Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20172021

or

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________ to _________________________ to_________________________

Commission File Number: 001-38036

TAKUNG ART CO., LTD

(Exact name of registrant as specified in its charter)

Delaware

26-4731758

Delaware

26-4731758

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

Room 709 Tower 2, Admiralty Centre, 18 Harcourt Road, Admiralty, Hong Kong

(Address of principal executive offices)

(Zip Code)

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

(Address of principal executive offices)             (Zip Code)

+852 3158 0977

(Registrant’s telephone number, including area code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

TKAT

NYSE American

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

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

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

Large accelerated filer¨

Accelerated filer¨

Non-accelerated filer (Do not check if a smaller reporting company)¨

Smaller reporting companyx

Emerging growth company¨

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).¨Yesx  No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  ¨Yes¨No

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

The number of shares of common stock issued and outstanding as of November 14, 201719, 2021 is 11,188,882.13,957,353.

Table of Contents

FORM 10-Q

TAKUNG ART CO,CO., LTD

INDEX

Page

PART I.

Financial Information

3

PART I.

Financial Information

3

Item 1. Interim Condensed Consolidated Financial Statements (Unaudited).

3

Item 2. Management’s Discussion and Analysis of Financial Condition and resultsResults of Operation.

17

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

26

31

Item 4. Controls and Procedures.

27

31

PART II.

Other Information

28

31

Item 1.  Legal Proceedings.

28

Item 1A. Risk Factors.28
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.28
Item 3.  Defaults Upon Senior Securities.28
Item 4.  Mine Safety Disclosures.28
Item 5.  Other Information.28
Item 6. Exhibits.

28

32

Signatures

29Signatures

33


2

Table of Contents

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, 

    

2021

    

2020

 

(Unaudited)

 

  

ASSETS

Current assets

 

  

 

  

Cash and cash equivalents

$

8,859,865

$

4,698,135

Restricted cash

 

53,241,711

 

9,144,610

Account receivables, net

 

234,143

 

154,771

Prepayment and other current assets, net

 

512,664

 

279,387

Amount due from related parties

 

6,303,970

 

6,225,134

Loan receivables

 

2,172,766

 

2,609,748

Total current assets

 

71,325,119

 

23,111,785

 

 

Non-current assets

 

 

Property and equipment, net

 

216,130

 

437,996

Intangible assets

 

22,414

 

22,504

Non-marketable investment

10,630,120

0

Deferred tax assets, net

 

548,156

 

638,860

Operating lease right-of-use assets

130,073

183,409

Other non-current assets

 

18,430

 

18,594

Total non-current assets

 

11,565,323

 

1,301,363

Total assets

$

82,890,442

$

24,413,148

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

LIABILITIES

 

 

Current liabilities

 

 

Accrued expenses and other payables

$

1,073,795

$

728,088

Customer deposits

 

53,241,711

 

9,144,610

Advance from customers

 

21,895

 

17,412

Short-term borrowings from a third party

 

1,969,084

 

1,977,109

Amount due to a related party

 

6,422,608

 

6,448,784

Operating lease liabilities - current

76,719

72,367

Tax payables

 

11,009

 

106,354

Total current liabilities

 

62,816,821

 

18,494,724

Non-current liabilities

 

 

Operating lease liabilities, non-current

41,714

103,379

Total non-current liabilities

41,714

103,379

Total liabilities

 

62,858,535

 

18,598,103

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

Common stock (1,000,000,000 shares authorized; $0.001 par value; 13,957,353 shares issued and outstanding as of September 30, 2021; 11,271,379 shares issued and outstanding as of December 31, 2020)

 

13,957

 

11,271

Additional paid-in capital

 

30,431,500

 

6,358,115

Accumulated deficit

 

(10,017,410)

 

(226,311)

Accumulated other comprehensive loss

 

(396,140)

 

(328,030)

Total shareholders’ equity

 

20,031,907

 

5,815,045

Total liabilities and shareholders’ equity

$

82,890,442

$

24,413,148

  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 

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


3

Table of Contents

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME

OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

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

(UNAUDITED)

    

For the Three Months Ended

    

For the Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Revenue

 

  

 

  

 

  

 

  

Listing fee

$

320,173

$

$

877,267

$

557,789

Commission

 

1,083,976

 

568,853

 

2,090,372

 

2,657,989

Management fee

 

1,124,528

 

116,612

 

1,483,641

 

330,138

Consultancy service fee

80,000

0

80,000

Total revenue

 

2,608,677

 

685,465

 

4,531,280

 

3,545,916

 

 

 

 

Cost of revenue

 

(719,826)

 

(393,990)

 

(1,424,528)

 

(1,804,566)

Gross profit

 

1,888,851

 

291,475

 

3,106,752

 

1,741,350

 

 

 

 

Operating expenses:

 

 

 

 

General and administrative expenses

 

(3,817,635)

 

(617,228)

 

(12,783,107)

 

(2,657,403)

Selling expense

 

(48,511)

 

(174,379)

 

(284,980)

 

(278,953)

Total operating expenses

 

(3,866,146)

 

(791,607)

 

(13,068,087)

 

(2,936,356)

 

 

 

 

Loss from operations

 

(1,977,295)

 

(500,132)

 

(9,961,335)

 

(1,195,006)

 

 

 

 

Other income and expenses:

 

 

 

 

Other income

 

59,673

 

55,497

 

81,754

 

158,941

Loan interest expense

 

(86,823)

 

(21,678)

 

(86,823)

 

(100,038)

Exchange gain

 

95,657

 

547,760

 

265,790

 

344,275

Total other income

 

68,507

 

581,579

 

260,721

 

403,178

 

 

 

 

(Loss) income before provision for income taxes

 

(1,908,788)

 

81,447

 

(9,700,614)

 

(791,828)

 

 

 

 

Income tax expense (benefit)

 

83,892

 

(631)

 

90,485

 

94,225

 

 

 

 

Net (loss) income

$

(1,992,680)

$

82,078

$

(9,791,099)

$

(886,053)

 

 

 

 

Foreign currency translation adjustment

 

(34,280)

 

(38,371)

 

(68,110)

 

(48,747)

 

 

 

 

Comprehensive (loss) income

$

(2,026,960)

$

43,707

$

(9,859,209)

$

(934,800)

 

 

 

 

(Loss) income per common share - basic

$

(0.16)

$

0.01

$

(0.82)

$

(0.08)

(Loss) income per common share - diluted

$

(0.16)

$

0.01

$

(0.82)

$

(0.08)

Weighted average number of common shares outstanding-basic

 

12,689,317

 

11,271,379

 

11,897,019

 

11,261,694

Weighted average number of common shares outstanding-diluted

 

12,689,317

 

11,271,379

 

11,897,019

 

11,261,694

  For the Three Months Ended
September 30,
  For the Nine Months Ended
September 30,
 
  2017  2016  2017  2016 
  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
Revenue                
Listing fee revenue $1,455,498  $2,968,534  $4,606,649  $8,166,072 
Commission revenue  1,496,826   1,669,698   4,970,651   3,739,958 
Gross management fee revenue  402,547   781,219   967,518   1,341,294 
Annual fee revenue  140   440   859   869 
Authorized agent subscription revenue  -   322,318   -   966,059 
Total revenue  3,355,011   5,742,209   10,545,677   14,214,252 
                 
Cost of revenue  (292,168)  (285,252)  (822,335)  (822,735)
                 
Gross profit  3,062,843   5,456,957   9,723,342   13,391,517 
                 
Operating expenses:                
General and administrative expenses  (2,498,848)  (1,744,965)  (7,311,128)  (5,076,689)
Selling expenses  (624,151)  (652,207)  (1,272,010)  (1,993,782)
                 
Income(loss)from operations  (60,156)  3,059,785   1, 140,204   6,321,046 
                 
Other income and expenses:                
Other income  186,259   163,738   440,470   314,268 
Loan interest expense  (152,059)  (62,670)  (455,762)  (62,670)
Exchange gain (loss)  177,652   (112,384)  526,603   (530,934)
Total other income (loss)  211,852   (11,316)  511,311   (279,336)
                 
Income before income taxes  151,696   3,048,469   1,651,515   6,041,710 
                 
Income tax (expense) benefit  (124,662)  (596,732)  (594,377)  (1,377,078)
                 
Net income $27,034  $2,451,737  $1,057,138  $4,664,632 
                 
Foreign currency translation adjustment  311,485   10,172   787,660   18,322 
                 
Comprehensive income $338,519  $2,461,909  $1,844,798  $4,682,954 
                 
Earnings per common share– basic $0.00  $0.23  $0.10  $0.44 
Earnings per common share– diluted  0.00   0.22   0.09   0.41 
Weighted average number of common shares outstanding-basic  11,188,882   10,632,276   11,039,880   10,632,276 
Weighted average number of common shares outstanding-diluted  11,248,688   11,365,597   11,398,082   11,277,845 

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


4

Table of Contents

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWSCHANGES IN EQUITY

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

(UNAUDITED)

    

    

    

    

    

Accumulated

    

Additional

other

Number

Common

Paid-in

Accumulated

comprehensive

    

of shares

    

Stock

    

capital

    

deficit

    

loss

    

Total

Balance, December 31, 2020

 

11,271,379

 

$

11,271

 

$

6,358,115

 

$

(226,311)

 

$

(328,030)

 

$

5,815,045

Shared-based compensation

0

0

3,717

0

0

3,717

Net loss

0

0

0

(572,588)

0

(572,588)

Foreign currency translation adjustment

0

0

0

0

(37,763)

(37,763)

Balance, March 31, 2021

11,271,379

11,271

6,361,832

(798,899)

(365,793)

5,208,411

Issuance of ordinary shares for restricted stock award

335,000

335

6,863,814

0

0

6,864,149

Exercise of stock options

61,065

61

180,424

0

0

180,485

Net loss

0

0

(7,225,831)

0

(7,225,831)

Foreign currency translation adjustment

0

0

0

3,933

3,933

Balance, June 30, 2021

11,667,444

$

11,667

$

13,406,070

$

(8,024,730)

$

(361,860)

$

5,031,147

Issuance of ordinary shares for professional services

160,000

160

1,897,440

0

1,897,600

Issuance of ordinary shares related to a private placement

571,429

571

4,999,429

0

0

5,000,000

Issuance of ordinary shares related to a non-marketable investment

1,558,480

1,559

10,128,561

0

0

10,130,120

Net loss

0

0

(1,992,680)

0

(1,992,680)

Foreign currency translation adjustment

0

0

0

(34,280)

(34,280)

Balance, September 30, 2021

13,957,353

$

13,957

$

30,431,500

$

(10,017,410)

$

(396,140)

$

20,031,907

    

    

    

Retained

Accumulated

    

    

Additional 

earnings

 other 

Number

Common

Paid-in

(accumulated

comprehensive

    

of shares

    

Stock

    

Capital

    

deficit)

    

Loss

    

Total

Balance, December 31, 2019

11,255,129

$

11,255

$

6,320,604

$

386,327

$

(273,029)

$

6,445,157

Shared-based compensation

 

0

 

0

 

5,986

 

0

 

0

 

5,986

Net loss

 

0

 

0

 

0

 

(953,362)

 

0

 

(953,362)

Foreign currency translation adjustment

 

0

 

0

 

0

 

0

 

(8,768)

 

(8,768)

Balance, March 31, 2020

11,255,129

11,255

6,326,590

(567,035)

(281,797)

5,489,013

Issuance of ordinary shares for restricted stock award

6,250

6

(6)

0

0

0

Issuance of ordinary shares for professional services

10,000

10

13,240

0

0

13,250

Shared-based compensation

0

0

6,053

0

0

6,053

Net loss

0

0

0

(14,769)

