UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from ___________________ to ___________________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. ☒
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). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of August 14, 2023,
FORM 10-Q
TAKUNG ART CO., LTD
INDEX
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)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Prepayment and other current assets, net | ||||||||
| Current assets – discontinued operations | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Non-marketable investment, net | ||||||||
| Non-current assets – discontinued operations | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Accrued expenses and other payables | $ | $ | ||||||
| Current liabilities - discontinued operations | ||||||||
| Advance from customers | ||||||||
| Short term borrowings from a third party | ||||||||
| Tax payables | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Common stock ( | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
1
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Stated in U.S. Dollars except Number of Shares)
| 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 | ||||||||||||||||
| Commission-Discontinued operations | ||||||||||||||||
| Management fee-Continuing operations | ||||||||||||||||
| Management fee-Discontinued operations | ||||||||||||||||
| Revenue-Continuing operations | ||||||||||||||||
| Revenue-Discontinued operations | ||||||||||||||||
| Cost of revenue-continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Cost of revenue-discontinued operations | ||||||||||||||||
| Gross profit-continuing operations | ||||||||||||||||
| Gross profit-discontinued operations | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses-Continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| General and administrative expenses-Discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on disposal of subsidiaries | ||||||||||||||||
| Total operating expenses - Continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating expenses - Discontinued operations | ( | ) | ( | ) | ||||||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income and expenses: | ||||||||||||||||
| Other(expenses) income-Continuing operations | ( | ) | ( | ) | ||||||||||||
| Other(expenses) income-Discontinued operations | ||||||||||||||||
| Total other income (expenses) | ( | ) | ( | ) | ||||||||||||
| Loss before income taxes-Continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expenses-Continuing operations | ||||||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income tax-Discontinued operations: | ||||||||||||||||
| Profit/(Loss) from Discontinued operations | ( | ) | ( | ) | ||||||||||||
| Income tax expenses-Discontinued operations | ||||||||||||||||
| Tax expense | ||||||||||||||||
| Deferred tax benefit | ||||||||||||||||
| Net profit/(loss) from discontinued operations | ( | ) | ( | ) | ||||||||||||
| Net profit/(loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Comprehensive income/(loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Loss from continuing operations per common share - basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss from continuing operations per common share -Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Profit/(Loss) from discontinued operations per common share - basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Profit/(Loss) from discontinued operations per common share - Diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of common shares outstanding-basic | ||||||||||||||||
| Weighted average number of common shares outstanding-diluted | ||||||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
2
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 of shares | Common Stock | Additional Paid-in capital | Accumulated deficit | Accumulated other comprehensive loss | Total | |||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||
| Net loss from continuing operations | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss from discontinued operations | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, March 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss from continuing operations | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss from discontinued operations | - | ( | ) | ( | ) | |||||||||||||||||||
| Disposal of subsidiaries | - | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||
| Number of shares | Common Stock | Additional Paid-in Capital | Accumulated | Accumulated other comprehensive loss | Total | |||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Net loss from continuing operations | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss from discontinued operations | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of ordinary shares for restricted stock award | ||||||||||||||||||||||||
| Net loss from continuing operations | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss from discontinued operations | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
3
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)
(UNAUDITED)
| Six Months Ended | ||||||||
| June 30, | June 30, | |||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss from continuing operations | $ | ( |
) | $ | ( |
) | ||
| Net loss from discontinued operations | ( |
) | ||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Impairment loss | ||||||||
| Changes in operating assets and liabilities(decrease)increase in: | ||||||||
| Prepayment and other current assets | ( |
