UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended March 31,June 30, 2023

 

or

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

 

For the transition period from _______________________________ to _______________________________

 

Commission file number:File Number: 001-38036

 

TAKUNG ART CO., LTD

(Exact name of registrant as specified in its charter)

 

Delaware 26-4731758
(State or other jurisdiction of
incorporation or organizationorganization)
 (I.R.S. Employer
Identification No.)

 

Office Q 111325 Avenue of the Americas, Room 2740, 27th Floor, Kings Wing Plaza 2,

No. 1 Kwan Street, Sha Tin, New Territories, Hong Kong.

York,
 999077NY 10019
(Address of principal executive offices) (Zip Code)

 

+1 (332) 250-4207

(Registrant’s telephone number, including area code +86-13020144962code)

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

 

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

 

Title of each class Trading Symbol(s) Name of each exchange on which
registered
Common Stock par value $0.001 per share TKAT NYSE American

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒  Yes   No

 

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

 

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
 Emerging growth company

 

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

 

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

 

As of May 24,August 14, 2023, 34,991,886 shares of the Company’s common stock, $0.001 par value, were issued and outstanding.

 

 

 

 

 

FORM 10-Q

TAKUNG ART CO., LTD

FORM 10-Q

 

INDEX

 

  Page
Number
   
PART I.  FINANCIAL INFORMATION 
   
Item 1.Financial Statements1
   
 Condensed Consolidated Balance Sheets (unaudited) as of March 31,June 30, 2023 and December 31, 202220221
   
 Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the ThreeSix Months Ended March 31,June 30, 2023 and 202220222
   
 Condensed Consolidated Statements of Changes in Equity (unaudited) for The ThreeSix Months Ended March 31,June 30, 2023 and 202220223
   
 Condensed Consolidated Statements of Cash Flows (unaudited) for the ThreeSix Months Ended March 31,June 30, 2023 and 202220224
  
 Notes to the Condensed Consolidated Financial Statements (unaudited)5
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations2820
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk3832
   
Item 4.Controls and Procedures3832
   
PART II.  OTHER INFORMATION 
   
Item 1.Legal Proceedings3933
   
Item 1A.Risk Factors3933
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds3933
   
Item 3.Defaults Upon Senior Securities3933
   
Item 4.Mine Safety Disclosure3933
   
Item 5.Other Information3933
   
Item 6.Exhibits4033
   
SIGNATURES4134

 

i

 

 

PART I –FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 As of
March 31,
 As of
December 31,
  June 30, December 31, 
 2023 2022  2023  2022 
 (Unaudited)    (Unaudited)   
ASSETS          
Current assets          
Cash and cash equivalents $65,439,927 $64,794,688  $63,642,594  $63,655,877 
Restricted Cash 3,395,595 2,705,750 
Account receivables, net 85,902 86,434 
Restricted cash  3,559,910   2,705,750 
Prepayment and other current assets, net 5,557 5,557   1,896,962   5,557 
Current assets – discontinued operations 97,415 97,258   -   1,322,503 
Total current assets  69,024,396  67,689,687   69,099,466   67,689,687 
             
Non-current assets             
Property and equipment, net 5,100 5,482 
Intangible assets - - 
Non-marketable investment, net - -   -   - 
Non-current assets – discontinued operations  46,666  55,894   -   61,376 
Total non-current assets  51,766  61,376   -   61,376 
Total assets $69,076,162 $67,751,063  $69,099,466  $67,751,063 
             
LIABILITIES AND STOCKHOLDERS’ EQUITY     
LIABILITIES AND SHAREHOLDERS’ EQUITY        
             
LIABILITIES             
Current liabilities             
Accrued expenses and other payables $2,646,921 $2,131,891  $4,009,043  $2,131,891 
Current liabilities - discontinued operations  -   8,700,835 
Advance from customers 3,395,595 2,705,750   3,559,910   2,705,750 
Short-term borrowing from a third party 1,750,000 1,550,000 
Tax payable 282,157 255,805 
Current liabilities – discontinued operations  8,647,562  8,700,835 
Short term borrowings from a third party  2,050,000   1,550,000 
Tax payables  316,616   255,805 
Total current liabilities  16,722,235  15,344,281   9,935,569   15,344,281 
             
Non-current liabilities        
Total non-current liabilities  -   - 
Total liabilities  16,722,235  15,344,281   9,935,569   15,344,281 
             
STOCKHOLDERS’ EQUITY     
Common stock (1,000,000,000 shares authorized; $0.001 par value; 34,991,886 shares issued and outstanding as of March 31, 2023;34,991,886 shares issued and outstanding as of December 31, 2022) 34,992 34,992 
COMMITMENTS AND CONTINGENCIES        
        
SHAREHOLDERS’ EQUITY        
Common stock (1,000,000,000 shares authorized; $0.001 par value; 34,991,886 shares issued and outstanding as of June 30, 2023; 34,991,886 shares issued and outstanding as of December 31, 2022)  34,992   34,992 
Additional paid-in capital 92,526,972 92,526,972   92,526,972   92,526,972 
Accumulated deficits (39,848,298) (39,797,696)
Accumulated deficit  (33,398,067)  (39,797,696)
Accumulated other comprehensive loss  (359,739)  (357,486)  -   (357,486)
Total stockholders’ equity  52,353,927  52,406,782 
Total liabilities and stockholders’ equity $69,076,162 $67,751,063 
Total shareholders’ equity  59,163,897   52,406,782 
Total liabilities and shareholders’ equity $69,099,466  $67,751,063 

 

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

 


 

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

(UNAUDITED)

  For the Three Months Ended  For the Six Months Ended 
  June 30,  June 30, 
  2023  2022  2023  2022 
  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
Revenue            
Listing fee-Continuing operations $-  $-  $-  $- 
Listing fee-Discontinued operations  -   -   -   - 
Commission-Continuing operations  574,777   694,175   1,274,518   694,175 
Commission-Discontinued operations  -   -   -   - 
Management fee-Continuing operations  -   -   -   - 
Management fee-Discontinued operations  -   -   -   - 
Revenue-Continuing operations  574,777   694,175   1,274,518   694,175 
Revenue-Discontinued operations  -   -   -   - 
                 
Cost of revenue-continuing operations  (150,330)  (150,930)  (301,260)  (150,930)
Cost of revenue-discontinued operations  -   -   -   - 
                 
Gross profit-continuing operations  424,447   543,245   973,258   543,245 
Gross profit-discontinued operations  -   -   -   - 
                 
Operating expenses:                
General and administrative expenses-Continuing operations  (729,060)  (7,383,094)  (1,386,055)  (7,811,719)
General and administrative expenses-Discontinued operations  (6,408)  (268,750)  (21,946)  (631,198)
Gain on disposal of subsidiaries  6,869,809   -   6,869,809   - 
Total operating expenses - Continuing operations  (729,060)  (7,383,094)  (1,386,055)  (7,811,719)
Total operating expenses - Discontinued operations  6,863,401   (268,750)  6,847,863   (631,198)
                 
Loss from continuing operations  (304,613)  (6,839,849)  (412,797)  (7,268,474)
                 
Other income and expenses:                
Other(expenses) income-Continuing operations  294,746   (8,808)  394,218   (8,808)
Other(expenses) income-Discontinued operations  -   8,633   -   8,367 
Total other income (expenses)  294,746   (175)  394,218   (441)
                 
Loss before income taxes-Continuing operations  (9,867)  (6,848,657)  (18,579)  (7,277,282)
                 
Income tax expenses-Continuing operations  35,959   48,996   62,311   48,996 
                 
Net loss from continuing operations  (45,826)  (6,897,653)  (80,890)  (7,326,278)
                 
Loss before income tax-Discontinued operations:                
Profit/(Loss) from Discontinued  operations  6,863,401   (260,117)  6,847,863   (622,831)
Income tax expenses-Discontinued operations                
Tax expense  -   -   -   - 
Deferred tax benefit  -   -   -   - 
                 
Net profit/(loss) from discontinued operations  6,863,401   (260,117)  6,847,863   (622,831)
                 
Net profit/(loss) $6,817,575  $(7,157,770) $6,766,973  $(7,949,109)
                 
Foreign currency translation adjustment  (7,605)  180,638   (9,858)  201,697 
                 
Comprehensive income/(loss) $6,809,970  $(6,977,132) $6,757,115  $(7,747,412)
                 
Loss from continuing operations per common share - basic $(0.001) $(0.299) $(0.002) $(0.391)
Loss from continuing operations per common share -Diluted $(0.001) $(0.299) $(0.002) $(0.391)
Profit/(Loss) from discontinued operations per common share - basic $0.196  $(0.011) $0.196  $(0.033)
Profit/(Loss) from discontinued operations per common share - Diluted $0.196  $(0.011) $0.196  $(0.033)
Weighted average number of common shares outstanding-basic  34,991,886   23,036,046   34,991,886   18,728,132 
Weighted average number of common shares outstanding-diluted  34,991,886   23,036,046   34,991,886   18,728,132 

  Three Months Ended 
  March 31,  March 31 
  2023  2022 
       
Revenue $699,741  $- 
         
Cost of revenue  (150,930)  - 
Gross profit  548,811   - 
         
Operating expenses        
General and administrative expenses  (657,343)  (611,475)
Total operating expenses  (657,343)  (611,475)
         
Loss from continuing operations  (108,532)  (611,475)
         
Other income and expenses:        
Other (expenses) income  93,265   (99)
Total other (expenses) income  93,265   (99)
         
Loss before income taxes  (15,267)  (611,574)
         
Income tax expense  (26,352)   - 
         
Net loss from continuing operations  (41,619)  (611,574)
         
Loss from discontinued operations, net of income taxes:        
Loss from discontinued operations  (8,983)  (179,765)
Income tax expense     - 
Deferred tax benefit     - 
Net loss from discontinued operations  (8,983)  (179,765)
         
Net loss  (50,602)  (791,339)
         
Foreign currency translation adjustment  (2,253)  21,059 
         
Comprehensive loss $(52,855) $(770,280)
         
Loss from continuing operations per share of common stock – basic $0.001  $(0.043)
Loss from continuing operations per share of common stock – diluted $0.001  $(0.043)
Loss from discontinued operations per share of common stock – basic $0.000  $(0.013)
Loss from discontinued operations per share of common stock – diluted $0.000  $(0.013)
         
Weighted average number of common stock outstanding – basic  55,611,419   14,372,353 
Weighted average number of common stock outstanding – diluted  55,611,419   14,372,353 

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


 

 

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(UNAUDITED)

 

 Number Common Additional
Paid-in
 Accumulated Accumulated
other
comprehensive
   
 of shares stock capital deficit loss Total  Number
of shares
  Common
Stock
  Additional
Paid-in
capital
  Accumulated
deficit
  Accumulated
other
comprehensive
loss
  Total 
Balance, December 31, 2022 34,991,886 34,992 92,526,972 (39,797,696) (357,486) 52,406,782  $34,991,886  $34,992  $92,526,972  $(39,797,696) $(357,486) $52,406,782 
Net loss from continuing operations    (41,619)  (41,619)  -   -   -   (35,064)  -   (35,064)
Net loss from discontinued operations    (8,983)  (8,983)  -   -   -   (15,538)  -   (15,538)
Foreign currency translation adjustment          (2,253)  (2,253)  -   -   -   -   (2,253)  (2,253)
Balance, March 31, 2023  34,991,886  34,992  92,526,972  (39,848,298)  (359,739)  52,353,927   34,991,886   34,992   92,526,972   (39,848,298)  (359,739)  52,353,927 
                        
Net loss from continuing operations  -   -   -   (45,826)  -   (45,826)
Net loss from discontinued operations  -   -   -   (6,408)  -   (6,408)
Disposal of subsidiaries  -   -   -   6,502,465   367,344   6,869,809 
Foreign currency translation adjustment  -   -   -   -   (7,605)  (7,605)
Balance, June 30, 2023  34,991,886  $34,992  $92,526,972  $(33,398,067) $-  $59,163,897 

 

 Number Common Additional
Paid-in
 Accumulated Accumulated
other
comprehensive
   
 of shares Stock capital deficit loss Total  Number
of shares
  Common
Stock
  Additional
Paid-in
Capital
  

Accumulated
deficit

  Accumulated
other
comprehensive
loss
  Total 
Balance, December 31, 2021 14,372,353 $14,372 $32,547,585 $(29,444,185) $(341,089) $2,776,683   14,372,353  $14,372  $32,547,585  $(29,444,185) $(341,089) $2,776,683 
Net loss from continuing operations - - - (611,574) - (611,574)  -   -   -   (428,625)  -   (428,625)
Net loss from discontinued operations - - - (179,765) - (179,765)              (362,714)      (362,714)
Foreign currency translation adjustment  -     -  -  21,059  21,059   -   -   -   -   21,059   21,059 
Balance, March 31, 2022  14,372,353 $14,372 $32,547,585 $(30,235,524) $(320,030) $2,006,403   14,372,353   14,372   32,547,585   (30,235,524)  (320,030)  2,006,403 
                        
Issuance of ordinary shares for restricted stock award  10,238,910   10,239   29,989,768   -   -   30,000,007 
Net loss from continuing operations  -   -   -   (6,897,653)  -   (6,897,653)
Net loss from discontinued operations              (260,117)      (260,117)
Foreign currency translation adjustment  -   -   -   -   180,638   180,639 
Balance, June 30, 2022  24,611,263  $24,611  $62,537,353  $(37,393,294) $(139,392) $25,029,278 

 

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

 


 

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in U.S. Dollars)

(UNAUDITED)

 Three Months Ended  Six Months Ended 
 March 31, March 31  June 30, June 30, 
 2023 2022  2023 2022 
Cash flows from operating activities:          
Net loss from continuing operations $(41,619) $(611,574) $(80,890) $(7,326,278)
Net loss from discontinued operations (8,983) (179,765) 6,847,863 (622,831)
          