0

(14,769)

Foreign currency translation adjustment

0

0

0

0

(1,608)

(1,608)

Balance, June 30, 2020

 

11,271,379

11,271

6,345,877

(581,804)

(283,405)

5,491,939

Share-based compensation

6,119

6,119

Net income

82,078

82,078

Foreign currency translation adjustment

(38,371)

(38,371)

Balance, September 30, 2020

 

11,271,379

$

11,271

$

6,351,996

$

(499,726)

$

(321,776)

$

5,541,765

5

Table of Contents

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED Consolidated Statements of Cash Flows

(Stated in U.S. Dollars)

(UNAUDITED)

    

    

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

Cash flows from operating activities:

 

  

 

  

Net cash provided by (used in) operating activities

$

43,471,227

$

(6,680,813)

 

 

Cash flows from investing activities:

 

 

Purchase of property and equipment

 

(1,688)

 

(19,961)

Purchase of a non-marketable investment

(500,000)

0

Loan repayment from a third party

 

389,917

 

0

Net cash used in investing activities

 

(111,771)

 

(19,961)

 

 

Cash flows from financing activities:

 

 

Proceeds from stock option exercised

 

180,485

 

0

Proceeds from a private placement

5,000,000

0

Net cash provided by financing activities

 

5,180,485

 

0

Effect of exchange rate change on cash, cash equivalents and restricted cash

(281,110)

122,268

Net increase (decrease) in cash, cash equivalents and restricted cash

48,258,831

(6,578,506)

Cash, cash equivalents and restricted cash, beginning balance

 

13,842,745

 

21,829,154

Cash, cash equivalents and restricted cash, ending balance

$

62,101,576

$

15,250,648

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets

 

 

Cash and cash equivalents as of September 30, 2021 and 2020, respectively

 

8,859,865

 

4,934,049

Restricted cash as of September 30, 2021 and 2020, respectively

 

53,241,711

 

10,316,599

Total cash, cash equivalents, and restricted cash as of September 30, 2021 and 2020, respectively

$

62,101,576

$

15,250,648

Supplemental cash flows information:

 

 

Cash paid for interest

$

86,823

$

0

Cash paid for income tax

$

112,429

$

58,452

  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.

6

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 set up a new office in Hangzhou, PRCwas deregistered on November 20, 2016 for technology development. May 8, 2020 and the Company merged the operations of Shanghai Takung with Takung Cultural Development (Tianjin) Co., Ltd.

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.

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.

7

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 parrter 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 common shares of Cultural Objects and 290,000 unvested restricted shares of common stock of Takung to Cultural Objects in exchange for 32,460 unvested common shares 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 common shares 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 common shares 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 common shares 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 (see Note 3).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated balance sheet as of December 31, 2016,2020, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of September 30, 20172021 and for the three months ended and nine months ended September 30, 20172021 and 20162020 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures, which are normally included in financial statements prepared in accordance with United States (“U.S. GAAP,”) generally accepted accounting principles (“GAAP”), have been condensed or omitted pursuant to such rules and regulations, although the managementregulations. Management believes that the disclosures made are adequate to provide fora fair presentation. The interim financial information should be read in conjunction with the Financial Statementsfinancial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2020, previously filed with the SEC.

Beginning in 2021, a strain of coronavirus (COVID-19) has spread globally. Although the Company’s operations have fully resumed in March 2021 and maintained an increasing trend of new trader accounts opening, the extent of the impact of the coronavirus on the Company's business and operations is highly uncertain and cannot be predicted with confidence. The Company’s business and operation will depend on several factors, such as the duration, severity, and geographic spread of the pandemic, development of the testing and treatment and stimulus measures of the government. The Company is monitoring and assessing the evolving situation closely and evaluating its potential exposure. The operating results for the nine months ended September 30, 2021 may not be indicative of the future operating results for the fiscal year ending December 31, 2021 or other future periods, particularly in light of the uncertain impact COVID-19 could have on the Company's business.

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

Dollars.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s unaudited interim condensed consolidated financial position as of September 30, 2017,2021, its interim condensed consolidated results of operations and cash flows for the nine-month periodsthree and nine months ended September 30, 20172021 and 2016,2020, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

8

Recent Accounting Pronouncements


Except for the ASUs issued but not yet adopted disclosed in Note 2 to the financial statements on Form 10-K for the fiscal year ended December 31, 2020, previously filed with the SEC, there is no ASU issued by the FASB that is expected to have a material impact on the condensed consolidated financial statements upon adoption.

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.

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.

3.The following table sets forth the carrying value of the assets and liabilities of Tianjin Takung whose operation was suspended as disclosed above, which were included in the accompanying unaudited condensed consolidated financial statements:

    

September 30,

    

December 31,

2021

2020

ASSETS

 

  

 

  

CURRENT ASSETS

 

  

 

  

Cash and cash equivalents

$

5,897,115

$

3,922,665

Restricted cash

 

53,241,711

 

9,144,610

Prepayment and other current assets, net

 

212,868

 

71,876

Intercompany receivables

 

1,439,513

 

1,379,393

Amount due from related parties

 

6,303,970

 

6,225,134

Loan receivables

 

2,172,766

 

2,609,748

Total current assets

 

69,267,943

 

23,353,426

NON-CURRENT ASSETS

 

  

 

  

Property and equipment, net

 

113,481

 

231,939

Deferred tax assets, net

 

138,501

 

125,190

Operating lease right-of-use assets

 

51,953

 

59,790

Total non-current assets

 

303,935

 

416,919

TOTAL ASSETS

$

69,571,878

$

23,770,345

CURRENT LIABILITIES

 

  

 

  

Accrued expenses and other payables

$

614,128

$

436,674

Customer deposits

 

53,241,711

 

9,144,610

Intercompany payables

 

16,328,379

 

14,829,608

Operating lease liabilities - current

 

12,381

 

11,517

Tax payable

 

11,009

 

20,003

Total current liabilities

 

70,207,608

 

24,442,412

NON-CURRENT LIABILITIES

 

  

 

  

Operating lease liability - non-current

 

27,932

 

40,610

TOTAL LIABILITIES

$

70,235,540

$

24,483,022

The Company has considered whether there is substantial doubt about its ability to continue as a going concern based on above factor. In evaluating if there is substantial doubt about its ability to continue as a going concern, the Company is trying to alleviate the

9

going concern risk through further developing its operations in blockchain and NFT related businesses including consultancy services, development of NFT marketplace and “Play to Earn” style block chain-based online games.

Meanwhile, the Company is actively seeking other strategic partners with resources that can expand its blockchain and NFT businesses.

4. INVESTMENTS

We adopted ASU 2016-01 on January 1, 2018.  This guidance requires us to measure all equity investments that are not accounted for under the equity method or result in consolidation at fair value and recognize any changes in net income.  For equity investments with readily determinable and observable fair values, we use quoted market prices to determine the fair value of 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 same issuer.

Equity investments with readily determinable fair values that are not accounted for under the equity method classified as trading are not assessed for impairment, since they are carried at fair value with the change in fair value included in net income. Similarly, prior to the adoption of ASU 2016-01, equity investment classified as trading was not tested for impairment.

Equity investments without readily determinable fair values are reviewed each reporting period to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of each investment. When such events or changes occur, we assess the fair value compared to our cost basis in the investment. We also perform this assessment every reporting period for each investment for which our cost basis has exceeded the fair value.

For investments in privately-held companies, management's assessment of fair value is based on valuation methodologies such as discounted cash flows, estimates of revenue and appraisals, as applicable. We consider and apply the assumptions that we believe market participants would use in evaluating estimated future cash flows when utilizing the discounted cash flow or estimates of revenue valuation methodologies.  In the event the fair value of an investment declines below our cost basis, management determines if the decline in fair value is other than temporary and records an impairment accordingly.

As of September 30, 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 similar investments of the same issuer.

The carrying value is measured as the total initial cost minus impairment.  The carrying value for our non-marketable investment is summarized below:

September 30,

December 31,

    

2021

    

2020

(Unaudited)

Total initial cost

$

10,630,120

$

Cumulative net gain (loss)

 

 

Total carrying value

$

10,630,120

$

For the three months and nine months ended September 30, 2021, we did not incur any unrealized gain or loss in connection with the non-marketable investment.  Since the investment was acquired in August 2021, there was 0 unrealized gain or loss incurred for the three months and nine months ended September 30, 2020.

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5. PREPAYMENT AND OTHER CURRENT ASSETS,

NET

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

    

September 30, 

    

December 31, 

    

2021

    

2020

(Unaudited)

Prepaid tax

$

26,341

$

32,262

Prepaid service fees

 

335,200

 

202,647

Prepaid rent

 

150,347

 

Staff advance

 

 

2,299

Deposit

 

 

35,879

Other current assets

776

6,300

Less: allowance for doubtful accounts

0

0

Prepayment and other current assets, net

$

512,664

$

279,387

  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. ACCOUNT RECEIVABLES, NET

Account receivables consisted of the following:

  September 30,
2017
  December 31, 
2016
 
  (Unaudited)    
Listing fee $1,562,924  $1,403,255 
Authorized agent subscription revenue  924,100   995,453 
Monthly commission fee  1,422,750   605,677 
Others  63,323   54,183 
Less: allowance for doubtful accounts  (240,528)  - 
Account receivables, net $3,732,569  $3,058,568 

Management reviewed the collectability of the receivables periodically, and identified certain inactive traders during this quarter. Management considered the receivables due from these traders are uncertain and provided bad debtNaN provision of $240,528for doubtful accounts was recognized for the three and nine months ended September 30, 2017.2021 and 2020, respectively.

10 

6. ACCOUNT RECEIVABLES, NET

5.Account receivables consisted of the following:

    

September 30, 

    

December 31, 

    

2021

    

2020

(Unaudited)

Listing fee

$

154,143

$

154,771

Consultancy service

80,000

0

Less: allowance for doubtful accounts

 

0

 

0

Account receivables, net

$

234,143

$

154,771

NaN provision for doubtful accounts was recognized for the three and nine months ended September 30, 2021 and 2020, respectively.

7. LOAN RECEIVABLES

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

Amount in

    

    

    

Original

    

Outstanding

    

Reporting

    

Annual

    

Amount

Balance

Currency

Interest

Repayment

Date

    

Borrower

    

Lender

    

(RMB)

    

(RMB)

    

(USD)

    

Rate

    

Due Date

7/18/2019

 

Chongqing Aoge Import and Export Co.

 

Tianjin Takung

 

5,000,000

 

5,000,000

$

775,988

 

0

%  

4/1/2022

8/29/2019

 

Chongqing Aoge Import and Export Co.

 

Tianjin Takung

 

5,000,000

 

5,000,000

$

775,988

 

0

%  

4/1/2022

9/20/2019

 

Chongqing Aoge Import and Export Co.

 

Tianjin Takung

 

4,000,000

 

4,000,000

$

620,790

 

0

%  

4/1/2022

 

  

 

  

 

Total

 

  

$

2,172,766

 

  

 

Date Borrower Lender Original
Amount
(RMB)
  

September 30,
2017

(USD)

  

December 31,
2016

(USD)

  Annual
Interest
Rate
  Repayment 
Due Date
         (Unaudited)         
7/15/2016 Xiaohui Wang Shanghai Takung  10,080,000  $-  $1,451,822   0% 3/31/2017
8/24/2016 Xiaohui Wang Shanghai Takung  13,350,000  $-  $1,922,800   0% 3/31/2017
11/14/2016 Xiaohui Wang Shanghai Takung  10,275,000  $1,544,346  $1,479,908   0% 10/31/2017
12/9/2016 Xiaohui Wang Tianjin Takung  10,550,000  $1,585,680  $1,519,516   0% 11/30/2017
1/4/2017 Xiaohui Wang Tianjin Takung  24,461,505  $3,676,597  $-   0% 12/31/2017
       Total  $6,806,623  $6,374,046       

All the transactions entered with Chongqing Aoge Import and Export co. were aimed to meet the Company’s working capital needs in US Dollar,U.S. Dollars, which isare freely convertible to Hong Kong Dollar.