) | ||||||
| Customer deposits | ||||||||
| Accrued expenses and other payables | ( |
) | ||||||
| Net cash provided by operating activities - continuing operations | $ | $ | ||||||
| Net cash used in/(provided by) operating activities - discontinued operations | ( |
) | ||||||
| Net cash provided by operating activities | ( |
) | ||||||
| Cash flows from investing activities: | ||||||||
| Net cash used in investing activities-continuing operations | ||||||||
| Net cash used in investing activities-discontinued operations | ( |
) | ||||||
| Net cash used in investing activities | ( |
) | ||||||
| Cash flows from financing activities: | ||||||||
| Net cash provided by financing activities-continuing operations | ||||||||
| Net cash provided by financing activities-discontinued operations | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate change on cash, cash equivalents and restricted cash from continuing operations | ||||||||
| Effect of exchange rate change on cash, cash equivalents and restricted cash from discontinued operations | ( |
) | ( |
) | ||||
| Net change in cash and cash equivalents, and restricted cash from continuing operations | ||||||||
| Net change in cash and cash equivalents, and restricted cash from discontinued operations | ( |
) | ||||||
| Cash, cash equivalents and restricted cash, beginning balance | ||||||||
| Cash and cash equivalents, and restricted cash beginning balance from discontinued operations | ||||||||
| Cash and cash equivalents, and restricted cash beginning balance | ||||||||
| Cash and cash equivalents, and restricted cash ending balance from continuing operations | $ | $ | ||||||
| Cash and cash equivalents and restricted cash ending balance from discontinued operations | ||||||||
| Cash and cash equivalents and restricted cash ending balance | $ | $ | ||||||
| Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets | - | - | ||||||
| Cash and cash equivalents-continuing operations | $ | $ | ||||||
| Restricted cash as of June 30, 2023 and 2022, respectively | ||||||||
| Total cash, cash equivalents and restricted cash-continuing operations | $ | $ | ||||||
| Cash and cash equivalents-discontinued operations | $ | $ | ||||||
| Restricted cash - discontinued operations | ||||||||
| Total cash, cash equivalents and restricted cash-discontinued operations | $ | $ | ||||||
| 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.
4
TAKUNG ART CO., LTD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Takung Art Co., Ltd and Subsidiaries (“Takung”, “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$
Takung (Shanghai)
Co., Ltd (“Shanghai Takung”) is a limited liability company, with a registered capital of $
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,
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 $
5
NFT Digital Technology Limited (“NFT Digital”) was incorporated in Albany, New York on December 13, 2021 and is a wholly-owned subsidiary of Takung. This entity primarily provides administrative and technical supports for the development of NFT projects.
NFT Exchange Limited (“NFT Exchange”) was incorporated in Wyoming on January 7, 2022 and is wholly owned by Takung. This entity facilitates the business and operation of the new NFT exchange market.
Metaverse Digital Payment Co., Limited (“Metaverse”) was formed in Hong Kong on January 27, 2022, and is wholly owned by NFT Exchange. This entity is engaged in digital payment service.
NFT Limited was incorporated in Cayman Island on September 30, 2022 and 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, $
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 $
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.
6
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 seeking buyers for Hong Kong Takung and related operations in order to focus on its blockchain and NFT business operation. As of June 30, 2022 and December 31, 2021, the operation of Hong Kong Takung was classified as a discontinued operation and as of December 31, 2021, the operation Tianjin Takung was deconsolidated. For the six months ended June 30, 2023, the operation of Hong Kong Takung and Hong Kong MQ was presented in discontinued operations.
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.
7
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 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 six months ended 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, 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 USD.
8
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
The resulting translation adjustments are reported under accumulated other comprehensive loss in the stockholders’ equity section of the balance sheets.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, cash in bank with no restrictions, as well as highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less when initially purchased.
Restricted cash
Restricted cash represents the cash deposited
by the NFT traders into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading
of NFT in our online NFT platform. After the user’s registration is successful, the customer deposits must be transferred to the
designated account of the platform through the bank account added by the user before the transaction starts, and a transfer application
is submitted on the platform, which can enter the buyer’s platform account after financial review. Except for instructing the bank
to deduct the commission, Takung has no right to use any funds in the broker’s account. Our restricted cash is denominated in USD.
