ||||||||||
Deferred tax benefit | - | - | - | |||||||||||||
Net Loss from discontinued operations | (52,177 | ) | (1,139,498 | ) | (683,540 | ) | (1,556,975 | ) | ||||||||
Net profit/(loss) | $ | 844,381 | $ | (1,992,680 | ) | $ | (7,104,728 | ) | $ | (9,791,099 | ) | |||||
Foreign currency translation adjustment | (221,165 | ) | (34,280 | ) | (19,467 | ) | (68,110 | ) | ||||||||
Comprehensive income/(loss) | $ | 623,216 | $ | (2,026,960 | ) | $ | (7,124,195 | ) | $ | (9,859,209 | ) | |||||
Profit/(Loss) from continuing operations per common share - basic | $ | 0.03 | $ | (0.07 | ) | $ | (0.30 | ) | $ | (0.69 | ) | |||||
Profit/(Loss) from continuing operations per common share - Diluted | $ | 0.01 | $ | (0.07 | ) | $ | (0.15 | ) | $ | (0.69 | ) | |||||
Loss from discontinued operations per common share - basic | $ | (0.00 | ) | $ | (0.09 | ) | $ | (0.03 | ) | $ | (0.13 | ) | ||||
Loss from discontinued operations per common share - Diluted | $ | (0.00 | ) | $ | (0.09 | ) | $ | (0.02 | ) | $ | (0.13 | ) | ||||
Weighted average number of common shares outstanding-basic | 26,529,422 | 12,689,317 | 21,357,138 | 11,897,019 | ||||||||||||
Weighted average number of common shares outstanding-diluted | 61,082,469 | 12,689,317 | 41,665,082 | 11,897,019 |
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 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
TAKUNG ART CO., LTD AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWSCHANGES IN EQUITY
(Stated in U.S. Dollars)Dollars except Number of Shares)
(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 |
Number of shares | Common Stock | Additional Paid-in capital | Accumulated deficit | Accumulated other comprehensive loss | Total | |||||||||||||||||||
Balance, December 31, 2021 | 14,372,353 | $ | 14,372 | $ | 32,547,585 | $ | (29,444,185 | ) | $ | (341,089 | ) | $ | 2,776,683 | |||||||||||
Net loss from continuing operations | - | - | - | (611,574 | ) | - | (611,574 | ) | ||||||||||||||||
Net loss from discontinued operations | - | - | - | (179,765 | ) | - | (179,765 | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | 21,059 | 21,059 | ||||||||||||||||||
Balance, March 31, 2022 | 14,372,353 | 14,372 | 32,547,585 | (30,235,524 | ) | (320,030 | ) | 2,006,403 | ||||||||||||||||
Issuance of ordinary shares for restricted stock award | 10,238,910 | 10,239 | 29,989,768 | - | - | 30,000,007 | ||||||||||||||||||
Net loss from continuing operations | - | - | - | (6,706,172 | ) | - | (6,706,172 | ) | ||||||||||||||||
Net loss from discontinued operations | - | - | - | (451,598 | ) | - | (451,598 | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | 180,638 | 180,638 | ||||||||||||||||||
Balance, June 30, 2022 | 24,611,263 | $ | 24,611 | $ | 62,537,353 | $ | (37,393,294 | ) | $ | (139,392 | ) | $ | 25,029,278 | |||||||||||
Private placement | 10,380,623 | 10,381 | 29,989,619 | - | - | 30,000,000 | ||||||||||||||||||
Net loss from continuing operations | - | - | - | 896,558 | - | 896,558 | ||||||||||||||||||
Net loss from discontinued operations | - | - | - | (52,177 | ) | - | (52,177 | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (221,164 | ) | (221,164 | ) | ||||||||||||||||
Balance, September 30, 2022 | 34,991,886 | 34,992 | 92,526,972 | (36,548,913 | ) | (360,556 | ) | 55,652,495 |
Number of shares | Common Stock | Additional Paid-in Capital | Retained earnings (accumulated deficit) | Accumulated other comprehensive loss | Total | |||||||||||||||||||
Balance, December 31, 2020 | 11,271,379 | $ | 11,271 | $ | 6,358,115 | $ | (226,311 | ) | $ | (328,030 | ) | $ | 5,815,045 | |||||||||||
Shared-based compensation | - | - | 3,717 | - | - | 3,717 | ||||||||||||||||||
Net loss from continuing operations | - | - | - | (360,042 | ) | - | (360,042 | ) | ||||||||||||||||
Net loss from discontinued operations | (212,546 | ) | (212,546 | ) | ||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (37,763 | ) | (37,763 | ) | ||||||||||||||||
Balance, March 31, 2021 | 11,271,379 | 11,271 | 6,361,832 | (798,899 | ) | (365,793 | ) | 5,208,411 | ||||||||||||||||
Issuance of ordinary shares for restricted stock award | 335,000 | 335 | 6,863,814 | - | - | 6,864,149 | ||||||||||||||||||
Exercised of stock options | 61,065 | 61 | 180,424 | - | - | 180,485 | ||||||||||||||||||
Net loss from continuing operations | - | - | - | (7,020,900 | ) | - | (7,020,900 | ) | ||||||||||||||||
Net loss from discontinued operations | - | - | - | (204,931 | ) | - | (204,931 | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | 3,933 | 3,933 | ||||||||||||||||||
Balance, June 30, 2021 | 11,667,444 | $ | 11,667 | $ | 13,406,070 | $ | (8,024,730 | ) | $ | (361,860 | ) | $ | 5,031,147 | |||||||||||
Issuance of ordinary shares for restricted stock award | 160,000 | 1,600 | 1,897,440 | - | - | 1,899,040 | ||||||||||||||||||
Exercised of stock options | 571,429 | 571 | 4,999,429 | - | - | 5,000,000 | ||||||||||||||||||
Shared-based compensation | 1,558,480 | 1,559 | 10,128,561 | - | - | 10,130,120 | ||||||||||||||||||
Net loss from continuing operations | - | - | - | (853,182 | ) | - | (853,182 | ) | ||||||||||||||||
Net loss from discontinued operations | - | - | - | (1,139,498 | ) | - | (1,139,498 | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (34,280 | ) | (34,280 | ) | ||||||||||||||||
Balance, September 30, 2021 | 13,957,353 | 15,397 | 30,431,500 | (10,017,410 | ) | (396,140 | ) | 20,033,347 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
5
TAKUNG ART CO., LTD AND ITS SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
(UNAUDITED)
Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss from continuing operations | $ | (6,421,188 | ) | $ | (8,234,124 | ) | ||
Net loss from discontinued operations | (683,540 | ) | (1,556,975 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation | - | 225,389 | ||||||
Impairment loss | 6,265,686 | - | ||||||
Share-based compensation | - | 8,761,415 | ||||||
Changes in operating assets and liabilities(decrease)increase in: | ||||||||
Accounts receivable, net | - | (79,372 | ) | |||||
Prepayment and other current assets | - | 124,869 | ||||||
Accrued expenses and other payables | 1,132,411 | 345,707 | ||||||
Advance from customer | 3,239,525 | 4,483 | ||||||
Net cash provided by operating activities-continuing operations | $ | 4,216,434 | $ | 1,148,367 | ||||
Net cash provided by operating activities-discontinued operations | 814,295 | 42,322,860 | ||||||
Net cash provided by operating activities | 5,030,729 | 43,471,227 | ||||||
Cash flows from investing activities: | ||||||||
Net cash used in investing activities-continuing operations | - | (500,000 | ) | |||||
Net cash used in investing activities-discontinued operations | 85,236 | 388,229 | ||||||
Net cash used in investing activities | 85,236 | (111,771 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from a short-term borrowing from a third party | 300,000 | - | ||||||
Net cash provided by financing activities-continuing operations | 60,000,007 | - | ||||||
Net cash provided by financing activities-discontinued operations | - | 5,180,485 | ||||||
Net cash provided by financing activities | 60,300,007 | 5,180,485 | ||||||
Effect of exchange rate change on cash, cash equivalents and restricted cash from continuing operations | (15,888 | ) | - | |||||
Effect of exchange rate change on cash, cash equivalents and restricted cash from discontinued operations | (3,579 | ) | (281,110 | ) | ||||
Net change in cash and cash equivalents, and restricted cash from continuing operations | 64,500,553 | 648,367 | ||||||
Net change in cash and cash equivalents, and restricted cash from discontinued operations | 895,952 | 47,610,464 | ||||||
Cash and cash equivalents, and restricted cash beginning balance from continuing operations | 1,503,153 | 31,188 | ||||||
Cash and cash equivalents, and restricted cash beginning balance from discontinued operations | 338,542 | 13,811,557 | ||||||
Cash and cash equivalents, and restricted cash beginning balance | 1,841,695 | 13,842,745 | ||||||
Cash and cash equivalents, and restricted cash ending balance from continuing operations | $ | 66,003,706 | $ | 679,555 | ||||
Cash and cash equivalents and restricted cash ending balance from discontinued operations | 1,234,494 | 61,422,021 | ||||||
Cash and cash equivalents and restricted cash ending balance | $ | 67,238,201 | $ | 62,101,576 | ||||
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets | ||||||||
Cash and cash equivalents-continuing operations | $ | 62,764,182 | $ | 679,555 | ||||
Restricted cash-continuing operations | 3,239,525 | - | ||||||
Total cash, cash equivalents and restricted cash-continuing operations | $ | 66,003,707 | $ | 679,555 | ||||
Cash and cash equivalents-discontinued operations | $ | 1,234,494 | $ | 8,180,310 | ||||
Restricted cash - discontinued operations | - | 53,241,711 | ||||||
Total cash, cash equivalents and restricted cash-discontinued operations | $ | 1,234,494 | $ | 61,422,021 | ||||
Supplemental cash flows information: | ||||||||
Cash paid for interest-continuing operations | $ | - | $ | - | ||||
Cash paid for interest-discontinued operations | $ | - | $ | 86,823 | ||||
Cash paid for income taxes-continuing operations | $ | - | $ | - | ||||
Cash paid for income taxes-discontinued operations | $ | - | $ | 112,429 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
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 Subsidiaries (“Takung”, 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 and ourits 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 and trading artwork. For the period from September 17, 2012 (inception) to December 31, 2012, there was no operation except the issuance of shares for subscription receivable. We generateThe 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 business primarily in Hong Kong, People’s Republic of China.
Takung (Shanghai) Co., Ltd (“Shanghai Takung”) is a limited liability company, with a registered capital of $1 million, located in the Shanghai Pilot Free Trade Zone. Shanghai Takung was incorporated on July 28, 2015. It is engaged in providing services to its parent company Hong Kong Takung by receiving deposits from and making payments to online artwork traders of Takung for and on behalf of Takung. Shanghai Takung was deregistered on May 8, 2020 and the Company merged the operations of Shanghai Takung with Takung Cultural Development (Tianjin) Co., Ltd.
Shanghai Takung set up a new office in Hangzhou, PRC on November 20, 2016 for technology development. Takung Cultural Development (Tianjin) Co., Ltd (“Tianjin Takung”) is a limited liability company, with a registered capital of $1 million located in Pilot Free Trade Zone. Tianjin Takung was incorporated on January 27, 2016.
Tianjin Takung provides technology supportdevelopment services to Hong Kong Takung and Shanghai Takung and also carries out marketing and promotion activities in mainland China. 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 when Shanghai Takung was deregistered. On November 8, 2021, the Management became aware of the suspension of the operation of Tianjin Takung by the local authority.