The interest-free loans (the “RMB Loans”) entered into by Tianjin Takung were guaranteed by Mr. Daquan Wang who is a General Manager and legal representative of Chongqing Aoge Import and Export Co. (“Chongqing”). Mr. Daquan Wang is a citizen of the People’s Republic of China. Both Chongqing and Mr. Daquan Wang are non-related parties to the Company.

11

Hong Kong Takung entered into loan agreements (the “Hong Kong Dollar Loans”) with Friend Sourcing Ltd., a Hong Kong company (“Friend Sourcing”) with interest accruing at a rate of 8% per annum (See Note 8). Friend Sourcing is a non-related party to the Company.

The interest-free loans (the “RMB Loans”) that Shanghai Takung and Tianjin Takung enteredtransactions with Friend Sourcing were guaranteed by Chongqing Wintus (New Star) Enterprises Group (“Chongqing”). Xiaohui Wang (“Ms. Wang”) is a national ofaimed to meet the People’s Republic of China. Ms. Wang is a shareholder and the legal representative of Chongqing. Both Chongqing and Ms. Wang are the non-related parties to the Company.

In the meantime,Company’s working capital needs in Hong Kong Takung entered into loan agreements (the “US Dollar Loans”) with Merit Crown Limited, a Hong Kong company (“Merit Crown) with interest accruing at a rate of 8% per annum (See Note 8). Merit Crown is a non-related party to the Company.

Dollars.

Through an understanding between Ms. WangChongqing Aoge Import and Merit Crown,Export Co. and Friend Sourcing, the USHong Kong Dollar Loans are “secured” by the RMB Loans. It is the understanding between the parties that the Hong Kong Dollar Loans and the RMB Loans will be repaid simultaneously. The loans were extended on August 1, 2020 with a new repayment due date on April 1, 2022.

On November 30, 2020, Tianjin offered a short-term financing in an amount of $1,008,784 (RMB6,500,000) with an annual interest rate at 6% to a non-related third party, Tianjin Zhiyuan Enterprise Management Co., Ltd. The loan was matured on February 2, 2021. Portion of the loan amount, $543,191 (RMB 3,500,000) was paid off on December 31, 2020 . The remaining balance, $470,032 (RMB3,028,603), inclusive of the outstanding principal balance, $465,593 (RMB3,000,000) and interest receivable, $4,439 (RMB28,603) was fully repaid on January 27, 2021.

8. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

    

September 30, 

    

December 31, 

    

2021

    

2020

(Unaudited)

Furniture, fixtures and equipment

$

220,130

$

218,430

Leasehold improvements

 

23,121

 

23,216

Computer trading and clearing system

 

3,473,208

 

3,468,346

Transport equipment

 

111,644

 

110,245

Sub-total

 

3,828,103

 

3,820,237

Less: accumulated depreciation

 

(3,611,973)

 

(3,382,241)

 Property and equipment, net

$

216,130

$

437,996

Depreciation expense was $57,747 and $109,766 for the three months ended September 30, 2021 and 2020, respectively, and $225,389 and $356,756 for the nine months ended September 30, 2021 and 2020, respectively.

9. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables as of September 30, 2021 and December 31, 2020 consisted of the following:

    

September 30, 

    

December 31, 

    

2021

    

2020

(Unaudited)

Accruals for professional fees

$

611,309

$

267,427

Accruals for consulting fees

302,308

365,634

Payroll payables

 

30,247

 

80,026

Trading and clearing system

 

5,509

 

Accrued interest

86,625

Other payables

 

37,797

 

15,001

Total accrued expenses and other payables

$

1,073,795

$

728,088

10. SHORT-TERM BORROWINGS FROM A THIRD PARTY

In July 2019, Hong Kong Takung entered into HKD Loans with Friend Sourcing with interest accruing at a rate of 8% per annum. The HKD Loans are to provide Hong Kong Takung with sufficient HKD currency to meet its working capital requirements. Friend Sourcing is a non-related party to the Company. On April 1, 2021, Hong Kong Takung extended the due date of the HKD Loans with Friend Sourcing to July 30, 2021. On August 1, 2021, Hong Kong Takung further extended the financing with Friend Souring to April 1, 2022. An interest payable, $86,823, was accrued upon extension and was paid on October 22, 2021.

12

Table of Contents

In the meantime, Tianjin Takung entered interest-free RMB Loans with another third party as a guarantee for the HKD Loans. The loan amount was $2,172,766 (RMB 14,000,000). Through an understanding between the two third parties, the HKD Loans are “secured” by the RMB Loans. It is an understanding between the parties that when the US DollarHKD Loans are repaid, the RMB Loans will be repaid at the same time.


6. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of On August 1, 2021, Tianjin Takung further extended 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

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

Date Borrower Lender Original Amount
(HKD)
  September 30, 
2017
(USD)
  December 31,
2016
(USD)
  Annual
Interest Rate
  Repayment 
Due Date
         (Unaudited)         
7/15/2016 Hong Kong Takung Merit Crown Limited  11,700,000  $1,497,888  $1,509,015   8% 12/31/2017
8/24/2016 Hong Kong Takung Merit Crown Limited  15,596,100  $1,996,684  $2,011,518   8% 12/31/2017
11/18/2016 Hong Kong Takung Merit Crown Limited  11,479,102  $1,469,607  $1,480,525   8% 10/31/2017
12/9/2016 Hong Kong Takung Merit Crown Limited  11,787,600  $1,509,103  $1,520,314   8% 11/30/2017
                       
  Less: Discount loan payable       $101,382  $212,859       
                       
       Total  $6,371,900  $6,308,513       

The US Dollar Loans are to provide Hong Kong Takung with sufficient US Dollar-denominated currency to meet its working capital requirements. It is “secured” by the aforementioned RMB Loans (See Note 5) of equivalent amount by its subsidiary to an individual and guarantor affiliatedfinancing with the lender of the US Dollar Loans. It is the understanding between the parties that when the US Dollar Loans are repaid, the RMB Loans will similarly be repaid.third party to April 1, 2022.

September 30, 

December 31, 

Annual

2021

2020

Interest

Repayment

Date

    

Borrower

    

Lender

    

(USD)

    

(USD)

    

Rate

    

Due Date

7/18/2019

 

Hong Kong Takung

 

Friend Sourcing Ltd.

$

715,213

$

718,127

 

6~8

%  

4/1/2022

8/29/2019

 

Hong Kong Takung

 

Friend Sourcing Ltd.

$

696,595

$

699,434

 

6~8

%  

4/1/2022

9/20/2019

 

Hong Kong Takung

 

Friend Sourcing Ltd.

$

557,276

$

559,548

 

6~8

%  

4/1/2022

 

 

Less: Discount loan payable

$

0

$

0

 

  

 

  

 

  

 

Total

$

1,969,084

$

1,977,109

 

  

 

  

The weighted average interest rate of outstanding short-term borrowings was 8% per annum as of September 30, 2017 and December 31, 2016.2021. The fair valuesvalue of the short-term borrowings approximateapproximates their carrying amounts. The weighted average short-term borrowing was $6,419,099 and $1,678,803 for the nine months period ended September 30, 2017 and year ended December 31, 2016, respectively. The interest expenses for the short-term borrowings were $133,174 and $62,670 for the three months ended September 30, 2017 and 2016, respectively and $394,295 and $62,670 for the nine months ended September 30, 2017 and 2016, respectively.

On October 30, 2017, Hong Kong Takung entered into agreements with both Merit Crown Limited and Ms. Wang to extend the US Dollar Loan and RMB Loan (see Note 5) with the original maturity date on October 31, 2017, to October 31, 2018.

9.11. RELATED PARTY BALANCES AND TRANSACTIONS

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

(a)Jianping Mao (“Mao”), Human Resources Management Director of Hong Kong Takung;
(b)Jing Wang (“Wang”), former Chief Financial Officer of the Company from June 1, 2020  through June 1, 2021 and former legal representative of Tianjin Takung during period from May 28, 2020 to September 24, 2020. On June 1, 2021, the term of the employment of Wang expired;
(c)Sze Chan (“Chan”), Vice President of Hong Kong Takung since November 17, 2020.

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

Amount due tofrom related party

parties, net

Amount due tofrom related partyparties consisted of the following as of the periodsyears indicated:

  September 30,
2017
  December 31,
2016
 
  (Unaudited)    
Mao (a) $1,085,480  $1,031,805 
Total  1,085,480   1,031,805 

    

September 30, 

    

December 31, 

    

2021

    

2020

(Unaudited)

Chan (c)(i)

 

$

6,303,970

 

$

Wang(b)(i)

6,225,134

Mao(a)(ii)

111,099

Less: allowance for doubtful accounts (ii)

(111,099)

Total current amount due from a related party

$

6,303,970

$

6,225,134

Amount due to related parties

The interest rateAmount due to related parties consisted of the outstanding short-term loan from Mao was 8% per annumfollowing as of September 30, 2017the years indicated:

    

September 30, 

    

December 31, 

    

2021

    

2020

(Unaudited)

Chan (c)(i)

$

6,422,608

$

Wang (b)(i)

6,448,784

Total current amount due to a related party

$

6,422,608

$

6,448,784

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(i)    Amount due to and December 31, 2016. The interest expense was $61,283due from Wang 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.

Chan

On October 26, 2017,May 29, 2020, Hong Kong Takung entered into a supplementaryan interest-free loan agreement (the “HK Dollar Working Capital Loan”) with Mao that, asWang for the loan of 30 September 2017, the outstanding principal amount$6,422,608 (HK$50,000,000) to Hong Kong Takung. The purpose of the Loan (as defined in the Loan Agreement)loan is to be repaid byprovide Hong Kong Takung with sufficient Hong Kong Dollar-denominated currency to Mao is HK$8,000,000 (Hong Kong Dollars Eight Million) (“Outstanding Principal Loan Amount”), and the accrued interest of the Outstanding Principal Loan Amount is HK$478,685 (“Accrued Interest”). Mao hereby agreed to extendmeet its working capital requirements with the maturity date of the Outstanding Principal Loan Amount and the interest thereof byloan as May 15, 2021. Hong Kong Takung extended the loan with Wang with the maturity date on May 15, 2022. On May 29, 2021, the loan agreement was transferred to Chan with the identical maturity date.

In a meantime, Tianjin Takung entered into an interest-free loan agreement (the “RMB Working Capital Loan”) with Wang for the loan of $6,303,970 (RMB40,619,000) with the maturity date of the loan as below: (i) HK$4,500,000May 15, 2021. Tianjin Takung is currently negotiating an extension of the loan with Wang. Tianjin Takung extended the loan arrangement with Wang with the maturity date on May 15, 2022.   On May 29, 2021, the loan agreement was transferred to Chan with the identical maturity date.

Through an understanding between Chan and the interest thereof, togetherCompany, the HK Dollar Working Capital Loan is “secured” by the RMB Working Capital Loan. It is the understanding between the parties that the HK Dollar Working Capital Loan and the RMB Working Capital Loan will be repaid simultaneously.

