UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,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, 2017March 31, 2023
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:file number: 001-38036
TAKUNG ART CO., LTD
(Exact name of registrant as specified in its charter)
Delaware | 26-4731758 | |
incorporation or | (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. | 999077 | |
(Address of principal executive offices) | (Zip Code) |
+852 3158 0977
(Registrant’s telephone number, including area code)code +86-13020144962
(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, par value $0.001 per share | TKAT | NYSE American |
Indicate by check markcheckmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.xYes¨☒No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactiveInteractive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xYes¨☒No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 May 24, 2023, 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.
TAKUNG ART CO., LTD
FORM 10-Q
TAKUNG ART CO, LTD
INDEX
i
PART I –FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars except Number of Shares)
September 30, | December 31, | |||||||
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 |
As of March 31, | As of December 31, | |||||||
2023 | 2022 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 65,439,927 | $ | 64,794,688 | ||||
Restricted Cash | 3,395,595 | 2,705,750 | ||||||
Account receivables, net | 85,902 | 86,434 | ||||||
Prepayment and other current assets, net | 5,557 | 5,557 | ||||||
Current assets – discontinued operations | 97,415 | 97,258 | ||||||
Total current assets | 69,024,396 | 67,689,687 | ||||||
Non-current assets | ||||||||
Property and equipment, net | 5,100 | 5,482 | ||||||
Intangible assets | - | - | ||||||
Non-marketable investment, net | - | - | ||||||
Non-current assets – discontinued operations | 46,666 | 55,894 | ||||||
Total non-current assets | 51,766 | 61,376 | ||||||
Total assets | $ | 69,076,162 | $ | 67,751,063 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
LIABILITIES | ||||||||
Current liabilities | ||||||||
Accrued expenses and other payables | $ | 2,646,921 | $ | 2,131,891 | ||||
Advance from customers | 3,395,595 | 2,705,750 | ||||||
Short-term borrowing from a third party | 1,750,000 | 1,550,000 | ||||||
Tax payable | 282,157 | 255,805 | ||||||
Current liabilities – discontinued operations | 8,647,562 | 8,700,835 | ||||||
Total current liabilities | 16,722,235 | 15,344,281 | ||||||
Total liabilities | 16,722,235 | 15,344,281 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock (1,000,000,000 shares authorized; $0.001 par value; 34,991,886 shares issued and outstanding as of March 31, 2023;34,991,886 shares issued and outstanding as of December 31, 2022) | 34,992 | 34,992 | ||||||
Additional paid-in capital | 92,526,972 | 92,526,972 | ||||||
Accumulated deficits | (39,848,298 | ) | (39,797,696 | ) | ||||
Accumulated other comprehensive loss | (359,739 | ) | (357,486 | ) | ||||
Total stockholders’ equity | 52,353,927 | 52,406,782 | ||||||
Total liabilities and stockholders’ equity | $ | 69,076,162 | $ | 67,751,063 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Stated in U.S. Dollars except Number of Shares)
(UNAUDITED)
Three Months Ended | ||||||||
March 31, | March 31 | |||||||
2023 | 2022 | |||||||
Revenue | $ | 699,741 | $ | - | ||||
Cost of revenue | (150,930 | ) | - | |||||
Gross profit | 548,811 | - | ||||||
Operating expenses | ||||||||
General and administrative expenses | (657,343 | ) | (611,475 | ) | ||||
Total operating expenses | (657,343 | ) | (611,475 | ) | ||||
Loss from continuing operations | (108,532 | ) | (611,475 | ) | ||||
Other income and expenses: | ||||||||
Other (expenses) income | 93,265 | (99 | ) | |||||
Total other (expenses) income | 93,265 | (99 | ) | |||||
Loss before income taxes | (15,267 | ) | (611,574 | ) | ||||
Income tax expense | (26,352) | - | ||||||
Net loss from continuing operations | (41,619 | ) | (611,574 | ) | ||||
Loss from discontinued operations, net of income taxes: | ||||||||
Loss from discontinued operations | (8,983 | ) | (179,765 | ) | ||||
Income tax expense | - | - | ||||||
Deferred tax benefit | - | - | ||||||
Net loss from discontinued operations | (8,983 | ) | (179,765 | ) | ||||
Net loss | (50,602 | ) | (791,339 | ) | ||||
Foreign currency translation adjustment | (2,253 | ) | 21,059 | |||||
Comprehensive loss | $ | (52,855 | ) | $ | (770,280 | ) | ||
Loss from continuing operations per share of common stock – basic | $ | 0.001 | $ | (0.043 | ) | |||
Loss from continuing operations per share of common stock – diluted | $ | 0.001 | $ | (0.043 | ) | |||
Loss from discontinued operations per share of common stock – basic | $ | 0.000 | $ | (0.013 | ) | |||
Loss from discontinued operations per share of common stock – diluted | $ | 0.000 | $ | (0.013 | ) | |||
Weighted average number of common stock outstanding – basic | 55,611,419 | 14,372,353 | ||||||
Weighted average number of common stock outstanding – diluted | 55,611,419 | 14,372,353 |
The accompanying notes are an integral part of these interim condensed consolidated financial statement
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Stated in U.S. Dollars except Number of Shares)
(UNAUDITED)
Number | Common | Additional Paid-in | Accumulated | Accumulated other comprehensive | ||||||||||||||||||||
of shares | stock | capital | deficit | loss | Total | |||||||||||||||||||
Balance, December 31, 2022 | 34,991,886 | 34,992 | 92,526,972 | (39,797,696 | ) | (357,486 | ) | 52,406,782 | ||||||||||||||||
Net loss from continuing operations | - | - | - | (41,619 | ) | - | (41,619 | ) | ||||||||||||||||
Net loss from discontinued operations | - | - | - | (8,983 | ) | - | (8,983 | ) | ||||||||||||||||
Foreign currency translation adjustment | - | - | - | - | (2,253 | ) | (2,253 | ) | ||||||||||||||||
Balance, March 31, 2023 | 34,991,886 | 34,992 | 92,526,972 | (39,848,298 | ) | (359,739 | ) | 52,353,927 |
Number | Common | Additional Paid-in | Accumulated | Accumulated other comprehensive | ||||||||||||||||||||
of shares | Stock | capital | deficit | 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 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOMECASH FLOWS
AND COMPREHENSIVE INCOME
(Stated in U.S. Dollars except Number of Shares)Dollars)
(UNAUDITED)
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenue | ||||||||||||||||
Listing fee revenue | $ | 1,455,498 | $ | 2,968,534 | $ | 4,606,649 | $ | 8,166,072 | ||||||||
Commission revenue | 1,496,826 | 1,669,698 | 4,970,651 | 3,739,958 | ||||||||||||
Gross management fee revenue | 402,547 | 781,219 | 967,518 | 1,341,294 | ||||||||||||
Annual fee revenue | 140 | 440 | 859 | 869 | ||||||||||||
Authorized agent subscription revenue | - | 322,318 | - | 966,059 | ||||||||||||
Total revenue | 3,355,011 | 5,742,209 | 10,545,677 | 14,214,252 | ||||||||||||
Cost of revenue | (292,168 | ) | (285,252 | ) | (822,335 | ) | (822,735 | ) | ||||||||
Gross profit | 3,062,843 | 5,456,957 | 9,723,342 | 13,391,517 | ||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative expenses | (2,498,848 | ) | (1,744,965 | ) | (7,311,128 | ) | (5,076,689 | ) | ||||||||
Selling expenses | (624,151 | ) | (652,207 | ) | (1,272,010 | ) | (1,993,782 | ) | ||||||||
Income(loss)from operations | (60,156 | ) | 3,059,785 | 1, 140,204 | 6,321,046 | |||||||||||
Other income and expenses: | ||||||||||||||||
Other income | 186,259 | 163,738 | 440,470 | 314,268 | ||||||||||||
Loan interest expense | (152,059 | ) | (62,670 | ) | (455,762 | ) | (62,670 | ) | ||||||||
Exchange gain (loss) | 177,652 | (112,384 | ) | 526,603 | (530,934 | ) | ||||||||||
Total other income (loss) | 211,852 | (11,316 | ) | 511,311 | (279,336 | ) | ||||||||||
Income before income taxes | 151,696 | 3,048,469 | 1,651,515 | 6,041,710 | ||||||||||||
Income tax (expense) benefit | (124,662 | ) | (596,732 | ) | (594,377 | ) | (1,377,078 | ) | ||||||||
Net income | $ | 27,034 | $ | 2,451,737 | $ | 1,057,138 | $ | 4,664,632 | ||||||||
Foreign currency translation adjustment | 311,485 | 10,172 | 787,660 | 18,322 | ||||||||||||
Comprehensive income | $ | 338,519 | $ | 2,461,909 | $ | 1,844,798 | $ | 4,682,954 | ||||||||
Earnings per common share– basic | $ | 0.00 | $ | 0.23 | $ | 0.10 | $ | 0.44 | ||||||||
Earnings per common share– diluted | 0.00 | 0.22 | 0.09 | 0.41 | ||||||||||||
Weighted average number of common shares outstanding-basic | 11,188,882 | 10,632,276 | 11,039,880 | 10,632,276 | ||||||||||||
Weighted average number of common shares outstanding-diluted | 11,248,688 | 11,365,597 | 11,398,082 | 11,277,845 |
Three Months Ended | ||||||||
March 31, | March 31 | |||||||
2023 | 2022 | |||||||
Cash flows from operating activities: | ||||||||
Net loss from continuing operations | $ | (41,619 | ) | $ | (611,574 | ) | ||
Net loss from discontinued operations | (8,983 | ) | (179,765 | ) | ||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation | 9,245 | 350 | ||||||
Changes in exchange rate | (1,685) | 531 | ||||||
Changes in operating assets and liabilities (decrease) increase in: | ||||||||
Accounts receivable, net | - | - | ||||||
Prepayment and other current assets | - | 66,660 | ||||||
Customer deposits | 689,845 | 2,028,416 | ||||||
Accrued expenses and other payables | 488,365 | 231,814 | ||||||
Net cash provided by operating activities-continuing operations | 1,135,255 | 1,716,197 | ||||||
Net cash used in operating activities-discontinued operations | (87 | ) | (156,101 | ) | ||||
Net cash provided by operating activities | 1,135,168 | 1,560,096 | ||||||
Cash flows from investing activities: | ||||||||
Net cash used in investing activities-continuing operations | - | - | ||||||
Net cash used in investing activities-discontinued operations | - | (1,153 | ) | |||||
Net cash used in investing activities | - | (1,153 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from a short-term borrowing from a third party | 200,000 | 300,000 | ||||||
Net cash provided by financing activities-continuing operations | 200,000 | 300,000 | ||||||
Net cash provided by financing activities-discontinued operations | - | - | ||||||
Net cash provided by financing activities | 200,000 | 300,000 | ||||||
Effect of exchange rate change on cash and cash equivalents, and restricted cash from continuing operations | (170 | ) | 42,534 | |||||
Effect of exchange rate change on cash and cash equivalents, and restricted cash from discontinued operations | (597 | ) | (56,203 | ) | ||||
(767 | ) | (13,669 | ) | |||||
Net change in cash and cash equivalents, and restricted cash from continuing operations | 1,335,084 | 2,058,731 | ||||||
Net change in cash and cash equivalents, and restricted cash from discontinued operations | (684 | ) | (213,457 | ) | ||||
1,334,400 | 1,845,274 | |||||||
Cash and cash equivalents, and restricted cash beginning balance from continuing operations | 67,500,438 | 1,503,153 | ||||||
Cash and cash equivalents, and restricted cash beginning balance from discontinued operations | 96,797 | 338,542 | ||||||
Cash and cash equivalents, and restricted cash beginning balance | 67,597,235 | 1,841,695 | ||||||
Cash and cash equivalents, and restricted cash ending balance from continuing operations | 68,835,522 | 3,561,884 | ||||||
