UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
or
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________________ to _________________________
Commission File Number: 001-38036
TAKUNG ART CO., LTD
(Exact name of registrant as specified in its charter)
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Delaware |
26-4731758 |
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(State or other jurisdiction of
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(I.R.S. Employer
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Room 709 Tower 2, Admiralty Centre, 18 Harcourt Road, Admiralty, Hong Kong |
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(Address of principal executive offices) |
(Zip Code) |
+852 3158 0977
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock |
TKAT |
NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Non-accelerated filer ☒ |
Smaller reporting company ☒ |
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Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The number of shares of common stock issued and outstanding as of August 13, 2021 is 11,667,444.
FORM 10-Q
TAKUNG ART CO., LTD
INDEX
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Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) |
3 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation. |
18 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
29 |
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30 |
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31 |
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32 |
2
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)
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 OPERATIONS AND COMPREHENSIVE LOSS
(Stated in U.S. Dollars except Number of Shares)
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For the Three Months Ended |
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For the Six Months Ended |
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June 30, |
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June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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(Unaudited) |
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(Unaudited) |
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(Unaudited) |
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(Unaudited) |
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Revenue |
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Listing fee |
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$ |
283,302 |
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$ |
380,846 |
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$ |
557,094 |
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$ |
557,789 |
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Commission |
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648,310 |
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1,188,313 |
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1,006,396 |
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2,089,136 |
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Management fee |
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211,883 |
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110,006 |
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359,113 |
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213,526 |
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Total revenue |
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1,143,495 |
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1,679,165 |
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1,922,603 |
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2,860,451 |
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Cost of revenue |
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(452,465) |
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(754,062) |
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(704,702) |
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(1,410,576) |
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Gross profit |
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691,030 |
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925,103 |
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1,217,901 |
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1,449,875 |
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Operating expenses: |
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General and administrative expenses |
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(7,952,314) |
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(929,728) |
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(8,965,472) |
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(2,040,175) |
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Selling expenses |
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(131,558) |
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(61,585) |
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(236,469) |
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(104,574) |
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Total operating expenses |
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(8,083,872) |
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(991,313) |
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(9,201,941) |
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(2,144,749) |
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Loss from operations |
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(7,392,842) |
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(66,210) |
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(7,984,040) |
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(694,874) |
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Other income and expenses: |
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Other (expenses) income |
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(732) |
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65,139 |
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22,081 |
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103,444 |
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Loan interest expense |
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— |
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(39,447) |
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— |
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(78,360) |
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Exchange gain (loss) |
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179,109 |
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33,210 |
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170,133 |
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(203,485) |
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Total other income (expenses) |
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178,377 |
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58,902 |
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192,214 |
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(178,401) |
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Loss before provision for income taxes |
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(7,214,465) |
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(7,308) |
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(7,791,826) |
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(873,275) |
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Income tax expense |
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11,366 |
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7,461 |
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6,593 |
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94,856 |
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Net loss |
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$ |
(7,225,831) |
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$ |
(14,769) |
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$ |
(7,798,419) |
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$ |
(968,131) |
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Foreign currency translation adjustment |
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3,933 |
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(1,608) |
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(33,830) |
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(10,376) |
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Comprehensive loss |
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$ |
(7,221,898) |
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$ |
(16,377) |
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$ |
(7,832,249) |
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$ |
(978,507) |
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Loss per common share - basic |
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$ |
(0.624) |
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$ |
(0.001) |
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$ |
(0.682) |
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$ |
(0.086) |
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Loss per common share - diluted |
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$ |
(0.624) |
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$ |
(0.001) |
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$ |
(0.682) |
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$ |
(0.086) |
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Weighted average number of common shares outstanding-basic |
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11,579,690 |
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11,258,467 |
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11,427,248 |
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11,256,798 |
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Weighted average number of common shares outstanding-diluted |
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11,579,690 |
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11,258,467 |
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11,427,248 |
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11,256,798 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
4
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Stated in U.S. Dollars except Number of Shares)
(UNAUDITED)
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Accumulated |
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Additional |
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other |
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Number |
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Common |
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Paid-in |
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Accumulated |
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comprehensive |
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of shares |
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Stock |
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capital |