(ii)    Amount due to and due from Mao

The amount due from Mao is primarily related to the lease deposit from Mao. On May 13, 2019, the Company entered into a non-cancellable lease agreement with a related party, Mao for its office location in Tianjin, PRC. The leased office location is approximately 2,090.61 square meters. The lease was set to expire on May 12, 2021. The Company is charged rent at a rate of $0.55 per square meter per day. The agreement requires a lump sum payment of $224,083 (RMB1,449,838) every six months and a deposit of $111,099 (RMB724,919). On May 12, 2020, the Accrued InterestCompany terminated the lease and recognized bad debt expense of $111,099 related to bethe deposit paid to Mao due and payable by November 30, 2017; and (ii) HK$3,500,000 together withto the interest thereof to be due and payable byremote likelihood of collecting the rent deposit. NaN related lease liability was recognized as of December 31, 2017.2020 and September 30,2021.


(iii)    Rent prepayment to Mao

10.On March 1, 2021, Tianjin Takung entered into two lease agreements with a related party, Mao for its office location in Tianjin, PRC and employee accommodation in Hong Kong. The leases will expire on February 28, 2022.  Monthly rental payments for the office location and employee accommodation are $25,115 (RMB 162,500) and $7,148 (RMB46,250), respectively. The agreements require lump sum payments of $302,635 (RMB1,950,000) and $86,135 (RMB555,000), respectively. As of September 30, 2021, total rent amount paid to Mao with respect to these agreements included in prepayment was $161,987 (RMB1,043,750).

12. INCOME TAXES

Takung was incorporated in the State of Delaware and is therefore subject to United States income tax. Hong Kong Takung, Takung Art Holdings and Hong Kong MQ were incorporated in Hong Kong S.A.R. People’s Republic of China and are subject to Hong Kong profits tax. Shanghai Takung, Tianjin Takung and Tianjin MQ are PRC corporations and are subject to enterprise taxes in the PRC.

United States of America

The Coronavirus Aid, Relief and Economy Security (CARES) Act (“the CARES Act, H.R. 748”) was signed into law on March 27, 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 September 30, 2021 due to the recent enactment.

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Table of Contents

As of September 30, 20172021 and December 31, 2016,2020, the Company in the United States had $4,008,459$11,326,891 and $2,212,890$1,454,286 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

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 $257,490) 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, Takung Art Holdings 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.

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%. Takung Art Holdings and Hong Kong MQ still apply the original tax rate of 16.5% for the nine months ended September 30, 2017its provision for current income and 2016, if applicable.

deferred taxes.

PRC

In accordance with the relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable tax rate on taxable income. All the PRC subsidiaries were subject to income tax at a rate of 25%.

The income tax provision consists of the following components:

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

    

(Unaudited)

    

(Unaudited)

    

(Unaudited)

    

(Unaudited)

Current:

 

  

 

  

 

  

 

  

Federal

$

0

$

0

$

0

$

0

State

 

0

 

0

 

0

 

0

Foreign

 

(10,947)

 

0

 

0

 

101,738

Total Current

$

(10,947)

$

0

$

0

$

101,738

 

 

 

 

Deferred:

 

 

 

 

Federal

$

0

$

0

$

0

$

0

State

 

0

 

0

 

0

 

0

Foreign

 

94,839

 

(631)

 

90,485

 

(7,513)

Total Deferred

$

94,839

$

(631)

$

90,485

$

(7,513)

Total income tax (benefit) expense

$

83,892

$

(631)

$

90,485

$

94,225

  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 

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Table of Contents


A reconciliation between the Company’s actual provision for income taxes and the provision at the Hong Kong statutory rate is as follow:follows:

For the Three Months Ended

For the Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

    

(Unaudited)

    

(Unaudited)

    

(Unaudited)

    

(Unaudited)

(Loss) income before income tax expense  

$

(1,908,788)

$

81,447

$

(9,700,614)

$

(791,828)

Computed tax benefit with statutory tax rate

 

(400,844)

 

13,440

 

(2,037,129)

 

(130,651)

Impact of different tax rates in other jurisdictions

 

766

 

16,109

 

1,864

 

14,432

Impact of preferred tax rate

(158,079)

7,729

(152,689)

62,248

U.S. tax on foreign entities

213,238

213,238

Tax effect of non-deductible expenses

 

31,084

 

153,619

 

95,459

 

337,519

Changes in valuation allowance

 

524,905

 

(204,420)

 

2,098,066

 

(338,577)

Others

(127,178)

12,892

(128,324)

149,254

Total income tax expense (benefit)

$

83,892

$

(631)

$

90,485

$

94,225

  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 

The Company's effective tax rate was 82.2%(4.4)% and 19.6%(0.8)% for the three months ended September 30, 20172021 and 2016,2020, respectively, and 36.0%(0.9)% and 22.8%(11.9)% for the nine months ended September 30, 20172021 and 2016,2020, respectively.

11. COMMITMENTS AND CONTINGENCIES

Operation Commitments

Uncertain tax positions

The total future minimum lease payments underreconciliation of the non-cancellable operating leasebeginning and ending amount of liabilities associated with respectuncertain tax positions is as follows:

    

September 30, 

    

December 31, 

2021

2020

Uncertain tax liabilities, beginning of period

$

101,789

$

101,789

Settlements with tax authority during current year

 

(101,789)

 

0

Uncertain tax liabilities, end of period

$

0

$

101,789

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 officerespective 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 dormitorybalance is presented as current liability in the interim condensed consolidated financial statements as of September 30, 20172021. The Company anticipated that the settlements with the taxing authority are payableremitted within one year.

Our policy is to include interest and penalty charges related to uncertain tax liabilities as follows: necessary in the provision for income taxes. The Company has a liability for accrued interest of $nil as of September 30, 2021 and December 31, 2020, respectively.

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 expenseOur subsidiary, Hong Kong Takung, has been recently selected for routine examination for its tax years ended December 31, 2016 through 2018 by Hong Kong Inland Revenue Department (“IRD”). As of September 30, 2021 and December 31, 2020, the Company had $nil and $101,789, respectively, of uncertain tax liabilities related to the different methodology of certain non-deductible tax expenses applied by the IRD. 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. 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 $293,338filed, 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.

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Table of Contents

In accordance with PRC Tax Administration Law on the Levying and $199,514Collection 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 and artwork storages. The Company’s leases have remaining terms of less than one year to approximately six years. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes.

The following table provides a summary of leases by balance sheet location as of September 30, 2021:

As of

September 30, 

Assets/liabilities

Classification

2021

Assets

    

  

    

(Unaudited)

Operating lease right-of-use assets

 

Operating lease assets

$

130,073

 

  

 

  

Liabilities

 

  

 

  

Current

 

  

 

  

Operating lease liability - current

 

Current operating lease liabilities

$

76,719

 

  

 

  

Long-term

 

  

 

  

Operating lease liability - non-current

 

Long-term operating lease liabilities

 

41,714

 

 

 

  

 

  

Total lease liabilities

 

  

$

118,433

The operating lease expenses for the three months ended September 30, 2017 and 2016, respectively, and $721,492 and $428,440 for the nine months ended September 30, 20172021 and 2016, respectively.2020 were as follows:

Three Months Ended September 30, 

Nine Months Ended September 30, 

Lease Cost

    

Classification

    

2021

    

2020

    

2021

    

2020

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Operating lease cost

 

Cost of revenue, general and administrative expenses

$

127,173

$

72,901

$

294,399

$

466,419

Total lease cost

 

  

$

127,173

$

72,901

$

294,399

$

466,419

Maturities of operating lease liabilities at September 30, 2021 were as follows:

15 

Operating

Maturity of Lease Liabilities

Leases

2021 (remaining)

$

17,065

2022

 

80,663

2023

 

15,520

2024

 

15,520

2025

0

Thereafter

 

0

Total lease payments

$

128,768

Less: interest

 

(10,335)

Present value of lease payments

$

118,433

17

    

Nine Months Ended

 

September 30, 

Lease Term and Discount Rate

2021

2020

 

(Unaudited)

(Unaudited)

Weighted-average remaining lease term (years)

 

 

Operating leases

 

2.1

 

2.8

Weighted-average discount rate (%)

 

  

 

  

Operating leases

 

8

%  

8

%

Nine Months Ended

    

September 30, 

Other Information

2021

 

2020

(Unaudited)

(Unaudited)

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

$

49,651

$

208,198

Leased assets obtained in exchange for new operating lease liabilities

12.

14. (LOSS) EARNINGS PER SHARE

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

Three Months Ended

Nine Months Ended

    

September 30, 

    

September 30, 

    

2021

    

2020

    

2021

    

2020

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Numerator:

 

  

 

  

 

  

 

  

Net (loss) income

$

(1,992,680)

$

82,078

$

(9,791,099)

$

(886,053)

Denominator:

 

 

 

 

Weighted-average shares outstanding - Basic

 

12,689,317

 

11,271,379

 

11,897,019

 

11,261,694

Stock options and restricted shares

 

0

 

0

 

0

 

0

Weighted-average shares outstanding - Diluted

 

12,689,317

 

11,271,379

 

11,897,019

 

11,261,694

 

 

 

 

(Loss) income per share

 

 

 

 

-Basic

$

(0.16)

0.01

 

(0.82)

 

(0.08)

-Diluted

$

(0.16)

0.01

 

(0.82)

 

(0.08)

  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 

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.

Due to the loss for the three and nine months ended September 30, 2021, approximately 39,825 and 39,825 options, respectively, were excluded from the calculation of diluted net loss per share.

ForDue to the options were out-of-money, approximately 100,890 options were excluded from the calculation of the diluted net income per share, for the three months ended September 30, 2017,2020.

Due to the diluted earnings per share calculation did not include options to purchase up to 109,160 shares ofloss from continued operations for the Company's common stock, because they were out of money. It has no such impact for three months ended September 30, 2016, nine months ended September 30, 20172020 approximately 100,890 options were excluded from the calculation of diluted net loss per share.

18

15. EQUITY

Exercise of stock options:

56,000 and 20165,065 stock options were exercised on April 12, 2021 and May 25, 2021, respectively. As a result of the exercise, 61,065 ordinary shares were issued.  

Award of restricted shares:

There were dilutive effectsOn April 21, 2021, the board of 487,000directors of the Company approved an issuance of 335,000 ordinary shares as share-based awards to its independent directors, employees and consultants under the 2015 Incentive Stock Plan. The Company recognized a share-based compensation expense of $6,863,815 in connection with this issuance in April 2021.

On July 12, 2021, pursuant to the terms of that certain Securities Purchase Agreement dated July 8, 2021, the Company sold 571,429 shares (the “Shares”) of its common stock, par value $0.001 per share (the “Common Stock”), to an institutional investor (the “Investor”) at a price of $8.75 per share, for gross proceeds of $5,000,000 before deducting the nine months period ended September 30, 2017placement agent fee and 2016.offering expenses (the “Private Placement”).

On July 9, 2021, the Company entered into an Advisory Agreement with an independent institutional contractor for exploring potential investors and projects to advance new business development.  Upon signing the agreement, an aggregate of 160,000 ordinary shares at a price of $11.86 was awarded to the contractor under the 2015 Incentive Stock Plan.  The 487,000Company recognized a share-based compensation expense of $1,897,600 in connection with this issuance in July 2021.