As of June 30, 2023, the ending balance of our restricted cash was $
Accounts receivable and allowance for doubtful accounts
Accounts receivable are recorded and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. The Company makes estimates for the allowance for doubtful accounts based upon the assessment of various factors, including historical, experience, the age of the accounts receivable balances, credit quality of the customers, current economic conditions, and other factors that may affect customers’ ability to pay.
Prepayment and other current assets, net
Prepayment and other current assets mainly consist of the prepayment for income taxes, maintenance of online trading system, advertising and promotional services, insurances, financial advisory, professional services, rental deposits, as well as other current assets.
9
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
| Classification | Estimated useful life | |
| Furniture, fixtures and equipment | ||
| Leasehold improvements | terms and the estimated 3 years | |
| Computer trading and clearing system |
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.
There is no asset impairment during the six months ended 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 June 30, 2023 and December 31, 2022.
10
Advance from customers
Advance from customers represent the cash deposited by the traders into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading ownership units of the NFT. The traders are required to have their funds transferred to the broker’s account before the trading take place.
Revenue Recognition
Under ASC 606, an entity recognizes revenue as the Company satisfies a performance obligation when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.
The Company recognizes revenue when control of the promised services is transferred to the traders. Revenue is measured at the transaction price, which is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised services to the traders.
Our discontinued operations generated revenue from its services in connection with the offering and trading of artworks on the Company’s legacy online trading system primarily consisted of listing fee, commission fee and management fee.
Listing fee
The Company recognizes the listing fee revenue at a point in time when the ownership units of the artwork are listed and available for trading on the Company’s system, at an amount of an agreed percentage of the total offering price. The amount is collected from the money raised from the issuance of such units.
Commission
The Company generates commission fee from non-VIP traders and selected traders.
For non-VIP traders, the commission is calculated based on a percentage of transaction value of artworks when there is purchase and sale of the ownership shares of the artworks. The commission revenue is recognized at a point in time when each purchase and sale transaction is completed.
For selected traders, starting from April 1, 2016, the Company charged a predetermined monthly commission fee which allows the selected traders to conduct unlimited trades for specific artworks. The commission revenue is recognized on a monthly basis as the Company continuously satisfied its performance obligation.
Management fee
The Company provides custody and insurance service
for artworks listed and traded on the Company’s platform. Management fee is calculated at a rate of $
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.
11
Cost of revenue
The Company’s cost of revenue primarily consists of expenses associated with the delivery of its service of our continued operations. These include expenses related to the operation of the data centers, such as facility and lease of the server equipment, development and maintenance of the platform system, as well as the cost of insurance, storage and transportation of the artworks. Cost of revenue also includes commission paid to service agent.
The Company has elected to apply the practical expedient in ASC 606-10 and does not disclose information about remaining performance obligations that have original expected durations of one year or less.
The contract liabilities are the Company’s obligation to transfer services to traders for which the Company has received consideration from the traders. All contract liabilities are expected to be recognized as revenue within one month and are presented in Advance from Customers in the Interim Condensed Consolidated Balance Sheet.
Leases
In February 2016, the FASB issued ASU 2016-12, Leases (ASC Topic 842), which amends the leases requirements in ASC Topic 840, Leases. Under the new lease accounting standard, a lessee will be required to recognize a right-of-use asset and lease liability for most leases on the balance sheet. The new standard also modifies the classification criteria and accounting for sales-type and direct financing leases, and enhances the disclosure requirements. Leases will continue to be classified as either finance or operating leases.
The Company determines if an arrangement is a lease at inception. The lease payments under the lease arrangements are fixed. Non-lease components include payments for building management, utilities and property tax. It separates the non-lease components from the lease components to which they relate.
Lease assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate, because the interest rate implicit in the leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. The lease terms include periods under options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company generally uses the base, non-cancellable, lease term when determining the lease assets and liabilities.
Income taxes
The Company accounts for income taxes using an asset and liability approach which allows for the recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigations based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the year incurred. GAAP also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.
The Company accounts for an unrecognized tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the tax authorities. The Company considers and estimates interest and penalties related to the gross unrecognized tax benefits and includes as part of its income tax provision based on the applicable income tax regulations.