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. Takung Art Holdings was deregistered on April 29, 2020 due to deregistration of its wholly-owned subsidiary, Art Era Internet Technology (Tianjin) Co., Ltd., on June 18, 2019.
Hong Kong MQ Group Limited (“Hong Kong MQ”) was formed in Hong Kong on November 27, 2018, and is engaged in blockchain and non-fungible tokens (“NFT”) businesses, including consultancy service for NFT launch projects, developing its own NFT marketplace to facilitate users to buy and sell NFTs, as well as development of block chain-based online games. On June 19, 2019, as a result of a private transaction, one (1) share of common stock of Hong Kong MQ was transferred from Ms. Hiu Ngai Ma to the Company. The net asset of Hong Kong MQ was $nil as of the acquisition date. The consideration paid for the ownership transfer, which represent 100% of the issued and outstanding share capital of Hong Kong MQ, was $0.13 (HK$1). Hong Kong MQ became a direct wholly-owned subsidiary of the Company.
MQ (Tianjin) Enterprise Management Consulting Co., Ltd. (“Tianjin MQ”) was incorporated in Tianjin, PRC on July 9, 2019 and is a directly wholly owned subsidiary of Hong Kong MQ. It was established as a limited liability company with a registered capital of $100,000 located in the Pilot Free Trade Zone in Tianjin. Tianjin MQ focused on exploring business opportunities and promoting its artwork trading business. Tianjin MQ was deregistered on August 10, 2020 due to the Company streamlining its operation.
NFT Digital Technology Limited (“NFT Digital”) was incorporated in Albany, New York on December 13, 2021 and is a wholly-owned subsidiary of Takung. This entity primarily provides administrative and technical supports for the development of NFT projects.
NFT Exchange Limited (“NFT Exchange”) was incorporated in Wyoming on January 7, 2022 and is wholly owned by Takung. This entity facilitates the business and operation of the new NFT exchange market.
Metaverse Digital Payment Co., Limited (“Metaverse”) was formed in Hong Kong on January 27, 2022, and is wholly owned by NFT Exchange. This entity is engaged in digital payment service.
Cultural Objects Provenance Holdings Limited
Cultural Objects Provenance Holdings Limited is an investment holding company. Its wholly-owned subsidiary is headquartered in Hong Kong, with global outposts in China (Shenzhen), Europe (Germany), and USA (NY/LA). It is an artwork authentication platform powered by blockchain. According to company home page, the subsidiary is the official technology partner for NANZUKA Gallery in Tokyo, Japan. It authenticated some sought-after editions and limited edition works from some of the world’s most prolific artists, including Hajime Sorayama, Javier Calleja, Daniel Arsham, James Jarvis, and more.
On May 28, 2021, Takung entered into a Securities Purchase Agreement (the “SPA”) with Cultural Objects Provenance Holdings Limited (“Cultural Objects”), a British Virgin Islands company with a wholly-owned subsidiary in Hong Kong engaging in an operation of an artwork authentication platform powered by blockchain with global presence in China, Germany and the United States. Takung shall invest in Cultural Objects through paying certain purchase that consists of cash consideration, $500,000 and issuance of 282,000 shares of common stock of Takung in exchange for 54,100 shares of common stock of Cultural Objects and 290,000 unvested restricted shares of common stock of Takung to Cultural Objects in exchange for 32,460 unvested shares of common stock of Cultural Objects.
On August 21, 2021, Takung and Cultural Objects entered to an amendment to the SPA. The amendment provides that the original purchase price was amended to be $500,000 in cash and the issuance of 771,040 restricted shares of common stock of Takung to Cultural Objects in exchange for 54,100 shares of common stock of Cultural Objects, and, subject to the satisfaction of the conditions stipulated in the SPA, the issuance of 787,440 unvested restricted shares of common stock of Takung to Cultural Objects in exchange for 32,460 unvested shares of common stock of Cultural Objects. The cash consideration of $500,000 was paid to Cultural Objects by the end of August 2021. On September 9, 2021, an aggregate amount of 1,558,480 restricted shares of common stock of Takung issued to Cultural Objects in an exchange for an aggregate 86,560 shares of common stock of Cultural Objects. Together with the cash consideration paid $500,000 and the total value of the restricted shares issued to Cultural Objects, $10,130,120, the total value of the investment in Cultural Objects was $10,630,120. As of September 30, 2022 the initial cost of this investment was adjusted to $3,030,928 after a further impairment charge, $6,265,686 was recorded (see Note 5).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentationpresentation
The accompanying condensed consolidated balance sheet as of December 31, 2016, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of September 30, 2017 and for the three months ended and nine months ended September 30, 2017 and 2016 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures, which are normally included in financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to such rules and regulations, although the management believes that the disclosures made are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto includedgenerally accepted accounting principles in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, previously filed with the SEC.United States (“U.S. GAAP”).
This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when earned, and expenses and losses are recognized when incurred. The Company’s financial statements are expressed in U.S. dollars.
In the opinion
Use of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statementestimates
The preparation of the Company’s unaudited interim condensed consolidated financial positionstatements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the amount of revenues and expenses during the reporting periods. Actual results could differ materially from those results.
Basis of consolidation
The interim condensed consolidated financial statements include the financial statements of the Company, and its subsidiaries, NFT Exchange, NFT Digital, Metaverse Payment, Hong Kong Takung, Tianjin Takung and Hong Kong MQ. All intercompany transactions and balances have been eliminated on consolidation.
Discontinued operations
The Company has adopted ASC Topic 205 “Presentation of Financial Statements” Subtopic 20-45, in determining whether any of its business component(s) classified as held for sale, disposed of by sale or other than by sale is required to be reported in discontinued operations. In accordance with ASC Topic 205-20-45-1, a discontinued operation may include a component of an entity or a group of components of an entity, or a business or non-profit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs: (1) the component of an entity or group of components of an entity meets the criteria to be classified as held for sale; (2) the component of an entity or group of components of an entity is disposed of by sale; (3) the component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).
For the component disposed of other than by sale in accordance with paragraph 360-10-45-15, the Company adopted ASC Topic 205-20-45-3 and reported the results of operations of the discontinued operations, less applicable income tax expenses or benefits as a separate component in in the statement where net income (loss) is reported for current and all prior periods presented.
Due to the suspension of the operation of Tianjin Takung by the local authority in the fourth quarter of 2021, Hong Kong Takung lost its control over Tianjin Takung. The Company plans to dispose Hong Kong Takung, and is actively seeking buyers for Hong Kong Takung and related operations in order to focus on its blockchain and NFT business operation. As of September 30, 2022 and December 31, 2021, the operation of Hong Kong Takung was classified as a discontinued operation and as of December 31, 2021, the operation Tianjin Takung was deconsolidated. For the nine months ended September 30, 2022, the operation of Hong Kong Takung was presented in discontinued operations.
HKMQ is a part of the legacy business, which shall be discontinued and transferred to NFT service.
Deconsolidation
Under the ASC Subtopic 810-10-40, “Consolidation-Overall-Derecognition”, a reporting entity will deconsolidate a subsidiary in the period when the loss of control over such subsidiary incurred as a result of one or more of the following events: (i) a parent sells all or part of its ownership interest in its subsidiary; (ii) the expiration of a contractual agreement that gave control of the subsidiary to the parent; (iii) the subsidiary issues shares which reduces the parent’s ownership interest in the subsidiary to an extent that the parent no longer has a controlling financial interest in such subsidiary; (iv) the subsidiary becomes subject to the control of a government, court, administrator, or regulator. Upon deconsolidation, the reporting entity would no longer include the subsidiary’s assets, liabilities and results of operations in its consolidated financial statements. Due to the suspension of the operation of Tianjin Takung by the local authority. The financial information of Tianjin Takung was deconsolidated as of December 31, 2021.
Fair value measurements
The Company applies the provisions of ASC Subtopic 820-10, “Fair Value Measurements”, for fair value measurements of financial assets and financial liabilities and for fair value measurements of non-financial items that are recognized or disclosed at fair value in the financial statements. ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
There were no assets or liabilities measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of September 30, 2017,2022 and December 31, 2021.
Comprehensive loss
The Company follows the provisions of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 220 “Reporting Comprehensive Income” and establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements. For the nine months ended September 30, 2022 and 2021, the Company’s comprehensive loss includes net loss and foreign currency translation adjustment.
Foreign currency translation and transaction
The functional currency of Metaverse Payment, Hong Kong Takung, Hong Kong MQ and Tianjin Takung are in Hong Kong Dollar (“HKD”); NFT Digital and NFT Exchange are in United States Dollar (“USD”)
The reporting currency of the Company is USD.
Transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at the end of the reporting periods. Exchange differences arising on the settlement of monetary items and on re-translation of monetary items at period-end are included in income statement of the period.
For the purpose of presenting these financial statements, the Company’s assets and liabilities with functional currency of HKD are expressed in USD at the exchange rate on the balance sheet’s dates, which is 7.8510 and 7.7996 as of September 30, 2022 and December 31, 2021, respectively;
The resulting translation adjustments are reported under accumulated other comprehensive loss in the stockholders’ equity section of the balance sheets.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, cash in bank with no restrictions, as well as highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when initially purchased.
Restricted cash
Restricted cash represents the cash deposited by the NFT traders into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading of NFT in our online NFT platform. After the user’s registration is successful, the customer deposits must be transferred to the designated account of the platform through the bank account added by the user before the transaction starts, and a transfer application is submitted on the platform, which can enter the buyer’s platform account after financial review. Except for instructing the bank to deduct the commission, Takung has no right to use any funds in the broker’s account. Our restricted cash is denominated in USD. As of September 30, 2022, the ending balance of our restricted cash was $3,239,525.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. The Company makes estimates for the allowance for doubtful accounts based upon the assessment of various factors, including historical, experience, the age of the accounts receivable balances, credit quality of the customers, current economic conditions, and other factors that may affect customers’ ability to pay.
Prepayment and other current assets, net
Prepayment and other current assets mainly consist of the prepayment for income taxes, maintenance of online trading system, advertising and promotional services, insurances, financial advisory, professional services, rental deposits, as well as other current assets.
Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation and impairment losses. Gains or losses on dispositions of property and equipment are included in operating income or expense. Major additions, renewals and betterments are capitalized, while maintenance and repairs are expensed as incurred. Depreciation and amortization are provided over the estimated useful lives of the assets using the straight-line method from the time the assets are placed in service.
The Company developed systems and solutions for solely internal use. Certain costs incurred in connection with developing or obtaining internal use software are capitalized. Unamortized capitalized costs are included in computer trading and clearing system, within property and equipment, net in the Consolidated Balance Sheets. Capitalized software costs are amortized on a straight-line basis over the estimated useful lives of the software of 5 years. Amortization of these costs is included in depreciation and amortization expense in the Consolidated Statements of Operations.
Estimated useful lives are as follows, taking into account the assets’ estimated residual value:
Classification | Estimated useful life | |
Furniture, fixtures and equipment | 5 years | |
Leasehold improvements | Shorter of the remaining lease terms and the estimated 3 years | |
Computer trading and clearing system | 5 years |
Long-lived assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When these events occur, the Company assesses the recoverability of these long-lived assets by comparing the carrying amount of the assets to the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. If the future undiscounted cash flow is less than the carrying amount of the assets, the Company recognizes an impairment equal to the difference between the carrying amount and fair value of these assets.