Cash and cash equivalents, and restricted cash ending balance from discontinued operations | 96,113 | 125,085 | ||||||
Cash and cash equivalents, and restricted cash ending balance | $ | 68,931,635 | $ | 3,686,969 | ||||
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets | ||||||||
Cash and cash equivalents-continuing operations | $ | 65,439,927 | $ | 1,533,468 | ||||
Restricted cash-continuing operations | 3,395,595 | 2,028,416 | ||||||
Total cash, cash equivalents and restricted cash -continuing operations | $ | 68,835,522 | $ | 3,561,884 | ||||
Cash and cash equivalents-discontinued operations | $ | 96,113 | $ | 125,085 | ||||
Restricted cash – discontinued operations | - | - | ||||||
Total cash, cash equivalents and restricted cash – discontinued operations | $ | 96,113 | $ | 125,085 | ||||
Total cash, cash equivalents, and restricted cash | $ | 68,931,635 | $ | 3,686,969 | ||||
Supplemental cash flows information: | ||||||||
Cash paid for interest-continuing operations | $ | - | $ | - | ||||
Cash paid for interest-discontinued operations | $ | - | $ | - | ||||
Cash paid for income taxes-continuing operations | $ | - | $ | - | ||||
Cash paid for income taxes-discontinued operations | $ | - | $ | - |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Stated in U.S. Dollars)
(UNAUDITED)
For the Nine Months | For the Nine Months | |||||||
Ended | Ended | |||||||
September 30, | September 30, | |||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net cash provided by operating activities | 1,028,524 | 5,635,391 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (455,255 | ) | (976,460 | ) | ||||
Purchase of held-to-maturity investments | - | (14,995,876 | ) | |||||
Purchase of available-for-sales investment | (53,501,874 | ) | (299,918 | ) | ||||
Maturity and redemption of available-for-sales investment | 53,501,874 | - | ||||||
Maturity and redemption of held-to-maturity investments | - | 14,995,876 | ||||||
Loan to third parties | (3,518,325 | ) | - | |||||
Repayment from loan to third parties | 3,412,070 | - | ||||||
Net cash used in investing activities | (561,510 | ) | (1,276,378 | ) | ||||
Cash Flows from financing activities: | ||||||||
Proceeds from short-term borrowings | - | 3,519,580 | ||||||
Proceeds from related party loans | - | 2,340,895 | ||||||
Loan to third parties | - | (3,513,534 | ) | |||||
Net cash provided by financing activities | - | 2,346,941 | ||||||
Effect of exchange rate change on cash and cash equivalents | 1,025,539 | (644,375 | ) | |||||
Net increase in cash and cash equivalents | 1,492,553 | 6,061,579 | ||||||
Cash and cash equivalents, beginning balance | 13,395,337 | 10,769,456 | ||||||
Cash and cash equivalents, ending balance | $ | 14,887,890 | $ | 16,831,035 | ||||
Supplemental cash flows information: | ||||||||
Cash paid for interest | $ | 212,954 | $ | - | ||||
Cash paid for income tax | $ | 136,453 | $ | 562,994 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
5
TAKUNG ART CO., LTD AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in U.S. Dollars except Number of Shares)
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Takung Art Co., Ltd and 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 Digital Payment”) 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 December 31, 2022 the initial cost of this investment was adjusted to $0 after a further impairment charge, $9,296,614 was recorded (see Note 4).
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.
Use of estimates
In the opinion
The preparation of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement 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, 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 locating buyers for Hong Kong Takung and related operations in order to focus on its blockchain and NFT business operation.
As of March 31 2023, only the operation of Hong Kong Takung was classified as a discontinued operation the same as of September 30, 2017,December 31, 2021.
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 resultsfinancial 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.
Reclassification
Certain prior period amounts have been reclassified to conform to current period presentation in order to reflect the discontinued operations of Tianjin Takung. None of these reclassifications had an impact on reported financial position or cash flows for any of the periods presented.
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 March 31, 2023 and December 31, 2022.
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 three months ended March 31, 2023 and 2022, the Company’s comprehensive loss includes net loss and foreign currency translation adjustment.
Foreign currency translation and transaction
The functional currency of Hong Kong Takung and Hong Kong MQ are the Hong Kong Dollar (“HKD”).
The reporting currency of the Company is the United States Dollar (“USD”).
Transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at the end of the reporting periods. Exchange differences arising on the settlement of monetary items and on re-translation of monetary items at period-end are included in income statement of the period.
For the purpose of presenting these financial statements, the Company’s assets and liabilities with functional currency of HKD are expressed in USD at the exchange rate on the balance sheet’s dates, which is 7.8499 and 7.8015 as of March 31, 2023 and December 31, 2022, respectively; stockholder’s equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rates during the year, which is 7.8389 and 7.8056 for the three months ended March 31, 2023 and 2022, 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.
A significant portion of the Company’s cash and cash equivalents is denominated in RMB, and deposited in the financial institutions of China. Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB denominated cash into foreign currencies for current account items, but conversion of RMB denominated cash into foreign exchange for most of the capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange, or SAFE. These approvals, however, do not guarantee the availability of foreign currencies to fund the business activities outside China, or to repay non-RMB denominated obligations.
Restricted cash
Restricted cash represents the cash deposited by the traders (“buyers and sellers”) into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading shares of the artwork. The buyers are required to have their funds transferred to the broker’s account before the trading take place. Upon the delivery of the shares, the seller will send instructions to the bank, requesting the amount to be transferred to their personal account. After deducting the commission as per Takung, the bank will transfer the remainder to the seller’s personal account. Except for instructing the bank to deduct the commission fee, Takung has no right to use any funds in the broker’s account except for instructing the bank to deduct the commission and management fee. Our restricted cash is denominated in USD and is deposited in the financial institutions of USA.
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.
Loan receivable
Loan to third parties is presented under current asset of the balance sheets based on the nature and loan period of time.
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.
Other non-current assets
A portion of the deposits, are presented under the non-current section of the balance sheets based on the expected collection date.
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 the first quarter of 2023, we did not record any asset impairments due to the deconsolidation of Tianjin Takung as a result of the loss of control in this entity since there is no asset impairment during the three months ended March 31, 2023.
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 March 31, 2023 and December 31, 2022.
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
The Company generates revenue from its services in connection with the offering and trading of artworks on the Company’s system, primarily consisting of listing fee, trading commission, and management fee.
Effective January 1, 2018, the Company adopted Topic 606 using modified retrospective approach applied to its contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are accounted for and presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with Topic 605.
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 and service agents. 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 and service agents. The revenue mainly falls into the following broad categories: (i) listing fee, (ii) commission, and (iii) 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. This applies to the legacy business only if any for the current reporting period.
Commission
The Company generates commission fee from Customers and selected traders for the legacy business and commission fee only for the NFT trading platform’s seller and buyers.
For Customers, 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 third-party merchants the access to Takung’s online platform for sales of artworks, and charges commission fee to third-party merchants, at an amount of an agreed percentage of the total transaction price. The revenue is recognized at a point in time when the artwork sales transaction is completed.
Revenue by customer type
The following table presents the revenue by customer type from our discontinued operations for the years ended March 31, 2023 and 2022.
For three months ended March 31, | ||||||||
2023 | 2022 | |||||||
Customers | $ | 699,741 | $ | - | ||||
Subtotal | 699,741 | - | ||||||
Less: Revenue – discontinued operations | - | |||||||
Total | $ | 699,741 | $ | - |
Cost of revenue
In 2022, the Company’s cost of revenue primarily consists of expenses associated with the delivery of its service of our discontinued 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. In 2023, the Company’s cost of revenue primarily consists of Internet service charge due to the new business nature.
For three months ended March 31, | ||||||||
2023 | 2022 | |||||||
Internet service charge | $ | 150,930 | $ | - | ||||
Subtotal | 150,930 | - | ||||||
Less: Cost of revenue – discontinued operations | - | |||||||
Total | $ | 150,930 | $ | - |
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 Company does not have amounts of contract assets that it has right to consideration in exchange for services that the Company has transferred to customers when that right is conditioned on something other than the passage of time. 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 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.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted by the U.S. government which included a wide range of tax reform affecting businesses including the corporate tax rates, international tax provisions, tax credits and deduction with majority of the tax provision effective after December 31, 2017. Certain activities conducted in foreign jurisdictions may result in the imposition of U.S. corporate income taxes on Takung when its subsidiaries, controlled foreign corporations (“CFCs”), generate income that is subject to Subpart F or GILTI under the U.S. Internal Revenue Code beginning after December 31, 2017.