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deficit |
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loss |
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Total |
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Balance, December 31, 2020 |
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11,271,379 |
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$ |
11,271 |
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$ |
6,358,115 |
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$ |
(226,311) |
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$ |
(328,030) |
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$ |
5,815,045 |
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Shared-based compensation |
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— |
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— |
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3,717 |
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— |
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— |
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3,717 |
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Net loss |
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— |
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— |
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— |
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(572,588) |
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— |
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(572,588) |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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(37,763) |
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(37,763) |
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Balance, March 31, 2021 |
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11,271,379 |
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11,271 |
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6,361,832 |
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(798,899) |
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(365,793) |
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5,208,411 |
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Issuance of ordinary shares for restricted stock award |
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335,000 |
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335 |
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6,863,814 |
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— |
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— |
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6,864,149 |
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Exercise of stock options |
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61,065 |
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61 |
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180,424 |
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— |
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— |
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180,485 |
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Shared-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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(7,225,831) |
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— |
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(7,225,831) |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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3,933 |
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3,933 |
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Balance, June 30, 2021 |
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11,667,444 |
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$ |
11,667 |
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$ |
13,406,070 |
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$ |
(8,024,730) |
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$ |
(361,860) |
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$ |
5,031,147 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
5
TAKUNG ART CO., LTD AND SUBSIDIARIES
INTERIM CONDENSED Consolidated Statements of Cash Flows
(Stated in U.S. Dollars)
(UNAUDITED)
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Six Months Ended |
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June 30, |
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June 30, |
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2021 |
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2020 |
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Cash flows from operating activities: |
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Net cash provided by (used in) operating activities |
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$ |
9,831,372 |
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$ |
(3,782,887) |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(1,231) |
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(18,388) |
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Loan repayment from a third party |
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390,198 |
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— |
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Net cash provided by (used in) investing activities |
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388,967 |
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(18,388) |
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Cash flows from financing activities: |
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Proceeds from stock option exercised |
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180,485 |
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— |
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Net cash provided by financing activities |
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180,485 |
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— |
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Effect of exchange rate change on cash, cash equivalents and restricted cash |
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53,269 |
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(80,470) |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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10,454,093 |
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(3,881,745) |
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Cash, cash equivalents and restricted cash, beginning balance |
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13,842,745 |
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21,829,154 |
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Cash, cash equivalents and restricted cash, ending balance |
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$ |
24,296,838 |
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$ |
17,947,409 |
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Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets |
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Cash and cash equivalents as of June 30, 2021 and 2020, respectively |
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4,263,355 |
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5,511,461 |
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Restricted cash as of June 30, 2021 and 2020, respectively |
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20,033,483 |
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12,435,948 |
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Total cash, cash equivalents, and restricted cash as of June 30, 2021 and 2020, respectively |
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$ |
24,296,838 |
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$ |
17,947,409 |
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Supplemental cash flows information: |
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Cash paid for interest |
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$ |
— |
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$ |
— |
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Cash paid for income tax |
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$ |
112,491 |
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$ |
29,935 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
6
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”), 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 onSeptember 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.
Takung (Shanghai) Co., Ltd (“Shanghai Takung”) is a limited liability company, with a registered capital of $1 million, located in the Shanghai Pilot Free Trade Zone. Shanghai Takung was incorporated on July 28, 2015. It is engaged in providing services to its parent company Hong Kong Takung by receiving deposits from and making payments to online artwork traders of Takung for and on behalf of Takung. Shanghai Takung was deregistered on May 8, 2020 and the Company merged the operations of Shanghai Takung with Takung Cultural Development (Tianjin) Co., Ltd.
Takung Cultural Development (Tianjin) Co., Ltd (“Tianjin Takung”) provides technology development services to Hong Kong Takung and also carries out marketing and promotion activities in mainland China. It is engaged in providing services to its parent company Hong Kong Takung by receiving deposits from and making payments to online artwork traders of Takung for and on behalf of Takung when Shanghai Takung was deregistered.
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 currently has no operations. On June 19, 2019, as a result of a private transaction, one (1) share of common stock of Hong Kong MQ was transferred from Ms. Hiu Ngai Ma to the Company. The net asset of Hong Kong MQ was $nil as of the acquisition date. The consideration paid for the ownership transfer, which represent 100% of the issued and outstanding share capital of Hong Kong MQ, was $0.13 (HK$1). Hong Kong MQ became a direct wholly-owned subsidiary of the Company.
MQ (Tianjin) Enterprise Management Consulting Co., Ltd. (“Tianjin MQ”) was incorporated in Tianjin, PRC on July 9, 2019 and is a directly wholly owned subsidiary of Hong Kong MQ. It was established as a limited liability company with a registered capital of $100,000 located in the Pilot Free Trade Zone in Tianjin. Tianjin MQ focused on exploring business opportunities and promoting its artwork trading business. Tianjin MQ was deregistered on August 10, 2020 due to the Company streamlining its operation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated balance sheet as of December 31, 2020, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of June 30, 2021 and for the six months ended June 30, 2021 and 2020 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures, which are normally included in financial statements prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”), have been condensed or omitted pursuant to such rules and regulations. Management believes that the disclosures made are adequate to provide a fair presentation. The interim financial information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, previously filed with the SEC.