During 2021, we recorded $16.5million in asset impairments due to the deconsolidation of Tianjin Takung as a result of the loss of control in this entity. Please refer to Note 6 for details. In addition, we determined that the future undiscounted cash flow was less than the carrying cost of our non-marketable investment and recognized an impairment charge of $1,333,506 for twelve months ended December 31, 2021 and a further charge of $6,265,686 for nine months ended September 30, 2022 against our non-marketable investment. Please refer to Note 5 for details.
Intangible assets
Intangible assets represent the licensing cost for the trademark registration. For intangible assets with indefinite lives, the Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. For intangible assets with definite lives, they are amortized over estimated useful lives, and are reviewed annually for impairment. The Company has not recorded impairment of intangible assets as of September 30, 2022 and December 31, 2021.
Advance from customers
Advance from customers represent the cash deposited by the traders into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading ownership units of the NFT. The traders are required to have their funds transferred to the broker’s account before the trading take place.
Revenue Recognition
Under ASC 606, an entity recognizes revenue as the Company satisfies a performance obligation when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.
The Company recognizes revenue when control of the promised services is transferred to the traders. Revenue is measured at the transaction price, which is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised services to the traders.
Our discontinued operations generated revenue from its services in connection with the offering and trading of artworks on the Company’s legacy online trading system primarily consisted of listing fee, commission fee and management fee.
Listing fee
The Company recognizes the listing fee revenue at a point in time when the ownership units of the artwork are listed and available for trading on the Company’s system, at an amount of an agreed percentage of the total offering price. The amount is collected from the money raised from the issuance of such units.
Commission
The Company generates commission fee from non-VIP traders and selected traders.
For non-VIP traders, the commission is calculated based on a percentage of transaction value of artworks when there is purchase and sale of the ownership shares of the artworks. The commission revenue is recognized at a point in time when each purchase and sale transaction is completed.
For selected traders, starting from April 1, 2016, the Company charged a predetermined monthly commission fee which allows the selected traders to conduct unlimited trades for specific artworks. The commission revenue is recognized on a monthly basis as the Company continuously satisfied its performance obligation.
Management fee
The Company provides custody and insurance service for artworks listed and traded on the Company’s platform. Management fee is calculated at a rate of $0.0013 (HK$0.01) per 100 artwork units per day. The management fee is recognized and is deducted from proceeds from the sale of artwork ownership shares when there is a purchase and sale transaction. A discount program is offered to waive the management fee during certain promotion periods. Such discounts are recognized as a reduction of the revenue.
Beginning in the fourth quarter 2021, we introduced consultancy service and setup NFT business through our subsidiaries, NFT Exchange and NFT Digital. In early May 2022, we launched a NFT trading platform at www.nftoeo.com. Through the new NFT platform, we introduced three main revenue categories: (i) Listing fee, (ii) Commission, and (iii) Management fee.
Cost of revenue
The Company’s cost of revenue primarily consists of expenses associated with the delivery of its service of our continued operations. These include expenses related to the operation of the data centers, such as facility and lease of the server equipment, development and maintenance of the platform system, as well as the cost of insurance, storage and transportation of the artworks. Cost of revenue also includes commission paid to service agent.
The Company has elected to apply the practical expedient in ASC 606-10 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
The contract liabilities are the Company’s obligation to transfer services to traders for which the Company has received consideration from the traders. All contract liabilities are expected to be recognized as revenue within one month and are presented in Advance from Customers in the Interim Condensed Consolidated Balance Sheet.
Leases
In February 2016, the FASB issued ASU 2016-12, Leases (ASC Topic 842), which amends the leases requirements in ASC Topic 840, Leases. Under the new lease accounting standard, a lessee will be required to recognize a right-of-use asset and lease liability for most leases on the balance sheet. The new standard also modifies the classification criteria and accounting for sales-type and direct financing leases, and enhances the disclosure requirements. Leases will continue to be classified as either finance or operating leases.
The Company determines if an arrangement is a lease at inception. The lease payments under the lease arrangements are fixed. Non-lease components include payments for building management, utilities and property tax. It separates the non-lease components from the lease components to which they relate.
Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate, because the interest rate implicit in the leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The lease terms include periods under options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company generally uses the base, non-cancellable, lease term when determining the lease assets and liabilities.
Income taxes
The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigations based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.
The Company accounts for an unrecognized tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the tax authorities. The Company considers and estimates interest and penalties related to the gross unrecognized tax benefits and includes as part of its income tax provision based on the applicable income tax regulations.
The Company did not accrue any liability, interest or penalties related to uncertain tax positions in the provision for income taxes line of the interim condensed consolidated statements of operations for the nine months ended September 30, 2022 and as of December 31, 2021.
Earnings (loss) per share
Basic net income (loss) per share (EPS) is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the year. Diluted income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities are excluded from the computation of dilutive EPS in periods in which the effect would be antidilutive.
Concentration of risks
Concentration of credit risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, account receivables. The carrying values of the financial instruments approximate their fair values due to their short-term maturities. The Company places its cash and cash equivalents and restricted cash with financial institutions with high-credit ratings and quality. Account receivables primarily comprise of amounts receivable from the trader customers. With respect to the prepayment to service suppliers, the Company performs on-going credit evaluations of the financial condition of these suppliers. The Company establishes an allowance for doubtful accounts based upon estimates, factors surrounding the credit risk of specific service providers and other information.
Concentration of customers
There were no revenues from customers that individually represent greater than 10% of the total revenues during the nine months ended September 30, 2022 and 2021.
Concentration of customer deposits
As of September 30, 2022 and December 31, 2021, there were no traders that individually accounted for greater than 10% of the Company’s total customer deposits.
Accounting standards adopted on January 1, 2021
Income Taxes: On December 18, 2019, the FASB issued ASU No. 2019-12, Income taxes (Topic 740), Simplifying the Accounting for Income Taxes. This guidance amends ASC Topic 740 and addresses several aspects including 1) evaluation of step-up tax basis of goodwill when there is not a business combination, 2) policy election to not allocate consolidated taxes on a separate entity basis to entities not subject to income tax, 3) accounting for tax law changes or rates during interim periods, 4) ownership changes from equity method investment to subsidiary or vice versa, 5) elimination of exception to intraperiod allocation when there is gain in discontinued operations and a loss from continuing operations, 6) treatment of franchise taxes that are partially based on income. The Company adopted ASU2019-12 effective January 1, 2021.
Accounting pronouncements issued but not yet adopted
Financial Instruments - Credit Losses: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023.The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its consolidated resultsfinancial statements, particularly its recognition of allowances for accounts receivable.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows for the nine-month periods ended September 30, 2017 and 2016, 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. flows.
3. PREPAYMENT AND OTHER CURRENT ASSETS, NET
Prepayment and other current assets mainly consist of the prepaid services for development, maintenance of online trading system, the advertising and promotional services,tax, prepaid financial advisory and banking services,service fees, as well as other current assets.staff advance.
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 |
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Prepaid service fees | $ | - | $ | 196,497 | ||||
Deposit | 5,557 | 5,557 | ||||||
Other current assets | - | 2,791 | ||||||
Subtotal | 5,557 | 204,845 | ||||||
Less: Prepayment and other current assets, net-discontinued operations | - | (34,937 | ) | |||||
Prepayment and other current assets, net | $ | 5,557 | $ | 169,908 |
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 |
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 debtNo provision of $240,528for doubtful accounts was recognized for the three and nine months ended September 30, 2017.2022 and 2021, respectively.
10
5. LOAN4. ACCOUNT 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. NET
Account receivables consisted of the People’s Republicfollowing:
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Listing fee | $ | - | $ | 154,771 | ||||
Consultancy service | - | 120,000 | ||||||
Less: allowance for doubtful accounts | - | (154,771 | ) | |||||
Account receivables, net | $ | - | $ | 120,000 |
No provision for doubtful accounts was recognized for the three and nine months ended September 30, 2022 and 2021, respectively.
5. INVESTMENTS
We adopted ASU 2016-01 on January 1, 2018. This guidance requires us to measure all equity investments that are not accounted for under the equity method or result in consolidation at fair value and recognize any changes in net income. For equity investments with readily determinable and observable fair values, we use quoted market prices to determine the fair value of China. Ms. Wangequity securities. For equity investments without readily determinable fair values, we have elected the measurement alternative under which we measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
Equity investments with readily determinable fair values that are not accounted for under the equity method classified as trading are not assessed for impairment, since they are carried at fair value with the change in fair value included in net income. Similarly, prior to the adoption of ASU 2016-01, equity investment classified as trading was not tested for impairment.
Equity investments without readily determinable fair values are reviewed each reporting period to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of each investment. When such events or changes occur, we assess the fair value compared to our cost basis in the investment. We also perform this assessment every reporting period for each investment for which our cost basis has exceeded the fair value.
For investments in privately-held companies, management’s assessment of fair value is based on valuation methodologies such as discounted cash flows, estimates of revenue and appraisals, as applicable. We consider and apply the assumptions that we believe market participants would use in evaluating estimated future cash flows when utilizing the discounted cash flow or estimates of revenue valuation methodologies. In the event the fair value of an investment declines below our cost basis, management determines if the decline in fair value is other than temporary and records an impairment accordingly.
As of December 31, 2021, our investment merely includes a shareholdernon-marketable investment in a privately held company incorporated in British Virgin Islands without readily determinable market values. We elected the measurement alternative under which we measured the investment at cost minus impairment with an adjustment to the changes from observable price changes in orderly transactions for the similar investments of the same issuer.
Management considered market conditions as the result of the global pandemic and other global macroeconomic conditions and the legal representativepotential impact on the value of Chongqing. Both Chongqingthe Company’s investment; accordingly, management conducted a review of each of its investments. After its review management determined that the future undiscounted cash flows were less than the carrying cost of our non-marketable investment and Ms. Wang arerecognized an impairment charge, $7,599,192 against our non-marketable investment. Management estimated future revenues and costs, and the non-related partiesrelated cash flows regarding this investment, as well as applying assumptions regarding the proper inputs into the weighted average cost of capital which included the consideration of comparable market participants and the Company’s own capital structure in developing a discounted flow model to determine an update carrying value for the Company.private-held investment.
The carrying value is measured as the total initial cost minus impairment. The carrying value for our non-marketable investment is summarized below:
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Total initial cost | $ | 10,630,120 | $ | 10,630,120 | ||||
Cumulative net gain (loss) | - | - | ||||||
Provision for impairment | (7,599,192 | ) | (1,333,506 | ) | ||||
Total carrying value | $ | 3,030,928 | $ | 9,296,614 |
We recorded an unrealized loss in connection with the non-marketable investment, a further impairment loss of $6,265,686 was recognized for nine months ended September 30, 2022.
6. ASSET IMPAIRMENTS
Our subsidiary, Hong Kong Takung, entered into loan agreements (the “US Dollar Loans”) with Merit Crown Limited,recorded an asset impairment charge of $16,538,781, as a result of the deconsolidation of Tianjin Takung due to the loss of control of Tianjin Takung in the fourth quarter of 2021. Hong Kong company (“Merit Crown) with interest accruing at a rateTakung considered the receivables from Tianjin Takung to be uncollectible and wrote off its investment in Tianjin Takung. These charges have been included in the net loss from discontinued operations for the year ended December 31, 2021. As of 8% per annum (See Note 8). Merit Crown is a non-related party to the Company.