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation 9,245 350 
Changes in exchange rate (1,685) 531 
Changes in operating assets and liabilities (decrease) increase in: 
Accounts receivable, net - - 
Impairment loss - 6,265,686 
Changes in operating assets and liabilities(decrease)increase in:     
Prepayment and other current assets - 66,660  (1,891,405) 216,416 
Customer deposits 689,845 2,028,416  854,160 4,645,449 
Accrued expenses and other payables  488,365  231,814   1,459,012  (44,167)
Net cash provided by operating activities-continuing operations 1,135,255 1,716,197 
Net cash used in operating activities-discontinued operations  (87)  (156,101)
Net cash provided by operating activities - continuing operations $340,877 $3,757,106 
Net cash used in/(provided by) operating activities - discontinued operations  (1,267,255)  1,603,097 
Net cash provided by operating activities  1,135,168  1,560,096   (926,378)  5,360,203 
          
Cash flows from investing activities:          
Net cash used in investing activities-continuing operations - -  - - 
Net cash used in investing activities-discontinued operations  -  (1,153)  61,376  (1,656)
Net cash used in investing activities  -  (1,153)  61,376  (1,656)
          
Cash flows from financing activities:          
Proceeds from a short-term borrowing from a third party  200,000  300,000 
Net cash provided by financing activities-continuing operations 200,000 300,000  500,000 30,300,007 
Net cash provided by financing activities-discontinued operations  -  -   -  - 
Net cash provided by financing activities  200,000  300,000   500,000  30,300,007 
          
Effect of exchange rate change on cash and cash equivalents, and restricted cash from continuing operations (170) 42,534 
Effect of exchange rate change on cash and cash equivalents, and restricted cash from discontinued operations  (597)  (56,203)
 (767) (13,669)
Effect of exchange rate change on cash, cash equivalents and restricted cash from continuing operations -    206,456 
Effect of exchange rate change on cash, cash equivalents and restricted cash from discontinued operations  (29,729)   (400,243)
          
Net change in cash and cash equivalents, and restricted cash from continuing operations 1,335,084 2,058,731  840,877 34,263,569 
Net change in cash and cash equivalents, and restricted cash from discontinued operations  (684)  (213,457) (1,235,608) 1,201,198 
 1,334,400 1,845,274      
     
Cash and cash equivalents, and restricted cash beginning balance from continuing operations 67,500,438 1,503,153 
Cash, cash equivalents and restricted cash, beginning balance 66,361,627 1,503,153 
Cash and cash equivalents, and restricted cash beginning balance from discontinued operations  96,797  338,542   1,235,608  338,542 
Cash and cash equivalents, and restricted cash beginning balance  67,597,235  1,841,695  67,597,235 1,841,695 
          
Cash and cash equivalents, and restricted cash ending balance from continuing operations 68,835,522 3,561,884  $67,202,504 $35,766,722 
Cash and cash equivalents, and restricted cash ending balance from discontinued operations  96,113  125,085 
Cash and cash equivalents, and restricted cash ending balance $68,931,635 $3,686,969 
Cash and cash equivalents and restricted cash ending balance from discontinued operations  -  1,539,740 
Cash and cash equivalents and restricted cash ending balance $67,202,504 $37,306,462 
          
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets     
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets - - 
Cash and cash equivalents-continuing operations $65,439,927 $1,533,468  $63,642,594 $31,121,273 
Restricted cash-continuing operations  3,395,595  2,028,416 
Total cash, cash equivalents and restricted cash -continuing operations $68,835,522 $3,561,884 
Restricted cash as of June 30, 2023 and 2022, respectively  3,559,910  4,645,449 
Total cash, cash equivalents and restricted cash-continuing operations $67,202,504 $35,766,722 
          
Cash and cash equivalents-discontinued operations $96,113 $125,085  $- $1,539,740 
Restricted cash – discontinued operations  -  - 
Total cash, cash equivalents and restricted cash – discontinued operations $96,113 $125,085 
     
Total cash, cash equivalents, and restricted cash $68,931,635 $3,686,969 
Restricted cash - discontinued operations  -  - 
Total cash, cash equivalents and restricted cash-discontinued operations $- $1,539,740 
          
Supplemental cash flows information:          
Cash paid for interest-continuing operations $- $-  $- $- 
Cash paid for interest-discontinued operations $- $-  $- $- 
Cash paid for income taxes-continuing operations $- $-  $- $- 
Cash paid for income taxes-discontinued operations $- $-  $- $- 

 

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


 

 

TAKUNG ART CO., LTD AND SUBSIDIARIES

NOTES TO 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”), a Delaware corporation (formerly Cardigant Medical Inc.) through Hong Kong Takung Art Company Limited (“Hong Kong Takung”), a Hong Kong company and its 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. The Company generates revenue from its services in connection with the offering and trading of artwork on its system, primarily consisting of listing fees, trading commissions, and management fees. The Company conducts business primarily in Hong Kong, People’s Republic of China. Pursuant to SPA dated November 1, 2022,  by and among (i) Fecundity Capital Investment Co., Ltd., a British Virgin Islands company (the “Purchaser”), (ii) Hong Kong Takung Art Company Limited (“Hong Kong Takung”), a Hong Kong company and Hong Kong MQ Group Limited, a Hong Kong company (“Hong Kong MQ,” together with Hong Kong Takung, the “Targets”), and (iii) Takung Art Co., Ltd., a Delaware corporation (“TKAT” or the “Seller”).  the Seller desires to sell to the Purchaser, and the Purchaser desire to purchase from the Seller, all of the Purchased Shares (as hereinafter defined) in exchange for US$1,500,000 (the “Purchase Price”). As of May 23, 2023, The Company’s stockholders approved the proposed sale (the “Disposition”) of our subsidiaries, Hong Kong MQ Group Limited, Hong Kong Takung Art Company Limited to Fecundity Capital Investment Co., Ltd for a purchase price of US$1,500,000.The Company completed the disposal of the Targets and the Purchase Price was settled in July 2023.

 

Takung (Shanghai) Co., Ltd (“Shanghai Takung”) is a limited liability company, with a registered capital of $1 million, located in the Shanghai Pilot Free Trade Zone. Shanghai Takung was incorporated on July 28, 2015. It is engaged in providing services to its parent company Hong Kong Takung by receiving deposits from and making payments to online artwork traders of Takung for and on behalf of Takung. Shanghai Takung was deregistered on May 8, 2020 and the Company merged the operations of Shanghai Takung with Takung Cultural Development (Tianjin) Co., Ltd.

 

Takung Cultural Development (Tianjin) Co., Ltd (“Tianjin Takung”) provides technology development services to Hong Kong Takung and also carries out marketing and promotion activities in mainland China. It is engaged in providing services to its parent company Hong Kong Takung by receiving deposits from and making payments to online artwork traders of Takung for and on behalf of Takung when Shanghai Takung was deregistered. On November 8, 2021, the Management became aware of the suspension of the operation of Tianjin Takung by the local authority.

 

Hong Kong Takung Art Holdings Company Limited (“Takung Art Holdings”) was formed in Hong Kong on July 20, 2018 and operates as a holding company to control an online platform for offering, selling and trading whole piece of artwork. Takung Art Holdings was deregistered on April 29, 2020 due to deregistration of its wholly-owned subsidiary, Art Era Internet Technology (Tianjin) Co., Ltd., on June 18, 2019.

 

Hong Kong MQ Group Limited (“Hong Kong MQ”) was formed in Hong Kong on November 27, 2018, and is engaged in blockchain and non-fungible tokens (“NFT”) businesses, including consultancy service for NFT launch projects, developing its own NFT marketplace to facilitate users to buy and sell NFTs, as well as development of block chain-based online games. On June 19, 2019, as a result of a private transaction, one (1) share of common stock of Hong Kong MQ was transferred from Ms. Hiu Ngai Ma to the Company. The net asset of Hong Kong MQ was $nil as of the acquisition date. The consideration paid for the ownership transfer, which represent 100% of the issued and outstanding share capital of Hong Kong MQ, was $0.13 (HK$1). Hong Kong MQ became a direct wholly-owned subsidiary of the Company. Pursuant to SPA dated November 1, 2022,  by and among (i) Fecundity Capital Investment Co., Ltd., a British Virgin Islands company (the “Purchaser”), (ii) Hong Kong Takung Art Company Limited (“Hong Kong Takung”), a Hong Kong company and Hong Kong MQ Group Limited, a Hong Kong company (“Hong Kong MQ,” together with Hong Kong Takung, the “Targets”), and (iii) Takung Art Co., Ltd., a Delaware corporation (“TKAT” or the “Seller”).  the Seller desires to sell to the Purchaser, and the Purchaser desire to purchase from the Seller, all of the Purchased Shares (as hereinafter defined) in exchange for US$1,500,000 (the “Purchase Price”). As of May 23, 2023, The Company’s stockholders approved the proposed sale (the “Disposition”) of our subsidiaries, Hong Kong MQ Group Limited, Hong Kong Takung Art Company Limited to Fecundity Capital Investment Co., Ltd for a purchase price of US$1,500,000.The Company completed the disposal of the Targets and the Purchase Price was settled in July 2023.

 

MQ (Tianjin) Enterprise Management Consulting Co., Ltd. (“Tianjin MQ”) was incorporated in Tianjin, PRC on July 9, 2019 and is a directly wholly owned subsidiary of Hong Kong MQ. It was established as a limited liability company with a registered capital of $100,000 located in the Pilot Free Trade Zone in Tianjin. Tianjin MQ focused on exploring business opportunities and promoting its artwork trading business. Tianjin MQ was deregistered on August 10, 2020 due to the Company streamlining its operation.

 


NFT Digital Technology Limited (“NFT Digital”) was incorporated in Albany, New York on December 13, 2021 and is a wholly-owned subsidiary of Takung. This entity primarily provides administrative and technical supports for the development of NFT projects.

 

NFT Exchange Limited (“NFT Exchange”) was incorporated in Wyoming on January 7, 2022 and is wholly owned by Takung. This entity facilitates the business and operation of the new NFT exchange market.

 

Metaverse Digital Payment Co., Limited (“Metaverse Digital Payment”Metaverse”) was formed in Hong Kong on January 27, 2022, and is wholly owned by NFT Exchange. This entity is engaged in digital payment service.

 

NFT Limited was incorporated in Cayman Island on September 30, 2022and is wholly owned by Takung Art Co., Ltd. This entity is engaged to be the surviving company pursuant to the Company.

Cultural Objects Provenance Holdings Limited

 

Cultural Objects Provenance Holdings Limited is an investment holding company. Its wholly-owned subsidiary is headquartered in Hong Kong, with global outposts in China (Shenzhen), Europe (Germany), and USA (NY/LA). It is an artwork authentication platform powered by blockchain. According to company home page, the subsidiary is the official technology partner for NANZUKA Gallery in Tokyo, Japan. It authenticated some sought-after editions and limited edition works from some of the world’s most prolific artists, including Hajime Sorayama, Javier Calleja, Daniel Arsham, James Jarvis, and more.

 


On May 28, 2021, Takung entered into a Securities Purchase Agreement (the “SPA”) with Cultural Objects Provenance Holdings Limited (“Cultural Objects”), a British Virgin Islands company with a wholly-owned subsidiary in Hong Kong engaging in an operation of an artwork authentication platform powered by blockchain with global presence in China, Germany and the United States. Takung shall invest in Cultural Objects through paying certain purchase that consists of cash consideration, $500,000 and issuance of 282,000 shares of common stock of Takung in exchange for 54,100 shares of common stock of Cultural Objects and 290,000 unvested restricted shares of common stock of Takung to Cultural Objects in exchange for 32,460 unvested shares of common stock of Cultural Objects.

 

On August 21, 2021, Takung and Cultural Objects entered to an amendment to the SPA. The amendment provides that the original purchase price was amended to be $500,000 in cash and the issuance of 771,040 restricted shares of common stock of Takung to Cultural Objects in exchange for 54,100 shares of common stock of Cultural Objects, and, subject to the satisfaction of the conditions stipulated in the SPA, the issuance of 787,440 unvested restricted shares of common stock of Takung to Cultural Objects in exchange for 32,460 unvested shares of common stock of Cultural Objects. The cash consideration of $500,000 was paid to Cultural Objects by the end of August 2021. On September 9, 2021, an aggregate amount of 1,558,480 restricted shares of common stock of Takung issued to Cultural Objects in an exchange for an aggregate 86,560 shares of common stock of Cultural Objects. Together with the cash consideration paid $500,000 and the total value of the restricted shares issued to Cultural Objects, $10,130,120, the total value of the investment in Cultural Objects was $10,630,120. As of December 31, 2022June 30, 2023 the initial cost of this investment in Cultural Objects was adjusted to $0 after a further impairment charge, $9,296,614 was recorded (see Note 4).fully impaired.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The interim condensed consolidated financial statements have been prepared in accordance with the generally accepted accounting principles in the United States (“U.S. GAAP”).

 

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

Use of estimates

 


Use of estimates

The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the amount of revenues and expenses during the reporting periods. Actual results could differ materially from those results.

 

Basis of consolidation

 

The interim condensed consolidated financial statements include the financial statements of the Company, and its subsidiaries, NFT Ltd, NFT Exchange, NFT Digital, Metaverse Payment, Hong Kong Takung, Tianjin Takung and Hong Kong MQ. All intercompany transactions and balances have been eliminated on consolidation.

 

Discontinued operations

 

The Company has adopted ASC Topic 205 “Presentation of Financial Statements” Subtopic 20-45, in determining whether any of its business component(s) classified as held for sale, disposed of by sale or other than by sale is required to be reported in discontinued operations. In accordance with ASC Topic 205-20-45-1, a discontinued operation may include a component of an entity or a group of components of an entity, or a business or non-profit activity. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs: (1) the component of an entity or group of components of an entity meets the criteria to be classified as held for sale; (2) the component of an entity or group of components of an entity is disposed of by sale; (3) the component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff).

 


For the component disposed of other than by sale in accordance with paragraph 360-10-45-15, the Company adopted ASC Topic 205-20-45-3 and reported the results of operations of the discontinued operations, less applicable income tax expenses or benefits as a separate component in in the statement where net income (loss) is reported for current and all prior periods presented.

Due to the suspension of the operation of Tianjin Takung by the local authority in the fourth quarter of 2021, Hong Kong Takung lost its control over Tianjin Takung. The Company plans to dispose Hong Kong Takung, and is actively locatingseeking buyers for Hong Kong Takung and related operations in order to focus on its blockchain and NFT business operation.

As of MarchJune 30, 2022 and December 31, 2023, only2021, the operation of Hong Kong Takung was classified as a discontinued operation the sameand as of December 31, 2021.