The Coronavirus Aid, Relief and Economy Security (CARES) Act (“the CARES Act, H.R. 748”) was signed into law on 27 March 2020. The CARES Act temporarily eliminates the 80% taxable income limitation (as enacted under the Tax Cuts and Jobs Act of 2017) for NOL deductions for 2018-2020 tax years and reinstated NOL carrybacks for the 2018-2020 tax years. Moreover, the CARES Act also temporarily increases the business interest deduction limitations from 30% to 50% of adjusted taxable income for the 2019 and 2020 taxable year. Lastly, the Tax Act technical correction classifies qualified improvement property as 15-year recovery period, allowing the bonus depreciation deduction to be claimed for such property retroactively as if it was included in the Tax Act at the time of enactment. The Company does not anticipate a material impact on its financial statements as of December 31, 2020 due to the recent enactment.
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’s Hong Kong subsidiary of Metaverse Digital Payment Co., Limited accrued US$26,352 corporate income tax for the year ended March 31, 2023.
The Company did not accrue any liability, interest or penalties related to uncertain tax positions in the provision for income taxes line of the consolidated statements of operations for the year ended March 31, 2022.
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 (Note 15).
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 three months ended March 31, 2023 and 2022.
Concentration of customer deposits
As of March 31, 2023 and December 31, 2022, there were no traders that individually accounted for greater than 10% of the Company’s total customer deposits.
Accounting standards adopted on January 1, 2022
Fair Value Measurement: In August 2018, the FASB Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements. Under this guidance, entities will no longer be required to disclose the amount of and the rationale for transfers between level 1 and level 2 of the fair value hierarchy. For level 3 fair value measurement, disclosures for the range and weighted average used to establish significant unobservable inputs are required. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company adopted this guidance on January 1, 2020 and there was no impact to its consolidated financial statements.
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 financial 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 flowsflows.
3. GOING CONCERN
Due to the recent regulatory scrutiny by PRC governments on digital asset related business, 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 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.
The Company has accrued the amount of RMB 408,411 for the nine-month periodsmonth ended September 30, 2017December 31, 2022 arising from three settled cases and 2016,nine pending cases; none of the pending cases have received any outcome as applicable, have been made.at May 22, 2023.
In the event that the suspension carries on for a substantial period of time or the investigation results in unfavourable outcome, the Company is subject to various risks, including, but not limited to, permanent discontinuation of the artwork unit trading platform business, material loss of Tianjin Takung’s carrying assets, material impact to the Company’s financial performance and liquidity, and being involved in litigation.
Management has assessed the Company’s ability to continue as a going concern in accordance with the requirements of ASC 205-40 and, based on the above factors, the management has concluded that there is substantial doubt about its ability to continue as a going concern within one year from the issuance date of the Company’s consolidated financial statements. Management’s plan to alleviate the going concern risk includes, but not limited to, (1) equity or debt financing, (2) increasing cash generated from new business model operations, and (3) financing from domestic banks and other financial institutions. The interim resultsmanagement of the Company has made the following plans to mitigate these adverse conditions and to increase the liquidity of the Company. The Company will be able to divert its resource into the NFT trading business after disposal of the legacy business in art-work trading. The Company through its 100% subsidiary called Metaverse Digital Payment Co., Ltd. is taking full advantages of Hong Kong as the hub of finance center and digital trading center after the Company sets up its operation center in Hong Kong.
Management’s Plan
Private Investment in Public Equity (“PIPE”) Transaction
The Company entered into certain securities purchase agreement on February 23, 2022 (the “SPA”) with certain non-affiliated and accredited “non-U.S. Persons”, (the “Purchasers”) as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to which the Company agreed to sell 11,952,190 units, each consisting of one share of Common Stock (the “Shares”) and a warrant (the “Warrant”) to purchase three Shares.
On March 9, 2022, the Company and the Purchasers agreed to amend and restate the SPA (the “A&R SPA”) to amend the number of units sold, per unit purchase price, and the terms of the warrants underlying the units. Pursuant to the terms of the A&R SPA, the Company agreed to sell 10,238,910 units (the “Units”), each Unit consisting of one Share and a Warrant to purchase three Shares with a purchase price per Unit of $2.93.
On April 14, 2022, the transaction contemplated by the A&R SPA closed. The gross proceeds to the Company from this offering were approximately $30 million.
On June 27, 2022, Takung Art Co., Ltd., a Delaware corporation (the “Company”) entered into certain securities purchase agreement (the “SPA”) with certain “non-U.S. Persons” (the “Purchasers”) as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to which the Company agreed to sell 15,789,474 units, each consisting of one share of the common stock of the Company, par value $0.001 per share (the “Common Stock”) and a warrant to purchase two shares of Common Stock. The purchase price of each Unit is $1.9. The gross proceeds to the Company from this offering will be approximately $30 million.
New Business Model Operations
The Company plans to further develop its operations of blockchain and NFT related businesses, including consultancy services, development of NFT marketplace and “Play-to-Earn” style blockchain-based online games. “Play to Earn” is essentially a business model powered by blockchain technology, where players can acquire in-game assets or token ownership by recharging and playing games.
Meanwhile, the Company is actively seeking other strategic partners with resources that can expand its blockchain and NFT businesses.
The Company has recruited a global management team and technology research and development team to develop new products and new business directions that combine education and technology to provide online service in Metaverse. In order to diversify the political risks and legal scrutiny arising from the PRC regulations imposed with regards to digital assets, the Company has also decided to expand its business outside China, such as United States and Canada.
The Company has set up the new corporate structure for its new business stream as follows:
4. INVESTMENTS
We adopted ASU 2016-01 on January 1, 2018. This guidance requires us to measure all equity investments that are not necessarily indicativeaccounted 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 equity 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 operating resultssame 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 non-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 full fiscal yearsimilar investments of the same issuer.
Management determined that the future undiscounted cash flow was less than the carrying cost of our non-marketable investment and recognized an impairment charge, nil, against our non-marketable investment.
The carrying value is measured as the total initial cost minus impairment. The carrying value for our non-marketable investment is nil and summarized below:
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
Total initial cost | $ | 10,630,120 | $ | 10,630,120 | ||||
Cumulative net gain (loss) | - | - | ||||||
Provision for impairment | (10,630,120 | ) | (10,630,120 | ) | ||||
Total carrying value | $ | - | $ | - |
For the three months ended March 31, 2023, we did not incur any unrealized gain or any future periods. loss in connection with the non-marketable investment.
3.5. PREPAYMENT AND OTHER CURRENT ASSETS, NET
Prepayment and other current assets mainly consist of the prepaid tax, the prepaid services for development, maintenance of online trading system, the advertising and promotional services, prepaid financial advisory and banking services, as well as other current assets.
March 31, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
Prepaid service fees | $ | - | $ | - | ||||
Deposit | 5,557 | 5,557 | ||||||
Other current assets | - | - | ||||||
Less: allowance for doubtful accounts | - | - | ||||||
Subtotal | 5,557 | 5,557 | ||||||
Less: Prepayment and other current assets, net – discontinued operations | - | |||||||
Prepayment and other current assets, net | $ | 5,557 | $ | 5,557 |
For the three months ended March 31, 2023 and December 31, 2022 , the Company incur no provision for doubtful accounts.
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 |
4.6. ACCOUNT RECEIVABLES, NET
Account receivables consisted of the following:
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | ||||||||
Listing fee | $ | 1,562,924 | $ | 1,403,255 | ||||
Authorized agent subscription revenue | 924,100 | 995,453 | ||||||
Monthly commission fee | 1,422,750 | 605,677 | ||||||
Others | 63,323 | 54,183 | ||||||
Less: allowance for doubtful accounts | (240,528 | ) | - | |||||
Account receivables, net | $ | 3,732,569 | $ | 3,058,568 |
March 31, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
Consultancy service | $ | 85,902 | $ | 94,918 | ||||
Less: allowance for doubtful accounts | - | (8,484 | ) | |||||
Subtotal | 85,902 | 86,434 | ||||||
Less: Accounts receivables, net- discontinued operations | - | - | ||||||
Account receivables, net | $ | 85,902 | $ | 86,434 |
For the three months ended March 31, 2023 and December 31, 2022, we did incur provision nil and $8,484 for doubtful accounts.