7
Since early 2020, a strain of coronavirus (COVID-19) has spread globally and triggered other discruptions which have adversely impacted the global economic activities. The extent of the impact of the coronavirus on the Company’s business and operations will depend on several factors, such as the duration, severity, and geographic spread of the pandemic, development of the testing and treatment and stimulus measures of the government. For the six months ended June 30, 2021, we had experienced fewer listing of artworks, fewer non-VIP traders, and incurred lower listing and commission revenues compared to the same period in 2020. The Company is monitoring and assessing the evolving situation closely and evaluating its potential exposure. The operating results for the six months ended June 30, 2021 may not be indicative of the future operating results for the fiscal year ending December 31, 2021 or other future periods, particularly in light of the uncertain impact COVID-19 could have on the Company’s business.
This basis of accounting involves the application of accrual accounting and consequently, 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.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s interim condensed consolidated financial position as of June 30, 2021, its interim condensed consolidated results of operations and cash flows for the six months ended June 30, 2021 and 2020, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
Recent Accounting Pronouncements
Except for the ASUs issued but not yet adopted disclosed in Note 2 to the financial statements on Form 10-K for the fiscal year ended December 31, 2020, previously filed with the SEC, there is no ASU issued by the FASB that is expected to have a material impact on the condensed consolidated financial statements upon adoption.
3. PREPAYMENT AND OTHER CURRENT ASSETS, NET
Prepayment and other current assets mainly consist of the prepaid tax, prepaid service fees, as well as staff advance.
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June 30, |
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December 31, |
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2021 |
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2020 |
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(Unaudited) |
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Prepaid tax |
|
$ |
15,317 |
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$ |
32,262 |
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Prepaid service fees |
|
|
98,744 |
|
|
202,647 |
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Prepaid rent |
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|
258,890 |
|
|
— |
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Staff advance |
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|
2,664 |
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|
2,299 |
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Deposit |
|
|
15,705 |
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|
35,879 |
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Other current assets |
|
|
791 |
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|
6,300 |
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Less: allowance for doubtful accounts |
|
|
— |
|
|
— |
|
Prepayment and other current assets, net |
|
$ |
392,111 |
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$ |
279,387 |
No provision for doubtful accounts was recognized for the three and six months ended June 30, 2021 and 2020, respectively. The Company has written off the doubtful account balance and deducted from bad debt provision related to the short-term borrowings to a third party in an amount of $54,193 during the six months ended June 30, 2020.
4. ACCOUNT RECEIVABLES, NET
Account receivables consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2021 |
|
2020 |
||
|
|
|
(Unaudited) |
|
|
|
|
|
Listing fee |
|
$ |
412,063 |
|
$ |
154,771 |
|
Less: allowance for doubtful accounts |
|
|
— |
|
|
— |
|
Account receivables, net |
|
$ |
412,063 |
|
$ |
154,771 |
No provision for doubtful accounts was recognized for the three and six months ended June 30, 2021 and 2020, respectively.
8
The Company has written off the doubtful accounts balance and deducted from bad debt provision in an amount of $2,010,251 during the six months ended June 30, 2020.
5. LOAN RECEIVABLES
The following table sets forth a summary of the loan agreements in loan receivables balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount in |
|
|
|
|
|
|
|
|
|
|
|
|
Original |
|
Outstanding |
|
Reporting |
|
Annual |
|
|
|
|
|
|
|
|
|
|
Amount |
|
Balance |
|
Currency |
|
Interest |
|
Repayment |
|
|
Date |
|
Borrower |
|
Lender |
|
(RMB) |
|
(RMB) |
|
(USD) |
|
Rate |
|
Due Date |
|
|
7/18/2019 |
|
Chongqing Aoge Import and Export Co. |
|
Tianjin Takung |
|
5,000,000 |
|
5,000,000 |
|
$ |
774,401 |
|
0 |
% |
4/1/2022 |
|
8/29/2019 |
|
Chongqing Aoge Import and Export Co. |
|
Tianjin Takung |
|
5,000,000 |
|
5,000,000 |
|
$ |
774,401 |
|
0 |
% |
4/1/2022 |
|
9/20/2019 |
|
Chongqing Aoge Import and Export Co. |
|
Tianjin Takung |
|
4,000,000 |
|
4,000,000 |
|
$ |
619,522 |
|
0 |
% |
4/1/2022 |
|
|
|
|
|
|
|
Total |
|
|
|
$ |
2,168,324 |
|
|
|
|
All the transactions entered with Chongqing Aoge Import and Export co. were aimed to meet the Company’s working capital needs in U.S. Dollars, which are freely convertible to Hong Kong Dollar.