12
The Company’s Hong Kong subsidiary of Metaverse
Digital Payment Co., Limited accrued US$
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 six months ended June 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 .
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
Concentration of customer deposits
As of June 30, 2023 and December 31, 2022, there
were no traders that individually accounted for greater than
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.
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.
13
3. PREPAYMENT AND OTHER CURRENT ASSETS, NET
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Deposit | $ | $ | | |||||
| Other current assets | ||||||||
| Subtotal | ||||||||
| Less: Prepayment and other current assets, net-discontinued operations | ||||||||
| Prepayment and other current assets, net | $ | $ | ||||||
4. ACCOUNT RECEIVABLES, NET
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Listing fee | $ | $ | ||||||
| Consultancy service | ||||||||
| Less: allowance for doubtful accounts | ( | ) | ||||||
| Consultancy service | ||||||||
| Less: Accounts receivables, net- discontinued operations | ( | ) | ||||||
| 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.
Our investment merely includes a non-marketable investment in a privately held company incorporated in British Virgin Islands without readily determinable market values. We elected the measurement alternative under which we measured the investment at cost minus impairment with an adjustment to the changes from observable price changes in orderly transactions for the similar investments of the same issuer.
14
Management determined that the future undiscounted cash flow was less than the carrying cost of our non-marketable investment and recognized an impairment charge, , against our non-marketable investment.
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Total initial cost | $ | $ | ||||||
| Cumulative net gain (loss) | ||||||||
| Provision for impairment | ( | ) | ( | ) | ||||
| Total carrying value | $ | $ | ||||||
For the six months ended June 30, 2023, we did not incur any unrealized gain or loss in connection with the non-marketable investment.
6. PROPERTY AND EQUIPMENT, NET
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Furniture, fixtures and equipment | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Computer trading and clearing system | ||||||||
| Sub-total | ||||||||
| Less: accumulated depreciation | ( | ) | ||||||
| Sub-total | $ | $ | ||||||
| Less: Property and equipment, net-discontinued operations | ( | ) | ||||||
| Property and equipment, net | ||||||||
7. INTANGIBLE ASSETS
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Intangible assets | ||||||||
| Less: accumulated amortization | ||||||||
| Sub-total | $ | $ | ||||||
| Less: Intangible assets, net-discontinued operations | ( | ) | ||||||
| Total Intangible assets | ||||||||
15
8. ACCRUED EXPENSES AND OTHER PAYABLES
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| Accruals for professional fees | $ | $ | ||||||
| Accruals for consulting fees | ||||||||
| Payroll payables | ||||||||
| Other payables | ||||||||
| Subtotal | $ | $ | ||||||
| Add: Amount due to a related party | ||||||||
| Total accrued expenses and other payables | ||||||||
9. SHORT-TERM BORROWINGS FROM A THIRD PARTY
The weighted average interest rate of outstanding short-term borrowings was nil% per annum as of 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 | ||||||||||||
| NFT Exchange Limited | ||||||||||||
| NFT Exchange Limited | ||||||||||||
| NFT Exchange Limited | ||||||||||||
| NFT Exchange Limited | ||||||||||||
| NFT Exchange Limited | ||||||||||||
| Total | ||||||||||||
The
third party by the name of Guohui Li has lent NFT Exchange Limited for the amount of $
10. INCOME TAXES
Takung, NFT Exchange and NFT Digital were incorporated in the State of Delaware, Wyoming and New York, respectively; therefore, are subject to United States income tax. Metaverse Payment, Hong Kong Takung and Hong Kong MQ were incorporated in Hong Kong S.A.R. and are subject to Hong Kong profits tax. Tianjin Takung was incorporated in the PRC and is subject to the Enterprise Tax.