7. PROPERTY AND EQUIPMENT, NET
Management reviewed the collectabilityProperty and equipment consisted of the receivables periodically, and identified certain inactive traders during this quarter. Management considered the receivables due from these traders are uncertain and provided bad debt provision of $240,528 for the three and nine months ended September 30, 2017.following:
March 31, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
Furniture, fixtures and equipment | $ | 62,985 | $ | 63,376 | ||||
Leasehold improvements | 22,930 | 23,072 | ||||||
Computer trading and clearing system | 2,415,460 | 2,430,445 | ||||||
Sub-total | 2,501,375 | 2,516,893 | ||||||
Less: accumulated depreciation | (2,489,976 | ) | (2,496,135 | ) | ||||
Subtotal | 11,399 | 20,759 | ||||||
Less: Property and equipment, net – discontinued operations | (6,299 | ) | (15,277 | ) | ||||
Property and equipment, net | $ | 5,100 | $ | 5,482 |
10
8. INTANGIBLE ASSETS
5. LOAN RECEIVABLES
March 31, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
Intangible assets | $ | 22,226 | $ | 22,226 | ||||
Less: accumulated amortization | - | - | ||||||
Subtotal | 22,226 | 22,226 | ||||||
Less: Intangible assets – discontinued operations | (22,226 | ) | (22,226 | ) | ||||
Total Intangible assets | $ | - | $ | - |
9. OTHER NON-CURRENT ASSETS
Other non-current assets as of March 31, 2023 and December 31, 2022 consisted of:
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 |
March 31, 2023 | December 31, 2022 | |||||||
(Unaudited) | ||||||||
Deposit – non-current | $ | 18,278 | $ | 18,391 | ||||
Prepayment – non-current | - | - | ||||||
Subtotal | 18,278 | 18,391 | ||||||
Less: Other non-current assets – discontinued operations | (18,278 | ) | (18,391 | ) | ||||
Total other non-current assets | $ | - | $ | - |
All the transactions were aimed to meet the Company’s working capital needs in US Dollar, which is freely convertible to Hong Kong Dollar.10. ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and Tianjin Takung entered were guaranteed by Chongqing Wintus (New Star) Enterprises Group (“Chongqing”). Xiaohui Wang (“Ms. Wang”) is a nationalother payables as of the People’s Republic of China. Ms. Wang is a shareholderMarch 31, 2023 and the legal representative of Chongqing. Both Chongqing and Ms. Wang are the non-related parties to the Company.December 31, 2022 consisted of:
March 31, | December 31, | |||||||
2022 | 2022 | |||||||
(Unaudited) | ||||||||
Accruals for consulting fees | $ | 498,152 | 406,152 | |||||
Payroll payables | 642,900 | 451,800 | ||||||
Other payables | 1,770,008 | 1,273,939 | ||||||
Subtotal | 2,911,060 | 2,131,891 | ||||||
Less: Accrued expenses and other payables- discontinued operations | (264,139 | ) | - | |||||
Total accrued expenses and other payables | $ | 2,646,921 | 2,131,891 |
11. SHORT-TERM BORROWINGS FROM A THIRD PARTY
In the meantime,July 2019, Hong Kong Takung entered into loan agreements (the “US Dollar Loans”)HKD Loans with Merit Crown Limited, a Hong Kong company (“Merit Crown)Friend Sourcing with interest accruing at a rate 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.
6. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
September 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | ||||||||
Furniture, fixtures and equipment | $ | 157,736 | $ | 100,386 | ||||
Leasehold improvements | 402,597 | 298,965 | ||||||
Computer trading and clearing system | 3,220,318 | 2,802,430 | ||||||
Sub-total | 3,780,651 | 3,201,781 | ||||||
Less: accumulated depreciation | (1,676,544 | ) | (1,136,599 | ) | ||||
Property and equipment, net | $ | 2,104,107 | $ | 2,065,182 |
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.ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables as of September 30, 2017 and December 31, 2016 consisted of:
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 |
8. SHORT-TERM BORROWINGS FROM THIRD PARTIES
annum. The following table sets forth a summary of the loan agreements in loan receivables balance:
Date | Borrower | Lender | Original Amount (HKD) | September 30, 2017 (USD) | December 31, 2016 (USD) | Annual Interest Rate | Repayment Due Date | |||||||||||||||
(Unaudited) | ||||||||||||||||||||||
7/15/2016 | Hong Kong Takung | Merit Crown Limited | 11,700,000 | $ | 1,497,888 | $ | 1,509,015 | 8 | % | 12/31/2017 | ||||||||||||
8/24/2016 | Hong Kong Takung | Merit Crown Limited | 15,596,100 | $ | 1,996,684 | $ | 2,011,518 | 8 | % | 12/31/2017 | ||||||||||||
11/18/2016 | Hong Kong Takung | Merit Crown Limited | 11,479,102 | $ | 1,469,607 | $ | 1,480,525 | 8 | % | 10/31/2017 | ||||||||||||
12/9/2016 | Hong Kong Takung | Merit Crown Limited | 11,787,600 | $ | 1,509,103 | $ | 1,520,314 | 8 | % | 11/30/2017 | ||||||||||||
Less: Discount loan payable | $ | 101,382 | $ | 212,859 | ||||||||||||||||||
Total | $ | 6,371,900 | $ | 6,308,513 |
The US DollarHKD Loans are to provide Hong Kong Takung with sufficient US Dollar-denominatedHKD currency to meet its working capital requirements. ItFriend Sourcing is “secured” bya non-related party to the aforementioned RMB Loans (See Note 5) of equivalent amount by its subsidiary to an individual and guarantor affiliated withCompany. On April 1, 2021, Hong Kong Takung extended the lenderdue date of the US Dollar Loans. It isHKD Loans with Friend Sourcing to July 30, 2021. On August 1, 2021, Hong Kong Takung further extended the understanding between the parties that when the US Dollar Loans are repaid, the RMB Loans will similarly be repaid.financing with Friend Souring to April 1, 2022. An interest payment, $86,795, was made on October 22, 2021.
Date | Borrower | Lender | December 31, 2022 (RMB) | December 31, 2022 (HKD) | Annual Interest Rate | Repayment Due Date | ||||||||||||
7/18/2019 | Hong Kong Takung | Friend Sourcing Ltd. | $ | 5,000,000 | $ | 5,567,929 | 8 | % | 4/1/2021 | |||||||||
8/29/2019 | Hong Kong Takung | Friend Sourcing Ltd. | $ | 5,000,000 | $ | 5,422,993 | 8 | % | 4/1/2021 | |||||||||
9/20/2019 | Hong Kong Takung | Friend Sourcing Ltd. | $ | 4,000,000 | $ | 4,338,395 | 8 | % | 4/1/2021 | |||||||||
Less: Discount loan payable | $ | - | $ | - | ||||||||||||||
14,000,000 | 15,329,317 | |||||||||||||||||
Less: Short-term borrowings from third party- discontinued operations: | (14,000,000 | ) | (15,329,317 | ) | ||||||||||||||
Total | $ | - | $ | - |
The weighted average interest rate of outstanding short-term borrowings was 8% per annum as of September 30, 2017March 31, 2023 and December 31, 2016.2022. The fair valuesvalue of the short-term borrowings approximateapproximates their carrying amounts.
Borrower | Account Name | Lender | Total | Effective Day | Due Day | |||||||
NFT Exchange Limited | Loan payable | Guohui Li | 250,000.00 | 2022/4/11 | 2023/4/10 | |||||||
NFT Exchange Limited | Loan payable | Guohui Li | 500,000.00 | 2022/4/27 | 2023/4/26 | |||||||
NFT Exchange Limited | Loan payable | Guohui Li | 500,000.00 | 2022/8/29 | 2023/8/28 | |||||||
NFT Exchange Limited | Loan payable | Guohui Li | 200,000.00 | 2023/3/29 | 2024/3/28 | |||||||
NFT Exchange Limited | Loan payable | Guohui Li | 300,000.00 | 2022/2/16 | 2023/2/15 | |||||||
Total | 1,750,000.00 |
The weighted average short-term borrowing was $6,419,099 and $1,678,803third party by the name of Guohui Li has lent NFT Exchange Limited for the nine months period ended September 30, 2017amount of $1,750,000.00.
12. INCOME TAXES
Takung was incorporated in the State of Delaware 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,is therefore subject to United States income tax. Hong Kong Takung, entered into agreements with both Merit Crown LimitedTakung Art Holdings 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,MQ were incorporated in Hong Kong Takung entered into a supplementary agreement with Mao that, asS.A.R. People’s Republic of 30 September 2017, the outstanding principal amount of the Loan (as defined in the Loan Agreement)China and are subject 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 by Hong Kong Takung as below: (i) HK$4,500,000 and the interest thereof, together with the Accrued Interest 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.profits tax.
10. INCOME TAXES
United States of America
The Coronavirus Aid, Relief and Economy Security (CARES) Act (“the CARES Act, H.R. 748”) was signed into law on 27 March 2020. The CARES Act temporarily eliminates the 80% taxable income limitation (as enacted under the Tax Cuts and Jobs Act of 2017) for NOL deductions for 2018-2020 tax years and reinstated NOL carrybacks for the 2018-2020 tax years. Moreover, the CARES Act also temporarily increases the business interest deduction limitations from 30% to 50% of adjusted taxable income for the 2019 and 2020 taxable year. Lastly, the Tax Act technical correction classifies qualified improvement property as 15-year recovery period, allowing the bonus depreciation deduction to be claimed for such property retroactively as if it was included in the Tax Act at the time of enactment. The Company does not anticipate a material impact on its financial statements as of December 31, 2020 due to the recent enactment.
As of September 30, 2017March 31, 2023 and December 31, 2016,2022, the Company in the United States $12,872 and had $4,008,459 and $2,212,890$11,935,256 in net operating loss carried forwardcarry forwards available to offset future taxable income, respectively. FederalFor net operating losses can generally be carried forward twenty years. The federal corporate net operating loss carryover is expired in 20arising after December 31, 2017, the Tax Act limits the Company’s ability to utilize NOL carryforwards to 80% of taxable years followingincome and carryforward the taxable year of the loss.
The Company believes that it is more likely than not that these net accumulated operating lossesNOL indefinitely. NOLs generated prior to January 1, 2018 will not be utilizedsubject to the taxable income limitation and will begin to expire in 2033 if not utilized.
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 future. Therefore,case of the Company has providedfirst entity being a full valuation allowance fornatural person carrying on a sole proprietorship business-the other entity is the deferred tax assets arising from the losses at the U.S. during the nine months ended September 30, 2017same person carrying on another sole proprietorship business. Since Hong Kong Takung, Metaverse Payment and year ended December 31, 2016 amounting to $1,414,445Hong Kong MQ are wholly owned and $962,012, respectively. Accordingly, the Company has no net deferred tax assets under the US entity.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.
Hong Kong
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 and Metaverse Payment apply the original tax rate of 16.5% and 9.2% for its provision for current income and deferred taxes.
As of March 31, 2023 and December 31, 2022, the nine months ended September 30, 2017 and 2016, if applicable.Company’s subsidiaries in Hong Kong had both nil in net operating loss carry forwards available to offset future taxable income, respectively. These net operating losses will be carryforward indefinitely under Hong Kong Profits Tax regulation.
PRC
In accordance with the relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable tax rate on taxable income. All the PRC subsidiaries that are not entitled to any tax holiday were subject to income tax at a rate of 25%. for the year ended December 31, 2022 and 2021. According to PRC tax regulations, the PRC net operating loss can generally carry forward for no longer than five years starting from the year subsequent to the year in which the loss was incurred. Carryback of losses is not permitted.