On May 28, 2021, the Company entered into a Securities Purchase Agreement with a company incorporated in British Virgin Islands (“BVI entity”).  In exchange for an aggregate amount of 86,560 common shares of the BVI entity, the Company shall remit $500,000 in cash and issue 572,000 restricted shares of Common Stock (the “Compensation Shares”)the Company to the BVI entity.  On August 21, 2021, both parties entered into an Amendment to Securities Purchase Agreement and the number of restricted shares of the Company to be issued to the BVI entity was increased to 1,558,480.  The Company remitted the cash payment of $500,000 to the BVI entity on August 20, 2021.  On September 9, 2021, an aggregate amount of 1,558,480 restricted shares at a price of $6.5 was issued to the BVI entity.  The Company recognized the carrying amount of this equity investment, $10,630,120, in noncurrent asset.

16. CONTINGENCIES

On or around July 2020, a claim was filed in the Shanghai Pudong People’s Court, China against Hong Kong Takung on the basis of alleged breaches of contract. The claim amount has yet to be determined. A court hearing was initially scheduled on July 20, 2021 but the Company never received any court order or subpoena. As of the filing of this report, the Company did not have further details nor received any court order related to this claim.

Except for the Consulting Agreement with Regeneration Capital Group, LLC (“Regeneration”) were placedabove, as of September 30, 2021 and through the issuance date of the condensed consolidated financial statements included 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,this Form 10-Q, the Company does not identifyhave any other subsequent eventssignificant indemnification claims.

17. SUBSEQUENT EVENTS

On or around November 8, 2021, the Management became aware that the artwork unit trading platform operated by our PRC subsidiary Tianjin Takung was suspended by the local authority. The local authority indicated the suspension was to facilitate certain investigation although it did not announce the purpose of the investigation yet. The Company intends to fully cooperate with material financial impact on the unaudited condensed consolidated financial statements.local authority's investigation.


19

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.

Takung Art Co., Ltd is a holding company that, through Hong Kong Takung is a limited liability company incorporated on September 17, 2012 under the laws of Art Company Limited (“Hong Kong Special Administrative Region, China. AlthoughTakung”) and 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 assumedCultural Development (Tianjin) Co. Ltd., Hong Kong Takung’s business operations as it now our only operating wholly-owned subsidiary.

Hong Kong Takungsubsidiary in China (“Tianjin Takung”), operates an electronic online platform located at http://eng.takungae.comen.takungae.com/ for artists, art dealers and art investors to offer and trade in ownership units over valuable artwork.

On June 19, 2019, Takung Art Co., Ltd purchased from Ms. Ma Hiu Ngai, the Company’s shareholder, one (1) ordinary share of Hong Kong MQ Group Limited (“Hong Kong MQ”), constituting 100% of its issued and outstanding shares, for a cash consideration of HK$1.00 and therefore made Hong Kong MQ its wholly-owned subsidiary.

Through Hong Kong Takung and Tianjin Takung, we offer on-line listing and trading services that allow artists/art dealers/owners to access a much bigger art trading market where they can engage with a wide range of investors that they might not encounter without our platform. Our platform also makes investment in high-end and expensive artwork more accessible to ordinary people without substantial financial resources. We have deregistered Takung Art Holdings and Shanghai Takung in an effort to streamline our business operations.

In July 2021, Takung appointed Mr. Kwok Leung Li as the CEO to lead the new direction with three initiatives to develope our blockchain and NFT related businesses. 1. Blockchain and NFT consultation: with Mr. Li's vast experience and expertise in blockchain development and execution, we offer consultancy services to third parties on their NFT launch projects. 2. NFT marketplace: we are planning to launch our own NFT marketplace to facilitate users to buy and sell NFT's. The marketplace is currently under developmentm, and we have already been in discussion with artists and NFT creators for listings on the platform. 3. Game-Fi development: combining decentralized finance (“DeFi”) and NFTs with blockchain-based online games, we are developing the “Play to earn” style games, giving players financial incentives to play and progress through games. With the help of NFTs, games now become more sustainable than before as players can trade digital game assets and earn passive income by playing games. The in-game NFTs can then be traded on our own NFT marketplace.

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

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


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

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

Since July 28, 2016, we have expanded access to our trading platform to residents of Russia, Mongolia, Australia and New Zealand – our first major expansion of operations outside of China. To further stimulate trading interest, we have added selected portfolios from these countries to our platform, which now numbers 199 artworks including three Russian painting portfolios and fifteen Mongolian paintings.  

NFT project.

Our headquarters areheadquarter is located in Hong Kong, Special Administrative Region, People’s Republic of China and we conduct our business primarily in Hong Kong Shanghai and Tianjin. Recently, we set up aOur new office in Hangzhou to conduct technology development. Our principal executive offices areoffice is located at Flat/RM 03-04, 20/F, Hutchison House, 10Room 709, Tower 2, Admiralty Centre, 18 Harcourt Road, CentralAdmiralty, Hong Kong.

20

Recent Impacts of COVID-19 on Our Business

Our common stock beganWhile the ongoing coronavirus pandemic is spreading throughout the world, our operating subsidiaries’ business has fully resumed since March 2020. Compared to the same period in 2020, our operating subsidiaries had additional listing of artworks, higher trading volume, and incurred higher listing and management revenue in the third quarter of 2021.  Although we do not expect that the virus will have a material adverse effect on our business or financial results at this time, it is not possible to predict the unanticipated consequence of the pandemic on our future business performance and liquidity due to the severity of global situation of COVID-19. The Company continues to monitor and assess the evolving situation closely and evaluate its potential exposure.

The extent to which the COVID-19 impacts our operating subsidiaries’ business is highly uncertain and cannot be predicted with confidence. It will depend on various factors including the duration and severity of the outbreak, new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

Although we do not expect that the virus will have a material adverse effect on our operating subsidiaries’ business or financial results at this time, COVID-19 may eventually affect the Company's 2021 overall business performance. The operating results for the three and nine months ended September 30, 2021 may not be indicative of the future operating results for the fiscal year ending December 31, 2021 or other future periods, particularly in light of the uncertain impact COVID-19 could have on the NYSE American under the symbol “TKAT” on March 22, 2017.

Company's business.

Results of Operation of Takung

The following discussion should be readHong Kong Takung operates a platform (the “Platform”) for offering and trading artwork. We generate revenue from its services in conjunctionconnection with the unaudited condensed consolidated Financial Statementsoffering and trading of the Company for the three-monthartwork ownership units on its system, primarily consisting of listing fees, trading commissions, and nine-month period ended September 30, 2017 and 2016 and related notes thereto.management fees.

THREE-MONTH PERIODTHREE MONTHS ENDED SEPTEMBER 30, 20172021 COMPARED TO THREE-MONTH PERIODTHREE MONTHS ENDED SEPTEMBER 30, 2016

Revenue

2020

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

  Three Months Ended
September 30,
 
  2017  2016 
  (Unaudited)  (Unaudited) 
Revenue $3,355,011  $5,742,209 
Cost of revenue  (292,168)  (285,252)
Selling expense  (624,151)  (652,207)
General and administrative expenses  (2,498,848)  (1,744,965)
Total costs and expenses  (3,415,167)  (2,682,424)
Income from operations  (60,156)  3,059,785 
Interest and other income (loss), net  211,852   (11,316)
Income before income taxes  151,696   3,048,469 
Income tax benefit (expense)  (124,662)  (596,732)
Net income $27,034  $2,451,737 


The following tables set forth ourinterim condensed consolidated statements of income data (aswithpercentagepercentage:

    

Three Months Ended September 30,

2021

    

% of Revenue

    

2020

    

% of Revenue

 

(Unaudited)

 

(Unaudited)

Revenue

$

2,608,677

 

100

$

685,465

 

100

Cost of revenue

 

(719,826)

 

(28)

 

(393,990)

 

(58)

Selling expense

 

(48,511)

 

(2)

 

(174,379)

 

(25)

General and administrative expenses

 

(3,817,635)

 

(146)

 

(617,228)

 

(90)

Total costs and expenses

 

(4,585,972)

 

(176)

 

(1,185,597)

 

(173)

Loss from operations

 

(1,977,295)

 

(76)

 

(500,132)

 

(73)

Other income (expenses), net

 

68,507

 

3

 

581,579

 

85

(Loss) income before income taxes

 

(1,908,788)

 

(73)

 

81,447

 

12

Income tax expense (benefit)

 

83,892

 

3

 

(631)

 

(0)

Net (loss) income

$

(1,992,680)

 

(76)

$

82,078

 

12

Revenue

The following table sets forth our interim condensed consolidated revenue by revenue source:

    

Three Months Ended September 30,

2021

    

2020

 

(Unaudited)

 

(Unaudited)

Listing fee revenue

$

320,173

$

Commission revenue

 

1,083,976

 

568,853

Management fee revenue

 

1,124,528

 

116,612

Consultancy service fee revenue

80,000

Total

$

2,608,677

$

685,465

21

(i)

Listing fee revenue

  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%

Listing fee revenue was $1,455,498 and $2,968,534; commission revenue was $1,496,826 and $1,669,698, gross management fee revenue was $402,547 and $781,219, annual fee revenue was $140 and $440 , authorized agent subscription revenue was $nil and $322,318 for the three months endedAs of September 30, 2017 and 2016, respectively.

(i)Listing fee revenue

Listing fee revenue is calculated based on2021, a percentagetotal of the listing value and transaction value310 sets of artworks. 

Listing value is the total offering price of an artwork when the ownership units are initiallywere 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 6Platform — comprising 85 sets of paintings and calligraphies 9from famous Chinese, Russian and Mongolian artists, with a total listing value of $33,357,795 (HK$259,100,000); 35 pieces of jewelry with a total listing value of $9,354,602 (HK$72,660,000); 134 pieces of precious stones 1with a total listing value of $16,999,472 (HK$132,040,000); 29 pieces of jewelry and 1 set of Unit+ product listed on our platform. Theiramber with a total listing values were $2,118,726value of $12,230,762 (HK$16,500,000) for the95,000,000); 4 pieces of antique mammoth ivory carvings with a total listing value of $669,473 (HK$5,200,000); 2 pieces of porcelain pastel paintings with a total listing value of $334,737 (HK$2,600,000); 7 pieces of porcelain with a total listing value of $1,094,331 (HK$8,500,000); 6 sets of paintingsUnit+ products with a total listing value of $1,327,875 (HK$10,314,000); 1 piece of Yixing collectable with a listing value of $128,745 (HK$1,000,000); and calligraphies, $1,132,5557 pieces of Sports memorabilia with a listing value of $1,095,542 (HK$ 8,820,000) for8,509,400), of which 22%-48% (for 85 sets of paintings), 24%-48.5% (for the 9134 pieces of precious stones, $46,227 (HK$360,000) forstones), 29%-48% (for the 135 pieces of jewelry and $152,578 (HK$1,188,000) forjewelry), 47%-48.5% (for 4 piece of antique mammoth ivory carvings), 32%-48% (for the 1 set29 pieces of Unit+ product,amber), 45%-46% (for the 2 pieces of which 41.5%-47%porcelain pastel paintings), 25%-48% (for the 7 pieces of porcelain), 30.25%-45% (for the 6 sets of paintingsUnit+ products), 45% (1 piece of Yixing collectable) and calligraphies), 26%-46%45% (for the 97 pieces of precious stones), 43% (for the 1 pieces of jewelry) and 30.3% (for the 1 set of Unit+ product)Sports memorabilia) of the listed values were charged as listing fees, respectively.

Compared toDuring the corresponding periodthree months ended September 30, 2016,2021, there were 711 new sets of painting listed on the Platform. The total listing value was $1,457,567 (HK$11,500,000) for the painting, of which 22% (for the painting) of the listed value was charged as the listing fee.