Deconsolidation2021, the operation Tianjin Takung was deconsolidated. For the six months ended June 30, 2023, the operation of Hong Kong Takung and Hong Kong MQ was presented in discontinued operations.

 

Pursuant to the disposition agreement, On November 1, 2022, Takung Art Co., Ltd. (the “Company”), Hong Kong Takung Art Company Limited (“Hong Kong Takung”) and Hong Kong Takung Art Company Limited (“Hong Kong MQ”, together with Hong Kong Takung, the “Targets”), the Company’s wholly owned subsidiaries, and Fecundity Capital Investment Co., Ltd. (the “Purchaser”), entered into a certain share purchase agreement (the “Disposition SPA”). Pursuant to the Disposition SPA, the Purchaser agreed to purchase the Targets in exchange for cash consideration of $1,500,000 (the “Purchase Price”). Upon the closing of the transaction (the “Disposition”) contemplated by the Disposition SPA, the legacy business is no longer with the Company after June 30, 2023.

Deconsolidation

Under the ASC Subtopic 810-10-40, “Consolidation-Overall-Derecognition”, a reporting entity will deconsolidate a subsidiary in the period when the loss of control over such subsidiary incurred as a result of one or more of the following events: (i) a parent sells all or part of its ownership interest in its subsidiary; (ii) the expiration of a contractual agreement that gave control of the subsidiary to the parent; (iii) the subsidiary issues shares which reduces the parent’s ownership interest in the subsidiary to an extent that the parent no longer has a controlling financial interest in such subsidiary; (iv) the subsidiary becomes subject to the control of a government, court, administrator, or regulator. Upon deconsolidation, the reporting entity would no longer include the subsidiary’s assets, liabilities and results of operations in its consolidated financial statements. Due to the suspension of the operation of Tianjin Takung by the local authority. The financial information of Tianjin Takung was deconsolidated as of December 31, 2021.

Reclassification

 

Certain prior period amounts have been reclassified to conform to current period presentation in order to reflect the discontinued operations of Tianjin Takung. None of these reclassifications had an impact on reported financial position or cash flows for any of the periods presented.


 

Fair value measurements

 

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

 

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

 

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

 

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

 Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

There were no assets or liabilities measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of March 31,June 30, 2023 and December 31, 2022.

 


Comprehensive loss

 

The Company follows the provisions of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 220 “Reporting Comprehensive Income” and establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements. For the threesix months ended March 31,June 30, 2023 and 2022, the Company’s comprehensive loss includes net loss and foreign currency translation adjustment.

 

Foreign currency translation and transaction

 

The functional currency of, Hong Kong Takung, and Hong Kong MQ and Tianjin Takung are the Hong Kong Dollar (“HKD”).; Metaverse Payment, NFT Ltd, NFT Digital and NFT Exchange are the United States Dollar (“USD”)

 

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

 


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

 

For the purpose of presenting these financial statements, the Company’s assets and liabilities with functional currency of HKD are expressed in USD at the exchange rate on the balance sheet’s dates, which is 7.84997.8385 and 7.8015 as of March 31,June 30, 2023 and December 31, 2022, respectively; stockholder’s equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rates during the year, which is 7.8389 and 7.8056 for the three months ended March 31, 2023 and 2022, respectively.

 

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

 

Cash and cash equivalents

 

Cash and cash equivalents consist of cash on hand, cash in bank with no restrictions, as well as highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when initially purchased.

 

A significant portion of the Company’s cash and cash equivalents is denominated in RMB, and deposited in the financial institutions of China. Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB denominated cash into foreign currencies for current account items, but conversion of RMB denominated cash into foreign exchange for most of the capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange, or SAFE. These approvals, however, do not guarantee the availability of foreign currencies to fund the business activities outside China, or to repay non-RMB denominated obligations.

Restricted cash

 

Restricted cash represents the cash deposited by the NFT traders (“buyers and sellers”) into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading shares of NFT in our online NFT platform. After the artwork. The buyers are required to have their fundsuser’s registration is successful, the customer deposits must be transferred to the broker’sdesignated account of the platform through the bank account added by the user before the trading take place. Upontransaction starts, and a transfer application is submitted on the delivery ofplatform, which can enter the shares, the seller will send instructions to the bank, requesting the amount to be transferred to their personal account. After deducting the commission as per Takung, the bank will transfer the remainder to the seller’s personal account.buyer’s platform account after financial review. Except for instructing the bank to deduct the commission, fee, Takung has no right to use any funds in the broker’s account except for instructing the bank to deduct the commission and management fee.account. Our restricted cash is denominated in USD and is deposited inUSD. As of June 30, 2023, the financial institutionsending balance of USA.our restricted cash was $3,559,910.

 


Accounts receivable and allowance for doubtful accounts

 

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

 

Loan receivable

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

Prepayment and other current assets, net

 

Prepayment and other current assets mainly consist of the prepayment for income taxes, maintenance of online trading system, advertising and promotional services, insurances, financial advisory, professional services, rental deposits, as well as other current assets.

 

Other non-current assets


 

A portion of the deposits, are presented under the non-current section of the balance sheets based on the expected collection date.

Property and equipment, net

 

Property and equipment are stated at cost less accumulated depreciation and impairment losses. Gains or losses on dispositions of property and equipment are included in operating income or expense. Major additions, renewals and betterments are capitalized, while maintenance and repairs are expensed as incurred. Depreciation and amortization are provided over the estimated useful lives of the assets using the straight-line method from the time the assets are placed in service.

 

The Company developed systems and solutions for solely internal use. Certain costs incurred in connection with developing or obtaining internal use software are capitalized. Unamortized capitalized costs are included in computer trading and clearing system, within property and equipment, net in the Consolidated Balance Sheets. Capitalized software costs are amortized on a straight-line basis over the estimated useful lives of the software of 5 years. Amortization of these costs is included in depreciation and amortization expense in the Consolidated Statements of Operations.

 

Estimated useful lives are as follows, taking into account the assets’ estimated residual value:

 

Classification Estimated
useful life
Furniture, fixtures and equipment 5 years
Leasehold improvements Shorter of the remaining lease
terms and the estimated 3 years
Computer trading and clearing system 5 years

 

Long-lived assets

 

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

 

During the first quarter of 2023, we did not record any asset impairments due to the deconsolidation of Tianjin Takung as a result of the loss of control in this entity since thereThere is no asset impairment during the threesix months ended March 31,June 30, 2023.

 


Intangible assets

 

Intangible assets represent the licensing cost for the trademark registration. For intangible assets with indefinite lives, the Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. For intangible assets with definite lives, they are amortized over estimated useful lives, and are reviewed annually for impairment. The Company has not recorded impairment of intangible assets as of March 31,June 30, 2023 and December 31, 2022.

 


Advance from customers

 

Advance from customers represent the cash deposited by the traders into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading ownership units of the NFT. The traders are required to have their funds transferred to the broker’s account before the trading take place.

 

Revenue Recognition

 

The Company generates revenue from its services in connection with the offering and trading of artworks on the Company’s system, primarily consisting of listing fee, trading commission, and management fee.

Effective January 1, 2018, the Company adopted Topic 606 using modified retrospective approach applied to its contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are accounted for and presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with Topic 605.

Under ASC 606, an entity recognizes revenue as the Company satisfies a performance obligation when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.

 

The Company recognizes revenue when control of the promised services is transferred to the traders and service agents.traders. Revenue is measured at the transaction price, which is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised services to the traderstraders.

Our discontinued operations generated revenue from its services in connection with the offering and service agents. The revenue mainly falls intotrading of artworks on the following broad categories: (i)Company’s legacy online trading system primarily consisted of listing fee, (ii) commission fee and (iii) management fee.

 

Listing fee

 

The Company recognizes the listing fee revenue at a point in time when the ownership units of the artwork are listed and available for trading on the Company’s system, at an amount of an agreed percentage of the total offering price. The amount is collected from the money raised from the issuance of such units. This applies to the legacy business only if any for the current reporting period.

 

Commission

 

The Company generates commission fee from Customersnon-VIP traders and selected traders for the legacy business and commission fee only for the NFT trading platform’s seller and buyers.traders.

 

For Customers,non-VIP traders, the commission is calculated based on a percentage of transaction value of artworks when there is purchase and sale of the ownership shares of the artworks. The commission revenue is recognized at a point in time when each purchase and sale transaction is completed.

 

For selected traders, starting from April 1, 2016, the Company charged a predetermined monthly commission fee which allows the selected traders to conduct unlimited trades for specific artworks. The commission revenue is recognized on a monthly basis as the Company continuously satisfied its performance obligation.

 

Management fee

The Company provides custody and insurance service for artworks listed and traded on the Company’s platform. Management fee is calculated at a rate of $0.0013 (HK$0.01) per 100 artwork units per day. The management fee is recognized and is deducted from proceeds from the sale of artwork ownership shares when there is a purchase and sale transaction. A discount program is offered to waive the management fee during certain promotion periods. Such discounts are recognized as a reduction of the revenue.

Beginning in the fourth quarter 2021, we introduced consultancy service and setup NFT business through our subsidiaries, NFT Exchange and NFT Digital. In early May 2022, we launched a NFT trading platform at www.nftoeo.com. Through the new NFT platform, we introduced three main revenue categories: (i) Listing fee, (ii) Commission, and (iii) Management fee.


 

 

Management fee

The Company provides third-party merchants the access to Takung’s online platform for sales of artworks, and charges commission fee to third-party merchants, at an amount of an agreed percentage of the total transaction price. The revenue is recognized at a point in time when the artwork sales transaction is completed.

Revenue by customer type

The following table presents the revenue by customer type from our discontinued operations for the years ended March 31, 2023 and 2022.

  For three months ended
March 31,
 
  2023  2022 
Customers $699,741  $      - 
Subtotal  699,741   - 
Less: Revenue – discontinued operations      - 
Total $699,741  $- 

Cost of revenue

 

In 2022, theThe Company’s cost of revenue primarily consists of expenses associated with the delivery of its service of our discontinuedcontinued operations. These include expenses related to the operation of the data centers, such as facility and lease of the server equipment, development and maintenance of the platform system, as well as the cost of insurance, storage and transportation of the artworks. Cost of revenue also includes commission paid to service agent. In 2023, the Company’s cost of revenue primarily consists of Internet service charge due to the new business nature.

 

  For three months ended
March 31,
 
  2023  2022 
Internet service charge $150,930  $      - 
Subtotal  150,930   - 
Less: Cost of revenue – discontinued operations      - 
Total $150,930  $- 


The Company has elected to apply the practical expedient in ASC 606-10 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.

 

The Company does not have amounts of contract assets that it has right to consideration in exchange for services that the Company has transferred to customers when that right is conditioned on something other than the passage of time. The contract liabilities are the Company’s obligation to transfer services to traders for which the Company has received consideration from the traders. All contract liabilities are expected to be recognized as revenue within one month and are presented in Advance from Customers in the Interim Condensed Consolidated Balance Sheet.

 

Leases

 

In February 2016, the FASB issued ASU 2016-12, Leases (ASC Topic 842), which amends the leases requirements in ASC Topic 840, Leases. Under the new lease accounting standard, a lessee will be required to recognize a right-of-use asset and lease liability for most leases on the balance sheet. The new standard also modifies the classification criteria and accounting for sales-type and direct financing leases, and enhances the disclosure requirements. Leases will continue to be classified as either finance or operating leases.

 

The Company determines if an arrangement is a lease at inception. The lease payments under the lease arrangements are fixed. Non-lease components include payments for building management, utilities and property tax. It separates the non-lease components from the lease components to which they relate.

 

Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate, because the interest rate implicit in the leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The lease terms include periods under options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company generally uses the base, non-cancellable, lease term when determining the lease assets and liabilities.

 

Income taxes

 

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

 


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

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted by the U.S. government which included a wide range of tax reform affecting businesses including the corporate tax rates, international tax provisions, tax credits and deduction with majority of the tax provision effective after December 31, 2017. Certain activities conducted in foreign jurisdictions may result in the imposition of U.S. corporate income taxes on Takung when its subsidiaries, controlled foreign corporations (“CFCs”), generate income that is subject to Subpart F or GILTI under the U.S. Internal Revenue Code beginning after December 31, 2017.

The Coronavirus Aid, Relief and Economy Security (CARES) Act (“the CARES Act, H.R. 748”) was signed into law on 27 March 2020. The CARES Act temporarily eliminates the 80% taxable income limitation (as enacted under the Tax Cuts and Jobs Act of 2017) for NOL deductions for 2018-2020 tax years and reinstated NOL carrybacks for the 2018-2020 tax years. Moreover, the CARES Act also temporarily increases the business interest deduction limitations from 30% to 50% of adjusted taxable income for the 2019 and 2020 taxable year. Lastly, the Tax Act technical correction classifies qualified improvement property as 15-year recovery period, allowing the bonus depreciation deduction to be claimed for such property retroactively as if it was included in the Tax Act at the time of enactment. The Company does not anticipate a material impact on its financial statements as of December 31, 2020 due to the recent enactment.

The Company accounts for an unrecognized tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the tax authorities. The Company considers and estimates interest and penalties related to the gross unrecognized tax benefits and includes as part of its income tax provision based on the applicable income tax regulations.

 


The Company’s Hong Kong subsidiary of Metaverse Digital Payment Co., Limited accrued US$26,352316,616 corporate income tax for the year ended March 31,June 30, 2023.

 

The Company did not accrue any liability, interest or penalties related to uncertain tax positions in the provision for income taxes line of the interim condensed consolidated statements of operations for the yearsix months ended MarchJune 30, 2023 and as of December 31, 2022.

 

Earnings (loss) per share

 

Basic net income (loss) per share (EPS) is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the year. Diluted income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of shares of common stock outstanding during the period adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities are excluded from the computation of dilutive EPS in periods in which the effect would be antidilutive (Note 15).

 

Concentration of risks

 

Concentration of credit risk

 

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, account receivables. The carrying values of the financial instruments approximate their fair values due to their short-term maturities. The Company places its cash and cash equivalents and restricted cash with financial institutions with high-credit ratings and quality. Account receivables primarily comprise of amounts receivable from the trader customers. With respect to the prepayment to service suppliers, the Company performs on-going credit evaluations of the financial condition of these suppliers. The Company establishes an allowance for doubtful accounts based upon estimates, factors surrounding the credit risk of specific service providers and other information.