The income tax expense was $(213,004) and $255,805 for the years ended March 31, 2023 and December 31, 2022, respectively, related primarily to the Company’s subsidiaries located outside of the U.S. The loss before provision for income taxes for the years ended March 31, 2023 and December 31, 2022 was as follows:
The income tax provision consists of the following components:
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Current | $ | 159,281 | $ | 684,801 | $ | 662,598 | $ | 1,561,728 | ||||||||
Deferred | (34,619 | ) | (88,069 | ) | (68,221 | ) | (184,650 | ) | ||||||||
Total provision for income taxes | $ | 124,662 | $ | 596,732 | $ | 594,377 | $ | 1,377,078 |
For three months ended March 31, 2023 | For three months ended March 31, 2022 | |||||||
Current: | ||||||||
Federal | $ | $ | - | |||||
State | - | |||||||
Foreign | 26,352 | - | ||||||
Total current income tax expense, continuing operations | 26,352 | - | ||||||
Current income tax expense, discontinued operations | - | |||||||
Total current | $ | 26,352 | $ | - | ||||
Deferred: | - | |||||||
Federal | $ | $ | - | |||||
State | - | |||||||
Foreign | - | |||||||
Total deferred income tax expense, continuing operations | - | |||||||
Deferred income tax expense, discontinued operations | - | |||||||
Total deferred | $ | $ | - | |||||
Total income tax expense | $ | 26,352 | $ | - |
A reconciliation between the Company’s actual provision for income taxes and the provision at the statutory rate is as follow:
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 |
Continuing operations
The Company's effective tax rate for the continuing operations was 82.2%(0.2)% and 19.6%0% for the three months ended September 30, 2017March 31, 2023 and 2016, respectively, and 36.0% and 22.8%2022, respectively.
For three months ended March 31, 2023 | For three months ended March 31, 2022 | |||||||
Loss before income tax expense | $ | (15,267 | ) | $ | (611,574 | ) | ||
Computed tax benefit with statutory tax rate | (3,206 | ) | (128,430 | ) | ||||
Impact of different tax rates in other jurisdictions | (2,519 | ) | 8,233 | |||||
Impact of preferred tax rate | 687 | - | ||||||
Changes in valuation allowance | 31,390 | 120,197 | ||||||
Total income tax expense | $ | 26,352 | $ | - |
Discontinued operations
The effective tax rate for the nine months ended September 30, 2017 and 2016, respectively.
11. COMMITMENTS AND CONTINGENCIES
Operation Commitments
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 expense of the Companydiscontinued operations was $293,338 and $199,5140% for the three months ended September 30, 2017March 31, 2023 and 2016, respectively, and $721,492 and $428,440 for the nine months ended September 30, 2017 and 2016,2022, respectively.
For three months ended March 31, 2023 | For three months ended March 31, 2022 | |||||||
Income/(Loss) before income tax expense | $ | (8,983 | ) | $ | (179,765 | ) | ||
Computed tax benefit with statutory tax rate | (1,886 | ) | (37,751 | ) | ||||
Impact of different tax rates in other jurisdictions | (1,482 | ) | 22,920 | |||||
Effect of preferred tax rate | 404 | - | ||||||
Changes in valuation allowance | 2,964 | 14,831 | ||||||
Total income tax expense | $ | - | $ | - |
15 The approximate tax effects of temporary differences, which give rise to the deferred tax assets and liabilities are as follows:
Continuing operations
As of March 31, | As of December 31, | |||||||
2023 | 2022 | |||||||
Deferred tax assets | ||||||||
Tax loss carried forward | $ | - | - | |||||
Provision for impairment loss | - | 1,533,964 | ||||||
Unvested restricted shares | - | - | ||||||
Total deferred tax assets | - | 1,533,964 | ||||||
Less: valuation allowance | - | (1,533,964 | ) | |||||
Total Deferred tax assets, net of valuation allowance | ||||||||
Deferred tax liabilities | ||||||||
Total Deferred tax liabilities | $ | - | - | |||||
Deferred tax assets, net of valuation allowance and deferred tax liabilities | $ | - | - |
Discontinued operations
As of March 31, | As of December 31, | |||||||
2023 | 2022 | |||||||
Deferred tax assets | ||||||||
Tax loss carried forward | $ | - | - | |||||
Provision for doubtful accounts | - | - | ||||||
PPE, due to difference in depreciation | 1,468 | 10,914 | ||||||
Total deferred tax assets | 1,468 | 10,914 | ||||||
Less: valuation allowance | (1,468 | ) | (10,914 | ) | ||||
Total Deferred tax assets, net of valuation allowance | - | - | ||||||
Deferred tax liabilities | ||||||||
Total Deferred tax liabilities | $ | - | - | |||||
Deferred tax assets, net of valuation allowance and deferred tax liabilities | $ | - | - |
Uncertain tax positions
12.
The reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions is as follows:
March 31, 2023 | December 31, 2022 | |||||||
Uncertain tax liabilities, beginning of period, discontinued operations | $ | - | - | |||||
Settlements with tax authority during current year | - | - | ||||||
Uncertain tax liabilities, end of period, discontinued operations | $ | - | - |
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, 2023 and December 31, 2022. 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 March 31, 2023 and December 31, 2022, respectively.
Our discontinued operation, Hong Kong Takung, was 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 the ultimate resolution of the tax examination concurred with the uncertain tax liabilities previously accrued. Hong Kong Takung settled the entire tax liabilities in June 2021. METAVERSE DIGITAL PAYMENT CO., LIMITED incurred corporate income tax payable of $26,354 during the first quarter of 2023. 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.
13. LEASES
The Company has operating leases for its office facilities. The Company’s office leases have an initial terms of twelve months therefore it is not required to record on the balance sheet per ASC 842, the Company recognizes lease expenses for these leases on a straight-line basis over the lease term.
Maturities of operating lease liabilities as of March 31, 2023 were as follow:
Maturity of Lease Liabilities | Operating Leases | |||
Remaining 2023 | $ | - | ||
2024 | ||||
2025 | ||||
2026 | ||||
2027 | ||||
Thereafter | ||||
Total undiscounted lease payments | $ | - | ||
Less: interest | ||||
Present value of lease payments | $ | - |
14. COMMITMENTS AND CONTINGENCIES
Capital Commitments
As of March 31, 2023 and December 31, 2022, the Company had no capital commitments.
Contingencies
During the year ended December 31, 2022, the deconsolidated entity of the Company, Tianjin Takung has been named as a defendant for litigations filed against the entity and compensation claims amounting to USD 60,694 have been recorded in the statement of operations. As at the filing date of this report, there are pending litigations that have yet to be concluded and the compensation claims are not determinable until the outcome are finalized. The Company is in the process of finalizing the disposal of Hong Kong Takung, and upon the completion of the disposition of Hong Kong Takung, the purchaser will assume all the assets and liabilities of the entity, including those associated with the Tianjin Takung.
Except for the above, as of March 31, 2023 and through the issuance date of the unaudited condensed consolidated financial statements included in this Form 10-Q, the Company does not have any other significant indemnification claims.
Due to the deconsolidation of Tianjin Takung, the ending balance of our restricted cash totaling $58,254,521 and $52,215,458 as of December 31, 2022 and 2021, respectively, was not included in our consolidated financial statements and was reclassified to current assets – a deconsolidated entity. The Company could be exposed to claims made by the PRC customers for the return of their deposits at the Tianjin Takung’s restricted cash accounts. Any claims against Hong Kong Takung, though it is a limited company, that are ultimately successful, could have a material adverse effect on the Company’s financial position, operating results and cash holdings unless Hong Kong Takung is disposed or wound down.
15. NET (LOSS) EARNINGS PER SHARE
Basic earningsThe computation of the Company’s basic and diluted net 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 | ||||||||
March 31, 2023 | March 31, 2022 | |||||||
Numerator: | ||||||||
Net loss - continuing operations | $ | (41,619 | ) | $ | (611,574 | ) | ||
Net loss - discontinued operations | (8,983 | ) | (179,765 | ) | ||||
Total net loss | (50,602 | ) | (791,339 | ) | ||||
Denominator: | ||||||||
Weighted-average shares outstanding-Basic | 55,611,419 | 14,372,353 | ||||||
Stock options and restricted shares | - | - | ||||||
Weighted-average shares outstanding-Diluted | 55,611,419 | 14,372,353 | ||||||
Loss per share-continuing operations | ||||||||
-Basic | $ | 0.001 | $ | (0.043 | ) | |||
-Diluted | $ | 0.001 | $ | (0.043 | ) | |||
Loss per share-discontinued operations | ||||||||
-Basic | $ | 0.000 | $ | (0.013 | ) | |||
-Diluted | $ | 0.000 | $ | (0.013 | ) |
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.
ForAs of March 31, 2023 and December 31, 2022, there were no outstanding stock options and no other securities that would potentially be converted to additional shares of common stock that would have been outstanding if the three months ended September 30, 2017,dilutive potential shares of common stock had been issued were excluded from the calculation of diluted earningsnet loss per share.
16. SUBSEQUENT EVENTS
Disposition Agreement
On November 1, 2022, Takung Art Co., Ltd. (the “Company”), Hong Kong Takung Art Company Limited (“Hong Kong Takung”) and Hong Kong MQ Group Limited (“Hong Kong MQ”, together with Hong Kong Takung, the “Targets”), the Company’s wholly owned subsidiaries, and Fecundity Capital Investment Co., Ltd. (the “Purchaser”), entered into a certain share calculation did not include optionspurchase agreement (the “Disposition SPA”). Pursuant to the Disposition SPA, the Purchaser agreed to purchase up to 109,160 sharesthe Targets in exchange for cash consideration of $1,500,000 (the “Purchase Price”). Upon the closing of the Company's common stock, because they were outtransaction (the “Disposition”) contemplated by the Disposition SPA, the Purchaser will become the sole shareholder of money. It has no such impact for three months ended September 30, 2016, nine months ended September 30, 2017the Targets and 2016 respectively.