| ● | The interest-free loans (the “RMB Loans”) entered into by Tianjin Takung were guaranteed by Mr. Daquan Wang who is a General Manager and legal representative of Chongqing Aoge Import and Export Co. (“Chongqing”). Mr. Daquan Wang is a citizen of the People’s Republic of China. Both Chongqing and Mr. Daquan Wang are non-related parties to the Company. |
| ● | Hong Kong Takung entered into loan agreements (the “Hong Kong Dollar Loans”) with Friend Sourcing Ltd., a Hong Kong company (“Friend Sourcing”) with interest accruing at a rate of 8% per annum (See Note 8). Friend Sourcing is a non-related party to the Company. |
The transactions with Friend Sourcing were aimed to meet the Company’s working capital needs in Hong Kong Dollars.
Through an understanding between Chongqing Aoge Import and Export Co. and Friend Sourcing, the Hong Kong Dollar Loans are “secured” by the RMB Loans. It is the understanding between the parties that the Hong Kong Dollar Loans and the RMB Loans will be repaid simultaneously. The loans were extended on August 1, 2020 with a new repayment due date on April 1, 2022.
On November 30, 2020, Tianjin offered a short-term financing in an amount of $1,006,722 (RMB6,500,000) with an annual interest rate at 6% to a non-related third party, Tianjin Zhiyuan Enterprise Management Co., Ltd. The loan was matured on February 2, 2021. Portion of the loan amount, $542,081 (RMB 3,500,000) was paid off on December 31, 2020 . The remaining balance, $469,071 (RMB3,028,603), inclusive of the outstanding principal balance, $464,641 (RMB3,000,000) and interest receivable, $4,430 (RMB28,603) was fully repaid on January 27, 2021.
6. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2021 |
|
2020 |
||
|
|
|
(Unaudited) |
|
|
|
|
|
Furniture, fixtures and equipment |
|
$ |
219,966 |
|
$ |
218,430 |
|
Leasehold improvements |
|
|
23,179 |
|
|
23,216 |
|
Computer trading and clearing system |
|
|
3,476,614 |
|
|
3,468,346 |
|
Transport equipment |
|
|
111,415 |
|
|
110,245 |
|
Sub-total |
|
|
3,831,174 |
|
|
3,820,237 |
|
Less: accumulated depreciation |
|
|
(3,557,613) |
|
|
(3,382,241) |
|
Property and equipment, net |
|
$ |
273,561 |
|
$ |
437,996 |
9
Depreciation expense was $71,029 and $119,060 for the three months ended June 30, 2021 and 2020, respectively, and $167,642 and $246,990 for the six months ended June 30, 2021 and 2020, respectively.
7. ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables as of June 30, 2021 and December 31, 2020 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2021 |
|
2020 |
||
|
|
|
(Unaudited) |
|
|
|
|
|
Accruals for professional fees |
|
$ |
551,400 |
|
$ |
267,427 |
|
Accruals for consulting fees |
|
|
344,333 |
|
|
365,634 |
|
Payroll payables |
|
|
99,262 |
|
|
80,026 |
|
Trading and clearing system |
|
|
5,509 |
|
|
— |
|
Other payables |
|
|
22,810 |
|
|
15,001 |
|
Total accrued expenses and other payables |
|
$ |
1,023,314 |
|
$ |
728,088 |
8. SHORT-TERM BORROWINGS FROM A THIRD PARTY
In July 2019, Hong Kong Takung entered into HKD Loans with Friend Sourcing with interest accruing at a rate of 8% per annum. The HKD Loans are to provide Hong Kong Takung with sufficient HKD currency to meet its working capital requirements. Friend Sourcing is a non-related party to the Company. On April 1, 2021, Hong Kong Takung extended the due date of the HKD Loans with Friend Sourcing to July 30, 2021. On August 1, 2021, Hong Kong Takung further extended the financing with Friend Souring to April 1, 2022.
In the meantime, Tianjin Takung entered interest-free RMB Loans with another third party as a guarantee for the HKD Loans. The loan amount was $2,168,324 (RMB 14,000,000). Through an understanding between the two third parties, the HKD Loans are “secured” by the RMB Loans. It is an understanding between the parties that when the HKD Loans are repaid, the RMB Loans will be repaid at the same time. On August 1, 2021, Tianjin Takung further extended the financing with the third party to April 1, 2022.
The weighted average interest rate of outstanding short-term borrowings was 8% per annum as of June 30, 2021. The fair value of the short-term borrowings approximates their carrying amounts. The interest expenses for the short-term borrowings were $nil and $38,913 for the six months ended June 30, 2021 and 2020, respectively.