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.
September 30, 2022, we did not incur additional receivable balances nor impairments.
6.The following represents the detail of the asset impairments as of September 30, 2022 and December 31, 2021.
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Receivables from Tianjin Takung | $ | - | $ | 16,388,254 | ||||
Investment in Tianjin Takung | - | 150,527 | ||||||
Subtotal | - | 16,538,781 | ||||||
Less: asset impairments – discontinued operations | $ | - | $ | (16,538,781 | ) | |||
Total | - | - |
7. 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 |
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Furniture, fixtures and equipment | $ | 68,910 | $ | 63,392 | ||||
Leasehold improvements | 22,938 | 23,078 | ||||||
Computer trading and clearing system | 2,410,388 | 2,429,883 | ||||||
Sub-total | 2,502,236 | 2,516,353 | ||||||
Less: accumulated depreciation | (2,443,694 | ) | (2,428,936 | ) | ||||
Sub-total | $ | 58,542 | $ | 87,417 | ||||
Less: Property and equipment, net-discontinued operations | (58,542 | ) | (80,534 | ) | ||||
Property and equipment, net | - | 6,883 |
Depreciation expense amounted to $190,626 and $133,608 for the three months ended September 30, 2017 and 2016, respectively, and $538,532 and $373,308 for the nine months ended September 30, 2017 and 2016, respectively.
7.8. ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables as of September 30, 20172022 and December 31, 20162021 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 |
The nature of other payables for continuing operations is manpower cost,IT hardware and Software fees.
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Accruals for professional fees | $ | 5,652 | $ | 90,642 | ||||
Accruals for consulting fees | 264,102 | 266,304 | ||||||
Payroll payables | - | 55,964 | ||||||
Trading and clearing system | - | 2,364 | ||||||
Other payables | 2,976,232 | 1,546 | ||||||
Subtotal | $ | 3,245,986 | $ | 416,820 | ||||
Less: Accrued expenses and other payables-discontinued operations | (813,625 | ) | (273,391 | ) | ||||
Total accrued expenses and other payables | 2,432,361 | 143,429 |
8. SHORT-TERM BORROWINGS FROM THIRD PARTIES9. RELATED PARTY BALANCES AND TRANSACTIONS
On May 29, 2021, our discontinued operation, Hong Kong Takung, entered into an interest-free loan agreement (the “HK Dollar Working Capital Loan”) with Sze Chan (“Chan”), Vice President of Hong Kong Takung, for the loan of $6,371,699 (HK$50,000,000) to Hong Kong Takung. The following table sets forth a summarypurpose 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 areis to provide Hong Kong Takung with sufficient USHong Kong 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 affiliatedrequirements 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. RELATED PARTY BALANCES AND TRANSACTIONS
The following is a list of related parties to which the Company has transactions with:
(a) Jianping Mao (“Mao”), the wife of the Vice General Manager of Hong Kong Takung.
Amount due to related party
Amount due to related party consisted of the following as of the periods indicated:
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | ||||||||
Mao (a) | $ | 1,085,480 | $ | 1,031,805 | ||||
Total | 1,085,480 | 1,031,805 |
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, Hong Kong Takung entered into a supplementary agreement with Mao that, as of 30 September 2017, the outstanding principal amount of the Loan (as defined in the Loan Agreement) to be repaid by Hong Kong Takung 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 extend the maturity date of the Outstanding Principal Loan Amount and the interest thereof byloan as May 15, 2022.
In April 2022 Chan assigned loan receivables in Hong Kong Takung to Jin Wang, one of the members of management team and it was still outstanding as below: (i) HK$4,500,000 andat September 30, 2022.
The ending balance of the interest thereof, together with the Accrued Interestamount due to be due and payable by November 30, 2017; and (ii) HK$3,500,000 together with the interest thereof to be due and payable by December 31, 2017.a related party as of respective period is indicated as follows:
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Chan | $ | - | $ | 6,410,585 | ||||
Wang | 6,371,699 | - | ||||||
Subtotal | $ | 6,371,699 | $ | 6,410,585 | ||||
Less: amount due to related party – discontinued operations | (6,371,699 | ) | (6,410,585 | ) | ||||
Total | - | - |
10. INCOME TAXES
Takung, NFT Exchange and NFT Digital were incorporated in the State of Delaware, Wyoming and New York, respectively; therefore, are subject to United States income tax. Metaverse Payment, Hong Kong Takung and Hong Kong MQ were incorporated in Hong Kong S.A.R. and are subject to Hong Kong profits tax. Tianjin Takung was incorporated in the PRC and is subject to the Enterprise Tax.
United States of America
As of September 30, 2017Takung, NFT Exchange and December 31, 2016,NFT Digital are subject to the Company in the United States had $4,008,459U.S. federal and $2,212,890 in net operating loss carried forward available to offset future taxablestate corporate income respectively. Federal net operating losses can generally be carried forward twenty years.taxes. The federal corporate net operating loss carryoverincome tax rate is expired21%. Corporate entities are required to file state income taxes in 20 taxable years followingaccordance with the taxable year of the loss.applicable state corporate income regulations.
The Company believes that it is more likely than not that these net accumulated operating losses will not be utilized in the future. Therefore, the Company has provided a full valuation allowance for the deferred tax assets arising from the losses at 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.
Hong Kong
Two-tier Profits Tax Rates
The two-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 $257,311) 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, Takung Art Holdings and Hong Kong MQ are wholly owned and under the control of Takung U.S, these entities are connected entities. Under the Ordinance, it is an entity’s election to nominate the entity that will be subject to the two-tier profits tax rates on its profits tax return. The election is irrevocable. The Company elected Hong Kong Takung to be subject to the two-tier profits tax rates.
The provision for current income and deferred taxes of the subsidiary operating in Hong Kong Takung has been calculated by applying the currentnew tax rate of taxation8.25%. Hong Kong MQ still apply the original tax rate of 16.5% for the nine months ended September 30, 2017its provision for current income and 2016, if applicable.deferred taxes.
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 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Current: | ||||||||||||||||
Federal | $ | - | $ | - | $ | - | $ | - | ||||||||
State | - | - | - | - | ||||||||||||
Foreign | 190,762 | 83,892 | 239,758 | 90,485 | ||||||||||||
Total Current | $ | 190,762 | $ | 83,892 | $ | 239,758 | $ | 90,485 | ||||||||
Deferred: | ||||||||||||||||
Federal | $ | - | $ | - | $ | - | $ | - | ||||||||
State | - | - | - | - | ||||||||||||
Foreign | - | - | - | |||||||||||||
Total Deferred | $ | - | $ | - | $ | - | $ | - | ||||||||
Total income tax expense | $ | 190,762 | $ | 83,892 | $ | 239,758 | $ | 90,485 |
A reconciliation between the Company’s actual provision for income taxes and the provision at the Hong Kong statutory rate is as follow:follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Loss before income tax expense | $ | 1,035,143 | $ | (1,908,788 | ) | $ | (6,864,970 | ) | $ | (9,700,614 | ) | |||||
Computed tax benefit with statutory tax rate | 108,859 | (400,844 | ) | (980,713 | ) | (2,037,129 | ) | |||||||||
Impact of different tax rates in other jurisdictions | (52,026 | ) | 766 | (65,388 | ) | 1,864 | ||||||||||
Impact of preferred tax rate | 66,988 | (158,079 | ) | 339,386 | (152,689 | ) | ||||||||||
U.S. tax on foreign entities | - | 213,238 | - | 213,238 | ||||||||||||
Tax effect of non-deductible expenses | - | 31,084 | - | 95,459 | ||||||||||||
Changes in valuation allowance | 66,940 | 524,905 | 946,473 | 2,098,066 | ||||||||||||
Others | - | (127,178 | ) | - | (128,324 | ) | ||||||||||
Total income tax expense | $ | 190,761 | $ | 83,892 | $ | 239,758 | $ | 90,485 |
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 |
Uncertain tax positions
The Company's effectivereconciliation of the beginning and ending amount of liabilities associated with uncertain tax ratepositions is as follows:
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
(Unaudited) | ||||||||
Uncertain tax liabilities, beginning of period | $ | - | $ | 101,789 | ||||
Settlements with tax authority during current year | - | (101,789 | ) | |||||
Uncertain tax liabilities, end of period | $ | - | $ | - |
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by the respective jurisdictions, where applicable. The statute of limitations for the tax returns varies by jurisdictions.
The amounts of uncertain tax liabilities listed above are based on the recognition and measurement criteria of ASC Topic 740, and the balance is presented as current liability in the consolidated financial statements as of March 31, 2022 and December 31, 2021. The Company anticipated that the settlements with the taxing authority are remitted within one year.
Our policy is to include interest and penalty charges related to uncertain tax liabilities as necessary in the provision for income taxes. The Company has a liability for accrued interest of $nil as of September 30, 2022 and December 31, 2021, respectively.
Our discontinued operation, Hong Kong Takung, was 82.2%selected for routine examination for its tax years ended December 31, 2016 through 2018 by Hong Kong Inland Revenue Department (“IRD”) during the fiscal year ended 2020. The examination had been concluded in May 2021 and 19.6%the ultimate resolution of the tax examination concurred with the uncertain tax liabilities previously accrued. Hong Kong Takung settled the entire tax liabilities in September 2021. The Company does not expect the position of uncertain tax liabilities will significantly fluctuate within the next twelve months.
The statute of limitations for the Internal Revenue Services to assess the income tax returns on a taxpayer expires three years from the due date of the profits tax return or the date on which it was filed, whichever is later.
In accordance with the Hong Kong profits tax regulations, a tax assessment by the IRD may be initiated within six years after the relevant year of assessment, but extendable to 10 years in the case of potential willful underpayment or evasion.
In accordance with PRC Tax Administration Law on the Levying and Collection of Taxes, the PRC tax authorities generally have up to five years to assess underpaid tax plus penalties and interest for PRC entities’ tax filings. In the case of tax evasion, which is not clearly defined in the law, there is no limitation on the tax years open for investigation. Accordingly, the PRC entities remain subject to examination by the tax authorities based on the above.
11. LEASES
The Company has operating leases for its office facilities and artwork storages. The Company’s leases have remaining terms of less than one year to approximately four years. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease 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 September 30, 2022 and December 31, 2021 respectively:
As of | As of | |||||||||
September 30, | December 31, | |||||||||
Assets/liabilities | Classification | 2022 | 2021 | |||||||
(Unaudited) | ||||||||||
Assets | ||||||||||
Operating lease right-of-use assets | Operating lease assets | $ | 13,710 | $ | 62,397 | |||||
Liabilities | ||||||||||
Current | ||||||||||
Operating lease liability - current | Current operating lease liabilities | $ | 13,710 | $ | 62,397 | |||||
Long-term | ||||||||||
Operating lease liability - non-current | Long-term operating lease liabilities | - | - | |||||||
Total lease liabilities | $ | 13,710 | $ | 62,397 |
The operating lease expenses for the three months ended September 30, 2017 and 2016, respectively, and 36.0% and 22.8% for the nine months ended September 30, 20172022 and 2016, respectively.2021 were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
Lease Cost | Classification | 2022 | 2021 | 2022 | 2021 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||
Operating lease cost | Cost of revenue, general and administrative expenses | $ | 28,322 | $ | 127,173 | $ | 50,165 | $ | 294,399 | |||||||||
Total lease cost | $ | 28,322 | $ | 127,173 | $ | 50,165 | $ | 294,399 | ||||||||||
Operating lease cost-discontinued operations | Cost of revenue, general and administrative expenses | (28,322 | ) | (127,173 | ) | (50,165 | ) | (294,399 | ) | |||||||||
Total lease cost | - | - | - | - |
11. COMMITMENTS AND CONTINGENCIES
Maturities of operating lease liabilities at September 30, 2022 were as follows:
Operating | ||||
Maturity of Lease Liabilities | Leases | |||
2022 | $ | 13,873 | ||
2023 | - | |||
2024 | - | |||
2025 | - | |||
Thereafter | - | |||
Total lease payments | $ | 13,873 | ||
Less: interest | 163 | |||
Present value of lease payments | $ | 13,710 |
Operation Commitments
12. EARNINGS/(LOSS) PER SHARE
The total future minimum lease payments under the non-cancellable 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 expensecomputation of the Company was $293,338Company’s basic and $199,514 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.