There were dilutive effectsas a result, assume all assets and liabilities of 487,000 shares forall the nine months period ended September 30, 2017subsidiaries and 2016.VIE entities owned or controlled by the Targets. The 487,000 restricted shares of Common Stock (the “Compensation Shares”) related toCompany believes that the Consulting Agreement with Regeneration Capital Group, LLC (“Regeneration”) were placed in an escrow account and were subject to Regeneration’s performance condition. The shares were released from escrow account and transferred to Regeneration since the Company successfully listed on NYSE on March 22, 2017.
13. SUBSEQUENT EVENT
Other than the newly signed extension agreements as disclosed in Note 8, and the supplementary agreement with related party as disclosed in Note 9 above, the Company doesDisposition will not identify any other subsequent events withhave a significant, material financial impact on the unaudited condensedCompany’s consolidated financial statements.
The closing of the Disposition 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.
The Disposition was approved by the board of directors (the “Board”) of the Company.
Below is the Company’s structure chart before the completion of the Disposition.
Below will be the Company’s structure chart after the completion of the Disposition.
Merger Agreement
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 a wholly owned subsidiary of the Company. Pursuant to the Merger Agreement, among other things, 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 or preferred stock issued and outstanding prior to the Effective Time (excluding certain excluding shares and dissenting shares, if any) will be automatically converted into Class A Ordinary Shares of NFT on 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 respect thereto.
The closing of the Redomicile is subject to the satisfaction or waiver of customary conditions by the respective parties, including the approval of the Merger Agreement and the contemplated transactions by the Company’s shareholders.
The Redomicile was approved by the Board of the Company.
As disclosed on Takung Art Co., Ltd.’s (the “Company”) Current Report on Form 8-K (the “Form 8-K”) filed on August 24, 2022, the Company entered into certain securities purchase agreement, dated June 27, 2022, as amended on July 27, 2022 (the “SPA”), with certain “non-U.S. Persons” (the “Purchasers”) as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”). Pursuant to the SPA, the Company agreed to issue 10,380,623 units for a per unit price of $2.89 (the “Units”). Each Unit consists of one share of the common stock of the Company, par value $0.001 per share (the “Common Stock”) and a warrant to purchase two shares of Common Stock.
The issuance and sale of the Units is exempted from the registration requirement of the Securities Act pursuant to Regulation S promulgated thereunder.
The transaction contemplated by the SPA was closed on September 13, 2022, as all the closing conditions have been satisfied.
Effective April 14, 2023, the board of directors of Takung Art Co., Ltd. (the “Company”) approved the termination of Mr. Kwok Leung Paul Li position as the Company’s Co-Chief Executive Officer (“Co-CEO”) for cause, as defined in the executive employment agreement by and between the Company and the Co-CEO, dated July 20, 2021 (the “Employment Agreement”).
Annual Meeting of Shareholders
The Company will hold its 2022 annual meeting of shareholders on May 25, 2023. One of the proposals on the agenda is to vote for the approval of the proposed sale of the Company’s legacy business for a purchase price of $1.5 million.
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.com www.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 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.
We generate revenueThe company’s NFT business outlook can be described in several aspects below.
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 ourthe 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 types
A. | Providing consulting services such as artwork valuation/appreciation potential |
Away from poor offline communication and incomplete information, there is no misunderstanding of the pain points, and to tap the needs of users to provide comprehensive consulting services in connection withsuch 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 offering and trading of artwork on our system, primarily consisting of listing fees, trading commissions, management fees and authorized agent subscription.company.
B. | NFT trading service |
On July 28, 2015, Hong Kong Takung incorporated
TKAT has built a wholly owned subsidiary, Takung (Shanghai) Co., Ltd.fully functional NFT trading platform, which is in the stage of testing to be launched. The platform can meet 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. And it can realize the whole business process of user registration-certification-work uploading-work casting-work trading. 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 extracts a portion of the handling fee (including token minting, first sale, and second sale) to create value.
C. | Advertising service |
After the TKAT platform has a certain 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: basic platform building-targeted population entry-providing services (consulting services, transaction services, advertising services)-optimizing the platform and expanding the scope of services-full service.
Competitor analysis
Opensea is an NFT market exchange. It has more than 20,000 users. Compared with projects in the popular decentralized finance (“Shanghai Takung”DeFi”), in Shanghai Free-Trade Zone (SFTZ) in Shanghai, China, field, it is second only to Uniswap, kyber and Compound, and higher than maker, 0x, etc. As a trading platform with a registered capitalrelatively high status in the NFT field, OpenSea has a complete range of $1 million. Shanghai Takungcollections, 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 engaged in providing services to its parent company Hong Kong Takungcharged on the first sale and a 3% fee (paid by receiving deposits from and making payments to online artwork traders for andthe buyer) is charged on behalf of Hong Kong Takung.the second sale.
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 the United States and Hong Kong Shanghai and Tianjin. Recently, we set upthrough a new office in Hangzhou to conduct technology development.global online platform. Our principal executive offices are located at Flat/RM 03-04, 20/F, Hutchison House, 10 Harcourt Road, CentralOffice Q, 11th Floor, Kings Wing Plaza 2, No. 1, Kwan Street, Shatin, New Territory, Hong Kong.
Our common stock beganCompetitive Advantages
The advantages of Takung in the NFT transaction and blockchain market are as follows:
Innate industry advantages
In recent years, digital artworks of NFT technology based on blockchain technology are becoming popular assets. The NFT online platform the Company built can effectively solve the current situation such as unclear ownership of property, difficulty in distinguishing authenticity and low efficiency of artwork circulation. Convert business development from offline to online operation, so that the value of digital works can be freely circulated online.
Advantages of the core management team
The core team members of Takung have experience in blockchain technology development and NFT trading platform operation, which can ensure a smoother development and business operation in the later stage.
Takung’s platform advantages
The currently developed and launched NFT online trading platform supports multi-category product uploads, including: Digital art, Digital oil painting, Produced by Gallery, Personal products, Artist signature, Oil on canvas, Print, Paper ink, Device, Comprehensive media, Derivative, and It will be continuously enriched and improved according to customer interests. The NFT trading platform has stable performance, high security and easy to maintain. At the front end of the system, the Company will continuously improve the operability and user experience of the system focusing on improving the user experience.
Technical advantages
The 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 the later system optimization and iterative update.
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 demanders to join in the platform.
We expect that we will generate revenue from the offering and trading of NFT on the NYSE American under the symbol “TKAT” on March 22, 2017.Company’s system, primarily consisting of member fee, trading commission, and advertising fee.
Results of Operation of TakungOperations
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 PERIOD ENDED SEPTEMBER 30, 2017 COMPARED TO THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2016
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 |
Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022
The following tables set forth our interim condensed consolidated statements of income data (as a percentage of revenue):data:
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenue | 100 | % | 100 | % | ||||
Cost of revenue – Direct revenue | (9 | ) | (5 | ) | ||||
Selling expense | (18 | ) | (11 | ) | ||||
General and administrative expenses | (74 | ) | (30 | ) | ||||
Total costs and expenses | (101 | ) | (46 | ) | ||||
Income from operations | (1 | ) | 54 | |||||
Interest and other income (loss), net | 6 | - | ||||||
Income before income taxes | 5 | 54 | ||||||
Income tax expense | (4 | ) | (10 | ) | ||||
Net income | 1 | % | 44 | % |
Three months ended March 31, | ||||||||||||||||
2023 | % of Revenue | 2022 | % of Revenue | |||||||||||||
(Unaudited) | (Audited) | |||||||||||||||
Revenue | $ | 699,741 | 100.0 | $ | - | - | ||||||||||
Cost of revenue | (150,930 | ) | (21.6 | ) | - | - | ||||||||||
Selling expense | - | - | - | - | ||||||||||||
General and administrative expenses | (657,343 | ) | (93.9 | ) | (611,475 | ) | - | |||||||||
Total costs and expenses | (808,273 | ) | (115.5 | ) | (611,475 | ) | - | |||||||||
Loss from operations | (108,532 | ) | (15.5 | ) | (611,475 | ) | - | |||||||||
Interest and other income (expenses), net | 93,265 | 13.3 | (99 | ) | - | |||||||||||
Loss before income tax expense | (15,267 | ) | (2.1 | ) | (611,574 | ) | - | |||||||||
Loss from discontinued operations | (8,983 | ) | (1.3 | ) | (179,765 | ) | - | |||||||||
Income tax benefit (expense) | (26,352 | ) | (3.8 | ) | - | - | ||||||||||
Net loss | $ | (50,602 | ) | (7.2 | ) | $ | (791,339 | ) | - |
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, 2017March 31, 2023 and 2016,2022, our continuing operations generated $699,741 and nil revenue. For the three months ended March 31, 2023 and 2022, our discontinued operations did not generate revenues respectively.
Revenue by category
The following table presents our revenue of our discontinued operations:
Three months ended | ||||||||
2023 | 2022 | |||||||
(Unaudited) | (Unaudited) | |||||||
Listing fee revenue | $ | - | $ | - | ||||
Commission revenue | 699,741 | - | ||||||
Management fee revenue | - | - | ||||||
Subtotal | 699,741 | - | ||||||
Less: Cost of revenue – discontinued operations | - | - | ||||||
Total | $ | 699,741 | $ | - |
Revenue by customer type
The following table presents our revenue by customer type of our discontinued operations:
Three months ended March 31, | ||||||||
2023 | 2022 | |||||||
Customers | $ | 699,741 | $ | - | ||||
Subtotal | 699,741 | - | ||||||
Less: Revenue- discontinued operations | - | - | ||||||
Total | $ | 699,741 | $ | - |
(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 the three months ended September 30, 2017, there were 6 sets of paintings 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 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 listing schedule of some artworks were deferred to a later time.
(ii) | Commission fee revenue |
For non-VIP Traders,Customers, 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 policyMarch 31, 2023 and the decrease of transaction volume of non VIP traders2022 was $699,741 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.nil from discontinued and continued operations respectively.
(iii) | Management fee revenue |
We chargeOur legacy online trading platform charges Traders a management fee to cover the costs of insurance, storage, and transportation for an artwork and trading management of artwork units, which areis calculated at $0.0013 (HK$0.01) per 100 artwork units per day. 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-monththree months period ended September 30, 2017,March 31, 2023 and 2022, our operations did not generate management fee revenue.