9. RELATED PARTY BALANCES AND TRANSACTIONS
The following is a list of director and related parties to which the Company has transactions with:
| (a) | Jianping Mao (“Mao”), Human Resources Management Director of Hong Kong Takung; |
| (b) | Jing Wang (“Wang”), fomer Chief Financial Officer of the Company from June 1, 2020 through June 1, 2021 and former legal representative of Tianjin Takung during period from May 28, 2020 to September 24, 2020. On June 1, 2021, the term of the employment of Wang expired; |
| (c) | Sze Chan (“Chan”), Vice President of Hong Kong Takung since November 17, 2020. |
10
Amount due from related parties, net
Amount due from related parties consisted of the following as of the years indicated:
Amount due to related parties
Amount due to related parties consisted of the following as of the years indicated:
(i) Amount due to and due from Wang and Chan
On May 29, 2020, Hong Kong Takung entered into an interest-free loan agreement (the “HK Dollar Working Capital Loan”) with Wang for the loan of $6,438,487 (HK$50,000,000) to Hong Kong Takung. The purpose of the loan is to provide Hong Kong Takung with sufficient Hong Kong Dollar-denominated currency to meet its working capital requirements with the maturity date of the loan as May 15, 2021. Hong Kong Takung extended the loan with Wang with the maturity date on May 15, 2022. On May 29, 2021, the loan agreement was transferred to Chan with the identical maturity date.
In a meantime, Tianjin Takung entered into an interest-free loan agreement (the “RMB Working Capital Loan”) with Wang for the loan of $6,291,082 (RMB40,619,000) with the maturity date of the loan as May 15, 2021. Tianjin Takung is currently negotiating an extension of the loan with Wang. Tianjin Takung extended the loan arrangement with Wang with the maturity date on May 15, 2022. On May 29, 2021, the loan agreement was transferred to Chan with the identical maturity date.
Through an understanding between Chan and the Company, the HK Dollar Working Capital Loan is “secured” by the RMB Working Capital Loan. It is the understanding between the parties that the HK Dollar Working Capital Loan and the RMB Working Capital Loan will be repaid simultaneously.
(ii) Amount due to and due from Mao
The amount due from Mao is primarily related to the lease deposit from Mao. On May 13, 2019, the Company entered into a non-cancellable lease agreement with a related party, Mao for its office location in Tianjin, PRC. The leased office location is approximately 2,090.61 square meters. The lease was set to expire on May 12, 2021. The Company is charged rent at a rate of $0.55 per square meter per day. The agreement requires a lump sum payment of $209,994 (RMB1,449,838) every six months and a deposit of $111,099 (RMB724,919). On May 12, 2020, the Company terminated the lease and recognized bad debt expense of $111,099 related to the deposit paid to Mao due to the remote likelihood of collecting the rent deposit. No related lease liability was recognized as of December 31, 2020 and June 30,2021.
11
(iii) Rent prepayment to Mao
On March 1, 2021, Tianjin Takung entered into two lease agreements with a related party, Mao for its office location in Tianjin, PRC and employee accommodation in Hong Kong. The leases will expire on February 28, 2022. Monthly rental payments for the office location and employee accommodation are $25,168 (RMB 162,500) and $7,163 (RMB46,250), respectively. The agreements require lump sum payments of $302,017 (RMB1,950,000) and $85,959 (RMB555,000), respectively. As of June 30, 2021, total rent amount paid to Mao with respect to these agreements included in prepayment was $258,650 (RMB1,670,000).
10. INCOME TAXES
Takung was incorporated in the State of Delaware and is therefore subject to United States income tax. Hong Kong Takung, Takung Art Holdings and Hong Kong MQ were incorporated in Hong Kong S.A.R. People’s Republic of China and are subject to Hong Kong profits tax. Shanghai Takung, Tianjin Takung and Tianjin MQ are PRC corporations and are subject to enterprise taxes in the PRC.
United States of America
The Coronavirus Aid, Relief and Economy Security (CARES) Act (“the CARES Act, H.R. 748”) was signed into law on March 27, 2020. The CARES Act temporarily eliminates the 80% taxable income limitation (as enacted under the Tax Cuts and Jobs Act of 2017) for NOL deductions for 2018-2020 tax years and reinstated NOL carrybacks for the 2018-2020 tax years. Moreover, the CARES Act also temporarily increases the business interest deduction limitations from 30% to 50% of adjusted taxable income for the 2019 and 2020 taxable year. Lastly, the Tax Act technical correction classifies qualified improvement property as 15-year recovery period, allowing the bonus depreciation deduction to be claimed for such property retroactively as if it was included in the Tax Act at the time of enactment. The Company does not anticipate a material impact on its financial statements as of June 30, 2021 due to the recent enactment.