As of September 30, 2020, a total of 292 sets of artwork were listed for trade on the Platform —comprising 67 sets of paintings and calligraphies 7from famous Chinese, Russian and Mongolian artists, with a total listing value of $28,502,185 (HK$221,100,000); 35 pieces of amber, 14jewelry with a total listing value of $9,366,661 (HK$72,660,000); 134 pieces of precious stones 5with a total listing value of $17,021,386 (HK$132,040,000); 29 pieces of jewelry successfully listed on our system. Theamber with a total listing values were $1,802,475value of $12,246,529 (HK$14,000,000) for the 7 sets95,000,000); 4 pieces of antique mammoth ivory carvings with a total listing value of $670,336 (HK$5,200,000); 2 pieces of porcelain pastel paintings and calligraphies, $2,974,083with a total listing value of $335,168 (HK$23,100,000) for the2,600,000); 7 pieces of amber, $1,042,860porcelain with a total listing value of $1,095,742 (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 78,500,000); 6 sets of paintingsUnit+ products with a total listing value of $1,329,586 (HK$10,314,000); 1 piece of Yixing collectable with a listing value of $128,911 (HK$1,000,000); and calligraphies) ,46% (for the 7 pieces of amber)Sports memorabilia with a listing value of $1,096,954 (HK$8,509,400), 32%of which 22.5%-48% (for 67 sets of paintings), 24%-48.5% (for the 14134 pieces of precious stones), 29%-48% (for the 535 pieces of jewelry), 47%-48.5% (for 4 piece of antique mammoth ivory carvings), 32%-48% (for the 29 pieces of amber), 45%-46% (for the 2 pieces of porcelain pastel paintings), 25%-48% (for the 7 pieces of porcelain), 30.25%-45% (for the 6 sets of Unit+ products), 45% (1 piece of Yixing collectable) and 45% (for the 7 pieces of Sports memorabilia) of the listed values were charged as listing fees, respectively.

The decreaseDuring the three months ended September 30, 2020, there were no new artworks listed on the Platform because of the uncertain economic climate and tepid investor interest. We incurred $320,173 listing fee revenue for the three months ended September 30, 2021 compared to nil for the same period in number2020.  There were 11 new sets of piecespainting listed listing values and corresponding listing fees chargedon our trading platform during the three months ended September 30, 2017 compared to2021 whereas there was no new artwork listed on the Platform in 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.

2020.

(ii)

Commission fee revenue

We generate commission fee from non-VIP traders and selected traders as follows:

For non-VIP Traders,traders, the commission revenue was calculated based on a percentage of transaction value of artworks, whichwhere we charge trading commissions for the purchase and sale of the ownership shares of the artworks. The commission is typically 0.3% of the total amount of each transaction, but as an initial promotion, we currently charge a reduced fee of 0.2% (resulting in an aggregate of 0.4% for both buy and sell transactions) of the total transaction amount with the minimum charge of $0.13$0.0013 (HK$1)0.01). 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,traders, starting from April 1, 2016, we charged a predetermined monthly fee (unlimited trades for specific artworks) for specific artworks. These Traderstraders are selected by authorized agents and reviewed by us. After review, we negotiate individually with each one of them to determine a fixed monthly fee. Different Traderstraders may have different rates but once negotiated and agreed to, the monthly fee is fixed. Using the output method, we recognize the monthly commission revenue when the selected traders receive access to our trading platform to make unlimited trades for specific artwork.

We define traders as “inactive” if they meet the following criteria;

The trader defaults in payment over three months;
The trader did not incur any transactions in the month of reassessment;

22

The service agent has confirmed with the relevant trader that he/she was inactive.

Once an inactive trader has been assessed and identified, his/her contract will be reassessed pursuant to ASC 606-10-25-5 because there has been a significant change in fact and circumstances and pursuant to ASC 606-10-25-1) (e), his/her contract will not be deemed to exist and revenue will not be recognized until consideration is received in accordance with ASC 606-10-25-7(a) as we would have already performed our obligations ahead of receiving consideration.

Commission rebate programs are offeredWe charge a non-transactional transfer commission on the transfer of the ownership of an artwork. The commission amount is calculated based on 0.3% of the close value of the artwork and each artwork unit. For the large volume of transfer or under certain special circumstances, we charge at an agreed-upon percentage of artworks units.

We used to Tradersoffer commissions 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 fromEffective January 1, 2017.2020, we no longer offer commissions to our traders. For service agents, we rebateoffer a total of 40% to 60%75% of the commission earned from transactions with new Traderstraders to the service agents when they bring in an agreed number of Traderstraders to the trading platform. For service agents who have individual referrers referring Traders to us, we will, after rebating such individual referrers 15% of thePlatform.

The commission earned from the transactions of new Traders they referred, deduct such 15% of the commission from the rebates payablepaid 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 reductioncost of revenue in the same period the related revenue is recognized.

In spite of this, totalTotal commission revenue decreasedincreased by $172,872$515,123 or 10%91% for the three months ended September 30, 20172021 to $1,496,826$1,083,976 compared to $1,669,698$568,853 for the three months ended September 30, 2016 primarily2020, which was mainly a result of a spike in trading amounts of non-VIP trader $4,020,185,469 (HKD31,225,986,590) during the three months ended September 30, 2021 compared to $2,193,609,402 (HKD17,007,931,139) during the same period in 2020.

(iii)

Management fee revenue

We charge traders a management fee to cover the costs of insurance, storage, and transportation for artwork and trading management of artwork units, which is calculated at $0.0013 (HK$0.01) per 100 artwork units per day. The management fee is deducted from proceeds from the sale of artwork units.

During the three months ended September 30, 2021 management fee revenue rose by $1,007,916, from $116,612 for the three months ended September 30, 2020 to $1,124,528 due to a significant increase in trading artwork units. For the three months ended September 30, 2021, the trading artwork units amounted for 477,847,726 compared to 254,830,720 during the same period in 2020.

(iv) Consultancy service fee revenue

During the three months ended September 30, 2021, we incurred a consultancy service fee revenue, $80,000, which was pertinent to providing consultancy services with respect to the strategic utilization of blockchain technology and NFT launch to a third party.

Revenue by customer type

The following table presents our revenue by customer type:

    

Three Months Ended September 30,

2021

    

2020

 

(Unaudited)

 

(Unaudited)

Artwork owners

$

320,173

$

Non – VIP Traders

 

1,153,367

 

427,373

VIP Traders

 

1,055,137

 

258,092

Corporate advisee

80,000

Total

$

2,608,677

$

685,465

23

Cost of Revenue

    

Three Months Ended September 30,

2021

    

2020

 

(Unaudited)

 

(Unaudited)

Commissions paid to service agents

$

609,752

$

233,784

Depreciation

 

35,854

 

79,518

Internet service charge

43,661

51,591

Artwork insurance

12,710

12,152

Artwork storage

 

17,849

 

15,802

Others

1,143

Total

$

719,826

$

393,990

Cost of revenue for the three months ended September 30, 2021 and September 30, 2020 was $719,826 and $393,990, respectively. The rise in cost of revenue by $325,836 for the three months ended September 30, 2021 compared to September 30, 2020, was mainly due to an increase in commissions paid to service agents by $375,968 because of an increase in trading amounts during the changethree months ended September 30, 2021 as discussed above. Overall increase in our commission fee policy andcost of revenue was offset by the decrease in depreciation by $43,664 due to some of our computer equipment and trading systems having been fully depreciated, a decline in internet service charges by $7,930.

Gross Profit

Gross profit was $1,888,851 or 72.4% of the total revenue for the three months ended September 30, 2021 compared to $291,475 or 42.5% of the total revenue for the three months ended September 30, 2020.  The significant spike in gross profit for the three months ended September 30, 2021 was primarily due to a significant increase in total revenue by $1,923,212 which was contributed by an increase in commission, management fee revenue and consultancy service fee revenue as discussed aforementioned.

Operating Expenses

General and administrative expenses for the three months ended September 30, 2021 were $3,817,635 compared to $617,228 for the three months ended September 30, 2020. The spike in general and administrative expenses by $3,200,407 or 518.5% was attributable to a spike in share based compensation expense by $1,891,481 as we granted 160,000 shares to an independent consultant in July 2021 in connection with the private placement, an increase in consultancy fee by $132,397 due to a rise in service fee, an increase in legal and professional fees by $512,599 as a result of additional amounts paid to legal counsels, brokerage firms, investment specialists for the closing of private placement and review of agreements as well as fees paid to auditors for regulatory filing, an increase in office, insurance and rental expenses by $123,088 as we had rented a staff accommodation and others, $517,430 which chiefly included a payment to an exhibition company which assisted us in locating the potential investors.

The following table sets forth the main components of the Company’s general and administrative expenses for the three months ended September 30, 2021 and September 30, 2020.

    

Three Months Ended

September 30, 

2021

    

% of Total

    

2020

    

% of Total

(Unaudited)

(Unaudited)

Salary and welfare

 

$

288,820

 

7.6

 

$

281,247

 

45.6

Office, insurance and rental expenses

 

205,203

 

5.4

 

82,115

 

13.3

Legal and professional fees

 

622,912

 

16.3

 

110,313

 

17.9

Non-deductible input VAT expense

 

62,525

 

1.6

 

61,179

 

9.9

Travel and accommodation fees

 

24,865

 

0.7

 

2,017

 

0.3

Consultancy fee

 

159,304

 

4.2

 

26,907

 

4.4

Depreciation

 

21,893

 

0.6

 

30,248

 

4.9

Share based compensation expense

 

1,897,600

 

49.6

 

6,119

 

1.0

Others

 

534,513

 

14.0

 

17,083

 

2.7

Total general and administrative expense

$

3,817,635

 

100.0

$

617,228

 

100.0

24

Other income

Other income for the three months ended September 30, 2021 was $68,507, compared to $581,579 for the same period in 2020. The significant decrease in other income for the three months ended September 30, 2021 is predominantly due to a significant decrease in foreign currency exchange gain by $452,103, arising from the depreciation of the Hong Kong dollar against the US dollar and an increase in loan interest by $65,156.

Income tax expense (benefits)

The Company’s effective tax rate varies due to the multiple jurisdictions in which it books its pretax income or losses. The Company was subject to a U.S. income tax rate of 21%, Hong Kong profits tax rate of 8.25% for the first HK$ 2 million (approximately $257,490) assessable profits and at 16.5% for assessable profits above HK$ 2 million (approximately $257,490) and PRC enterprise income tax rate of 25%.

The effective tax rates for the three months ended September 30, 2021 and 2020 were (4.4)% and (0.8)%, respectively.

The income tax expense (benefits) were $83,892 and $(631) for the three months ended September 30, 2021 and 2020, respectively.

Net (loss) income

We recorded a net loss of $1,992,680 and net income of $82,078 for the three months ended September 30, 2021 and 2020, respectively.  The net loss incurred for the three months ended September 30, 2021 was primarily due to comparatively higher share-based compensation expense incurred as discussed aforementioned.