Cost of Revenue
Cost of revenue decreased by $378,672, from $781,219of our discontinued operations primarily includes the following: commission paid to service agents, depreciation, internet service charges, artwork insurance and artwork storage costs.
For three months ended March 31, | ||||||||
2023 | 2022 | |||||||
Commission paid to service agents | $ | - | $ | - | ||||
Depreciation | - | - | ||||||
Internet service charge | 150,930 | - | ||||||
Artwork insurance | - | - | ||||||
Artwork storage | - | - | ||||||
Subtotal | 150,930 | - | ||||||
Less: Cost of revenue – discontinued operations | - | - | ||||||
Total | $ | 150,930 | $ | - |
Cost of revenue of our discontinued operations 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 reductionMarch 31, 2023 and 2022 were $150,930 and nil respectively. Since the legacy online trading system was suspended in the fourth quarter in 2021 and our NFT online trading platform was not launched until May 2022, our discontinued and continuing operations did not generate any revenues and cost 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 $440 for the three-month period ended September 30, 2016 to $140.
(v) Authorized agent subscription revenue
Authorized agent subscription 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.
Cost of Revenue
Cost of revenue forduring the three months ended September 30, 2017 and 2016 was $292,168 and $285,252, respectively. Our cost of revenue primarily includes internet service fee, depreciation and amortization of hardware and software for our trading platform.March 31, 2022.
Gross Profit
Gross profit for our operations was $3,062,843$548,811 and nil 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 policyMarch 31, 2023 and the decrease of transaction volume of non VIP traders and non-selected traders.2022, 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, 2017March 31, 2023 were $2,498,848$657,343 compared to $1,744,965$611,475 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 $116,220 which were incurred to attend to the listing of our common stock on the NYSE American.March 31, 2022.
The following table sets forth the main components of the Company’sour general and administrative expenses of our continuing operations and for discontinued operations for the three months ended September 30, 2017March 31, 2023 and 2016.2022.
Three months ended September 30, 2017 | Three months ended September 30, 2016 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Amount($) | % 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 | % |
For three months ended March 31, 2023 (Unaudited) | For three months ended March 31, 2022 (Unaudited) | |||||||||||||||
Amount($) | % of Total | Amount($) | % of Total | |||||||||||||
Salary and welfare | 352,660 | 52.9 | % | 90,052 | 11.3 | % | ||||||||||
Office, insurance and rental expenses | 2,784 | 0.4 | % | 89,206 | 11.2 | % | ||||||||||
Legal and professional fees | 247,551 | 37.2 | % | 186,781 | 23.4 | % | ||||||||||
Consultancy fee | 54,000 | 8.1 | % | 126,834 | 15.9 | % | ||||||||||
Depreciation expenses | 348 | 0.1 | % | 350 | 0.0 | % | ||||||||||
Others | - | 0.0 | % | 118,252 | 14.8 | % | ||||||||||
Total general & administrative expenses-continuing operations | 657,343 | 98.7 | % | 611,475 | 76.7 | % | ||||||||||
Total general & administrative expenses-discontinued operations | 8,896 | 1.3 | % | 185,334 | 23.3 | % | ||||||||||
Total | $ | 666,239 | 100.0 | % | $ | 796,809 | 100.0 | % |
Net Income
We had a net incomeOur continuing operations did not incur any selling expense for the three months ended September 30, 2017March 31, 2023 and 2022. The selling expense of $27,034 compared to net income of $2,451,737our discontinued operation was nil for the three months ended September 30, 2016.March 31, 2023 and 2022, respectively.
The decrease
Other (expenses) income
Other (expenses) income for the continuing operations for the three months ended March 31, 2023 and 2022 were $93,265 and $(99), respectively. Other expenses were related to bank charges.
Other (expenses) income for the discontinued operations for the three months ended March 31, 2023 and 2022 were $(87) and $(167).
Loss before income taxes
Our continuing operations incurred loss before income taxes $15,267 and $611,574 for the three months ended March 31, 2023 and 2022, respectively. Loss before income taxes of our continuing operations was significantly higher for the three months ended March 31, 2023 compare to the same period in net income by $2,424,703 during this current period was primarily due to2022 as we incurred a decrease ofhigher commission revenue by $2,387,198in 2023 as discussed in the previous paragraphs.
above.
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2017 COMPARED TO NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016Our discontinued operations incurred loss before income taxes, $8,983 and $179,765 for the three months ended March 31, 2023 and 2022, respectively.
RevenueIncome tax expense
For the three months ended March 31, 2023 and 2022, our continuing operations incurred income tax expense as $26,352 and $nil, respectively.
The income tax expense from the discontinued operations for the three months ended March 31, 2023 and 2022 were both nil.
Net Loss
As a result of our operations aforementioned, our net loss after income taxes for continuing operations for the three months ended March 31, 2023 and 2022 were $41,619 and $611,574, respectively. Our discontinued operations generated net loss after income tax $8,983 and $179,765 for the three months ended March 31, 2023 and 2022, respectively.
Foreign currency translation gain (loss)
We had a foreign currency translation gain (loss) for the three months ended March 31, 2023 and 2022 of $(2,253) and $21,059, respectively.
Comprehensive gain/(loss)
As a result of the above, we posted a comprehensive loss of $52,855 and $770,280 for the three months ended March 31, 2023 and 2022, respectively.
Liquidity and Capital Resources
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 |
The following tables set forth our condensed consolidated statements of income data (as a percentage of revenue):
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(Unaudited) | (Unaudited) | |||||||
Revenue | 100 | % | 100 | % | ||||
Cost of revenue – Direct revenue | (8 | ) | (6 | ) | ||||
Selling expense | (12 | ) | (14 | ) | ||||
General and administrative expenses | (69 | ) | (36 | ) | ||||
Total costs and expenses | (89 | ) | (56 | ) | ||||
Income from operations | 11 | 44 | ||||||
Interest and other income (loss), net | 5 | (2 | ) | |||||
Income before income taxes | 16 | 42 | ||||||
Income tax expense | (6 | ) | (10 | ) | ||||
Net income | 10 | % | 32 | % |
Listing fee revenue was $4,606,649 and $8,166,072; commission revenue was $4,970,651 and $3,739,958, gross management fee revenue was $967,518 and $1,341,294, annual fee revenue was $859 and $869, authorized agent subscription revenue was $nil and $966,059, for the nine months ended September 30, 2017 and 2016, respectively.
During the nine months ended September 30, 2017, there were 49 sets of artwork listed for trade on our platform —comprising 8 sets of paintings and calligraphies, with a total listing value of $2,632,356 (HK$20,500,000), 16 pieces of jewelry with a total listing value of $5,567,754 (HK$43,360,000), 23 pieces of precious stones with a total listing value of $3,212,759 (HK$25,020,000), 1 piece of porcelains with a total listing value of $38,522 (HK$300,000) and 1 set of Unit+ product which was listed in Unit+ trading platform, with a total listing value of $152,548 (HK$1,188,000), of which 41.5%-47% (for 8 sets of paintings and calligraphies), 33.5%-48% (for the 16 pieces of jewelry), 26%-47% (for the 23 pieces of precious stones), 46% (for the 1 pieces of porcelains) and 43% (for the 1 set of Unit+ product) of the listed values were charged as listing fees, respectively.
Compared to the corresponding period ended September 30, 2016, there were 15 pieces of painting, 59 pieces of precious stones, 11 pieces of jewelry, 3 pieces of ivory, 18 pieces of amber and 2 pieces of porcelain pastel paintings successfully listed on our system. The total listing values were $3,349,005 (HK$26,000,000) for the 15 pieces of painting, $5,744,832 (HK$44,600,000) for the 59 pieces of precious stones, $1,816,191 (HK$14,100,000) for the 11 pieces of jewelry, $515,232 (HK$4,000,000) for the 3 pieces of ivory, $7,239,003 (HK$56,200,000) for the 18 pieces of amber, and $334,900 (HK$2,600,000) for the 2 pieces of porcelain pastel paintings, of which 47.75%-48% (for the 15 pieces of painting), 29%-48.5% (for the 59 pieces of precious stones), 29%-48% (for the 11 pieces of jewelry), 47% (for the 3 pieces of ivory), 45%-48% (for the 18 pieces of amber), and 45%-46% (for 2 pieces of porcelain pastel paintings ) of the relevant listed values were charged as listing fees, respectively.
The decrease in number of pieces listed, listing values and corresponding listing fees charged during the nine months ended September 30, 2017 compared to the same period ended September 30, 2016 resulted in a decrease in listing fee revenue in the current period. The decrease in number of pieces listed was due to a new listing category (“A-tier”) implemented on July 3, 2017. A-tier is aim to meet an elevated set of standards including higher 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.
Our trading volume and transaction value amounts increased significantly from 2015 when we commenced operations in Shanghai and consequently added a significant number of Traders from mainland China as they could now settle their trades in Renminbi. This trend continued into 2017. Trading volume increased by 193% and trading amount increased by 178% for the nine months ended September 30, 2017 compared to corresponding period in 2016.
In spite of this, total commission revenue increased by $1,230,693 or 33% for the nine months ended September 30, 2017 to $4,970,651 compared to $3,739,958 for the nine months ended September 30, 2016 primarily because of the change in our commission fee policy and the decrease of transaction volume of non VIP traders and non-selected traders . From April 1, 2016 onwards, selected Traders pay a predetermined monthly fixed fee for their trades in specific artworks while our other non-VIP Traders continue to pay a commission calculated based on a percentage of transaction value of artworks.
During the nine month period ended September 30, 2017, management fee revenue decreased by $373,776, from $1,341,294 for the nine months ended September 30, 2016 to $967,518. From September 1, 2016, we waived management fees for certain VIP Traders. We recognized these promotions as a reduction of revenue, which was recognized upon the completion of the transactions.
During the nine-month period ended September 30, 2017, annual fee revenue increased by $10, from $869 for the nine-month period ended September 30, 2016 to $859.