United States of America
Takung, NFT Exchange and NFT Digital are subject
to the U.S. federal and state corporate income taxes. The federal corporate income tax rate is
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
16
The provision for current income and deferred
taxes of Hong Kong Takung has been calculated by applying the new tax rate of
PRC
In accordance with the
relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable
tax rate on taxable income. All the PRC subsidiaries were subject to income tax at a rate of
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Current: | ||||||||||||||||
| Federal | $ | $ | $ | $ | ||||||||||||
| State | ||||||||||||||||
| Foreign | ||||||||||||||||
| Total Current | $ | $ | $ | $ | ||||||||||||
| Deferred: | ||||||||||||||||
| Federal | $ | $ | $ | $ | ||||||||||||
| State | ||||||||||||||||
| Foreign | ||||||||||||||||
| Total Deferred | $ | $ | $ | $ | ||||||||||||
| Total income tax expense | $ | $ | $ | $ | ||||||||||||
A reconciliation between the Company’s actual provision for income taxes is as follows:
Continuing operations
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Loss before income tax expense | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Computed tax benefit with statutory tax rate | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Impact of different tax rates in other jurisdictions | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Impact of preferred tax rate | ||||||||||||||||
| Non-deductible items: | ||||||||||||||||
| Tax effect of non-deductible expenses | ||||||||||||||||
| Changes in valuation allowance | ||||||||||||||||
| Others | ||||||||||||||||
| Total income tax expense | $ | $ | $ | $ | ||||||||||||
Discontinued operations
The effective tax rate
for the discontinued operations was
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Loss before income tax expense | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Computed tax benefit with statutory tax rate | ( | ) | ( | ) | ||||||||||||
| Impact of different tax rates in other jurisdictions | ||||||||||||||||
| Impact of preferred tax rate | ( | ) | ( | ) | ||||||||||||
| Non-deductible items: | ||||||||||||||||
| Tax effect of non-deductible expenses | ||||||||||||||||
| Changes in valuation allowance | ( | ) | ( | ) | ||||||||||||
| Others | ||||||||||||||||
| Total income tax expense | $ | $ | $ | $ | ||||||||||||
17
Uncertain tax positions
| 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 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 $ as of 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 and Hong Kong Takung has been disposed as of June 30, 2023.
The statute of limitations
for the Internal Revenue Services to assess the income tax returns on a taxpayer expires
In accordance with the
Hong Kong profits tax regulations, a tax assessment by the IRD may be initiated within
In accordance with PRC
Tax Administration Law on the Levying and Collection of Taxes, the PRC tax authorities generally have up to
11. GAIN ON DISPOSAL OF SUBSIDIARIES
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 $
18
| Hong Kong Takung | Hong Kong MQ | Total | ||||||||||
| Total assets | $ | $ | $ | |||||||||
| Total liabilities | ||||||||||||
| Total net liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Total accumulated other comprehensive income | ||||||||||||
| Loss from discontinued operations | ||||||||||||
| Subtotal | ( | ) | ( | ) | ( | ) | ||||||
| Total consideration | ||||||||||||
| Total gain on disposal of subsidiaries | $ | |||||||||||
12. PROFIT/(LOSS) PER SHARE
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss - continuing operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net profit/(loss) - discontinued operations | ( | ) | ( | ) | ||||||||||||
| Total net profit/(loss) | ( | ) | ( | ) | ||||||||||||
| Denominator: | ||||||||||||||||
| Weighted-average shares outstanding - Basic | ||||||||||||||||
| Stock options and restricted shares | ||||||||||||||||
| Weighted-average shares outstanding - Diluted | ||||||||||||||||
| Loss per share-continuing operations | ||||||||||||||||
| -Basic | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| -Diluted | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Profit/(Loss) per share-discontinued operations | ||||||||||||||||
| -Basic | ( | ) | ( | ) | ||||||||||||
| -Diluted | ( | ) | ( | ) | ||||||||||||
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 June 30, 2023 and December 31, 2022, there were no outstanding stock options, but there were warrants attached to PIPE executed on April 14, 2022 and June 27, 2022 securities that would potentially be converted to additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued were excluded from the calculation of diluted net loss per share.