15
12. EARNINGS PER SHARE
Basic earningsdiluted net earnings/(loss) 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.as follows:
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 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Numerator: | ||||||||||||||||
Net profit/(loss) - continuing operations | $ | 896,558 | $ | (853,182 | ) | $ | (6,421,188 | ) | $ | (8,234,124 | ) | |||||
Net loss - discontinued operations | (52,177 | ) | (1,139,498 | ) | (683,540 | ) | (1,556,975 | ) | ||||||||
Total net income/(loss ) | 844,381 | (1,992,680 | ) | (7,104,728 | ) | (9,791,099 | ) | |||||||||
Denominator: | ||||||||||||||||
Weighted-average shares outstanding - Basic | 26,529,422 | 12,689,317 | 21,357,138 | 11,897,019 | ||||||||||||
Stock options and restricted shares | - | - | - | - | ||||||||||||
Weighted-average shares outstanding - Diluted | 61,082,469 | 12,689,317 | 41,665,082 | 11,897,019 | ||||||||||||
Loss per share-continuing operations | ||||||||||||||||
-Basic | 0.03 | (0.07 | ) | (0.30 | ) | (0.69 | ) | |||||||||
-Diluted | 0.01 | (0.07 | ) | (0.15 | ) | (0.69 | ) | |||||||||
Loss per share-discontinued operations | ||||||||||||||||
-Basic | (0.00 | ) | (0.09 | ) | (0.03 | ) | (0.13 | ) | ||||||||
-Diluted | (0.00 | ) | (0.09 | ) | (0.02 | ) | (0.13 | ) |
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.
For the three months endedAs of September 30, 2017,2022 and December 31, 2021, there were no outstanding stock options, but there were warrants attached to PIPE executed on April 14, 2022 and July 27, 2022 securities that would potentially be converted to additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued were excluded from the calculation of diluted earningsnet loss per share. NFT Exchange LIMITED has received 30 million USD proceeds on September 1,2022 for PIPE executed on July 27,2022 and NFT Exchange LIMITED has received 30 million USD proceeds on April 6,2022 for PIPE executed on April 14,2022. NFT Exchange LIMITED receives funds on behalf of Takung Art Co., Ltd.
13.SUBSEQUENT EVENTS
On November 1, 2022, the Company, TKHK, TKMQ and Fecundity Capital Investment Ltd. (“Fecundity”) entered into a certain share calculation did not include optionspurchase agreement (the “Disposition SPA”) to purchase up to 109,160 sharesTKTJ, TKHK and TKMQ for cash consideration of $1 million (the “Disposition”). The closing of the Company'sDisposition is subject to certain closing conditions including the payment of the Purchase Price, the receipt of a fairness opinion from Access Partner Consultancy & Appraisals and the approval of the Company’s shareholders.
On November 1, 2022, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with NFT Limited (“NFT”), a Cayman Islands exempt company and wholly owned subsidiary of the Company, pursuant to which the Company will merge with and into NFT, with NFT continuing as the surviving entity (the “Redomicile”). The Redomicile will become effective at such time on the closing date as the certificate of merger is duly filed with the Secretary of State of the State of Delaware or at such other time specified in the Certificate of Merger (the “Effective Time”). From and after the Effective Time, each share of the Company’s stock, either 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, 2017or preferred stock issued 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”) relatedoutstanding prior to the Consulting AgreementEffective Time (excluding certain excluding shares and dissenting shares, if any) will be automatically converted into Class A Ordinary Shares of NFT on a pro rata basis. Each share of NFT stock held immediately prior to the Effective Time by the Company will be automatically cancelled and no payment will be made with Regeneration Capital Group, LLC (“Regeneration”) were placed in an escrow account and wererespect thereto. The closing of the Redomicile is 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
Other thansatisfaction or waiver of customary conditions by the newly signed extension agreements as disclosed in Note 8,respective parties, including the approval of the Merger Agreement and the supplementary agreement with related party as disclosed in Note 9 above,contemplated transactions by the Company does not identify any other subsequent events with material financial impact on the unaudited condensed consolidated financial statements.Company’s shareholders.
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 lookingforward-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.
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 nowthrough our only operating wholly-owned subsidiary.
Hong Kong Takung operateswholly owned subsidiary, NFT Exchange, operate an electronic online platform located at http:https://eng.takungae.comwww.nftoeo.com/ for artists, art dealers and art investors to offer and trade in valuable artwork.
Through Hong Kong Takung, we We offer on-lineonline listing and trading services that allow artists/artists, art dealers/dealers and owners to access a much bigger art trading market where they can engage with a wide range of investors that they might not encounter without our platform. Our
In July 2021, Takung appointed Mr. Kwok Leung Li as the CEO to lead the new direction with three initiatives to develop our blockchain and NFT related businesses.
In May 2022, we launched our blockchain NFT online platform also makes investment in high-end and expensive artwork more accessible to ordinary people without substantial financial resources.at www.nftoeo.com.
NFT Market Insights
Digital artwork based on NFT technology is becoming a hot asset. The earliest NFT projects can be traced back to the 2017 bull market CryptoKitties (the encrypted cats), which had the properties of scarcity and value anchoring of ownership. At its peak, a virtual cat could sell for more than $100,000. In terms of NFT artwork, in March 2021, artist Beeple’s NFT work “Every Day: The First 5,000 Days” sold for $69.346 million, making it the third-highest price for a living artist. According to a report by Invezz, the NFT market was worth $338 million in 2020, and it has grown to reach $490 million in 2021. With the help of the bull market wave, NFT has grown rapidly., As of the first quarter of 2021, the total transaction volume of the NFT market has exceeded 1.5 billion US dollars, an increase of more than 2627% from the previous quarter. In April 2021, the total market value of NFTs exceeded $30 billion for the first time, setting a new all-time high. Currently, NFTs can be used in the fields including games, artworks, domain names, insurance, collectibles, virtual assets, real assets, identities, etc. With the vigorous development of the digital world, many businesses will appear in the form of digital original ecology, and the huge application space and technological imagination of NFT are expected to become more and more attractive in the new digital economy world.
New Business Model
TKAT’s business model revolves around the theme of “free circulation of value and creation of a unique digital work exchange platform,” allowing each user to create, buy and sell various irreplaceable digital works to realize the value of works.
New Business Services
A. | Providing consulting services such as artwork valuation/appreciation potential |
TKAT taps into the needs of users to provide comprehensive consulting services such as labor cost, artist influence, artistic value of works, and channels for obtaining works, which not only serves customers but also creates value for the company.
B. | NFT trading service |
TKAT has built a fully functional NFT trading platform, which was launched in May 2022. The platform carries the categories of digital works including artwork, music videos, collectibles, game props, sports, metaverse, virtual world, social tokens, and meet the needs of various users as much as possible. Users are able to complete the whole business process including user registration, certification, work uploading, work casting, and work trading through the platform. The platform was launched and placed in service in May 2022. In the transaction process, it not only meets the needs of customers for uploading and purchasing digital works, but the company also extracts a portion of the handling fee (including token minting, first sale, and second sale) to create value.
C. | Advertising service |
Once the TKAT platform has accumulated a larger user base, it can provide advertising and publicity services for users or the company itself. The business model is not limited to categories and industries, such as investment promotion, work promotion, and industry promotion.
New Strategic Direction
TKAT is committed to creating a digital original ecological platform that integrates games, artworks, domain names, insurance, collectibles, virtual assets, real assets, identity and other fields, and changes the market status of traditional industries through its own efforts. Strategic goals include basic platform building, targeted population entry, providing services (consulting services, transaction services, advertising services), optimizing the platform and expanding the scope of services.
Competitor Analysis
Opensea is an NFT market exchange. It has more than 20,000 users. Compared with projects in the popular decentralized finance (“DeFi”) field, it is second only to Uniswap, kyber and Compound, and higher than maker, 0x, etc. As a trading platform with a relatively high status in the NFT field, OpenSea has a complete range of collections, equivalent to Taobao in the NFT world. At present, the trading market of OpenSea has nearly 40,000 users, and the monthly transaction volume exceeds 5 million US dollars. Coinbase’s new NFT platform hits 1.4 million signups. The Coinbase platform has an active population of 50,000 users. The service rates for each service are as follows: 1. Rarible’s minting fees are borne by the creators themselves, and the royalties are also set by the creators themselves, with default amounts of 10%, 20% and 30%. 2. VIV3’s NFT minting costs and profits come from the 12.5% service fee it collects on the first and second sales. 3. OpenSea does not need gas fee to mint NFT. 4. Rarible charges a 2.5% service fee on the first sale. On the SuperRare platform, a 15% commission is charged on the first sale and a 3% fee (paid by the buyer) is charged on the second sale.
Competitive Advantages
The advantages of Takung in the NFT transaction and blockchain market are as follows:
A. Innate industry advantages
In recent years, digital artworks of NFT technology based on blockchain technology are becoming popular assets. The NFT online platform the Company built can effectively solve the current situation such as unclear ownership of property, difficulty in distinguishing authenticity and low efficiency of artwork circulation. Converting the business development from offline to online operation, so that the value of digital works can be freely circulated online.
B. Advantages of the core management team
The core team members of Takung have experience in blockchain technology development and NFT trading platform operation, which can ensure a smoother development and business operation in the later stage.
C. Takung’s platform advantages
The currently developed and launched NFT online trading platform supports multi-category product uploads, including Digital art, Digital oil painting, Produced by Gallery, Personal products, Artist signature, Oil on canvas, Print, Paper ink, Device, Comprehensive media, Derivative, and it will be continuously enriched and improved according to customer interests. The NFT trading platform has stable performance, high security and is easy to maintain. At the front end of the system, the Company will continuously improve the operability and user experience of the system focusing on improving the user experience.
D. Technical advantages
Takung’s digital works exchange platform that has been launched is built by a professional technical team. Each technician has rich industry experience, can work under a short development cycle or high pressure, and has a number of relevant industry benchmarking projects experience. The capability of the technical team ensures the strong technical support in later system optimization and iterative updates.
E. Marketing advantages
The Company has a professional marketing team. After the platform goes online, it can be promoted online and offline simultaneously, so as to quickly increase the popularity of the platform, and use professional marketing solutions to attract more creators and purchasers to join in the platform.