(v) Authorized agent subscription revenue
Authorized agent subscription revenue for the nine-month period ended September 30, 2017 was nil compared to $966,059 for the nine-month period ended September 30, 2016. We have ceased charging new authorized agent with subscription revenue in order to encourage high quality authorized agent to sign up with our platform.
Cost of Revenue
Cost of revenue for the nine months ended September 30, 2017 and 2016 was $822,335 and $822,735, respectively. Our cost of revenue primarily includes internet service fee, depreciation and amortization of hardware and software for our trading platform.
In the third quarter of 2014, we entered into an agreement with a third party service provider, Shenzhen Qianrong Cultural Investment Development Co., Ltd (“Qianrong”), to provide software development services with a total contract amount of $902,592 (HK$6,995,000). The services contracted for are divided into different modules, according to different upgrades and new functionalities. As of September 30, 2017 and 2016, nine out of the ten modules have been completed and are operational. We capitalized (with a total cost of $1,069,853 (HK$8,295,000)) and amortized these costs once the modules were completed.
Gross Profit
Gross profit was $9,723,342 for the nine months ended September 30, 2017, compared to $13,391,517 for the nine months ended September 30, 2016. The decrease was due to the less artworks listed on our platform, the change in our commission fee policy and the decrease of transaction volume of non VIP traders and non-selected traders.
Operating Expenses
Selling expenses were $1,272,010, or 13% of net sales, for the nine months ended September 30, 2017 compared to $1,993,782 or 15% of net sales, for the comparable period in 2016, a decrease by 36%. Selling expenses consist primarily of marketing expenses.
General and administrative expenses for the nine months ended September 30, 2017 were $7,311,128 compared to $5,076,689 for the nine months ended September 30, 2016. The substantial increase by $2,234,439 or 44% was chiefly due to an increase in salaries by $1,314,324 because of an increase in employee headcount, accrual of doubtful accounts, by $241,248, office, insurance and rental expenses by $400,067 and an increase in travelling expenses by $495,715 which were incurred to attend to the listing of our common stock on the NYSE American.
The following table sets forth the main components of the Company’s general and administrative expenses for the nine months ended September 30, 2017 and 2016.
Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Amount($) | % of Total | Amount($) | % of Total | |||||||||||||
Consultancy fee | $ | 187,230 | 3 | % | $ | 361,610 | 7 | % | ||||||||
Legal and professional fees | 733,466 | 10 | % | 728,856 | 14 | % | ||||||||||
Salary and welfare | 3,166,679 | 43 | % | 1,852,355 | 36 | % | ||||||||||
Office, insurance and rental expenses | 1,252,561 | 17 | % | 852,494 | 17 | % | ||||||||||
Non-deductible input VAT expense | 16,369 | - | % | - | - | % | ||||||||||
Traveling and accommodation fees | 679,950 | 9 | % | 184,235 | 4 | % | ||||||||||
Share-based compensation | 562,184 | 8 | % | 846,703 | 17 | % | ||||||||||
Bad debt expenses | 241,248 | 4 | % | - | - | % | ||||||||||
Others | 471,441 | 6 | % | 250,436 | 5 | % | ||||||||||
Total general and administrative expenses | $ | 7,311,128 | 100.0 | % | $ | 5,076,689 | 100.0 | % |
Net Income
We had a net income for the nine months ended September 30, 2017 of $1,057,138 compared to net income of $4,664,632 for the nine months ended September 30, 2016.
The decrease in net income by $3,607,494 during this current period was due to a fall of revenue by $3,668,575, and the increase of general and administrative expenses by $2,234,439 as discussed in the previous paragraphs.
Liquidity and Capital Resources
The following tables set forth ourinterim condensed consolidated statements of cash flow:
For three months ended March 31 | ||||||||
2023 | 2022 | |||||||
Net cash provided by operating activities-continuing operations | $ | 1,135,255 | $ | 1,716,197 | ||||
Net cash used in operating activities- discontinued operations | (87 | ) | (156,101 | ) | ||||
1,135,168 | 1,560,096 | |||||||
Net cash used in investing activities- continuing operations | - | - | ||||||
Net cash used in investing activities- discontinued operations | - | (1,153 | ) | |||||
- | (1,153 | ) | ||||||
Net cash provided by financing activities-continuing operations | 200,000 | 300,000 | ||||||
Net cash provided by financing activities-discontinued operations | - | |||||||
200,000 | 300,000 | |||||||
Effect of exchange rate change on cash and cash equivalents, and restricted cash from continuing operations | (170 | ) | 42,534 | |||||
Effect of exchange rate change on cash and cash equivalents, and restricted cash from discontinued operations | (597 | ) | (56,203 | ) | ||||
(767 | ) | (13,669 | ) | |||||
Net increase (decrease) in cash and cash equivalents - continuing operations | 1,335,084 | 2,058,731 | ||||||
Net (decrease) increase in cash and cash equivalents and restricted cash- discontinued operations | (684 | ) | (213,457 | ) | ||||
1,334,400 | 1,845,274 | |||||||
Cash and cash equivalents, beginning balance- continuing operations | 67,500,438 | 1,503,153 | ||||||
Cash and cash equivalents and restricted cash, beginning balance- discontinued operations | 96,797 | 338,542 | ||||||
67,597,235 | 1,841,695 | |||||||
Cash and cash equivalents and restricted cash, ending balance- continuing operations | $ | 68,835,522 | $ | 3,561,884 | ||||
Cash and cash equivalents and restricted cash, ending balance- discontinued operations | 96,113 | 125,085 | ||||||
$ | 68,931,635 | $ | 3,686,969 |
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
The cash and cash equivalent and the restricted cash balances from the continuing operations as of March 31, 2023 were $65,439,927 and $3,395,595, respectively.
DuringThe cash and cash equivalent balance from the ninediscontinued operations as of March 31, 2023 was $96,113.
For the three months ended September 30, 2017,March 31, 2023, net cash generated fromprovided by operating activities totaled $1,028,524.from continuing operation was $1,135,255. There was no cash inflow from investing activities from our continuing operations during the three months ended March 31, 2023. Our continuing operations incur net cash used in financing activities, $200,000 during the three months ended March 31, 2023.
For the three months ended March 31, 2023, net cash used in operating activities by our discontinued operations was $87. Net cash provided by investing activities by our discontinued operations was nil. Our discontinued operations did not incur cash inflow or outflow from financing activities.
The cash and cash equivalent and the restricted cash balances from the continuing operations as of March 31, 2022 were $1,533,468 and $2,028,416, respectively.
The cash and cash equivalent balance from the discontinued operations as of March 31, 2022 was $125,085.
For the three months ended March 31, 2022, net cash provided by operating activities from continuing operation was $1,716,197. While there was no cash inflow or outflow from investing activities from our continuing operations during the three months ended March 31, 2022, our continuing operations incur net cash provided by financing activities, $300,000.
For the three months ended March 31, 2022, net cash used in operating activities by our discontinued operations was $156,101. Net cash used in investing activities totaled $561,510. Noby our discontinued operations was $1,153. Our discontinued operations did not incur cash was generatedinflow or outflow from financing activities 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.activities.
During the nine months ended September 30, 2016, net cash provided by operating activities totaled $5,635,391. Net cash used in investing activities totaled $1,276,378. Net cash provided by financing activities totaled $2,346,941. The resulting change in cash for the period was an increase of $6,061,579. The cash balance at the beginning of the period was $10,769,456. The cash balance on September 30, 2016 was $16,831,035.
As of September 30, 2017,March 31, 2023, the total current liabilities from the continuing operations were $8,074,673. Total current liabilities from our discontinued operations were $8,647,562.
As of March 31, 2023, the continuing operations of the Company had $28,390,798cash, restricted cash and cash equivalents of $68,835,522, a working capital in total current liabilities, which comprisedan amount of $780,800 in accrued expense$60,852,308 and other payables, $19,057,733 in customers’ deposits, $6,371,900 in short-term borrowings from third parties, $1,085,480 in amount due to related party and $1,094,885 in tax payables. Asthe net assets 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.
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.$60,857,408. The Company’s totaldiscontinued operations had cash and cash equivalent of $96,113, a working deficit of $8,550,147, and net liabilities as of September 30, 2017 and December 31, 2016 amounted to $28,436,099 and $30,665,324, respectively.$8,503,481.
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 About Market Risk.
Not applicable.
As a smaller reporting company, we are not required to provide the information required by this item.
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 XiaoKuangtao Wang and our Chief Financial Officer, Mr. Chun Hin Leslie Chow.Jianguang Qian. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of September 30, 2017March 31, 2023 were effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2017March 31, 2023 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
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PART II -II. OTHER INFORMATION
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 intended 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 a smaller reporting company, we are not required to provide the information required by this item.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Other than any sales previously reported in the Company’s Current Reports on Form 8-K, the Company did not sell any unregistered securities during the period covered by this report.
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
Item 5. Other Information.None.
Not applicable.
Copies of theThe following documentsexhibits are included as exhibits to this report pursuant to Item 601 of Regulation S-K.filed herewith:
4.2 |
104 |
* | Filed herewith |
** | Furnished herewith |
(1) | Incorporated herein by reference to the |
(2) | Incorporated herein by reference to the exhibit to our current report on Form 8-K filed with the SEC on March 7, 2013. |
(3) | Incorporated |
(4) | Incorporated herein by reference to Exhibit 3.1 to our current report on Form 8-K filed with the SEC on August 12, 2015. |
(5) | Incorporated herein by reference to exhibits to our current report on Form 8-K filed with the SEC on February 23, 2022. |
(6) | Incorporated herein by reference to exhibits to our current report on Form 8-K filed with the SEC on March 25, 2022. |
(7) | Incorporated herein by reference to exhibits to our current report on Form 8-K filed with the SEC on January 7, 2022. |
(8) | Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv). |
*Filed herewith.
**Furnished herewith.
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.
Date: May 24, 2023 | TAKUNG ART CO., LTD | |
By: | /s/ Kuangtao Wang | |
Kuangtao Wang | ||
Chief Executive Officer | ||
By: | /s/ | |
Chief | ||
(Principal Financial |
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