13. SUBSEQUENT EVENTS
On July 10, 2023, Mr. Jianguang Qian tendered his resignation as the Chief Financial Officer of Takung Art Co., Ltd. (the “Company”), effective immediately. Mr. Qian’s decision to resign was not the result 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. Qian. In connection with Mr. Wang’s
appointment, the Company and Mr. Wang entered into an employment agreement, dated July 10, 2023 (the “CFO Employment Agreement”),
pursuant to which Mr. Wang will receive an annual base salary of $
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with our financial statements and related notes thereto.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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.
NFT Market Insights
Digital artwork based on NFT technology is becoming a hot asset. The earliest NFT projects can be traced back to the 2017 bull market CryptoKitties (the encrypted cats), which had the properties of scarcity and value anchoring of ownership. At its peak, a virtual cat could sell for more than $100,000. In terms of NFT artwork, in March 2021, artist Beeple’s NFT work “Every Day: The First 5,000 Days” sold for $69.346 million, making it the third-highest price for a living artist. According to a report by Invezz, the NFT market was worth $338 million in 2020, and it has grown to reach $490 million in 2021. With the help of the bull market wave, NFT has grown rapidly., As of the first quarter of 2021, the total transaction volume of the NFT market has exceeded 1.5 billion US dollars, an increase of more than 2627% from the previous quarter. In April 2021, the total market value of NFTs exceeded $30 billion for the first time, setting a new all-time high. Currently, NFTs can be used in the fields including games, artworks, domain names, insurance, collectibles, virtual assets, real assets, identities, etc. With the vigorous development of the digital world, many businesses will appear in the form of digital original ecology, and the huge application space and technological imagination of NFT are expected to become more and more attractive in the new digital economy world.
New Business Model
TKAT’s business model revolves around the theme of “free circulation of value and creation of a unique digital work exchange platform,” allowing each user to create, buy and sell various irreplaceable digital works to realize the value of works.
20
New Business Services
| A. | Providing consulting services such as artwork valuation/appreciation potential |
TKAT taps into the needs of users to provide comprehensive consulting services such as labor cost, artist influence, artistic value of works, and channels for obtaining works, which not only serves customers but also creates value for the company.
| B. | NFT trading service |
TKAT has built a fully functional NFT trading platform, which was launched in May 2022. The platform carries the categories of digital works including artwork, music videos, collectibles, game props, sports, metaverse, virtual world, social tokens, and meet the needs of various users as much as possible. Users are able to complete the whole business process including user registration, certification, work uploading, work casting, and work trading through the platform. The platform was launched and placed in service in May 2022. In the transaction process, it not only meets the needs of customers for uploading and purchasing digital works, but the company also extracts a portion of the handling fee (including token minting, first sale, and second sale) to create value.
| C. | Advertising service |
Once the TKAT platform has accumulated a larger user base, it can provide advertising and publicity services for users or the company itself. The business model is not limited to categories and industries, such as investment promotion, work promotion, and industry promotion.
New Strategic Direction
TKAT is committed to creating a digital original ecological platform that integrates games, artworks, domain names, insurance, collectibles, virtual assets, real assets, identity and other fields, and changes the market status of traditional industries through its own efforts. Strategic goals include basic platform building, targeted population entry, providing services (consulting services, transaction services, advertising services), optimizing the platform and expanding the scope of services.
Competitor analysis
Opensea is an NFT market exchange. It has more than 20,000 users. Compared with projects in the popular decentralized finance (“DeFi”) field, it is second only to Uniswap, kyber and Compound, and higher than maker, 0x, etc. As a trading platform with a relatively high status in the NFT field, OpenSea has a complete range of collections, equivalent to Taobao in the NFT world. At present, the trading market of OpenSea has nearly 40,000 users, and the monthly transaction volume exceeds 5 million US dollars. Coinbase’s new NFT platform hits 1.4 million signups. The Coinbase platform has an active population of 50,000 users. The service rates for each service are as follows: 1. Rarible’s minting fees are borne by the creators themselves, and the royalties are also set by the creators themselves, with default amounts of 10%, 20% and 30%. 2. VIV3’s NFT minting costs and profits come from the 12.5% service fee it collects on the first and second sales. 3. OpenSea does not need gas fee to mint NFT. 4. Rarible charges a 2.5% service fee on the first sale. On the SuperRare platform, a 15% commission is charged on the first sale and a 3% fee (paid by the buyer) is charged on the second sale.