NINE MONTHS ENDED SEPTEMBER 30, 2021 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2020

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

Nine Months Ended

September 30,

% of

% of

2021

Revenue

2020

Revenue

    

(Unaudited)

    

    

(Unaudited)

    

Revenue

$

4,531,280

 

100

$

3,545,916

 

100

Cost of revenue

 

(1,424,528)

 

(31)

 

(1,804,566)

 

(51)

Selling expense

 

(284,980)

 

(6)

 

(278,953)

 

(8)

General and administrative expenses

 

(12,783,107)

 

(282)

 

(2,657,403)

 

(75)

Total costs and expenses

 

(14,492,615)

 

(319)

 

(4,740,922)

 

(134)

Loss from operations

 

(9,961,335)

 

(219)

 

(1,195,006)

 

(34)

Other income

 

260,721

 

6

 

403,178

 

11

Loss before income taxes

 

(9,700,614)

 

(213)

 

(791,828)

 

(23)

Income tax expense

 

90,485

 

2

 

94,225

 

3

Net loss

$

(9,791,099)

 

(215)

$

(886,053)

 

(26)

25

Revenue

The following table sets forth our condensed consolidated revenue by revenue source:

Nine Months Ended

September 30,

2021

2020

(Unaudited)

(Unaudited)

Listing fee revenue

    

$

887,267

    

$

557,789

Commission fee revenue

 

2,090,372

 

2,657,989

Management fee revenue

 

1,483,641

 

330,138

Consultancy service fee revenue

80,000

Total

$

4,531,280

$

3,545,916

(i)Listing fee revenue

As of September 30, 2021, a total of 310 sets of artwork were listed for trade on the Platform —comprising 85 sets of paintings and calligraphies from famous Chinese, Russian and Mongolian artists, with a total listing value of $33,357,795 (HK$259,100,000); 35 pieces of jewelry with a total listing value of $9,354,602 (HK$72,660,000); 134 pieces of precious stones with a total listing value of $16,999,472 (HK$132,040,000); 29 pieces of amber with a total listing value of $12,230,762 (HK$95,000,000); 4 pieces of antique mammoth ivory carvings with a total listing value of $669,473 (HK$5,200,000); 2 pieces of porcelain pastel paintings with a total listing value of $334,737 (HK$2,600,000); 7 pieces of porcelain with a total listing value of $1,094,331 (HK$8,500,000); 6 sets of Unit+ products with a total listing value of $1,327,875 (HK$10,314,000); 1 piece of Yixing collectable with a listing value of $128,745 (HK$1,000,000); and 7 pieces of Sports memorabilia with a listing value of $1,095,542 (HK$8,509,400), of which 22%-48% (for 85 sets of paintings), 24%-48.5% (for the 134 pieces of precious stones), 29%-48% (for the 35 pieces of jewelry), 47%-48.5% (for 4 piece of antique mammoth ivory carvings), 32%-48% (for the 29 pieces of amber), 45%-46% (for the 2 pieces of porcelain pastel paintings), 25%-48% (for the 7 pieces of porcelain), 30.25%-45% (for the 6 sets of Unit+ products), 45% (1 piece of Yixing collectable) and 45% (for the 7 pieces of Sports memorabilia) of the listed values were charged as listing fees, respectively.

During the nine months ended September 30, 2021, there were 15 new sets of painting listed on the Platform. The total listing value was $3,865,133 (HK$30,000,000) for the painting, of which 22% (for the painting) of the listed value was charged as the listing fee.

As of September 30, 2020, a total of 285 sets of artwork were listed for trade on the Platform —comprising 60 sets of paintings and calligraphies from famous Chinese, Russian and Mongolian artists, with a total listing value of $25,783,323 (HK$202,100,000); 35 pieces of jewelry with a total listing value of $9,269,749 (HK$72,660,000); 134 pieces of precious stones with a total listing value of $16,845,275 (HK$132,040,000); 29 pieces of amber with a total listing value of $12,119,820 (HK$95,000,000); 4 pieces of antique mammoth ivory carvings with a total listing value of $663,401 (HK$5,200,000); 2 pieces of porcelain pastel paintings with a total listing value of $331,700 (HK$2,600,000); 7 pieces of porcelain with a total listing value of $1,084,405 (HK$8,500,000); 6 sets of Unit+ products with a total listing value of $1,315,830 (HK$10,314,000); 1 piece of Yixing collectable with a listing value of $127,577 (HK$1,000,000); and 7 pieces of sports memorabilia with a listing value of $1,085,604 (HK$8,509,400), of which 22.5%-48% (for 60 sets of paintings), 24%-48.5% (for the 134 pieces of precious stones), 29%-48% (for the 35 pieces of jewelry), 47%-48.5% (for 4 piece of antique mammoth ivory carvings), 32%-48% (for the 29 pieces of amber), 45%-46% (for the 2 pieces of porcelain pastel paintings), 25%-48% (for the 7 pieces of porcelain), 30.25%-45% (for the 6 sets of Unit+ products), 45% (1 piece of Yixing collectable) and 45% (for the 7 pieces of sports memorabilia) of the listed values were charged as listing fees, respectively.

During the nine months ended September 30, 2020, there were 6 sets of paintings listed on the Platform. Their total listing values were $1,148,194 (HK$9,000,000) for the paintings, of which 22.9%-28% (for the paintings) of the listed values were charged as listing fees.

The listing fees revenue rose to $877,267 during the nine months ended September 30, 2021 compared to $557,789 for the same period ended September 30, 2020. The higher listing fee revenue for the nine months ended September 30, 2021 compared to that for the same period in 2020 was due to additional artworks listed during the nine months ended September 30, 2021. Our listing fee was charged based on the listing value of an artwork.

26

(ii)Commission fee revenue

Total commission revenue declined by $567,617 or 21.3% for the nine months ended September 30, 2021 to $2,090,372 compared to $2,657,989 for the nine months ended September 30, 2020.  Total transaction amounts for the nine months ended September 30, 2021 and 2020 were $11,126,221,742 (HKD86,420,702,138) and $6,084,027,573 (HKD47,171,899,387), respectively. Although we incurred a higher trading amount in the nine months ended September 30, 2021 compared to that in the same period in 2020, majority of the transactions were initiated by our selected traders. Other than the fixed commission revenue from those selected traders, we did not earn additional commission revenue based on the trading transaction volume of non VIP traders and non-selectedthose selected traders. From April 1, 2016 onwards, selected Traders pay a predetermined monthly fixed feeTherefore, our commission revenue for their tradesthe nine months ended September 30, 2021 was lower than that in specific artworks while our other non-VIP Traders continue to pay a commission calculated based on a percentage of transaction value of artworks.

the same period in 2020.

(iii)(iii)Management fee revenue

We charge Traderstraders a management fee to cover the costs of insurance, storage, and transportation for an artwork and trading management of artwork units, which are calculated at $0.0013 (HK$0.01) per 100 artwork units per day. The management fee is deducted from proceeds from the sale of artwork units.

During the three-month period ended September 30, 2017, management fee revenue decreased by $378,672, from $781,219 for the threenine months ended September 30, 2016 to $402,547. From September 1, 2016, we waived management fees for certain VIP Traders. We recognized these promotions as a reduction of revenue, which was recognized upon the completion of the transactions. Although the listed artworks increased, the management fee decreased by the promotions.

(iv)Other revenue

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 for 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.


Gross Profit

Gross profit was $3,062,843 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 policy and the decrease of transaction volume of non VIP traders and non-selected traders.

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, 2017 were $2,498,848 compared to $1,744,965 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.

The following table sets forth the main components of the Company’s general and administrative expenses for the three months ended September 30, 2017 and 2016.

  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%

Net Income

We had a net income for the three months ended September 30, 2017 of $27,034 compared to net income of $2,451,737 for the three months ended September 30, 2016.

The decrease in net income by $2,424,703 during this current period was primarily due to a decrease of revenue by $2,387,198 as discussed in the previous paragraphs.


NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2017 COMPARED TO NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016

Revenue

The following tables set forth our condensed consolidated 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, gross2021, 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,increased by $1,153,503, from $330,138 for the nine months ended September 30, 2017 and 2016, respectively.

2020 to $1,483,641, due to the higher trading units in the current period.

(iv)(i)ListingConsultancy service fee revenue

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, with2021, we incurred 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+ productconsultancy service fee revenue, $80,000, which was listed in Unit+ trading platform,pertinent to providing consultancy services 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.


Comparedrespect to the corresponding period ended September 30, 2016, there were 15 piecesstrategic utilization of painting, 59 pieces of precious stones, 11 pieces of jewelry, 3 pieces of ivory, 18 pieces of amberblockchain technology 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.NFT launch to a third party.

Revenue by customer type

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 feefollowing table presents our revenue in the current period. The decrease in number of pieces listed was due to a new listing category (A-tier) implemented on July 3, 2017. A-tier is aim to meet an elevated set of standards including higher levels of liquidity, market value, number of owners and number of VIP traders. Therefore, the rigorous listing requirements of A-tier led some artworks listing deferred.

(ii)Commission fee revenue

Our trading volume and transaction value amounts increased significantly from 2015 when we commenced operations in Shanghai and consequently added a significant number 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.customer type:

Nine Months Ended

September 30,

2021

2020

    

(Unaudited)

    

(Unaudited)

Artwork owners

$

877,267

$

557,789

Non – VIP traders

 

2,111,960

 

2,362,204

VIP traders

 

1,462,053

 

625,923

Corporate advisee

80,000

Total

$

4,531,280

$

3,545,916

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.

(iii)Management fee revenue

During the nine month period ended September 30, 2017, management fee revenue decreased by $373,776, from $1,341,294 for the nine months ended September 30, 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.

(iv)Other revenue

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

Nine Months ended

September 30,

2021

2020

    

(Unaudited)

    

(Unaudited)

Commissions paid to service agents

$

1,096,278

$

1,333,089

Depreciation

 

150,398

 

263,954

Internet service charge

 

89,638

 

122,226

Artwork insurance

 

38,185

 

36,423

Artwork storage

 

50,029

 

47,731

Others

1,143

Total

$

1,424,528

$

1,804,566

Cost of revenue for the nine months ended September 30, 20172021 and 2016September 30, 2020 was $822,335$1,424,528 and $822,735,$1,804,566, respectively. OurThe decrease in cost of revenue primarily includes internet service fee, depreciation and amortization of hardware and software for our trading platform.


In the third quarter of 2014, we entered into an agreement with a third party service provider, Shenzhen Qianrong Cultural Investment Development Co., Ltd (“Qianrong”), to provide software development services with a total contract amount of $902,592 (HK$6,995,000). The services contracted for are divided into different modules, according to different upgrades and new functionalities. As of September 30, 2017 and 2016, nine out of the ten modules have been completed and are operational. We capitalized (with a total cost of $1,069,853 (HK$8,295,000)) and amortized these costs once the modules were completed.

Gross Profit

Gross profit was $9,723,342 for the nine months ended September 30, 2017,2021 compared to $13,391,517September 30, 2020 was mainly due to a decrease in the commissions paid to service agents by $236,811. This decrease was driven by a lower commission fee

27

during the nine months ended September 30, 2021 as discussed above. Such decrease was further contributed by a decrease in depreciation by $113,556 due to some of our computer equipment and trading systems having been fully depreciated and a decline in internet service charges by $32,588.

Gross Profit

Gross profit was $3,106,752 or 68.6% of the total revenue for the nine months ended September 30, 2016. The decrease was due2021, compared to $1,741,350 or 49.1% of the less artworks listed on our platform, the change in our commission fee policy and the decrease of transaction volume of non VIP traders and non-selected traders.

Operating Expenses

Selling expenses were $1,272,010, or 13% of net sales,total revenue for the nine months ended September 30, 2017 compared2020. The increase in gross profit and margin was mainly due to $1,993,782 or 15%the growth in listing fee revenue, management fee revenue and consultancy service fee revenue as well as a fall in depreciation of net sales, for the comparable period in 2016, a decrease by 36%. Selling expenses consist primarily of marketing expenses.trading systems and commission paid to service agents.