As of June 30, 2021 and December 31, 2020, the Company in the United States had $8,943,958 and $1,454,286 in net operating loss carry forwards available to offset future taxable income, respectively. For net operating losses arising after December 31, 2017, the Tax Act limits the Company’s ability to utilize NOL carryforwards to 80% of taxable income and carryforward the NOL indefinitely. NOLs generated prior to January 1, 2018 will not be subject to the taxable income limitation and will begin to expire in 2033 if not utilized.
Hong Kong
The two-tier profits tax rates system was introduced under the Inland Revenue (Amendment)(No.3) Ordinance 2018 (“the Ordinance”) of Hong Kong became effective for the assessment year 2018/2019. Under the two-tier profit tax rates regime, the profits tax rate for the first HKD 2 million (approximately $257,676) of assessable profits of a corporation will be subject to the lowered tax rate, 8.25% while the remaining assessable profits will be subject to the legacy tax rate, 16.5%. The Ordinance only allows one entity within a group of “connected entities” is eligible for the two-tier tax rate benefit. An entity is a connected entity of another entity if (1) one of them has control over the other; (2) both of them are under the control (more than 50% of the issued share capital) of the same entity; (3) in the case of the first entity being a natural person carrying on a sole proprietorship business-the other entity is the same person carrying on another sole proprietorship business. Since Hong Kong Takung, Takung Art Holdings and Hong Kong MQ are wholly owned and under the control of Takung U.S, these entities are connected entities. Under the Ordinance, it is an entity’s election to nominate the entity that will be subject to the two-tier profits tax rates on its profits tax return. The election is irrevocable. The Company elected Hong Kong Takung to be subject to the two-tier profits tax rates.
The provision for current income and deferred taxes of Hong Kong Takung has been calculated by applying the new tax rate of 8.25%. Takung Art Holdings and Hong Kong MQ still apply the original tax rate of 16.5% for its provision for current income and deferred taxes.
PRC
In accordance with the relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable tax rate on taxable income. All the PRC subsidiaries were subject to income tax at a rate of 25%.
12
The income tax provision consists of the following components:
A reconciliation between the Company’s actual provision for income taxes and the provision at the Hong Kong statutory rate is as follows:
The effective tax rate was (0.2)% and (102.1)% for the three months ended June 30, 2021 and 2020, respectively, and (0.1)% and (10.9)% for the three months ended June 30, 2021 and 2020, respectively.
Uncertain tax positions
The reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions is as follows:
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 interim condensed consolidated financial statements as of June 30, 2020. The Company anticipated that the settlements with the taxing authority are remitted within one year.
13
Our policy is to include interest and penalty charges related to uncertain tax liabilities as necessary in the provision for income taxes. The Company has a liability for accrued interest of $nil as of June 30, 2021 and December 31, 2020, respectively.
Our subsidiary, Hong Kong Takung, has been recently selected for routine examination for its tax years ended 31 December 2016 through 2018 by Hong Kong Inland Revenue Department (“IRD”). As of June 30, 2021 and December 31, 2020, the Company had $nil and $101,789, respectively, of uncertain tax liabilities related to the different methodology of certain non-deductible tax expenses applied by the IRD. The examination had been concluded in May 2021 and the ultimate resolution of the tax examination concurred with the uncertain tax liabilities previously accrued. Hong Kong Takung settled the entire tax liabilities in June 2021.
The statute of limitations for the Internal Revenue Services to assess the income tax returns on a taxpayer expires three years from the due date of the profits tax return or the date on which it was filed, whichever is later.
In accordance with the Hong Kong profits tax regulations, a tax assessment by the IRD may be initiated within six years after the relevant year of assessment, but extendable to 10 years in the case of potential willful underpayment or evasion.
In accordance with PRC Tax Administration Law on the Levying and Collection of Taxes, the PRC tax authorities generally have up to five years to assess underpaid tax plus penalties and interest for PRC entities’ tax filings. In the case of tax evasion, which is not clearly defined in the law, there is no limitation on the tax years open for investigation. Accordingly, the PRC entities remain subject to examination by the tax authorities based on the above.
As of June 30, 2021, the Company did not accrue any liability, interest or penalties related to uncertain tax positions in our provision for income taxes. The Company does not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months.
11. LEASES
The Company has operating leases for its office facilities and artwork storages. The Company’s leases have remaining terms of less than one year to approximately four years. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes.