 

Concentration of customers

 

There were no revenues from customers that individually represent greater than 10% of the total revenues during the threesix months ended March 31,June 30, 2023 and 2022.

 


Concentration of customer deposits

 

As of March 31,June 30, 2023 and December 31, 2022, there were no traders that individually accounted for greater than 10% of the Company’s total customer deposits.

 

Accounting standards adopted on January 1, 2022

Fair Value Measurement: In August 2018, the FASB Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements. Under this guidance, entities will no longer be required to disclose the amount of and the rationale for transfers between level 1 and level 2 of the fair value hierarchy. For level 3 fair value measurement, disclosures for the range and weighted average used to establish significant unobservable inputs are required. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company adopted this guidance on January 1, 2020 and there was no impact to its consolidated financial statements.

Accounting standards adopted on January 1, 2021

 

Income Taxes: On December 18, 2019, the FASB issued ASU No. 2019-12, Income taxes (Topic 740), Simplifying the Accounting for Income Taxes. This guidance amends ASC Topic 740 and addresses several aspects including 1) evaluation of step-up tax basis of goodwill when there is not a business combination, 2) policy election to not allocate consolidated taxes on a separate entity basis to entities not subject to income tax, 3) accounting for tax law changes or rates during interim periods, 4) ownership changes from equity method investment to subsidiary or vice versa, 5) elimination of exception to intraperiod allocation when there is gain in discontinued operations and a loss from continuing operations, 6) treatment of franchise taxes that are partially based on income. The Company adopted ASU2019-12 effective January 1, 2021.

 

Accounting pronouncements issued but not yet adopted

Financial Instruments - Credit Losses: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. In November 2019, FASB issued ASU 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).” This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023.The Company is currently evaluating the potential effects of adopting the provisions of ASU No. 2016-13 on its consolidated financial statements, particularly its recognition of allowances for accounts receivable.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows.

 

3. GOING CONCERN

Due to the recent regulatory scrutiny by PRC governments on digital asset related business, the artwork unit trading platform operated by the PRC subsidiary Tianjin Takung was suspended by the local authority. The Management became aware of the suspension on or around November 8, 2021. The local authority indicated the suspension was to facilitate certain investigation although it did not announce the purpose of the investigation. The Company intends to fully cooperate with the local authority’s investigation.

The Company has accrued the amount of RMB 408,411 for the month ended December 31, 2022 arising from three settled cases and nine pending cases; none of the pending cases have received any outcome as at May 22, 2023.

In the event that the suspension carries on for a substantial period of time or the investigation results in unfavourable outcome, the Company is subject to various risks, including, but not limited to, permanent discontinuation of the artwork unit trading platform business, material loss of Tianjin Takung’s carrying assets, material impact to the Company’s financial performance and liquidity, and being involved in litigation.

Management has assessed the Company’s ability to continue as a going concern in accordance with the requirements of ASC 205-40 and, based on the above factors, the management has concluded that there is substantial doubt about its ability to continue as a going concern within one year from the issuance date of the Company’s consolidated financial statements. Management’s plan to alleviate the going concern risk includes, but not limited to, (1) equity or debt financing, (2) increasing cash generated from new business model operations, and (3) financing from domestic banks and other financial institutions. The management of the Company has made the following plans to mitigate these adverse conditions and to increase the liquidity of the Company. The Company will be able to divert its resource into the NFT trading business after disposal of the legacy business in art-work trading. The Company through its 100% subsidiary called Metaverse Digital Payment Co., Ltd. is taking full advantages of Hong Kong as the hub of finance center and digital trading center after the Company sets up its operation center in Hong Kong.


Management’s Plan

Private Investment in Public Equity (“PIPE”) Transaction

The Company entered into certain securities purchase agreement on February 23, 2022 (the “SPA”) with certain non-affiliated and accredited “non-U.S. Persons”, (the “Purchasers”) as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to which the Company agreed to sell 11,952,190 units, each consisting of one share of Common Stock (the “Shares”) and a warrant (the “Warrant”) to purchase three Shares.

On March 9, 2022, the Company and the Purchasers agreed to amend and restate the SPA (the “A&R SPA”) to amend the number of units sold, per unit purchase price, and the terms of the warrants underlying the units. Pursuant to the terms of the A&R SPA, the Company agreed to sell 10,238,910 units (the “Units”), each Unit consisting of one Share and a Warrant to purchase three Shares with a purchase price per Unit of $2.93.

On April 14, 2022, the transaction contemplated by the A&R SPA closed. The gross proceeds to the Company from this offering were approximately $30 million.

On June 27, 2022, Takung Art Co., Ltd., a Delaware corporation (the “Company”) entered into certain securities purchase agreement (the “SPA”) with certain “non-U.S. Persons” (the “Purchasers”) as defined in Regulation S of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to which the Company agreed to sell 15,789,474 units, each consisting of one share of the common stock of the Company, par value $0.001 per share (the “Common Stock”) and a warrant to purchase two shares of Common Stock. The purchase price of each Unit is $1.9. The gross proceeds to the Company from this offering will be approximately $30 million.

New Business Model Operations

The Company plans to further develop its operations of blockchain and NFT related businesses, including consultancy services, development of NFT marketplace and “Play-to-Earn” style blockchain-based online games. “Play to Earn” is essentially a business model powered by blockchain technology, where players can acquire in-game assets or token ownership by recharging and playing games.

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

The Company has recruited a global management team and technology research and development team to develop new products and new business directions that combine education and technology to provide online service in Metaverse. In order to diversify the political risks and legal scrutiny arising from the PRC regulations imposed with regards to digital assets, the Company has also decided to expand its business outside China, such as United States and Canada.

The Company has set up the new corporate structure for its new business stream as follows:


 

  

4. INVESTMENTS3. PREPAYMENT AND OTHER CURRENT ASSETS, NET

Prepayment and other current assets mainly consist of the prepaid tax, prepaid service fees, as well as staff advance.

  June 30,  December 31, 
  2023  2022 
  (Unaudited)    
Deposit $5,557  $      5,557 
Other current assets  1,891,405   - 
Subtotal  1,896,962   5,557 
Less: Prepayment and other current assets, net-discontinued operations  -   - 
Prepayment and other current assets, net $1,896,962  $5,557 

No provision for doubtful accounts was recognized for the three and six months ended June 30, 2023 and 2022, respectively.

4. ACCOUNT RECEIVABLES, NET

Account receivables consisted of the following:

  June 30,  December 31, 
  2023  2022 
   (Unaudited)     
Listing fee $-  $           - 
Consultancy service  -   94,918 
Less: allowance for doubtful accounts  -   (8,484
Consultancy service  -   86,434 
Less: Accounts receivables, net- discontinued operations  -   (86,434
Account receivables, net $-  $- 

No provision for doubtful accounts was recognized for the three and six months ended June 30, 2023 and 2022, respectively.

5. INVESTMENTS

We adopted ASU 2016-01 on January 1, 2018. This guidance requires us to measure all equity investments that are not accounted for under the equity method or result in consolidation at fair value and recognize any changes in net income. For equity investments with readily determinable and observable fair values, we use quoted market prices to determine the fair value of 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 December 31, 2021, ourOur 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.


Management determined that the future undiscounted cash flow was less than the carrying cost of our non-marketable investment and recognized an impairment charge, nil, against our non-marketable investment.

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

 March 31, December 31,  June 30, December 31, 
 2023  2022  2023  2022 
          
Total initial cost $10,630,120  $10,630,120  $10,630,120  $10,630,120 
Cumulative net gain (loss)  -   -   -   - 
Provision for impairment  (10,630,120)  (10,630,120)  (10,630,120)  (10,630,120)
Total carrying value $-  $-  $-  $- 

For the threesix months ended March 31,June 30, 2023, we did not incur any unrealized gain or loss in connection with the non-marketable investment.

6. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

  June 30,  December 31, 
  2023  2022 
  (Unaudited)    
Furniture, fixtures and equipment $             -  $63,376 
Leasehold improvements  -   23,072 
Computer trading and clearing system  -   2,430,445 
Sub-total  -   2,516,893 
Less: accumulated depreciation  -   (2,496,135)
Sub-total $-  $20,759 
Less: Property and equipment, net-discontinued operations  -   (20,759)
Property and equipment, net  -   - 

7. INTANGIBLE ASSETS

  June 30,  December 31, 
  2023  2022 
  (Unaudited)    
Intangible assets                -   22,226 
Less: accumulated amortization  -   - 
Sub-total $-  $22,226 
Less: Intangible assets, net-discontinued operations  -   (22,226)
Total Intangible assets  -   - 


 

5. PREPAYMENT AND OTHER CURRENT ASSETS, NET

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

  March 31,
2023
  December 31,
2022
 
  (Unaudited)    
Prepaid service fees $-  $- 
Deposit  5,557   5,557 
Other current assets  -   - 
Less: allowance for doubtful accounts  -   - 
Subtotal  5,557   5,557 
Less: Prepayment and other current assets, net – discontinued operations      - 
Prepayment and other current assets, net $5,557  $5,557 

For the three months ended March 31, 2023 and December 31, 2022  , the Company incur no provision for doubtful accounts.

6. ACCOUNT RECEIVABLES, NET

Account receivables consisted of the following:

  March 31, 2023  December 31, 2022 
  (Unaudited)    
Consultancy service $85,902  $94,918 
Less: allowance for doubtful accounts  -   (8,484)
Subtotal  85,902   86,434 

Less: Accounts receivables, net- discontinued operations

  -   - 
Account receivables, net $85,902  $86,434 

For the three months ended March 31, 2023 and December 31, 2022, we did incur provision nil and $8,484 for doubtful accounts.

7. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

  March 31,
2023
  December 31,
2022
 
  (Unaudited)    
Furniture, fixtures and equipment $62,985  $63,376 
Leasehold improvements  22,930   23,072 
Computer trading and clearing system  2,415,460   2,430,445 
Sub-total  2,501,375   2,516,893 
Less: accumulated depreciation  (2,489,976)  (2,496,135)
Subtotal  11,399   20,759 
Less: Property and equipment, net – discontinued operations  (6,299)  (15,277)
Property and equipment, net $5,100  $5,482 


8. INTANGIBLE ASSETS

  March 31,
2023
  December 31,
2022
 
  (Unaudited)    
Intangible assets $22,226  $22,226 
Less: accumulated amortization  -   - 
Subtotal  22,226   22,226 
Less: Intangible assets – discontinued operations  (22,226)  (22,226)
Total Intangible assets $-  $- 

9. OTHER NON-CURRENT ASSETS

Other non-current assets as of March 31, 2023 and December 31, 2022 consisted of:

  March 31,
2023
  December 31,
2022
 
  (Unaudited)    
Deposit – non-current $18,278  $18,391 
Prepayment – non-current  -   - 
Subtotal  18,278   18,391 
Less: Other non-current assets – discontinued operations  (18,278)  (18,391)
Total other non-current assets $-  $- 

10.8. ACCRUED EXPENSES AND OTHER PAYABLES

 

Accrued expenses and other payables as of March 31,June 30, 2023 and December 31, 2022 consisted of:of the following:

 

 March 31, December 31,  June 30, December 31, 
 2022  2022  2023  2022 
 (Unaudited)     (Unaudited)   
Accruals for professional fees $60,694  $- 
Accruals for consulting fees $498,152   406,152   597,152   406,152 
Payroll payables  642,900   451,800   924,000   451,800 
Other payables  1,770,008   1,273,939   2,427,197   1,273,939 
Subtotal  2,911,060   2,131,891  $4,009,043  $2,131,891 
Less: Accrued expenses and other payables- discontinued operations  (264,139)  - 
Add: Amount due to a related party  -   - 
Total accrued expenses and other payables $2,646,921   2,131,891   4,009,043   2,131,891 

 


11.9. 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 payment, $86,795, was made on October 22, 2021.

Date Borrower Lender December 31,
2022
(RMB)
  December 31,
2022
(HKD)
  Annual
Interest
Rate
  Repayment 
Due Date
7/18/2019 Hong Kong Takung Friend Sourcing Ltd. $5,000,000  $5,567,929   8% 4/1/2021
8/29/2019 Hong Kong Takung Friend Sourcing Ltd. $5,000,000  $5,422,993   8% 4/1/2021
9/20/2019 Hong Kong Takung Friend Sourcing Ltd. $4,000,000  $4,338,395   8% 4/1/2021
    Less: Discount loan payable $-  $-       
       14,000,000   15,329,317       
    Less: Short-term borrowings from third party- discontinued operations:  (14,000,000)  (15,329,317)      
                   
    Total $-  $-       

The weighted average interest rate of outstanding short-term borrowings was 8%nil% per annum as of March 31,June 30, 2023 and December 31, 2022. The fair value of the short-term borrowings approximates their carrying amounts.

 

Borrower Account Name Lender Total  Effective Day Due Day
NFT Exchange Limited Loan payable Guohui Li  250,000.00  2022/4/11 2023/2024/4/10
NFT Exchange Limited Loan payable Guohui Li  500,000.00  2022/4/27 2023/2024/4/26
NFT Exchange Limited Loan payable Guohui Li  500,000.00  2022/8/29 2023/8/28
NFT Exchange Limited Loan payable Guohui Li  200,000.00  2023/3/29 2024/3/28
NFT Exchange Limited Loan payable Guohui Li  300,000.00  2022/2/16 2023/2024/2/15
NFT Exchange LimitedLoan payableGuohui Li300,000.002023/5/112024/6/28
Total      1,750,000.002,050,000.00     

 

The third party by the name of Guohui Li has lent NFT Exchange Limited for the amount of $1,750,000.00.$2,050,000.00.

 

10. INCOME TAXES


 

12. INCOME TAXES

Takung, wasNFT Exchange and NFT Digital were incorporated in the State of Delaware, Wyoming and isNew York, respectively; therefore, are subject to United States income tax. Metaverse Payment, 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. Tianjin Takung was incorporated in the PRC and is subject to the Enterprise Tax.