Operating Expenses

General and administrative expenses for the nine months ended September 30, 20172021 were $7,311,128$12,783,107, compared to $5,076,689$2,657,403 for the nine months ended September 30, 2016.same period in 2020. The surge in general and administrative expense by $10,125,704 or 381% was attributed to a substantial increase in share-based compensation 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$8,734,059. We granted 335,000 shares of our common stock onto our independent directors, employees and consultants in April 2021 and 160,000 shares of our common stock to an independent consultant in July 2021 related to the NYSE American.

private placement, an increase in consultancy fee by $612,237 due to a rise in service fee and engagement of additional consultants, an increase in legal and professional fees by $669,140 as a result of additional amounts paid to legal counsels, brokerage firms, investment specialists for the closing of private placement and review of agreements as well as fees paid to auditors for regulatory filing and annual filing, and others, $421,533 which chiefly a payment to an exhibition company which assisted us in locating the potential investors.

The following table sets forth the main components of the Company’s general and administrative expenses for the nine months ended September 30, 20172021 and 2016.September 30, 2020.

Nine Months Ended

September 30,

2021

% of Total

2020

% of Total

    

(Unaudited)

    

    

(Unaudited)

    

Salary and welfare

$

749,133

 

5.9

$

900,014

 

33.9

Legal and professional fees

 

1,123,575

 

8.8

 

454,435

 

17.1

Office, insurance and rental expenses

 

504,447

 

3.9

 

592,591

 

22.3

Consultancy fee

 

709,449

 

5.5

 

97,212

 

3.7

Non-deductible input VAT expense

 

147,406

 

1.2

 

213,758

 

8.0

Depreciation

 

74,991

 

0.6

 

92,802

 

3.5

Traveling and accommodation fees

 

58,071

 

0.5

 

46,148

 

1.7

Share Based Compensation Expense

 

8,765,467

 

68.6

 

31,408

 

1.2

Others

 

650,568

 

5.0

 

229,035

 

8.6

Total general and administrative expense

$

12,783,107

 

100.0

$

2,657,403

 

100.0

  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 IncomeOther income

We had a netOther income for the nine months ended September 30, 2017 of $1,057,1382021 was $260,721 compared to net income of $4,664,632$403,178 for the nine months ended September 30, 2016.

2020. The decrease in netother income for the nine months ended September 30, 2021 is predominantly due to a decrease in foreign currency exchange gain by $78,485, arising from the depreciation of the Hong Kong dollar against the US dollar and decrease in sundry income by $3,607,494$74,560.  Takung Hong Kong received a subsidy out of Employment Support Scheme enacted by the government of Hong Kong Special Administrative Region in June and September 2020.  However, this subsidy scheme was no longer available during the nine months ended September 30, 2021.

Income tax expense

The Company’s effective tax rate varies due to the multiple jurisdictions in which it books its pretax income or losses. The Company was subject to a U.S. income tax rate of 21%, Hong Kong profits tax rate of 8.25% for the first HK$ 2 million (approximately $257,490) assessable profits and at 16.5% for assessable profits above HK$ 2 million (approximately $257,490) and PRC enterprise income tax rate of 25%.

28

The effective tax rates for the nine months ended September 30, 2021 and 2020 were (0.9)% and (11.9)%, respectively.

The income tax expense was $90,485 and $94,225 for the nine months ended September 30, 2021 and 2020, respectively. The income tax expense for the nine months ended September 30, 2021 included the recognition of deferred tax expense due to the utilization of the net operating loss of Takung Hong Kong. The income tax expense for the nine months ended September 30, 2020 was triggered by a recognition of uncertain tax position driven by the income tax examination of our subsidiary in Hong Kong. The effective tax rate for the nine months ended September 30, 2021 was lower than that for the same period in 2020 because we incurred a higher loss before income tax expense for the nine months ended September 30, 2021. Such loss was primarily caused by a higher share-based compensation incurred by Takung US as discussed aforementioned.

Net loss

We recorded a net loss for the nine months ended September 30, 2021 of $9,791,099 compared to net loss of $886,053 for the nine months ended September 30, 2020.

The substantial increase in the net loss by $8,905,046 during this current period compared to the same period in 2020 was due to a fall of revenuepredominantly generated by $3,668,575, and the increase of general and administrative expenses by $2,234,439higher share-based compensation for the nine months ended September 30, 2021 as discussed in the previous paragraphs.


above.

Liquidity and Capital Resources

The following tables set forth our condensed consolidated statements of cash flow:

    

Nine Months Ended

September 30, 

2021

    

2020

 

(Unaudited)

 

(Unaudited)

Net cash provided by (used in) operating activities

$

43,471,227

$

(6,680,813)

Net cash used in investing activities

 

(111,771)

 

(19,961)

Net cash provided by financing activities

5,180,485

Effect of exchange rate change on cash, cash equivalents and restricted cash

(281,110)

122,268

Net increase (decrease) in cash, cash equivalents and restricted cash

48,258,831

(6,578,506)

Cash, cash equivalents and restricted cash, beginning balance

 

13,842,745

 

21,829,154

Cash, cash equivalents and restricted cash, ending balance

$

62,101,576

$

15,250,648

  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

During the nine months ended September 30, 2017,2021, net cash generated fromprovided by operating activities totaled $1,028,524.$43,471,227, which predominantly resulted from the receipt of customer deposits, $44,097,101, offset by prepayment of artwork storage fee, $248,817, operating lease payment, $61,665 and income tax payment, $95,345.  Net cash used in investing activities totaled $561,510. Noincluded purchase of furniture and computer equipment, $1,688, investment in cultural projects, $500,000, offset by a loan repayment from a third party, $389,917.  Net cash was generated fromprovided by financing activities duringfor the period.nine months ended September 30, 2021 included proceeds from a private placement and exercise of stock options. The resulting change in cash for the period was an increase of $1,492,553.$48,258,831. The cash balance at the beginning of the period was $13,395,337.$13,842,745. The cash balance onas of September 30, 20172021 was $14,887,890.

$62,101,576.

During the nine months ended September 30, 2016,2020, net cash provided byused in operating activities totaled $5,635,391.$6,680,813, which predominantly resulted from the net loss of $886,053 and a decline in net change in operating assets and liabilities of $5,931,174 and offset by non-cash adjustments to net loss of $136,414. Net cash used in investing activities totaled $1,276,378. Netincluded purchase of furniture and computer equipment by Tianjin Takung. There was no net cash used in or provided by financing activities totaled $2,346,941.for the nine months ended September 30, 2020. The resulting change in cash for the period was an increasea decrease of $6,061,579.$6,578,506. The cash balance at the beginning of the period was $10,769,456.$21,829,154. The cash balance onas of September 30, 20162020 was $16,831,035.

$15,250,648.

As of September 30, 2017,2021, the Company had $28,390,798 in total current liabilities, which comprised of $780,800 in accrued expense 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. As of December 31, 2016, the Company had $30,602,706$62,816,821 in total current liabilities, which included $608,883$1,073,795 in accrued expenseexpenses and other accruals, $21,743,360payables, $53,241,711 in customers’customer deposits, $360,248 in advance from customers, $6,308,513$1,969,084 in short-term borrowings from a third parties, $1,031,805party, $6,422,608 in amount due to a related party, $21,895 in advances from customers, $76,719 in operating lease liabilities and $11,009 in tax payables.

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As of December 31, 2020, the Company had $18,494,724 in total current liabilities, which consisted of $728,088 in accrued expenses and other payables, $9,144,610 in customer deposits, $1,977,109 in short-term borrowings from a third party, $6,448,784 in amount due to related partyparties, $17,412 in advance from customers, $72,367 in lease liabilities and $549,897$106,354 in taxVAT 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. The Company’s total liabilities as of September 30, 2017 and December 31, 2016 amounted to $28,436,099 and $30,665,324, respectively.


The Company is aware of events or uncertainties which may affect its future liquidity because of capital controls in the PRC. The RenminbiRMB is only currently convertible under the “current account”,account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account”,account,” which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries or variable interest entities. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of “current account transactions”,transactions,” including payment of dividends to us, without the approval of the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. The existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our stockholders, 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

WeOur management forecasts that we have always been generating sufficient cash from our operationoperations to fund our business organically. However, we may conduct equity sales of our common sharesstock in order to fund further expansion and growth of our business. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any sales of the equity securities to fund expansion and other activities, orand if we are able to, there is no guarantee that existing shareholders will not be substantially diluted. In essence, we do not need to rely on equity sales to fund our business operations.

Critical Accounting Policies

We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our financial statements. In general, management'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 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, 2020, previously filed with the SEC.

Recent Accounting Pronouncements

See Note 2 to the financial statements included herewith and Note 2 to the financial statements on Form 10-K for the fiscal year ended December 31, 2016,2020, previously filed with the SEC.

Recent Accounting Pronouncements30

Table of Contents

See Note 2 to the financial statements included herewith and Note 2 to the financial statements on Form 10-K for the fiscal year ended December 31, 2016, previously filed with the SEC.

Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk.

Not applicable.


Item 4. Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, which presently comprises our Chief Executive Officer, Mr. Di XiaoKwok Leung Li and our Chief Financial Officer, Mr. Chun Hin Leslie Chow.Ms. Wing Yan Leung. 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, 20172021 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, 20172021 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

On or around July 2020, a claim was filed in the Shanghai Pudong People’s Court, China against Hong Kong Takung on the basis of alleged breaches of contract. The claim amount has yet to be determined. A court hearing was initially scheduled on July 20, 2021 but the Company never received any court order or subpoena. As of the filing of this report, the Company did not have further details nor received any court order related to this claim.

None.

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Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.

Exhibit
No.

Description

3.1

10.1(1)

CertificateForm of Incorporation (1)the Securities Purchase Agreement

3.2

10.2(2)

By-lawsForm of the Company (1)Registration Rights Agreement

3.3

10.3(3)

Certificate of Amendment ofto the Certificate of Incorporation (1)Securities Purchase Agreement, dated August 21, 2021, by and between Takung Art Co., Ltd and Cultural Objects Provenance Holdings Limited

3.4

10.4(4)

Certificate of Amendment of the Certificate of Incorporation (1)Employment Agreement, dated September 30, 2021, by and between Takung Art Co., Ltd. and Leung Wing Yan

3.5

31.1

Certificate of Amendment (2)

3.6Certificate of Amendment of the Certificate of Incorporation (4)
3.7Certificate of Incorporation of Hong Kong Takung Assets and Equity Artworks Exchange Co., Ltd.(3)
3.8Articles of Association of Hong Kong Takung Assets and Equity Artworks Exchange Co., Ltd.(3)

3.9Certificate of Change of Name of Hong Kong Takung Assets and Equity Artworks Exchange Co., Ltd.*

31.1Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*2002

32.1

Certification of the Principal Executive Officer and the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS

101.INS

Inline XBRL Instance Document*Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document*Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document*Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document*Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document*Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document*Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

(1)Incorporated by reference to the exhibit to our registration statement on Form S-1 filed with the SEC on August 16, 2011.

(2)Incorporated by reference to the exhibit10.1 to our current report on Form 8-K filed with the SEC on March 7, 2013.July 13, 2021.

(2)(3)Incorporated by reference to the exhibit 10.2 to our current report on Form 8-K filed with the SEC on October 22, 2014.July 13, 2021.

(3)(4)Incorporated by reference to the exhibit 10.1 to our current report on Form 8-K filed with the SEC on November 6, 2014.September 15, 2021.
(4)Incorporated by reference to the exhibit 10.1 to our current report on Form 8-K filed with the SEC on September 30, 2021

*Filed herewith.

**Furnished herewith.32


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TAKUNG ART CO., LTD

Date: November 14, 201722, 2021

By:

/s/ Di XiaoKwok Leung Li

Di Xiao

Kwok Leung Li

Chief Executive Officer

(Principal Executive Officer) and Director

Date: November 14, 201722, 2021

By:

/s/ Chun Hin Leslie ChowWing Yan Leung

Chun Hin Leslie Chow

Wing Yan Leung

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)


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