We expect that we will generate revenue from our services in connection with the offering and trading of artworkNFT on ourthe Company’s system, primarily consisting of listing fees,membership fee, trading commissions, management fees and authorized agent subscription.advertising fees.
On July 28, 2015, Hong Kong Takung incorporated a wholly owned subsidiary, Takung (Shanghai) Co., Ltd. (“Shanghai Takung”), in Shanghai Free-Trade Zone (SFTZ) in Shanghai, China, with a registered capital of $1 million. Shanghai Takung is engaged in providing services to its parent company Hong Kong Takung by receiving deposits from and making payments to online artwork traders for and on behalf of Hong Kong Takung.
On January 27, 2016, Hong Kong Takung incorporated another subsidiary, Takung Cultural Development (Tianjin) Co., Ltd (“Tianjin Takung”), a limited liability company, with a registered capital of $1 million in Tianjin Pilot Free Trade Zone in Tianjin, People’s Republic of China. Tianjin Takung provides technology development services to Hong Kong Takung and Shanghai Takung, and also carries out marketing and promotion activities in mainland China.
Recently Shanghai Takung set up an office in Hangzhou to carry out technology development.
Since July 28, 2016, we have expanded access to our trading platform to residents of Russia, Mongolia, Australia and New Zealand – our first major expansion of operations outside of China. To further stimulate trading interest, we have added selected portfolios from these countries to our platform, which now numbers 199 artworks including three Russian painting portfolios and fifteen Mongolian paintings.
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 Harcourt Road, Central 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 read in conjunction with the unaudited condensed consolidated Financial Statements of the Company for the three-month and nine-month period ended September 30, 2017 and 2016 and related notes thereto.
THREE-MONTH PERIODTHREE MONTHS ENDED SEPTEMBER 30, 20172022 COMPARED TO THREE-MONTH PERIODTHREE MONTHS ENDED SEPTEMBER 30, 20162021
Revenue
The following tables set forth our condensed consolidated statements of income data:
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenue | $ | 3,355,011 | $ | 5,742,209 | ||||
Cost of revenue | (292,168 | ) | (285,252 | ) | ||||
Selling expense | (624,151 | ) | (652,207 | ) | ||||
General and administrative expenses | (2,498,848 | ) | (1,744,965 | ) | ||||
Total costs and expenses | (3,415,167 | ) | (2,682,424 | ) | ||||
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 |
The following tables set forth our interim condensed consolidated statements of income data (aswith a percentage of revenue):percentage:
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 September 30, | ||||||||||||||||
2022 | % of Revenue | 2021 | % of Revenue | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenue-Continuing operations | $ | 1,634,960 | 100 | $ | - | - | ||||||||||
Revenue-Discontinued operations | - | - | 2,608,677 | 100 | ||||||||||||
Cost of revenue-Continuing operations | (216,930 | ) | (13 | ) | - | - | ||||||||||
Cost of revenue-Discontinued operations | - | - | (719,826 | ) | (28 | ) | ||||||||||
Selling expenses-Continuing operations | - | - | - | - | ||||||||||||
Selling expenses-Discontinued operations | - | - | (48,511 | ) | (2 | ) | ||||||||||
General and administrative expenses-Continuing operations | (330,535 | ) | (20 | ) | (910,817 | ) | - | |||||||||
General and administrative expenses-Discontinued operations | (60,729 | ) | - | (2,906,818 | ) | (111 | ) | |||||||||
Total costs and expenses-Continuing operations | (547,465 | ) | (33 | ) | (910,817 | ) | - | |||||||||
Total costs and expenses-Discontinuing operations | (60,729 | ) | - | (3,675,155 | ) | (141 | ) | |||||||||
Loss from continuing operations | 1,087,495 | 67 | (910,817 | ) | - | |||||||||||
Other(expenses)income - Continuing operations | (175 | ) | 0 | 57,635 | - | |||||||||||
Other(expenses)income - Discontinuing operations | 8,552 | - | 10,872 | 1 | ||||||||||||
Loss before income taxes -Continuing operations | 1,087,320 | 67 | (853,182 | ) | - | |||||||||||
Income tax expense | 190,762 | 12 | 0 | - | ||||||||||||
Net loss from Continuing operation | $ | 896,558 | 55 | $ | (853,182 | ) | - | |||||||||
Loss before income tax-Discontinued operations | (52,177 | ) | - | (1,055,606 | ) | (40 | ) | |||||||||
Income tax expenses-Discontinued operations | - | - | 83,892 | 3 | ||||||||||||
Net loss from Discontinued operations | (52,177 | ) | - | (1,139,498 | ) | (44 | ) | |||||||||
Net loss | 844,381 | 52 | (1,992,680 | ) | (74 | ) |
Revenue
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
For the three months ended September 30, 20172022 and 2016,2021, our operations generated revenues in an amount of $1,634,960 and $2,608,677, respectively.
The following table sets forth our interim condensed consolidated revenue by revenue source:
Three Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Listing fee-Continuing operations | $ | - | $ | - | ||||
Listing fee-Discontinued operations | - | 320,173 | ||||||
Commission-Continuing operations | 1,634,960 | - | ||||||
Commission-Discontinued operations | - | 1,083,976 | ||||||
Management fee-Continuing operations | - | - | ||||||
Management fee-Discontinued operations | - | 1,124,528 | ||||||
Consultancy fee-Continuing operations | ||||||||
Consultancy fee-Discontinued operations | - | 80,000 | ||||||
Total Revenue-Continuing operations | $ | 1,634,960 | $ | - | ||||
Total Revenue-Discontinued operations | - | 2,608,677 |
(i) | Listing fee revenue |
Listing fee revenue is calculated based on a percentage of the listing value and transaction value of artworks.
Listing value is the total offering price of an artwork when the ownership units are initially listed on our trading platform. We utilize an appraised value as a basis to determine the appropriate listing value for each artwork, or portfolio of artworks.
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 For the three months ended September 30, 2017, there were 6 sets of paintings2021 and calligraphies, 9 pieces of precious stones, 1 pieces of jewelry and 1 set of Unit+ product listed on our platform. Their total listing values were $2,118,726 (HK$16,500,000) for the 6 sets of paintings and calligraphies, $1,132,555 (HK$ 8,820,000) for the 9 pieces of precious stones, $46,227 (HK$360,000) for the 1 pieces of jewelry and $152,578 (HK$1,188,000) for the 1 set of Unit+ product, of which 41.5%-47% (for the 6 sets of paintings and calligraphies), 26%-46% (for the 9 pieces of precious stones), 43% (for the 1 pieces of jewelry) and 30.3% (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 7 sets of paintings and calligraphies, 7 pieces of amber, 14 pieces of precious stones, 5 pieces of jewelry successfully listed on our system. The total listing values were $1,802,475 (HK$14,000,000) 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% (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) of the listed values were charged as listing fees, respectively.
The decrease in number of pieces listed, listing values and corresponding listing fees charged during the three months ended September 30, 2017 compared to the same period ended September 30, 2016 resulted in a decrease in2022, 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 levels of liquidity, market value, number of owners$320,173 and number of VIP traders. Therefore, the listing schedule of some artworks were deferred to a later time.$nil from discontinued and continued operations respectively.
(ii) | Commission fee revenue |
For non-VIP Traders, the commission revenue was calculated based on a percentage of transaction value of artworks, which we charge trading commissions for the purchase and sale of the ownership shares of the artworks. The commission is typically 0.3%5% 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).transaction. The commission is accounted for as revenue and immediately deducted from the proceeds from the sales of artwork units when a transaction is completed.
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, starting from April 1, 2016, we charged a predetermined monthly fee (unlimited trades for specific artworks) for specific artworks. These Traders are selected by authorized agents and reviewed by us. After review, we negotiate individually with each one of them to determine a fixed monthly fee. Different Traders may have different rates but once negotiated and agreed to, the monthly fee is fixed.
Commission rebate programs are offered to Traders and service agents. We would rebate 5% of the commission earned from the transactions of new Traders referred by the existing Traders. The rebate rate was adjusted from 15% to 5%, starting from January 1, 2017. For service agents, we rebate a total of 40% to 60% of the commission earned from transactions with new Traders to the service agents when they bring in an agreed number of Traders to the trading platform. For service agents who have individual referrers referring Traders to us, we will, after rebating such individual referrers 15% of the commission earned from the transactions of new Traders they referred, deduct such 15% of the commission from the rebates payable to the service agents to which such individual referrers belong. The commission rebate is recognized as reduction of the commission revenue. The rebates and discounts are recognized as a reduction of revenue in the same period the related revenue is recognized.
In spite of this, total commission revenue decreased by $172,872 or 10% for the three months ended September 30, 2017 to $1,496,826 compared to $1,669,698 for the three months ended September 30, 2016 primarily because of the change in our commission fee policy2021 and the decrease of transaction volume of non VIP traders2022 was $1,083,976 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.$1,634,960 from discontinued and continued operations respectively.
(iii) | Management fee revenue |
We chargeOur legacy online trading platform from discontinued operations charges Traders a management fee to cover the costs of insurance, storage, and transportation for an artwork and trading management of artwork units, which are calculated at $0.0013 (HK$0.01) per 100 artwork units per day.units. The management fee is recognized when the artwork is sold and is deducted from proceeds from the sale of artwork units.ownership shares when there is a purchase and sale transaction.
During the three-month period ended September 30, 2017,Our operations did not generate management fee revenue decreased by $378,672, from $781,219our legacy trading platform for the three months ended September 30, 2016 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 the completion of the transactions. Although the listed artworks increased, the management fee decreased by the promotions.
During the three-month period ended September 30, 2017, annual fee revenue decreased by $300, from $4402022 and had $1,124,528 for the three-month periodthree months ended September 30, 2016 to $140.September,30, 2021.
(v) Authorized agent subscription revenueRevenue by customer type
Authorized agent subscriptionThe following table presents our revenue was nil 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 subscription revenue in order to encourage high quality authorized agent to sign up with our platform.by customer type:
Three months ended September 30, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Artwork owners | $ | - | $ | 320,173 | ||||
Non – VIP Traders | 1,634,960 | 1,153,367 | ||||||
VIP Traders | 1,055,137 | |||||||
Corporate advisee | - | 80,000 | ||||||
Total | $ | 1,634,960 | $ | 2,608,677 |
Cost of Revenue
Three months ended September 30, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Commissions paid to service agents | $ | - | 609,752 | |||||
Depreciation | - | $ | 35,854 | |||||
Internet service charge | 216,930 | 43,661 | ||||||
Artwork insurance | - | 12,710 | ||||||
Artwork storage | - | 17,849 | ||||||
Total | $ | 216,930 | $ | 719,826 |
Cost of revenue of our continued and discontinued operations for the three months ended September 30, 2022 and 2021 were $216,930 and $719,826, respectively. The cost of revenue for the three months ended September 30, 2017 and 20162022 was $292,168 and $285,252, respectively. Our cost ofincurred related to the revenue primarily includes internet service fee, depreciation and amortization of hardware and software forgenerated by our NFT online trading platform.system.
Gross Profit
Gross profit for our operations was $3,062,843$1,418,030 and $1,888,851 for the three months ended September 30, 2017, compared to $5,456,957 for the three months ended September 30, 2016. The decrease was due to the less artworks listed on our platform, the change in our commission fee policy2022 and the decrease of transaction volume of non VIP traders and non-selected traders.2021, respectively.