United States of America

The Coronavirus Aid, Relief and Economy Security (CARES) Act (“the CARES Act, H.R. 748”) was signed into law on 27 March 2020. The CARES Act temporarily eliminates the 80% taxable income limitation (as enacted under the Tax Cuts and Jobs Act of 2017) for NOL deductions for 2018-2020 tax years and reinstated NOL carrybacks for the 2018-2020 tax years. Moreover, the CARES Act also temporarily increases the business interest deduction limitations from 30% to 50% of adjusted taxable income for the 2019 and 2020 taxable year. Lastly, the Tax Act technical correction classifies qualified improvement property as 15-year recovery period, allowing the bonus depreciation deduction to be claimed for such property retroactively as if it was included in the Tax Act at the time of enactment. The Company does not anticipate a material impact on its financial statements as of December 31, 2020 due to the recent enactment. 

 

As of March 31, 2023Takung, NFT Exchange and December 31, 2022, the Company in the United States $12,872 and had $11,935,256  in net operating loss carry forwards available to offset future taxable income, respectively. For net operating losses arising after December 31, 2017, the Tax Act limits the Company’s ability to utilize NOL carryforwards to 80% of taxable income and carryforward the NOL indefinitely. NOLs generated prior to January 1, 2018 will not beNFT Digital are subject to the taxableU.S. federal and state corporate income limitation and will begintaxes. The federal corporate income tax rate is 21%. Corporate entities are required to expirefile state income taxes in 2033 if not utilized.accordance with the applicable state corporate income regulations.

Hong Kong

Two-tier Profits Tax Rates

The two-tier profits tax rates system was introduced under the Inland Revenue (Amendment)(No.3) Ordinance 2018 (“the Ordinance”) of Hong Kong became effective for the assessment year 2018/2019. Under the two-tier profit tax rates regime, the profits tax rate for the first HKD 2 million (approximately $257,311) of assessable profits of a corporation will be subject to the lowered tax rate, 8.25% while the remaining assessable profits will be subject to the legacy tax rate, 16.5%. The Ordinance only allows one entity within a group of “connected entities” is eligible for the two-tier tax rate benefit. An entity is a connected entity of another entity if (1) one of them has control over the other; (2) both of them are under the control (more than 50% of the issued share capital) of the same entity; (3) in the case of the first entity being a natural person carrying on a sole proprietorship business-the other entity is the same person carrying on another sole proprietorship business. Since Hong Kong Takung, Metaverse PaymentTakung Art Holdings and Hong Kong MQ are wholly owned and under the control of Takung U.S, these entities are connected entities. Under the Ordinance, it is an entity’s election to nominate the entity that will be subject to the two-tier profits tax rates on its profits tax return. The election is irrevocable. The Company elected Hong Kong Takung to be subject to the two-tier profits tax rates.

 


The provision for current income and deferred taxes of Hong Kong Takung has been calculated by applying the new tax rate of 8.25%. Hong Kong MQ and Metaverse Paymentstill apply the original tax rate of 16.5% and 9.2% for its provision for current income and deferred taxes.

As of March 31, 2023 and December 31, 2022, the Company’s subsidiaries in Hong Kong had both nil in net operating loss carry forwards available to offset future taxable income, respectively. These net operating losses will be carryforward indefinitely under Hong Kong Profits Tax regulation.


PRC

 

In accordance with the relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable tax rate on taxable income. All the PRC subsidiaries that are not entitled to any tax holiday were subject to income tax at a rate of 25% for the year ended December 31, 2022 and 2021. According to PRC tax regulations, the PRC net operating loss can generally carry forward for no longer than five years starting from the year subsequent to the year in which the loss was incurred. Carryback of losses is not permitted..

 

The income tax expense was $(213,004) and $255,805 for the years ended March 31, 2023 and December 31, 2022, respectively, related primarily to the Company’s subsidiaries located outside of the U.S. The loss before provision for income taxes for the years ended March 31, 2023 and December 31, 2022 was as follows:

The income tax provision consists of the following components:

 

 Three Months Ended Six Months Ended 
 June 30,  June 30, 
 2023  2022  2023  2022 
 For three
months
ended
March 31,
2023
  For three
months
ended
March 31,
2022
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) 
Current:              
Federal $  $       -  $-  $-  $-  $- 
State      -   -   -   -   - 
Foreign  26,352   -   35,959   48,996   62,311   48,996 
Total current income tax expense, continuing operations  26,352   - 
Current income tax expense, discontinued operations      - 
Total current $26,352  $- 
Total Current $35,959  $48,996  $62,311  $48,996 
                        
Deferred:      -                 
Federal $   $- $-  $-  $-  $- 
State      -   -   -   -   - 
Foreign      -   -   -   -   - 
Total deferred income tax expense, continuing operations      - 
Deferred income tax expense, discontinued operations      - 
Total deferred $   $-
Total Deferred $-  $-  $-  $- 
Total income tax expense $26,352  $-  $35,959  $48,996  $62,311  $48,996 

 

A reconciliation between the Company’s actual provision for income taxes is as follow:follows:

 

Continuing operations

 

The effective tax rate for the continuing operations was (0.2)(335.3)% and 0%(0.01)% for the threesix months ended March 31,June 30, 2023 and 2022, respectively.

 

 Three Months Ended Six Months Ended 
 June 30,  June 30, 
 2023  2022  2023  2022 
 For three months
ended
March 31, 
2023
  For three months
ended
March 31, 
2022
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) 
Loss before income tax expense  $(15,267) $(611,574) $(9,867) $(6,848,657) $(18,579) $(7,277,282)
Computed tax benefit with statutory tax rate  (3,206)  (128,430)  (2,072)  (640,916)  (3,902)  (640,916)
Impact of different tax rates in other jurisdictions  (2,519)  8,233   (1,628)  (13,363)  (3,066)  (13,363)
Impact of preferred tax rate  687   -   444   -   836   - 
Non-deductible items:                
Tax effect of non-deductible expenses  -   -   -   - 
Changes in valuation allowance  31,390   120,197   39,215   703,275   68,443   703,275 
Others  -   -   -   - 
Total income tax expense $26,352  $-  $35,959  $48,996  $62,311  $48,996 

 


Discontinued operations

 

The effective tax rate for the discontinued operations was 0% for the threesix months ended March 31,June 30, 2023 and 2022, respectively.

 

  For three months
ended
March 31,
2023
  For three months
ended
March 31,
2022
 
Income/(Loss) before income tax expense   $(8,983) $(179,765)
Computed tax benefit with statutory tax rate  (1,886)  (37,751)
Impact of different tax rates in other jurisdictions  (1,482)  22,920 
Effect of preferred tax rate  404   - 
Changes in valuation allowance  2,964   14,831 
Total income tax expense $-  $- 

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

Continuing operations

  As of
March 31,
  As of
December 31,
 
  2023  2022 
Deferred tax assets      
Tax loss carried forward $       -   - 
Provision for impairment loss  -   1,533,964 
Unvested restricted shares  -   - 
Total deferred tax assets  -   1,533,964 
Less: valuation allowance  -   (1,533,964)
Total Deferred tax assets, net of valuation allowance        
         
Deferred tax liabilities        
Total Deferred tax liabilities $-   - 
Deferred tax assets, net of valuation allowance and deferred tax liabilities $-   - 

Discontinued operations

  As of
March 31,
  As of
December 31,
 
  2023  2022 
Deferred tax assets      
Tax loss carried forward $-   - 
Provision for doubtful accounts  -   - 
PPE, due to difference in depreciation  1,468   10,914 
Total deferred tax assets  1,468   10,914 
Less: valuation allowance  (1,468)  (10,914)
Total Deferred tax assets, net of valuation allowance  -   - 
         
Deferred tax liabilities        
Total Deferred tax liabilities $-   - 
Deferred tax assets, net of valuation allowance and deferred tax liabilities $-   - 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2023  2022  2023  2022 
  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
Loss before income tax expense   $6,863,401  $(260,117) $6,847,863  $(622,831)
Computed tax benefit with statutory tax rate  1,441,314   (93,427)  1,438,051   (448,656)
Impact of different tax rates in other jurisdictions  1,132,461   -   1,129,897   - 
Impact of preferred tax rate  (875,084)  56,724   (873,103)  272,399 
Non-deductible items:                
Tax effect of non-deductible expenses  -   -   -   - 
Changes in valuation allowance  (1,698,691)  36,703   (1,694,845)  176,257 
Others  -   -   -   - 
Total income tax expense $-  $-  $-  $- 

 


 

 

Uncertain tax positions

 

The reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions is as follows:

 

March 31,
2023
December 31,
2022
Uncertain tax liabilities, beginning of period, discontinued operations$     -     -
Settlements with tax authority during current year--
Uncertain tax liabilities, end of period, discontinued operations$--
   June 30,   December 31, 
   2023   2022 
Uncertain tax liabilities, beginning of period $                        -  $                        - 
Settlements with tax authority during current year  -   - 
Uncertain tax liabilities, end of period $-  $- 

 

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by the respective jurisdictions, where applicable. The statute of limitations for the tax returns varies by jurisdictions.

 

The amounts of uncertain tax liabilities listed above are based on the recognition and measurement criteria of ASC Topic 740, and the balance is presented as current liability in the consolidated financial statements as of March 31,June 30, 2023 and December 31, 2022. The Company anticipated that the settlements with the taxing authority are remitted within one year.

 

Our policy is to include interest and penalty charges related to uncertain tax liabilities as necessary in the provision for income taxes. The Company has a liability for accrued interest of $nil as of March 31,June 30, 2023 and December 31, 2022, respectively.

 

Our discontinued operation, Hong Kong Takung, was selected for routine examination for its tax years ended December 31, 2016 through 2018 by Hong Kong Inland Revenue Department (“IRD”) during the fiscal year ended 2020. The examination had been concluded in May 2021 and the ultimate resolution of the tax examination concurred with the uncertain tax liabilities previously accrued.accrued and Hong Kong Takung settled the entire tax liabilities inhas been disposed as of June 2021. METAVERSE DIGITAL PAYMENT CO., LIMITED incurred corporate income tax payable of $26,354 during the first quarter of30, 2023. The Company does not expect the position of uncertain tax liabilities will significantly fluctuate within the next twelve months.

 

The statute of limitations for the Internal Revenue Services to assess the income tax returns on a taxpayer expires three years from the due date of the profits tax return or the date on which it was filed, whichever is later.

 

In accordance with the Hong Kong profits tax regulations, a tax assessment by the IRD may be initiated within six years after the relevant year of assessment, but extendable to 10 years in the case of potential willful underpayment or evasion.

 

In accordance with PRC Tax Administration Law on the Levying and Collection of Taxes, the PRC tax authorities generally have up to five years to assess underpaid tax plus penalties and interest for PRC entities’ tax filings. In the case of tax evasion, which is not clearly defined in the law, there is no limitation on the tax years open for investigation. Accordingly, the PRC entities remain subject to examination by the tax authorities based on the above.

 


13. LEASES11. GAIN ON DISPOSAL OF SUBSIDIARIES

 

The Company has operating leases for its office facilities. The Company’s office leases have an initial terms of twelve months therefore it is not requiredPursuant to record on the balance sheet per ASC 842, the Company recognizes lease expenses for these leases on a straight-line basis over the lease term.

Maturities of operating lease liabilities as of March 31, 2023 were as follow:

Maturity of Lease LiabilitiesOperating
Leases
Remaining 2023$-
2024
2025
2026
2027
Thereafter
Total undiscounted lease payments$-
Less: interest
Present value of lease payments$-

14. COMMITMENTS AND CONTINGENCIES

Capital Commitments

As of March 31, 2023 and December 31, 2022, the Company had no capital commitments.

Contingencies

During the year ended December 31, 2022, the deconsolidated entity of the Company, Tianjin Takung has been named as a defendant for litigations filed against the entity and compensation claims amounting to USD 60,694 have been recorded in the statement of operations. As at the filing date of this report, there are pending litigations that have yet to be concluded and the compensation claims are not determinable until the outcome are finalized. The Company is in the process of finalizing the disposal of Hong Kong Takung, and upon the completion of the disposition of Hong Kong Takung, the purchaser will assume all the assets and liabilities of the entity, including those associated with the Tianjin Takung.

Except for the above, as of March 31, 2023 and through the issuance date of the unaudited condensed consolidated financial statements included in this Form 10-Q, the Company does not have any other significant indemnification claims.

Due to the deconsolidation of Tianjin Takung, the ending balance of our restricted cash totaling $58,254,521 and $52,215,458 as of December 31, 2022 and 2021, respectively, was not included in our consolidated financial statements and was reclassified to current assets – a deconsolidated entity. The Company could be exposed to claims made by the PRC customers for the return of their deposits at the Tianjin Takung’s restricted cash accounts. Any claims against Hong Kong Takung, though it is a limited company, that are ultimately successful, could have a material adverse effect on the Company’s financial position, operating results and cash holdings unless Hong Kong Takung is disposed or wound down.


15. NET (LOSS) EARNINGS PER SHARE

The computation of the Company’s basic and diluted net loss per share is as follows:

  Three Months Ended 
  March 31,
2023
  March 31,
2022
 
Numerator:      
Net loss - continuing operations $(41,619) $(611,574)
Net loss - discontinued operations  (8,983)  (179,765)
Total net loss  (50,602)  (791,339)
         
Denominator:        
Weighted-average shares outstanding-Basic  55,611,419   14,372,353 
Stock options and restricted shares  -   - 
Weighted-average shares outstanding-Diluted  55,611,419   14,372,353 
Loss per share-continuing operations        
-Basic $0.001  $(0.043)
-Diluted $0.001  $(0.043)
         
Loss per share-discontinued operations        
-Basic $0.000  $(0.013)
-Diluted $0.000  $(0.013)

Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

As of March 31, 2023 and December 31, 2022, there were no outstanding stock options and no other securities that would potentially be converted to additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued were excluded from the calculation of diluted net loss per share.

16. SUBSEQUENT EVENTS

Disposition Agreement

agreement, On November 1, 2022, Takung Art Co., Ltd. (the “Company”), Hong Kong Takung Art Company Limited (“Hong Kong Takung”) and Hong Kong MQ GroupTakung Art Company Limited (“Hong Kong MQ”, together with Hong Kong Takung, the “Targets”), the Company’s wholly owned subsidiaries, and Fecundity Capital Investment Co., Ltd. (the “Purchaser”), entered into a certain share purchase agreement (the “Disposition SPA”). Pursuant to the Disposition SPA, the Purchaser agreed to purchase the Targets in exchange for cash consideration of $1,500,000 (the “Purchase Price”). Upon the closing of the transaction (the “Disposition”) contemplated by the Disposition SPA, the Purchaser will becomelegacy business is no longer with the sole shareholder of the Targets and as a result, assume all assets and liabilities of all the subsidiaries and VIE entities owned or controlled by the Targets. The Company believes that the Disposition will not have a significant, material impact on the Company’s consolidated financial statements.after June 30, 2023.