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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. Converting 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 Digital art, Digital oil painting, Produced by Gallery, Personal products, Artist signature, Oil on canvas, Print, Paper ink, Device, Comprehensive media, Derivative, and it will be continuously enriched and improved according to customer interests. The NFT trading platform has stable performance, high security and is easy to maintain. At the front end of the system, the Company will continuously improve the operability and user experience of the system focusing on improving the user experience.
Technical advantages
Takung’s digital works exchange platform that has been launched is built by a professional technical team. Each technician has rich industry experience, can work under a short development cycle or high pressure, and has a number of relevant industry benchmarking projects experience. The capability of the technical team ensures the strong technical support in later system optimization and iterative updates.
Marketing advantages
The Company has a professional marketing team. After the platform goes online, it can be promoted online and offline simultaneously, so as to quickly increase the popularity of the platform, and use professional marketing solutions to attract more creators and purchasers to join in the platform.
We expect that we will generate revenue from the offering and trading of NFT on the Company’s system, primarily consisting of membership fee, trading commissions, and advertising fees.
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THREE MONTHS ENDED JUNE 30, 2023 COMPARED TO THREE MONTHS ENDED JUNE 30, 2022
The following tables set forth our interim condensed consolidated statements of income data with a percentage:
| 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 June 30, 2023 and 2022, our operations generated revenues in an amount of $574,777 and $694,175, respectively.
The following table sets forth our interim condensed consolidated revenue by revenue source:
| 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 | - | - | ||||||
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| (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 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 June 30, 2023 and 2022 was $574,777 and $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. 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 June 30, 2023 and 2022, our operations did not generate management fee revenue.
Revenue by customer type
The following table presents our revenue by customer type:
| 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 | ||||
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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 $424,447 and $543,245 for three months ended June 30, 2023 and 2022, respectively.
Operating Expenses
General and administrative expenses for the three months ended June 30, 2023 were $735,468 compared to $7,651,844 for the three months ended June 30, 2022.
The following table sets forth the main components of the Company’s general and administrative expenses for the three months ended June 30, 2023 and June 30, 2022.
| 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 | ||||||||||||
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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)
Other income/(expenses) for the continued operations for the three months ended June 30, 2023 and 2022 were $294,746 and $(8,808), respectively.
Other income for the discontinued operations for the three months ended June 30, 2023 and 2022 were $nil and $8,633, respectively.
Profit/(Loss) before income taxes
Our continuing operations incurred loss before income taxes $9,867 and $6,848,657 for the three months ended June 30, 2023 and 2022, respectively.
Our discontinued operations incurred profit/(loss) before income taxes, $6,863,401 and $(260,117) for the three months ended June 30, 2023 and 2022, respectively.
Income tax expense
For the three months ended June 30, 2023 and 2022, our continuing operations incurred income tax expense as $35,959 and $48,996, respectively.
The income tax expense from the discontinued operations for the three months ended June 30, 2023 and 2022 were $nil and $nil.
Net Profit/(Loss)
As a result of our operations aforementioned, our net losses after income taxes for continuing operations for the three months ended June 30, 2023 and 2022 were $45,826 and $6,897,653, respectively. Our discontinued operations generated net profit/(loss) after income tax $6,863,401 and $(260,117) for the three months ended June 30, 2023 and 2022, respectively.
Foreign currency translation gain (loss)
We had a foreign currency translation gain (loss) for the three months ended June 30, 2023 and 2022 of $(7,605) and $180,638, respectively.
Comprehensive loss
As a result of the above, we posted a comprehensive income of $6,809,970 and $(6,977,132) for the three months ended June 30, 2023 and 2022, respectively.
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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.
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(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%.