Listing fees contributed 43.4% of the total revenue for the three months ended September 30, 2017 compared to 51.7% in the corresponding period in 2016, while commission revenue contributed 44.6% for the three months ended September 30, 2017 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% for the same period in 2016.
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, 20172022 were $2,498,848$391,264 compared to $1,744,965$3,817,635 for the three months ended September 30, 2016. The substantial increase was primarily due to an increase in salaries by $258,469 because of an increase in employee headcount, accrual of doubtful account by $241,248, office, insurance and rental expense by $141,281 and an increase in travelling expenses by $116,220 which were incurred to attend to the listing of our common stock on the NYSE American.2021.
The following table sets forth the main components of the Company’s general and administrative expenses for the three months ended September 30, 20172022 and 2016.September 30, 2021.
Three months ended September 30, 2017 | Three months ended September 30, 2016 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Amount($) | % of Total | Amount($) | % of Total | |||||||||||||
Consultancy fee | $ | 46,059 | 2 | % | $ | 92,809 | 5 | % | ||||||||
Legal and professional fees | 218,066 | 9 | % | 247,278 | 14 | % | ||||||||||
Salary and welfare | 1,008,736 | 40 | % | 750,267 | 43 | % | ||||||||||
Office, insurance and rental expenses | 430,047 | 17 | % | 288,766 | 17 | % | ||||||||||
Non-deductible input VAT expenses | 6,924 | 0 | % | - | - | % | ||||||||||
Traveling and accommodation fees | 187,780 | 8 | % | 71,560 | 4 | % | ||||||||||
Share-based compensation | 138,161 | 6 | % | 186,928 | 11 | % | ||||||||||
Bad debt expenses | 241,248 | 10 | % | - | - | % | ||||||||||
Others | 221,827 | 8 | % | 107,357 | 6 | % | ||||||||||
Total general and administrative expenses | $ | 2,498,848 | 100.0 | % | $ | 1,744,965 | 100.0 | % |
Three months ended September 30, | ||||||||||||||||
2022 | % of Total | 2021 | % of Total | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Salary and welfare | $ | 141,113 | 36.1 | $ | 288,820 | 7.6 | ||||||||||
Office, insurance and rental expenses | 0 | 0 | 205,203 | 5.4 | ||||||||||||
Legal and professional fees | 89,586 | 22.9 | 622,912 | 16.3 | ||||||||||||
Non-deductible input VAT expense | - | - | 62,525 | 1.6 | ||||||||||||
Travel and accommodation fees | 3 | 0 | 24,865 | 0.7 | ||||||||||||
Consultancy fee | 108,081 | 27.6 | 159,304 | 4.2 | ||||||||||||
Depreciation | 52,481 | 13.4 | 21,893 | 0.6 | ||||||||||||
Share based compensation expense | - | - | 1,897,600 | 49.6 | ||||||||||||
Others | - | - | 534,513 | 14.0 | ||||||||||||
Total general and administrative expense | $ | 391,264 | 100.0 | $ | 3,817,635 | 100.0 | ||||||||||
Deduct: General and administrative expense-Discontinued operations | 60,729 | 15.5 | (2,906,818 | ) | 76.1 | |||||||||||
General and administrative expense-Continuing operations | 330,535 | 84.5 | 910,817 | 23.9 |
Net IncomeOther (expenses) income
We had a net incomeOther expenses for the operations for the three months ended September 30, 2017 of $27,034 compared to net2022 and 2021 were $8377 and $68,507, respectively.
Loss before income of $2,451,737taxes
Our continuing operations incurred profit or loss before income taxes $1,087,320and $(853,182) for the three months ended September 30, 2016.
The decrease in net income by $2,424,703 during this current period was primarily due to a decrease of revenue by $2,387,198 as discussed in the previous paragraphs.
2022 and 2021, respectively.
NINE-MONTH PERIODOur discontinued operations incurred loss before income taxes, $52,177 and $1,055,606 for the three months ended September 30, 2022 and 2021, respectively.
Income tax expense
For the three months ended September 30, 2022 and 2021, our continuing operations incurred income tax expense as $190,762 and $nil, respectively.
The income tax expense from the discontinued operations for the three months ended September 30, 2022 and 2021 were $nil and $83,892.
Net Loss
As a result of our operations aforementioned, our net profits or losses after income taxes for continuing operations for the three months ended September 30, 2022 and 2021 were $896,558 and $(853,182), respectively. Our discontinued operations generated net loss after income tax $52,177 and $1,139,498 for the three months ended September 30, 2022 and 2021, respectively.
Foreign currency translation gain (loss)
We had a foreign currency translation loss for the three months ended September 30, 2022 and 2021 of $221,165 and $34,280, respectively.
Comprehensive loss
As a result of the above, we posted a comprehensive profit or loss of $623,216 and $(2,026,960) for the three months ended September 30, 2022 and 2021, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 20172022 COMPARED TO NINE-MONTH PERIODNINE MONTHS ENDED SEPTEMBER 30, 20162021
Revenue
The following tables set forth our condensed consolidated statements 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 |
Nine Months Ended September 30, | ||||||||||||||||
% of | % of | |||||||||||||||
2022 | Revenue | 2021 | Revenue | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenue-Continuing operations | 2,329,135 | 100 | - | - | ||||||||||||
Revenue-Discontinued operations | - | - | 4,531,280 | 100 | ||||||||||||
Cost of revenue-Continuing operations | (367,860 | ) | (16 | ) | - | - | ||||||||||
Cost of revenue-Discontinued operations | (1,424,528 | ) | (31 | ) | ||||||||||||
Selling expenses-Continuing operations | - | - | - | - | ||||||||||||
Selling expenses-Discontinued operations | - | - | (284,980 | ) | (6 | ) | ||||||||||
General and administrative expenses-Continuing operations | (8,142,254 | ) | (349 | ) | (8,453,469 | ) | - | |||||||||
General and administrative expenses-Discontinued operations | (691,927 | ) | - | (4,329,638 | ) | (96 | ) | |||||||||
Total costs and expenses-Continuing operations | (8,510,114 | ) | (365 | ) | (8,453,469 | ) | - | |||||||||
Total costs and expenses-Discontinued operations | (691,927 | ) | - | (6,039,146 | ) | (133 | ) | |||||||||
Loss from continuing operations | (6,180,979 | ) | (265 | ) | (8,453,469 | ) | - | |||||||||
Other(expenses)income-Continuing operations | (451 | ) | - | 219,345 | - | |||||||||||
Other(expenses)income-Discontinued operations | 8,387 | - | 41,376 | 1 | ||||||||||||
Loss before income taxes-Continuing operations | (6,181,430 | ) | (265 | ) | (8,234,124 | ) | - | |||||||||
Income tax expenses-Continuing operations | 239,758 | 10 | - | - | ||||||||||||
Net loss from Continuing operations | $ | (6,421,188 | ) | (276 | ) | $ | (8,234,124 | ) | - | |||||||
Loss before income tax-Discontinued operations | (683,540 | ) | - | (1,466,490 | ) | (32 | ) | |||||||||
Income tax expenses-Discontinued operations | - | - | 90,485 | 2 | ||||||||||||
Net loss from Discontinued operations | (683,540 | ) | - | (1,556,975 | ) | (34 | ) | |||||||||
Net loss | (7,104,728 | ) | (305 | ) | (9,791,099 | ) | (216 | ) |
Revenue
The following tables settable sets forth our condensed consolidated statements of income data (asrevenue by revenue source:
Nine months ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Listing fee-Continuing operations | $ | - | $ | - | ||||
Listing fee-Discontinued operations | - | 877,267 | ||||||
Commission-Continuing operations | 2,329,135 | - | ||||||
Commission-Discontinued operations | - | 2,090,372 | ||||||
Management fee-Continuing operations | - | - | ||||||
Management fee-Discontinued operations | - | 1,483,641 | ||||||
Consultancy fee-Continuing operations | - | - | ||||||
Consultancy fee-Discontinued operations | - | 80,000 | ||||||
Revenue-Continuing operations | $ | 2,329,135 | $ | - | ||||
Revenue-Discontinued operations | - | 4,531,280 |
(i) | Listing fee revenue |
Listing fee revenue is calculated based on a percentage of revenue):the listing value and transaction value of artworks.
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,value is the total offering price of an artwork when the ownership units are initially listed on our trading platform. We utilize an appraised value as a basis to determine the appropriate listing value for each artwork, or portfolio of artworks. For the nine months ended September 30, 20172021 and 2016,2022, listing fee was $877,267 and $nil from discontinued and continued operations 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 levels of liquidity, market value, number of owners and number of VIP traders. Therefore, the rigorous listing requirements of A-tier led some artworks listing deferred.
(ii) | Commission fee revenue |
Our trading volume and transaction value amounts increased significantly from 2015 when we commenced operations in Shanghai and consequently added a significant number ofFor non-VIP 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 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 commissionwas calculated based on a percentage of transaction value of artworks, which we charge trading commissions for the purchase and sale of the ownership shares of the artworks. The commission is typically 5% of the total amount of each transaction. The commission is accounted for as revenue and immediately deducted from the proceeds from the sales of artwork units when a transaction is completed.
Commission revenue |
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, 20162021 and 2022 was $2,090,372 and $2,329,135 from discontinued and continued operations respectively.
(iii) Management fee revenue
Our legacy online trading platform charges Traders a management fee to $967,518. From September 1, 2016, we waivedcover the costs of insurance, storage, and transportation for an artwork and trading management feesof artwork units. The management fee is recognized when the artwork is sold and is deducted from proceeds from the sale of artwork ownership shares when there is a purchase and sale transaction.
Our operations did not generate management fee revenue from our legacy trading platform for 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 periodnine months ended September 30, 2017, annual2022, but generate $1,483,641 management fee revenue increased by $10, from $869 for the nine-month periodnine months ended September 30, 2016 to $859.2021.
(v) Authorized agent subscription revenueRevenue by customer type
Authorized agent subscriptionThe following table presents our 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.by customer type:
Nine months ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Artwork owners | $ | - | $ | 877,267 | ||||
Non – VIP traders | 2,329,135 | 2,111,960 | ||||||
VIP traders | - | 1,462,053 | ||||||
Corporate advisee | - | 80,000 | ||||||
Total | $ | 2,329,135 | $ | 4,531,280 |
Cost of Revenue
Nine months ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Commissions paid to service agents | $ | - | $ | 1,096,278 | ||||
Depreciation | - | 150,398 | ||||||
Internet service charge | 367,860 | 89,638 | ||||||
Artwork insurance | - | 38,185 | ||||||
Artwork storage | - | 50,029 | ||||||
Total | $ | 367,860 | $ | 1,424,528 |
Cost of revenue for the nine months ended September 30, 20172022 and 2016September 30, 2021 was $822,335$367,860 and $822,735,$1,424,528, respectively. OurThe decline in 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, 2017,2022 compared to $13,391,517September 30, 2021 was mainly due to the continuing operations from the new NFT business is on the start stage and legacy business is treated as discontinued operations.
Gross Profit
Gross profit was $1,961,275 or 84.2% of the total revenue for the nine months ended September 30, 2016. The decrease was due2022, compared to $3,106,752 or 68.6% of 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,total revenue for the nine months ended September 30, 20172021. Gross profit amount was reduced by $1,145,477 while the gross profit margin was increased by 15.6%.