 

The closing of the Disposition is subject to certain closing conditions including the payment of the Purchase Price, the receipt of a fairness opinion from Access Partner Consultancy & Appraisals and the approval of the Company’s shareholders.


 

 

The Disposition was approved by the board of directors (the “Board”)Net assets of the Company.entities disposed and loss on disposal was as follows

 

Below is the Company’s structure chart before the completion of the Disposition.

Below will be the Company’s structure chart after the completion of the Disposition.


  Hong Kong
Takung
  Hong Kong
MQ
  Total 
          
Total assets $3,593,849  $-  $3,593,849 
             
Total liabilities  8,601,771   623,596   9,225,367 
             
Total net liabilities  (5,007,922)  (623,596)  (5,631,518)
             
Total accumulated other comprehensive income  166,210   73,553   239,763 
             
Loss from discontinued operations  6,555   15,391   21,946 
             
Subtotal  (4,835,157)  (534,652)  (5,369,809)
             
Total consideration          1,500,000 
             
Total gain on disposal of subsidiaries         $6,869,809 

 

Merger Agreement

On November 1, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with NFT Limited (“NFT”), a Cayman Islands exempt company and a wholly owned subsidiary of the Company. Pursuant to the Merger Agreement, among other things, the Company will merge with and into NFT, with NFT continuing as the surviving entity (the “Redomicile”). The Redomicile will become effective at such time on the closing date as the certificate of merger is duly filed with the Secretary of State of the State of Delaware or at such other time specified in the Certificate of Merger (the “Effective Time”).12. PROFIT/(LOSS) PER SHARE

 

From and after the Effective Time, each shareThe computation of the Company’s stock, eitherbasic and diluted net loss per share is as follows:

  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2023  2022  2023  2022 
  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
Numerator:            
Net loss - continuing operations $(45,826) $(6,897,653) $(80,890) $(7,326,278)
Net profit/(loss) - discontinued operations  6,863,401   (260,117)  6,847,863   (622,831)
Total net profit/(loss)  6,817,575   (7,157,770)  6,766,973   (7,949,109)
                 
Denominator:                
Weighted-average shares outstanding - Basic  34,991,886   23,036,046   34,991,886   18,728,132 
Stock options and restricted shares  -   -   -   - 
Weighted-average shares outstanding - Diluted  34,991,886   23,036,046   34,991,886   18,728,132 
                 
Loss per share-continuing operations                
-Basic  (0.001)  (0.299)  (0.002)  (0.391)
-Diluted  (0.001)  (0.299)  (0.002)  (0.391)
                 
Profit/(Loss) per share-discontinued operations                
-Basic  0.196   (0.011)  0.196   (0.033)
-Diluted  0.196   (0.011)  0.196   (0.033)

Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock or preferred stock issuedwere exercised and outstanding prior to the Effective Time (excluding certain excluding shares and dissenting shares, if any) will be automatically converted into Class A Ordinary Shares of NFT on pro rata basis. Each share of NFT stock held immediately prior to the Effective Time by the Company will be automatically cancelled and no payment will be made with respect thereto.common stock.

 

The closingAs of the Redomicile is subjectJune 30, 2023 and December 31, 2022, there were no outstanding stock options, but there were warrants attached to the satisfaction or waiver of customary conditions by the respective parties, including the approval of the Merger AgreementPIPE executed on April 14, 2022 and the contemplated transactions by the Company’s shareholders.

The Redomicile was approved by the Board of the Company.

As disclosed on Takung Art Co., Ltd.’s (the “Company”) Current Report on Form 8-K (the “Form 8-K”) filed on August 24, 2022, the Company entered into certain securities purchase agreement, dated June 27, 2022 as amended on July 27, 2022 (the “SPA”), with certain “non-U.S. Persons” (the “Purchasers”) as defined in Regulation Ssecurities that would potentially be converted to additional shares of the Securities Act of 1933, as amended (the “Securities Act”). Pursuant to the SPA, the Company agreed to issue 10,380,623 units for a per unit price of $2.89 (the “Units”). Each Unit consists of one share of the common stock ofthat would have been outstanding if the Company, par value $0.001 per share (the “Common Stock”) and a warrant to purchase twodilutive potential shares of Common Stock.common stock had been issued were excluded from the calculation of diluted net loss per share.

 

The issuance and sale of the Units is exempted from the registration requirement of the Securities Act pursuant to Regulation S promulgated thereunder.13.SUBSEQUENT EVENTS

 

The transaction contemplated byOn July 10, 2023, Mr. Jianguang Qian tendered his resignation as the SPA was closed on September 13, 2022, as all the closing conditions have been satisfied.

Effective April 14, 2023, the board of directorsChief Financial Officer of Takung Art Co., Ltd. (the “Company”) approved, effective immediately. Mr. Qian’s decision to resign was not the terminationresult of any disagreements with the Company on any matter related to the operations, policies, or practices of the Company.

On the same date, the nominating committee of the board of directors (the “Board”) of the Company appointed Mr. Yaobin Wang as the new Chief Financial Officer, effective immediately, to fill in the vacancy resulting from the resignation of Mr. Kwok Leung Paul Li position as the Company’s Co-Chief Executive Officer (“Co-CEO”) for cause, as defined in the executive employment agreement by and betweenQian. In connection with Mr. Wang’s appointment, the Company and the Co-CEO,Mr. Wang entered into an employment agreement, dated July 20, 202110, 2023 (the “Employment“CFO Employment Agreement”).

Annual Meeting, pursuant to which Mr. Wang will receive an annual base salary of Shareholders

The Company will hold its 2022 annual meeting$60,000 and discretionary share compensation for his services as Chief Financial Officer. His term of shareholders on May 25, 2023. One ofemployment, which began July 10, 2023, is for one year, with the proposals on the agenda is to votefirst three months being his probationary period. His employment may be terminated at any time during this probationary period and thereafter upon one month’s written notice. Mr. Wang may terminate his employment at any time for the approval of the proposed sale of the Company’s legacy business for a purchase price of $1.5 million.  any reason or no reason upon three month’s advance written notice.

 


 

 

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 contains 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 report the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan” or the negative of these terms and similar expressions as they relate to us or our management identify forward-looking statements. Such statements reflect the current view of our management with respect to future events and are subject to risks, uncertainties, assumptions and other factors as they relate to our industry, our operations and results of operations, and any businesses that we may acquire. Should one or more of the events described in these risk factors materialize, or should our underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the U.S. federal securities laws, we do not intend to update any of the forward-looking statements to conform them to actual results unless required by applicable securities regulations or rules. The following discussion should be read in conjunction with our financial statements and the related notes filed herein.

 

Overview

 

We, through our wholly owned subsidiary, NFT Exchange, operate an electronic online platform located at https://www.nftoeo.com/for artists, art dealers and art investors to offer and trade valuable artwork. We offer online listing and trading services that allow artists, art dealers and owners to access a much bigger art trading market where they can engage with a wide range of investors that they might not encounter without our platform.

 

In May 2022, we launched our blockchain NFT online platform at www.nftoeo.com.

The company’s NFT business outlook can be described in several aspects below.

 

NFT Market Insights

 

Digital artwork based on NFT technology is becoming a hot asset. The earliest NFT projects can be traced back to the 2017 bull market CryptoKitties (the encrypted cats), which had the properties of scarcity and value anchoring of ownership. At its peak, a virtual cat could sell for more than $100,000. In terms of NFT artwork, in March 2021, artist Beeple’s NFT work “Every Day: The First 5,000 Days” sold for $69.346 million, making it the third-highest price for a living artist. According to a report by Invezz, the NFT market was worth $338 million in 2020, and it has grown to reach $490 million in 2021. With the help of the bull market wave, NFT has grown rapidly., As of the first quarter of 2021, the total transaction volume of the NFT market has exceeded 1.5 billion US dollars, an increase of more than 2627% from the previous quarter. In April 2021, the total market value of NFTs exceeded $30 billion for the first time, setting a new all-time high. Currently, NFTs can be used in the fields including games, artworks, domain names, insurance, collectibles, virtual assets, real assets, identities, etc. With the vigorous development of the digital world, many businesses will appear in the form of digital original ecology, and the huge application space and technological imagination of NFT are expected to become more and more attractive in the new digital economy world.

 


New business modelBusiness Model

 

TKAT’s business model revolves around the theme of “free circulation of value and creation of a unique digital work exchange platform”,platform,” allowing each user to create, buy and sell various irreplaceable digital works to realize the value of works.

 

New business types


New Business Services

A.Providing consulting services such as artwork valuation/appreciation potential

Away from poor offline communication and incomplete information, there is no misunderstanding of the pain points, and to tapTKAT taps into the needs of users to provide comprehensive consulting services such as labor cost, artist influence, artistic value of works, and channels for obtaining works, which not only serves customers but also creates value for the company.

B.NFT trading service

TKAT has built a fully functional NFT trading platform, which iswas launched in the stage of testing to be launched.May 2022. The platform can meetcarries the categories of digital works including:including artwork, music videos, collectibles, game props, sports, metaverse, virtual world, social tokens, and meet the needs of various users as much as possible. And it can realizeUsers are able to complete the whole business process ofincluding user registration-certification-work uploading-work casting-work trading.registration, certification, work uploading, work casting, and work trading through the platform. The platform was launched and placed in service in May 2022. In the transaction process, it not only meets the needs of customers for uploading and purchasing digital works, but the company also extracts a portion of the handling fee (including token minting, first sale, and second sale) to create value.

C.Advertising service

AfterOnce the TKAT platform has accumulated a certainlarger user base, it can provide advertising and publicity services for users or the company itself. The business model is not limited to categories and industries, such as investment promotion, work promotion, and industry promotion.

New Strategic Direction

TKAT is committed to creating a digital original ecological platform that integrates games, artworks, domain names, insurance, collectibles, virtual assets, real assets, identity and other fields, and changes the market status of traditional industries through its own efforts. Strategic goals:goals include basic platform building-targetedbuilding, targeted population entry-providingentry, providing services (consulting services, transaction services, advertising services)-optimizing, optimizing the platform and expanding the scope of services-full service.services.

Competitor analysis

Opensea is an NFT market exchange. It has more than 20,000 users. Compared with projects in the popular decentralized finance (“DeFi”) field, it is second only to Uniswap, kyber and Compound, and higher than maker, 0x, etc. As a trading platform with a relatively high status in the NFT field, OpenSea has a complete range of collections, equivalent to Taobao in the NFT world. At present, the trading market of OpenSea has nearly 40,000 users, and the monthly transaction volume exceeds 5 million US dollars. Coinbase’s new NFT platform hits 1.4 million signups. The Coinbase platform has an active population of 50,000 users. The service rates for each service are as follows: 1. Rarible’s minting fees are borne by the creators themselves, and the royalties are also set by the creators themselves, with default amounts of 10%, 20% and 30%. 2. VIV3’s NFT minting costs and profits come from the 12.5% service fee it collects on the first and second sales. 3. OpenSea does not need gas fee to mint NFT. 4. Rarible charges a 2.5% service fee on the first sale. On the SuperRare platform, a 15% commission is charged on the first sale and a 3% fee (paid by the buyer) is charged on the second sale.

Our headquarters are located in Hong Kong, Special Administrative Region, People’s Republic of China and we conduct our business primarily in the United States and Hong Kong through a global online platform. Our principal executive offices are located at Office Q, 11th Floor, Kings Wing Plaza 2, No. 1, Kwan Street, Shatin, New Territory, Hong Kong.  


Competitive Advantages

Competitive Advantages

The advantages of Takung in the NFT transaction and blockchain market are as follows:

Innate industry advantages

In recent years, digital artworks of NFT technology based on blockchain technology are becoming popular assets. The NFT online platform the Company built can effectively solve the current situation such as unclear ownership of property, difficulty in distinguishing authenticity and low efficiency of artwork circulation. ConvertConverting the business development from offline to online operation, so that the value of digital works can be freely circulated online.


Advantages of the core management team

The core team members of Takung have experience in blockchain technology development and NFT trading platform operation, which can ensure a smoother development and business operation in the later stage.

Takung’s platform advantages

The currently developed and launched NFT online trading platform supports multi-category product uploads, including:including Digital art, Digital oil painting, Produced by Gallery, Personal products, Artist signature, Oil on canvas, Print, Paper ink, Device, Comprehensive media, Derivative, and Itit will be continuously enriched and improved according to customer interests. The NFT trading platform has stable performance, high security and is easy to maintain. At the front end of the system, the Company will continuously improve the operability and user experience of the system focusing on improving the user experience.

Technical advantages

The Takung’s digital works exchange platform that has been launched is built by a professional technical team. Each technician has rich industry experience, can work under a short development cycle or high pressure, and has a number of relevant industry benchmarking projects experience. The capability of the technical team ensures the strong technical support in the later system optimization and iterative update.updates.

Marketing advantages

The Company has a professional marketing team. After the platform goes online, it can be promoted online and offline simultaneously, so as to quickly increase the popularity of the platform, and use professional marketing solutions to attract more creators and demanderspurchasers to join in the platform.

We expect that we will generate revenue from the offering and trading of NFT on the Company’s system, primarily consisting of membermembership fee, trading commission,commissions, and advertising fee.fees.