The following table provides a summary of leases by balance sheet location as of June 30, 2021:
14
The operating lease expenses for the three months and six months ended June 30, 2021 and 2020 were as follows:
Maturities of operating lease liabilities at June 30, 2021 were as follows:
15
12. LOSS PER SHARE
Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted-average number of common shares and dilutive potential common shares outstanding during the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
|
June 30, |
|
June 30, |
||||||||
|
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,225,831) |
|
$ |
(14,769) |
|
$ |
(7,798,419) |
|
$ |
(968,131) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding - Basic |
|
|
11,579,690 |
|
|
11,258,467 |
|
|
11,427,248 |
|
|
11,256,798 |
|
Stock options and restricted shares |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Weighted-average shares outstanding - Diluted |
|
|
11,579,690 |
|
|
11,258,467 |
|
|
11,427,248 |
|
|
11,256,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic |
|
|
(0.624) |
|
|
(0.001) |
|
|
(0.682) |
|
|
(0.086) |
|
-Diluted |
|
|
(0.624) |
|
|
(0.001) |
|
|
(0.682) |
|
|
(0.086) |
Due to the loss for the three and six months ended June 30, 2021, approximately 100,890 and 39,825 options, respectively, were excluded from the calculation of diluted net loss per share.
Due to the loss for three and six months ended June 30, 2020, approximately 100,890 options were excluded from the calculation of diluted net loss per share.
13. EQUITY
Exercise of stock options:
56,000 and 5,065 stock options were exercised on April 12, 2021 and May 25, 2021, respectively. As a result of the exercise, 61,065 ordinary shares were issued.
Award of restricted shares:
On April 21, 2021, the board of directors of the Company approved an issuance of 335,000 ordinary shares as share-based awards to its independent directors, employees and consultants under the 2015 Incentive Stock Plan. The Company recognized a share-based compensation expense of $6,863,815 in connection with this issuance in April 2021.
14. CONTINGENCIES
On or around July 2020, a claim was filed in the Shanghai Pudong People’s Court, China against Hong Kong Takung on the basis of alleged breaches of contract. The claim amount has yet to be determined. A court hearing was initially scheduled on July 20, 2021 but the Company never received any court order or subpoena. As of the filing of this report, the Company did not have further details nor received any court order related to this claim.
Except for the above, as of June 30, 2021 and through the issuance date of the condensed consolidated financial statements included in this Form 10-Q, the Company does not have any other significant indemnification claims.
16
15. SUBSEQUENT EVENTS
On July 12, 2021, pursuant to the terms of that certain Securites Purchase Agreement dated July 8, 2021, the Company sold 571,429 shares (the “Shares”) of its common stock, par value $0.001 per share (the “Common Stock”), to an institutional investor (the “Investor”) at a price of $8.75 per share, for gross proceeds of $5,000,000 before deducting the placement agent fee and offering expenses (the “Private Placement”). Pursuant to the Registration Rights Agreement the Company and the Investor entered into simultaneously with the Securities Purchase Agreement, the Company filed an initial registration statement (the “Registration Statement”) with the SEC covering the resale of the Shares on July 24, 2021, within the 17 calendar days after the date of the closing. The Company shall use best efforts to have the Registration Statement declared effective as promptly as practical thereafter, and in any event no later than 75 calendar days after the closing in the event of a “full review” by the SEC.
17
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, Hong Kong Takung, operate an electronic online platform located at http://en.takungae.com for artists, art dealers and art investors to offer and trade valuable artwork. We offer on-line 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. Our platform also makes investment in high-end and expensive artwork more accessible to ordinary people without substantial financial resources.
We generate revenue from our services in connection with the offering and trading of artwork on our system, primarily consisting of listing fees, trading commissions and management fees.
Our headquarter is located in Hong Kong, Special Administrative Region, People’s Republic of China and we conduct our business primarily in Hong Kong and Tianjin. Our new principal executive office is located at Room 709, Tower 2, Admiralty Centre, 18 Harcourt Road, Admiralty, Hong Kong.
Recent Developments
While the ongoing coronavirus pandemic is spreading throughout the world, our operations have fully resumed in March 2020. Compared to the same period in 2020, we had experienced fewer listing of artworks, fewer non-VIP traders, and incurred lower listing and commission revenues in the second quarter of 2021. Although we do not expect that the virus will have a material adverse effect on our business or financial results at this time, it is not possible to predict the unanticipated consequence of the pandemic on our future business performance and liquidity due to the severity of global situation of COVID-19. The Company is monitoring and assessing the evolving situation closely and evaluating its potential exposure.
Results of Operation of Takung
Hong Kong Takung operates a platform for offering and trading artwork. We generate revenue from our services in connection with the offering and trading of artwork ownership units on our system, primarily consisting of listing fees, trading commissions, and management fees.