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Overall 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 administrative 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 $8,367, respectively.
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Income tax expense
The Company’s effective tax rate varies due to the multiple jurisdictions in which it books its pretax income or losses. The Company was subject to a U.S. income tax rate of 21%, Hong Kong profits tax rate of 8.25% for the first HK$ 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 consolidated statements of cash flow:
| Six months ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Net cash provided by operating activities-continuing operations | $ | 340,877 | $ | 3,757,106 | ||||
| Net cash provided by operating activities- discontinued operations | (1,267,255 | ) | 1,603,097 | |||||
| (926,378 | ) | 5,360,203 | ||||||
| Net cash provided by investing activities- continuing operations | - | - | ||||||
| Net cash provided by investing activities- discontinued operations | 61,376 | (1,656 | ) | |||||
| 61,376 | (1,656 | ) | ||||||
| Proceeds from a short-term borrowing from a third party | - | - | ||||||
| Net cash provided by financing activities-continuing operations | 500,000 | 30,300,007 | ||||||
| Net cash provided by financing activities-discontinued operations | - | - | ||||||
| 500,000 | 30,300,007 | |||||||
| Effect of exchange rate change on cash and cash equivalents, and restricted cash from continuing operations | - | 206,456 | ||||||
| Effect of exchange rate change on cash and cash equivalents, and restricted cash from discontinued operations | (29,729 | ) | (400,243 | ) | ||||
| (29,729 | ) | (193,787 | ) | |||||
| 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 | |||||
| (394,731 | ) | 35,464,767 | ||||||
| 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 | 1,235,608 | 338,542 | ||||||
| 67,597,235 | 1,841,695 | |||||||
| Cash and cash equivalents and restricted cash, ending balance- continuing operations | $ | 67,202,504 | $ | 35,766,722 | ||||
| Cash and cash equivalents and restricted cash, ending balance- discontinued operations | - | 1,539,740 | ||||||
| $ | 67,202,504 | $ | 37,306,462 | |||||
30
Sources of Liquidity
The cash and cash equivalent and the restricted cash balances from the continuing operations as of June 30, 2023 and 2022 were $67,202,504 and $35,766,722 respectively.
The cash and cash equivalent balance from the discontinued operations as of June 30, 2023 were $nil and $1,539,740, respectively.
For the six months ended June 30, 2023, net cash provided by operating activities from continuing operation was $340,877. While there was no cash transactions related to investing activities from our continuing operations during the six months ended June 30, 2023, our continuing operations incur net cash provided by financing activities, $500,000.
For the six months ended June 30, 2023, net cash provided by in operating activities by our discontinued operations was $(1,267,255). Net cash provided by investing activities by our discontinued operations was $61,376. Our discontinued operations did not incur cash inflow or outflow from financing activities.
As of June 30, 2023, the total current liabilities from the continuing operations were $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 amount to $nil.
As of June 30, 2023, the continuing operations of the Company had cash, restricted cash and cash equivalents of $67,202,504, a working capital in an amount of $59,163,897 and the total assets of $69,099,466.
31
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 about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, which presently comprises our Chief Executive Officer, Mr. Kuangtao Wang and our Chief Financial Officer, Mr. 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 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 June 30, 2023 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
32
PART 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 intends to fully cooperate with the local authority’s investigation. As of the date of this report, there has been no development in regard with this investigation.
ITEM 1A. RISK FACTORS
As of the date of this report and except as set forth below, there have been no material changes to the risk factors disclosed in our annual report on Form 10-K filed with the SEC on April 17, 2023, as amended.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
The following exhibits are filed herewith:
| Exhibit No. | Description | |
| 31.1 | Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934. | |
| 31.2 | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934. | |
| 32.1 | Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350. | |
| 32.2 | Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TAKUNG ART CO., LTD | ||
| Date: August 14, 2023 | By: | /s/ Kuangtao Wang |
| Kuangtao Wang | ||
| Co-Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 14, 2023 | By: | /s/ Yaobin Wang |
| Yaobin Wang | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
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