 

Results of OperationsTHREE MONTHS ENDED JUNE 30, 2023 COMPARED TO THREE MONTHS ENDED JUNE 30, 2022

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

The following tables set forth our interim condensed consolidated statements of income data:data with a percentage:

 

  Three months ended March 31, 
  2023  % of
Revenue
  2022  % of
Revenue
 
  (Unaudited)     (Audited)    
Revenue $699,741   100.0  $-            - 
Cost of revenue  (150,930)  (21.6)  -   - 
Selling expense  -   -   -   - 
General and administrative expenses  (657,343)  (93.9)  (611,475)  - 
Total costs and expenses  (808,273)  (115.5)  (611,475)  - 
Loss from operations  (108,532)  (15.5)  (611,475)  - 
Interest and other income (expenses), net  93,265   13.3   (99)  - 
Loss before income tax expense  (15,267)  (2.1)  (611,574)  - 
Loss from discontinued operations  (8,983)  (1.3)  (179,765)  - 
Income tax benefit (expense)  (26,352)  (3.8)  -   - 
Net loss $(50,602)  (7.2) $(791,339)  - 
  Three Months Ended June 30, 
  2023  %  of
Revenue
  2022  % of
Revenue
 
  (Unaudited)     (Unaudited)    
Revenue-Continuing operations $574,777   100  $694,175   100 
Revenue-Discontinued operations  -   -   -   - 
Cost of revenue-Continuing operations  (150,330)  (26)  (150,930)  (21)
Cost of revenue-Discontinued operations  -   -   -   - 
General and administrative expenses-Continuing operations  (729,060)  (127)  (7,383,094)  (1,064)
General and administrative expenses-Discontinued operations  (6,408)  -   (268,750)  - 
Gain on disposal of subsidiaries-Continuing operations  -   -   -   - 
Gain on disposal of subsidiaries-Discontinued operations  6,869,809   -   -   - 
Total costs and expenses-Continuing operations  (879,390)  (153)  (7,534,024)  (1,085)
Total costs and expenses-Discontinued operations  6,869,809   -   (268,750)  - 
Loss from continuing operations  (304,613)  (53)  (6,839,849)  (985)
Other(expenses)income - Continuing operations  294,746   51   (8,808)  (1)
Other(expenses)income - Discontinued operations  -   -   8,633   - 
Loss before income taxes -Continuing operations  (9,867)  (2)  (6,848,657)  (986)
Income tax expense  35,959   6   48,996   7 
Net loss from Continuing operation $(45,826)  (8) $(6,897,653)  (993)
Profit/(loss) before income tax-Discontinued operations  6,863,401   -   (260,117)  - 
Income tax expenses-Discontinued operations                
Tax expense  -   -   -   - 
Deferred tax benefit  -   -   -   - 
Net profit/(loss) from Discontinued operations  6,863,401   -   (260,117)  - 
Net profit/(loss)  6,817,575   1,186   (7,157,770)  (1,031)

 

Revenue

For the three months ended March 31,June 30, 2023 and 2022, our continuing operations generated $699,741revenues in an amount of $574,777 and nil revenue. For the three months ended March 31, 2023 and 2022, our discontinued operations did not generate revenues$694,175, respectively.

Revenue by category

The following table presentssets forth our interim condensed consolidated revenue of our discontinued operations:by revenue source:

  

Three months ended
March 31,

 
  2023  2022 
  (Unaudited)  (Unaudited) 
Listing fee revenue $-             - 
Commission revenue  699,741   - 
Management fee revenue  -   - 
Subtotal  699,741   - 
Less: Cost of revenue – discontinued operations  -   - 
Total $699,741  $- 
  Three Months Ended 
June 30,
 
  2023  2022 
  (Unaudited)  (Unaudited) 
Listing fee-Continuing operations $-  $- 
Listing fee-Discontinued operations  -   - 
Commission-Continuing operations  574,777   694,175 
Commission-Discontinued operations  -   - 
Management fee-Continuing operations  -   - 
Management fee-Discontinued operations  -   - 
Total Revenue-Continuing operations $574,777  $694,175 
Total Revenue-Discontinued operations  -   - 


 

Revenue by customer type

The following table presents our revenue by customer type of our discontinued operations:

  Three months ended
March 31,
 
  2023  2022 
Customers  $699,741  $       - 
Subtotal  699,741   - 
Less: Revenue- discontinued operations  -   - 
Total $699,741  $- 

(i)Listing fee revenue

Listing fee revenue is calculated based on a percentage of the listing value and transaction value of artworks.

Listing value is the total offering price of an artwork when the ownership units are initially listed on our trading platform. We utilize an appraised value as a basis to determine the appropriate listing value for each artwork, or portfolio of artworks. For the three months ended June 30, 2023 and 2022, listing fee was $nil and $nil from discontinued and continued operations respectively.

(ii)Commission fee revenue

For Customers,non-VIP Traders, the commission revenue was calculated based on a percentage of transaction value of artworks, which we charge trading commissions for the purchase and sale of the ownership shares of the artworks. The commission is typically 5% of the total amount of each transaction. The commission is accounted for as revenue and immediately deducted from the proceeds from the sales of artwork units when a transaction is completed.

Commission revenue for the three months ended March 31,June 30, 2023 and 2022 was $699,741$574,777 and nil$694,175 from discontinued and continued operations respectively.


(iii)Management fee revenue

Our legacy online trading platform from discontinued operations charges Traders a management fee to cover the costs of insurance, storage, and transportation for an artwork and trading management of artwork units, which is calculated at $0.0013 (HK$0.01) per 100 artwork units per day.units. The management fee is recognized when the artwork is sold and is deducted from proceeds from the sale of artwork ownership shares when there is a purchase and sale transaction.

During the three months period ended March 31,June 30, 2023 and 2022, our operations did not generate management fee revenue.

Cost of Revenue by customer type

Cost ofThe following table presents our revenue of our discontinued operations primarily includes the following: commission paid to service agents, depreciation, internet service charges, artwork insurance and artwork storage costs.by customer type:

  For three months ended
March 31,
 
  2023  2022 
Commission paid to service agents $-  $     - 
Depreciation  -   - 
Internet service charge  150,930   - 
Artwork insurance  -   - 
Artwork storage  -   - 
Subtotal  150,930   - 
Less: Cost of revenue – discontinued operations  -   - 
Total $150,930  $- 
  Three months ended
 June 30,
 
  2023  2022 
  (Unaudited)  (Unaudited) 
Customers $574,777  $694,175 
Subtotal  574,777   694,175 
Less: Revenue - discontinued operations  -   - 
Total $574,777  $694,175 

Cost of revenue of our discontinued operations for the three months ended March 31, 2023 and 2022 were $150,930 and nil respectively. Since the legacy online trading system was suspended in the fourth quarter in 2021 and our NFT online trading platform was not launched until May 2022, our discontinued and continuing operations did not generate any revenues and cost of revenue during the three months ended March 31, 2022.


 

Cost of Revenue

  Three months ended 
June 30,
 
  2023  2022 
  (Unaudited)  (Unaudited) 
Commissions paid to service agents $-   - 
Depreciation  -  $- 
Internet service charge  150,330   150,930 
Artwork insurance  -   - 
Artwork storage  -   - 
Total $150,330  $150,930 

Cost of revenue of our continued and discontinued operations for the three months ended June 30, 2023 and 2022 were $150,330 and $150,930, respectively. The cost of revenue for the three months ended June 30, 2022 was incurred related to the revenue generated by our NFT online trading system.

Gross Profit

Gross profit for our operations was $548,811$424,447 and nil$543,245 for three months ended March 31,June 30, 2023 and 2022, respectively.

Operating Expenses

General and administrative expenses for the three months ended March 31,June 30, 2023 were $657,343$735,468 compared to $611,475$7,651,844 for the three months ended March 31,June 30, 2022.

The following table sets forth the main components of ourthe Company’s general and administrative expenses of our continuing operations and for discontinued operations for the three months ended March 31,June 30, 2023 and June 30, 2022.

  For three months ended
March 31, 2023
(Unaudited)
  For three months ended
March 31, 2022
(Unaudited)
 
  Amount($)  % of
Total
  Amount($)   % of
Total
 
Salary and welfare  352,660   52.9%  90,052   11.3%
Office, insurance and rental expenses  2,784   0.4%  89,206   11.2%
Legal and professional fees  247,551   37.2%  186,781   23.4%
Consultancy fee  54,000   8.1%  126,834   15.9%
Depreciation expenses  348   0.1%  350   0.0%
Others  -   0.0%  118,252   14.8%
Total general & administrative expenses-continuing operations  657,343   98.7%  611,475   76.7%
Total general & administrative expenses-discontinued operations  8,896   1.3%  185,334   23.3%
Total $666,239   100.0% $796,809   100.0%

Our continuing operations did not incur any selling expense for the three months ended March 31, 2023 and 2022. The selling expense of our discontinued operation was nil for the three months ended March 31, 2023 and 2022, respectively.

 

  Three months ended June 30, 
  2023  % of Total  2022  % of Total 
  (Unaudited)     (Unaudited)    
Salary and welfare $300,829   40.9  $574,393   7.5 
Office, insurance and rental expenses  3,829   0.5   34,682   0.5 
Legal and professional fees  354,402   48.2   337,441   4.4 
Consultancy fee  70,000   9.5   170,892   2.2 
Impairment loss  -   -   6,265,686   81.9 
Total general and administrative expense-Continuing operations $729,060   99.1  $7,383,094   96.5 
Total general and administrative expense-Discontinued operations  6,408   0.9   268,750   3.5 
Total  735,468   100.0   7,651,844   100.0 


 

Gain on disposal of subsidiaries

Gain on disposal of subsidiaries for the three months ended June 30, 2023 and 2022 were $6,869,809 and nil, respectively.

Other income/(expenses) income

 

Other income/(expenses) income for the continuingcontinued operations for the three months ended March 31,June 30, 2023 and 2022 were $93,265$294,746 and $(99)$(8,808), respectively. Other expenses were related to bank charges.

 

Other (expenses) income for the discontinued operations for the three months ended March 31,June 30, 2023 and 2022 were $(87)$nil and $(167).$8,633, respectively.

 

LossProfit/(Loss) before income taxes

Our continuing operations incurred loss before income taxes $15,267$9,867 and $611,574$6,848,657 for the three months ended March 31,June 30, 2023 and 2022, respectively. Loss before income taxes of our continuing operations was significantly higher for the three months ended March 31, 2023 compare to the same period in 2022 as we incurred a higher commission revenue in 2023 as discussed above.

 

Our discontinued operations incurred lossprofit/(loss) before income taxes, $8,983$6,863,401 and $179,765$(260,117) for the three months ended March 31,June 30, 2023 and 2022, respectively.

Income tax expense

For the three months ended March 31,June 30, 2023 and 2022, our continuing operations incurred income tax expense as $26,352$35,959 and $nil,$48,996, respectively.

The income tax expense from the discontinued operations for the three months ended March 31,June 30, 2023 and 2022 were both nil.$nil and $nil.

Net LossProfit/(Loss)

As a result of our operations aforementioned, our net losslosses after income taxes for continuing operations for the three months ended March 31,June 30, 2023 and 2022 were $41,619$45,826 and $611,574,$6,897,653, respectively. Our discontinued operations generated net lossprofit/(loss) after income tax $8,983$6,863,401 and $179,765$(260,117) for the three months ended March 31,June 30, 2023 and 2022, respectively.

Foreign currency translation gain (loss)

 

We had a foreign currency translation gain (loss) for the three months ended March 31,June 30, 2023 and 2022 of $(2,253)$(7,605) and $21,059,$180,638, respectively.

Comprehensive gain/(loss)loss

As a result of the above, we posted a comprehensive lossincome of $52,855$6,809,970 and $770,280$(6,977,132) for the three months ended March 31,June 30, 2023 and 2022, respectively.


SIX MONTHS ENDED JUNE 30, 2023 COMPARED TO SIX MONTHS ENDED JUNE 30, 2022

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

  Six Months Ended June 30, 
     %  of     %  of 
  2023  Revenue  2022  Revenue 
  (Unaudited)     (Unaudited)    
Revenue-Continuing operations  1,274,518   100   694,175   100 
Revenue-Discontinued operations  -   -   -   - 
Cost of revenue-Continuing operations  (301,260)  (24)  (150,930)  (22)
Cost of revenue-Discontinued operations  -   -   -   - 
General and administrative expenses-Continuing operations  (1,386,055)  (109)  (7,811,719)  (1,125)
General and administrative expenses-Discontinued operations  (21,946)  -   (631,198)  - 
Gain on disposal of subsidiaries-Continuing operations  -   -   -   - 
Gain on disposal of subsidiaries-Discontinued operations  6,869,809   -   -   - 
Total costs and expenses-Continuing operations  (1,687,315)  (132)  (7,962,649)  (1,147)
Total costs and expenses-Discontinued operations  6,847,863   -   (631,198)  - 
Loss from continuing operations  -   -   (7,268,474)  (1,047)
Other(expenses)income-Continuing operations  394,218   31   (8,808)  (1)
Other(expenses)income-Discontinued operations  -   -   8,367   - 
Loss before income taxes-Continuing operations  (18,579)  (1)  (7,277,282)  (1,048)
Income tax expenses-Continuing operations  62,311   5   48,996   7 
Net loss from Continuing operations $(80,890)  (6) $(7,326,278)  (1,055)
Profit/(Loss) before income tax-Discontinued operations   6,847,863   -   (622,831)  - 
Income tax expenses-Discontinued operations                
Tax expense  -   -   -   - 
Deferred tax benefit  -   -   -   - 
Net profit/(loss) from Discontinued operations  6,847,863   -   (622,831)  - 
Net profit/(loss)  6,766,973   531   (7,949,109)  (1,145)

Revenue

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

  Six months ended 
  June 30, 
  2023  2022 
  (Unaudited)  (Unaudited) 
Listing fee-Continuing operations $-  $- 
Listing fee-Discontinued operations      - 
Commission-Continuing operations  1,274,518   694,175 
Commission-Discontinued operations      - 
Management fee-Continuing operations  -   - 
Management fee-Discontinued operations  -   - 
Revenue-Continuing operations $1,274,518  $694,175 
Revenue-Discontinued operations  -   - 

(i)Listing fee revenue

Listing fee revenue is calculated based on a percentage of the listing value and transaction value of artworks.

Listing value is the total offering price of an artwork when the ownership units are initially listed on our trading platform. We utilize an appraised value as a basis to determine the appropriate listing value for each artwork, or portfolio of artworks. For the six months ended June 30, 2023 and 2022, listing fee was $nil and $nil from discontinued and continued operations respectively.

(ii)Commission fee revenue

For non-VIP Traders, the commission revenue was calculated based on a percentage of transaction value of artworks, which we charge trading commissions for the purchase and sale of the ownership shares of the artworks. The commission is typically 5% of the total amount of each transaction. The commission is accounted for as revenue and immediately deducted from the proceeds from the sales of artwork units when a transaction is completed.

