| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The 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 The preparation of 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 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
consolidated financial statements include the financial statements of the Company, and its subsidiaries, NFT exchange, NFT Digital, and
Metaverse Digital Payment. 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. As
of 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 December
31, 202 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 years ended December 31,
202 Foreign currency translation and transaction The
functional currency of Metaverse Digital Payment; NFT Limited, NFT Digital and NFT Exchange
are in United States Dollar (“USD”) The reporting currency of the
Company is USD. Transactions in currencies
other than the entity’s functional currency are recorded at the rates of exchange prevailing on the date of the transaction.
At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates 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 7.8109 and 7.8015 as of December
31, 2023 and
December 31, 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. Restricted cash Restricted
cash represents the cash deposited by the traders (“buyers and sellers”) into a specific bank account under Metaverse
(“the broker’s account”) in order to facilitate the trading shares of the artwork. The buyers are required to have
their funds transferred to the broker’s account before the trading take place. Upon the delivery of the shares, the seller
will send instructions to the bank, requesting the amount to be transferred to their personal account. After deducting the
commission as per Metaverse Payment, the bank will transfer the remainder to the seller’s personal account. Except for
instructing the bank to deduct the commission fee, the Company has no right to use any funds in the broker’s account except
for instructing the bank to deduct the commission and management fee. Our restricted cash is denominated in USD and is deposited in
the financial institutions of Hong Kong. The
ending balance of our restricted cash totaling $4,306,519 and $2,705,750 as of December 31, 202 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 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
2023, we did not record any asset impairments due to the disposal of the subsidiaries, including Tianjin Takung as a result of the loss
of control in this entity. 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 December 31, 2023 and 2022 Customer deposits Customer deposits represent the cash deposited by the traders (“buyers
and sellers”) into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading
ownership units of the artwork. The buyers are required to have their funds transferred to the broker’s account before the trading
take place. Advance from customers Advance from customers represent the cash deposited by the traders
into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading ownership units
of the NFT. The traders are required to have their funds transferred to the broker’s account before the trading take place. Revenue Recognition The Company generates revenue from its services in connection with
the offering and trading of artworks on the Company’s system, primarily consisting of listing fee, trading commission, and management
fee. Effective January 1, 2018, the Company adopted Topic 606 using modified
retrospective approach applied to its contracts which were not completed as of January 1, 2018. Results for reporting periods beginning
after January 1, 2018 are accounted for and presented under Topic 606, while prior period amounts are not adjusted and continue to be
reported in accordance with Topic 605. Under ASC 606, an entity recognizes revenue as the Company satisfies
a performance obligation when its customer obtains control of promised goods or services, in an amount that reflects the consideration
that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an
entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with
a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable
consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize
revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it
is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers
to the customer. The Company recognizes revenue when control of the promised services
is transferred to the traders and service agents. Revenue is measured at the transaction price, which is based on the amount of consideration
that the Company expects to receive in exchange for transferring the promised services to the traders and service agents. Commission The Company generates commission fee from non-VIP traders and selected
traders. For non-VIP traders, the commission is calculated based on a percentage
of transaction value of artworks when there is purchase and sale of the ownership shares of the artworks. The commission revenue
is recognized at a point in time when each purchase and sale transaction is completed. Revenue by customer type The
following table presents the revenue by customer type for the years ended December 31, 202
For the year ended
2023 2022 2021
Non - VIP traders $ 2,153,515 $ 3,403,536 $ -
Subtotal 2,153,515 3,403,536 -
Less: Revenue - discontinued operations - - -
Total $ 2,153,515 $ 3,403,536 $ - Cost of revenue The Company’s cost of revenue primarily
consists of expenses associated with the delivery of its service. These include expenses related to the operation of the data centers,
such as internet service charge.
For the year ended
2023 2022 2021
Internet service charge $ 556,590 $ 782,790 $ -
Subtotal 556,590 782,790 -
Less: Cost of revenue – discontinued operations - - -
Total $ 556,590 $ 782,790 $ - 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-cancelable, 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$94,827 corporate income tax for the year ended
December 31,2023. The Company’s Hong Kong subsidiary of Metaverse Digital Payment
Co., Limited accrued US$255,805 corporate income tax for the year ended 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 16). 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 years ended December 31,
202 Concentration of customer deposits As
of December 31, 202 Accounting pronouncements issued but not yet adopted Financial
Instruments - Credit Losses: 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. |