Overall total revenue for the nine months ended September 30, 2022 dropped by $2,202,145 or 48.6% compared to $1,993,782 or 15% of net sales, for the comparablesame period in 2016, a decrease by 36%. Selling expenses consist primarily of marketing expenses.2021, due to new NFT business is in the initial stage.
Operating Expenses
General and administrative expenses for the nine months ended September 30, 20172022 were $7,311,128$8,834,181, compared to $5,076,689$12,783,107, 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 $495,715 which were incurred to attend to the listing of our common stock on the NYSE American.2021.
The following table sets forth the main components of the Company’s general and administrative expenses for the nine months ended September 30, 20172022 and 2016.September 30, 2021.
Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Amount($) | % 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 | % |
Nine months ended September 30, | ||||||||||||||||
2022 | % of Total | 2021 | % of Total | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Salary and welfare | $ | 998,379 | 11.3 | $ | 749,133 | 5.9 | ||||||||||
Legal and professional fees | 734,455 | 8.3 | 1,123,575 | 8.8 | ||||||||||||
Office, insurance and rental expenses | 123,888 | 1.4 | 504,447 | 3.9 | ||||||||||||
Consultancy fee | 405,807 | 4.6 | 709,449 | 5.5 | ||||||||||||
Non-deductible input VAT expense | - | - | 147,406 | 1.2 | ||||||||||||
Depreciation | 52,946 | 0.6 | 74,991 | 0.6 | ||||||||||||
Traveling and accommodation fees | 3 | 0.0 | 58,071 | 0.5 | ||||||||||||
Share Based Compensation Expense | - | - | 8,765,467 | 68.6 | ||||||||||||
Impairment loss | 6,265,686 | 70.9 | - | - | ||||||||||||
Others | 253,017 | 2.9 | 650,568 | 5.0 | ||||||||||||
Total general and administrative expense | $ | 8,834,181 | 100.0 | $ | 12,783,107 | 100.0 | ||||||||||
Deduct: General and administrative expense-Discontinued operations | (691,927 | ) | 7.8 | (4,329,638 | ) | 33.9 | ||||||||||
General and administrative expense-Continuing operations | 8,142,254 | 92.2 | 8,453,469 | 66.1 |
Net IncomeOther income (expenses)
We had a netDuring the nine months ended September 30, 2022, the Company incurred other income in an amount of $7,936 whilst it incurred other income in an amount of $260,721 for the nine months ended September 30, 20172021.
Income tax expense
The Company’s effective tax rate varies due to the multiple jurisdictions in which it books its pretax income or losses. The Company was subject to a U.S. income tax rate of $1,057,138 compared to net21%, Hong Kong profits tax rate of 8.25% for the first HK$ 2 million (approximately $257,676) assessable profits and at 16.5% for assessable profits above HK$ 2 million (approximately $257,676) and PRC enterprise income tax rate of $4,664,63225%.
The effective tax rates for the nine months ended September 30, 2016.2022 and 2021 were 10.3% and 2.0 %, respectively.
The income tax expense were $239,758 and $90,485 for the nine months ended September 30, 2022 and 2021, respectively.
Net loss
We recorded a net loss for the nine months ended September 30, 2022 of $7,104,728 compared to net loss of $9,791,099 for the nine months ended September 30, 2021.
The decrease in the net incomeloss by $3,607,494$2,686,371 during this current period was duecompared to a fall of revenue by $3,668,575, and the increase of general and administrative expenses by $2,234,439same period ended September 30, 2021 as discussed in the previous paragraphs.above.
Liquidity and Capital Resources
The following tables set forth our condensed consolidated statements of cash flow:
Nine months ended | ||||||||
September 30, | ||||||||
2022 | 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Net cash provided by operating activities-continuing operations | $ | 4,216,434 | $ | 1,148,367 | ||||
Net cash provided by operating activities- discontinued operations | 814,295 | 42,322,860 | ||||||
5,030,729 | 43,471,227 | |||||||
Net cash provided by investing activities- continuing operations | - | (500,000 | ) | |||||
Net cash provided by investing activities- discontinued operations | 85,236 | 388,229 | ||||||
85,236 | (111,771 | ) | ||||||
Proceeds from a short-term borrowing from a third party | 300,000 | - | ||||||
Net cash provided by financing activities-continuing operations | 60,000,007 | - | ||||||
Net cash provided by financing activities-discontinued operations | - | 5,180,485 | ||||||
60,300,007 | 5,180,485 | |||||||
Effect of exchange rate change on cash and cash equivalents, and restricted cash from continuing operations | (15,888 | ) | - | |||||
Effect of exchange rate change on cash and cash equivalents, and restricted cash from discontinued operations | (3,579 | ) | (281,110 | ) | ||||
(19,467 | ) | (281,110 | ) | |||||
Net increase in cash and cash equivalents - continuing operations | 64,500,553 | 648,367 | ||||||
Net increase in cash and cash equivalents and restricted cash- discontinued operations | 895,952 | 47,610,464 | ||||||
65,396,505 | 48,258,831 | |||||||
Cash, cash equivalents and restricted cash, beginning balance- continuing operations | 1,503,153 | 31,188 | ||||||
Cash and cash equivalents and restricted cash, beginning balance- discontinued operations | 338,542 | 13,811,557 | ||||||
1,841,695 | 13,842,745 | |||||||
Cash and cash equivalents and restricted cash, ending balance- continuing operations | $ | 66,003,706 | $ | 679,555 | ||||
Cash and cash equivalents and restricted cash, ending balance- discontinued operations | 1,234,494 | 61,422,021 | ||||||
67,238,201 | 62,101,576 |
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 |
Sources of Liquidity
DuringThe cash and cash equivalent and the restricted cash balances from the continuing operations as of September 30, 2022 and 2021 were $66,003,707 and $679,555 respectively.
The cash and cash equivalent balance from the discontinued operations as of September 30, 2022 and 2021 were $1,234,494 and $ 61,422,021 respectively.
For the nine months ended September 30, 2017,2022, net cash generated fromprovided by operating activities totaled $1,028,524. Netfrom continuing operation was $4,216,434. While there was nil cash used inoutflow from investing activities totaled $561,510. No cash was generated from financing activitiesour continuing operations during the period. The resulting change in cash for the period was an increase of $1,492,553. The cash balance at the beginning of the period was $13,395,337. The cash balance on September 30, 2017 was $14,887,890.
During the nine months ended September 30, 2016,2022, our continuing operations incur 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$60,000,007 , as TKAT obtained two PIPE financing from investors.
For the nine months ended September 30, 2022, net cash provided by in operating activities by our discontinued operations was $814,295, which was a result of net loss from discontinued operations. Net cash forprovided in investing activities by our discontinued operations was $85,236. Our discontinued operations did not incur cash inflow or outflow from financing activities.
As of September 30, 2022, the period was an increasetotal current liabilities from the continuing operations were $5,911,644. Total current liabilities from our discontinued operations amount to $8,904,974.
As of $6,061,579. The cash balance atSeptember 30, 2022, the beginningcontinuing operations of the period was $10,769,456.Company had cash, restricted cash and cash equivalents of $66,003,707, a working capital in an amount of $60,097,620 and the total assets of $69,040,332. The cash balance on September 30, 2016 was $16,831,035.Company’s discontinued operations has total assets of $1,428,781.
As of September 30, 2017,2022, the Company’s continuing operation had cash and cash equivalents of $62,764,182. The Company’s discontinued operations, which primarily related to Hong Kong Takung, had cash and cash equivalents of $1,234,494.
In order to continue to maintain the liquidity requirements, the Company had $28,390,798introduced NFT business in total current liabilities, which comprisedthe fourth quarter of $780,800 in accrued expense2021 to developed service fee on NFT projects and other payables, $19,057,733 in customers’ deposits, $6,371,900 in short-term borrowings from third parties, $1,085,480 in amount duehas generated commission revenue of $2,329,135 by the end of September 30, 2022. The Company also seeks to negotiate and extend financing arrangements with the related party and $1,094,885 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.party.
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”,account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account”,account,” which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries or variable interest entities. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of “current account transactions”,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,shareholders, including holders of our shares of common stock. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our PRC subsidiaries.
Applicable PRC law permits payment of dividends to us by our operating subsidiaries 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'ssubsidiary’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.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support, and credit risk support or other benefits.
Future Financings
We have always been generating sufficient cash frommay sell our operationcommon stock in order 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.growth. Issuances of additional shares will result in dilution to existing stockholders.shareholders. There is no assurance that we will achieve any sales of the equity securities or arrange for debt or other financing to fund expansion and other activities,our growth in case it is necessary, or if we are able to do so, there is no guarantee that existing shareholders will not be substantially diluted. 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'smanagement’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 The discussion of our critical accounting policies contained in Note 2 to theour consolidated financial statements, included herewith and“Summary of Significant Accounting Policies”, is incorporated herein by reference.
Recent Accounting Pronouncements
The discussion of the recent accounting pronouncements contained in Note 2 to theour consolidated financial statements, on Form 10-K for the fiscal year ended December 31, 2016, previously filed with the SEC.“Summary of Significant Accounting Policies”, is incorporated herein by reference.
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, previously filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures Aboutabout 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 XiaoKwok Leung Paul Li, Co-Chief Executive Officer, Mr. Kuangtao Wang and our Chief Financial Officer, Mr. Chun Hin Leslie Chow.Jianguang Qian. Based upon that evaluation, the Company’s Chief Executive Officer, Co-Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of September 30, 20172022 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, Co-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, 20172022 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
27
ITEM 1. LEGAL PROCEEDINGS
Item 1. Legal Proceedings.Due to the increased regulatory scrutiny by PRC government on digital asset related businesses, the artwork unit trading platform operated by the PRC subsidiary, Tianjin Takung, was suspended by the local authority. The management became aware of the suspension on or around November 8, 2021. The local authority indicated that the suspension was to facilitate certain investigation although it did not announce the purpose of the investigation. The Company intends to fully cooperate with the local authority’s investigation. As of the date of this report, there has been no development in regard with this investigation.
None.
ITEM 1A. RISK FACTORS
Item 1A. Risk FactorsAs of the date of this report and except as set forth below, there have been no material changes to the risk factors disclosed in our annual report on Form 10-K filed with the SEC on April 15, 2022.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.None.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Item 3. Defaults Upon Senior Securities.None.
None.
ITEM 4. MINE SAFETY DISCLOSURES
Item 4. Mine Safety Disclosures.
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
Item 6. Exhibits.The following exhibits are filed herewith:
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
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 | |
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 | Inline XBRL Instance | |
101.SCH | Inline XBRL Taxonomy Extension Schema | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
(1) | Incorporated by reference to the exhibit |
(2) | Incorporated by reference to the exhibit 10.2 to our current report on Form 8-K filed with the SEC on |
(3) | Incorporated by reference to the exhibit 10.1 to our current report on Form 8-K filed with the SEC on | |
(4) | Incorporated by reference to the exhibit 10.2 to our current report on Form 8-K filed with the SEC on July 29, 2022. | |
(5) | Incorporated by reference to the exhibit 10.2 to our current report on Form 8-K filed with the SEC on August 30, 2022. |
*Filed herewith.
**Furnished herewith.
SIGNATURES
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: November | By: | /s/ |
(Principal Executive Officer) | ||
Date: November | By: | /s/ |
Chief Financial Officer | ||
(Principal Financial |