Commission revenue for the six months ended June 30, 2023 and 2022 was $1,274,518 and $694,175 from discontinued and continued operations respectively.


(iii) Management fee revenue

Our legacy online trading platform charges Traders a management fee to cover the costs of insurance, storage, and transportation for an artwork and trading management of artwork units. The management fee is recognized when the artwork is sold and is deducted from proceeds from the sale of artwork ownership shares when there is a purchase and sale transaction.

Our operations did not generate management fee revenue from our legacy trading platform for the six months ended June 30, 2023, and our operations did not generate management fee revenue from our legacy trading platform for the six months ended June 30, 2022.

Revenue by customer type

The following table presents our revenue by customer type:

  Six months ended 
  June 30, 
  2023  2022 
  (Unaudited)  (Unaudited) 
Customers $1,274,518  $694,175 
Subtotal  1,274,518   694,175 
Less: Revenue-discontinued operations  -   - 
Total $1,274,518  $694,175 

Cost of Revenue

  Six months ended 
  June 30, 
  2023  2022 
  (Unaudited)  (Unaudited) 
Commissions paid to service agents $-  $- 
Depreciation  -   - 
Internet service charge  301,260   150,930 
Artwork insurance  -   - 
Artwork storage  -   - 
Total $301,260  $150,930 

Cost of revenue for the six months ended June 30, 2023 and June 30, 2022 was $301,260 and $150,930, respectively. The decline in cost of revenue for the six months ended June 30, 2023 compared to June 30, 2022 was mainly due to the continuing operations from the new NFT business is on the start stage and legacy business is treated as discontinued operations.

Gross Profit

Gross profit was $973,258 or 76.4% of the total revenue for the six months ended June 30, 2023, compared to $543,245 or 78.3% of the total revenue for the six months ended June 30, 2022.   Gross profit amount was increased by $430,013 while the gross profit margin was reduced by 1.9%.


 

 

LiquidityOverall total revenue for the six months ended June 30, 2023 was increased by $580,343 or 83.6% compared to the same period in 2022, due to new NFT business started operation since the second quarter of 2022.

Operating Expenses

General and Capital Resourcesadministrative expenses for the six months ended June 30, 2023 were $1,408,001, compared to $8,442,917, for the six months ended June 30, 2022.

The following table sets forth the main components of the Company’s general and administrative expenses for the six months ended June 30, 2023 and June 30, 2022.

  Six months ended June 30, 
  2023  % of Total  2022  % of Total 
  (Unaudited)     (Unaudited)    
Salary and welfare $653,489   46.4  $481,595   5.7 
Legal and professional fees  601,953   42.7   644,869   7.6 
Office, insurance and rental expenses  6,613   0.5   121,843   1.5 
Consultancy fee  124,000   8.8   297,726   3.5 
Impairment loss  -   -   6,265,686   74.2 
Total general and administrative expense-Continuing operations $1,386,055   98.4  $7,811,719   92.5 
Total general and administrative expense-Discontinued operations  21,946   1.6   631,198   7.5 
Total  1,408,001   100.0   8,442,917   100.0 

Gain on disposal of subsidiaries

Gain on disposal of subsidiaries for the six months ended June 30, 2023 and 2022 were $6,869,809 and nil, respectively.

 

Other income/(expenses)

Other income/(expenses) for the continued operations for the six months ended June 30, 2023 and 2022 were $394,218 and $(8,808), respectively.

Other income for the discontinued operations for the six months ended June 30, 2023 and 2022 were $nil and $8,367, respectively.


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 $257,676) assessable profits and at 16.5% for assessable profits above HK$ 2 million (approximately $257,676) and PRC enterprise income tax rate of 25%.

The effective tax rates for the six months ended June 30, 2023 and 2022 were (335.3)% and (0.01)%, respectively.

The income tax expense were $62,311 and $48,996 for the six months ended June 30, 2023 and 2022, respectively.

Net profit/(loss)

We recorded a net profit for the six months ended June 30, 2023 of $6,766,973 compared to net loss of $(7,949,109) for the six months ended June 30, 2022.

The increase in the net profit by $14,716,082  during this current period compared to the same period ended June 30, 2022 as discussed above. 

Liquidity and Capital Resources

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

 

 Six months ended 
 June 30, 
 For three months ended
March 31
  2023  2022 
 2023 2022  (Unaudited) (Unaudited) 
Net cash provided by operating activities-continuing operations $1,135,255 $1,716,197  $340,877  $3,757,106 
Net cash used in operating activities- discontinued operations  (87)  (156,101)
Net cash provided by operating activities- discontinued operations  (1,267,255)  1,603,097 
 1,135,168 1,560,096   (926,378)  5,360,203 
             
Net cash used in investing activities- continuing operations - - 
Net cash used in investing activities- discontinued operations  -  (1,153)
Net cash provided by investing activities- continuing operations  -   - 
Net cash provided by investing activities- discontinued operations  61,376   (1,656)
 - (1,153)  61,376   (1,656)
     
Proceeds from a short-term borrowing from a third party  -   - 
Net cash provided by financing activities-continuing operations 200,000 300,000   500,000   30,300,007 
Net cash provided by financing activities-discontinued operations     -   -   - 
 200,000 300,000   500,000   30,300,007 
             
Effect of exchange rate change on cash and cash equivalents, and restricted cash from continuing operations (170) 42,534   -  206,456 
Effect of exchange rate change on cash and cash equivalents, and restricted cash from discontinued operations  (597)  (56,203)  (29,729)  (400,243)
 (767) (13,669)  (29,729)  (193,787)
             
Net increase (decrease) in cash and cash equivalents - continuing operations 1,335,084 2,058,731 
Net (decrease) increase in cash and cash equivalents and restricted cash- discontinued operations  (684)  (213,457)
Net increase in cash and cash equivalents - continuing operations  840,877   34,263,569 
Net increase in cash and cash equivalents and restricted cash- discontinued operations  (1,235,608)  1,201,198 
 1,334,400 1,845,274   (394,731)  35,464,767 
     
Cash and cash equivalents, beginning balance- continuing operations 67,500,438 1,503,153 
Cash, cash equivalents and restricted cash, beginning balance- continuing operations  66,361,627   1,503,153 
Cash and cash equivalents and restricted cash, beginning balance- discontinued operations  96,797  338,542   1,235,608   338,542 
 67,597,235 1,841,695 
       67,597,235   1,841,695 
Cash and cash equivalents and restricted cash, ending balance- continuing operations $68,835,522 $3,561,884  $67,202,504  $35,766,722 
Cash and cash equivalents and restricted cash, ending balance- discontinued operations  96,113  125,085   -   1,539,740 
 $68,931,635 $3,686,969  $67,202,504  $37,306,462 

 


Sources of Liquidity

The cash and cash equivalent and the restricted cash balances from the continuing operations as of March 31,June 30, 2023 and 2022 were $65,439,927$67,202,504 and $3,395,595,$35,766,722 respectively.

The cash and cash equivalent balance from the discontinued operations as of March 31,June 30, 2023 was $96,113.were $nil and $1,539,740, respectively.

For the threesix months ended March 31,June 30, 2023, net cash provided by operating activities from continuing operation was $1,135,255. There$340,877. While there was no cash inflow fromtransactions related to investing activities from our continuing operations during the threesix months ended March 31, 2023. OurJune 30, 2023, our continuing operations incur net cash used inprovided by financing activities, $200,000 during the three months ended March 31, 2023.$500,000.

 

For the threesix months ended March 31,June 30, 2023, net cash usedprovided by in operating activities by our discontinued operations was $87.$(1,267,255). Net cash provided by investing activities by our discontinued operations was nil.$61,376. Our discontinued operations did not incur cash inflow or outflow from financing activities.

The cash and cash equivalent and the restricted cash balances from the continuing operations as of March 31, 2022 were $1,533,468 and $2,028,416, respectively.

The cash and cash equivalent balance from the discontinued operations as of March 31, 2022 was $125,085.

For the three months ended March 31, 2022, net cash provided by operating activities from continuing operation was $1,716,197. While there was no cash inflow or outflow from investing activities from our continuing operations during the three months ended March 31, 2022, our continuing operations incur net cash provided by financing activities, $300,000.

For the three months ended March 31, 2022, net cash used in operating activities by our discontinued operations was $156,101. Net cash used in investing activities by our discontinued operations was $1,153. Our discontinued operations did not incur cash inflow or outflow from financing activities.


As of March 31,June 30, 2023, the total current liabilities from the continuing operations were $8,074,673.$9,935,569, which included accrued expense and account payables amounting to $4,009,043, short term loan from a third party amounting to $2,050,000, advance from customers amounting to $3,559,910, tax payable amounting to $316,616. Total current liabilities from our discontinued operations were $8,647,562.amount to $nil.

 

As of March 31,June 30, 2023, the continuing operations of the Company had cash, restricted cash and cash equivalents of $68,835,522,$67,202,504, a working capital in an amount of $60,852,308$59,163,897 and the nettotal assets of $60,857,408. The Company’s discontinued operations had cash and cash equivalent of $96,113, a working deficit of $8,550,147, and net liabilities of $8,503,481.$69,099,466.

The Company is aware of events or uncertainties which may affect its future liquidity because of capital controls in the PRC. The RMB is only currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries or variable interest entities. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of “current account 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 shareholders, including holders of our shares of common stock. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our PRC subsidiaries.

Applicable PRC law permits payment of dividends to us by our operating subsidiaries in China only out of their net income, if any, determined in accordance with PRC accounting standards and regulations. Our operating subsidiaries in China are also required to set aside a portion of their net income, if any, each year to fund general reserves for appropriations until such reserves have reached 50% of the subsidiary’s registered capital. These reserves are not distributable as cash dividends. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. In contrast, there is no foreign exchange control or restrictions on capital flows into and out of Hong Kong. Hence, our Hong Kong operating subsidiary is able to transfer cash without any limitation to the U.S. under normal circumstances.

If our operating subsidiaries were to incur additional debt on their own behalf in the future, the instruments governing the debt may restrict the ability of our operating subsidiaries to transfer cash to our U.S. investors.


 

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support, and credit risk support or other benefits.

Future Financings

We may sell our common stock in order to fund our business growth. Issuances of additional shares will result in dilution to existing shareholders. There is no assurance that we will achieve sales of the equity securities or arrange for debt or other financing to fund our growth in case it is necessary, or if we are able to do so, there is no guarantee that existing shareholders will not be substantially diluted.

Critical Accounting Policies

We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management. The discussion of our critical accounting policies contained in Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies”, is incorporated herein by reference.

Recent Accounting Pronouncements

The discussion of the recent accounting pronouncements contained in Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies”, is incorporated herein by reference.

Item 3. Quantitative and Qualitative Disclosures Aboutabout Market Risk.

As a smaller reporting company, we are not required to provide the information required by this item.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. Kuangtao Wang and our Chief Financial Officer, Mr. Jianguang Qian.Yaobin Wang. 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 March 31,June 30, 2023 were effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended March 31,June 30, 2023 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.


 

PART II.II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Due to the increased regulatory scrutiny by PRC government on digital asset related businesses, the artwork unit trading platform operated by the PRC subsidiary, Tianjin Takung, was suspended by the local authority. The management became aware of the suspension on or around November 8, 2021. The local authority indicated that the suspension was to facilitate certain investigation although it did not announce the purpose of the investigation. The Company intendedintends to fully cooperate with the local authority’s investigation. As of the date of this report, there has been no development in regard with this investigation.

ITEM 1A. RISK FACTORS

As a smaller reporting company, we are not requiredof the date of this report and except as set forth below, there have been no material changes to provide the information required by this item.risk factors disclosed in our annual report on Form 10-K filed with the SEC on April 17, 2023, as amended.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Other than any sales previously reported in the Company’s Current Reports on Form 8-K, the Company did not sell any unregistered securities during the period covered by this report.None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.Not applicable.


 

ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

Exhibit No.Description
   
3.1Certificate of Incorporation (1)
31.1 
3.2Bylaws (1)
3.3Certificate of Amendment of the Certificate of Incorporation (1)
3.4Certificate of Amendment of the Certificate of Incorporation (1)
3.5Certificate of Amendment (2)
3.6Certificate of Amendment (3)
3.7Certificate of Amendment (4)
4.1Form of Warrant (5)
4.2Form of Warrant (6)
10.1Employment Agreement of Jianguang Qian, dated January 5, 2022 (7)
10.2Employment Agreement of Kuangtao Wang, dated January 4, 2022 (7)
10.3Form of Securities Purchase Agreement (5)
10.4Form of Termination Agreement (5)
10.5Form of Amended and Restated Securities Purchase Agreement (6)
10.6*Loan Agreement dated February 16, 2022 (8)
31.1*Certification of ChiefPrincipal Executive Officer Pursuantpursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934.
31.2 
31.2*Certification of ChiefPrincipal Financial Officer Pursuantpursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934.
32.1 
32.1**Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2**Certification of Chief Financialthe Principal Executive Officer Pursuantpursuant to 18 U.S.C. Section 1350.
32.2Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

 

*Filed herewith
**Furnished herewith

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

(2)Incorporated herein by reference to the exhibit to our current report on Form 8-K filed with the SEC on March 7, 2013.

(3)Incorporated herein by reference to the exhibit to our current report on Form 8-K filed with the SEC on November 6, 2014.

(4)Incorporated herein by reference to Exhibit 3.1 to our current report on Form 8-K filed with the SEC on August 12, 2015.

(5)Incorporated herein by reference to exhibits to our current report on Form 8-K filed with the SEC on February 23, 2022.

(6)Incorporated herein by reference to exhibits to our current report on Form 8-K filed with the SEC on March 25, 2022.

(7)Incorporated herein by reference to exhibits to our current report on Form 8-K filed with the SEC on January 7, 2022.

(8)Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10)(iv).


 

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.

Date: May 24, 2023

TAKUNG ART CO., LTD
Date: August 14, 2023By:/s/ Kuangtao Wang
Kuangtao Wang
ChiefCo-Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2023By:/s/ Jianguang QianYaobin Wang
Jianguang QianYaobin Wang
Chief Financial Officer
(Principal Financial and Accounting Officer)

 

41


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