18
THREE MONTHS ENDED JUNE 30, 2021 COMPARED TO THREE MONTHS ENDED JUNE 30, 2020
The following tables set forth our interim condensed consolidated statements of income data with a percentage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
||||||||
|
|
|
2021 |
|
% of Revenue |
|
2020 |
|
% of Revenue |
||
|
|
|
(Unaudited) |
|
|
|
(Unaudited) |
|
|
||
|
Revenue |
|
$ |
1,143,495 |
|
100 |
|
$ |
1,679,165 |
|
100 |
|
Cost of revenue |
|
|
(452,465) |
|
(40) |
|
|
(754,062) |
|
(45) |
|
Selling expense |
|
|
(131,558) |
|
(12) |
|
|
(61,585) |
|
(4) |
|
General and administrative expenses |
|
|
(7,952,314) |
|
(695) |
|
|
(929,728) |
|
(55) |
|
Total costs and expenses |
|
|
(8,536,337) |
|
(747) |
|
|
(1,745,375) |
|
(104) |
|
Loss from operations |
|
|
(7,392,842) |
|
(647) |
|
|
(66,210) |
|
(4) |
|
Interest and other income (expenses), net |
|
|
178,377 |
|
16 |
|
|
58,902 |
|
4 |
|
Loss before income taxes |
|
|
(7,214,465) |
|
(631) |
|
|
(7,308) |
|
0 |
|
Income tax expense |
|
|
11,366 |
|
1 |
|
|
7,461 |
|
1 |
|
Net loss |
|
$ |
(7,225,831) |
|
(632) |
|
$ |
(14,769) |
|
(1) |
Revenue
The following table sets forth our interim condensed consolidated revenue by revenue source:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
||||
|
|
|
2021 |
|
2020 |
||
|
|
|
(Unaudited) |
|
(Unaudited) |
||
|
Listing fee revenue |
|
$ |
283,302 |
|
$ |
380,846 |
|
Commission revenue |
|
|
648,310 |
|
|
1,188,313 |
|
Management fee revenue |
|
|
211,883 |
|
|
110,006 |
|
Total |
|
$ |
1,143,495 |
|
$ |
1,679,165 |
|
(i) |
Listing fee revenue |
As of June 30, 2021, a total of 299 sets of artwork were listed for trade on our platform —comprising 74 sets of paintings and calligraphies from famous Chinese, Russian and Mongolian artists, with a total listing value of $31,900,228 (HK$247,600,000); 35 pieces of jewelry with a total listing value of $9,361,351(HK$72,660,000); 134 pieces of precious stones with a total listing value of $17,011,737 (HK$132,040,000); 29 pieces of amber with a total listing value of $12,239,587 (HK$95,000,000); 4 pieces of antique mammoth ivory carvings with a total listing value of $669,956 (HK$5,200,000); 2 pieces of porcelain pastel paintings with a total listing value of $334,978 (HK$2,600,000); 7 pieces of porcelain with a total listing value of $1,095,121(HK$8,500,000); 6 sets of Unit+ products with a total listing value of $1,328,833 (HK$10,314,000); 1 piece of Yixing collectable with a listing value of $128,838 (HK$1,000,000); and 7 pieces of Sports memorabilia with a listing value of $1,096,332 (HK$8,509,400), of which 22%-48% (for 74 sets of paintings), 24%-48.5% (for the 134 pieces of precious stones), 29%-48% (for the 35 pieces of jewelry), 47%-48.5% (for 4 piece of antique mammoth ivory carvings), 32%-48% (for the 29 pieces of amber), 45%-46% (for the 2 pieces of porcelain pastel paintings), 25%-48% (for the 7 pieces of porcelain), 30.25%-45% (for the 6 sets of Unit+ products), 45% (1 piece of Yixing collectable) and 45% (for the 7 pieces of Sports memorabilia) of the listed values were charged as listing fees, respectively.
During the three months ended June 30, 2021, there was 1 new set of painting listed on our platform. The total listing value was $1,288,376 (HK$10,000,000) for the painting, of which 22% (for the painting) of the listed value was charged as the listing fee.
19
As of June 30, 2020, a total of 292 sets of artwork were listed for trade on our platform —comprising 67 sets of paintings and calligraphies from famous Chinese, Russian and Mongolian artists, with a total listing value of $28,489,331 (HK$221,100,000); 35 pieces of jewelry with a total listing value of $9,362,437 (HK$72,660,000); 134 pieces of precious stones with a total listing value of $17,013,710 (HK$132,040,000); 29 pieces of amber with a total listing value of $12,241,006 (HK$95,000,000); 4 pieces of antique mammoth ivory carvings with a total listing value of $670,034 (HK$5,200,000); 2 pieces of porcelain pastel paintings with a total listing value of $335,017 (HK$2,600,000); 7 pieces of porcelain with a total listing value of $1,095,248 (HK$8,500,000); 6 sets of Unit+ products with a total listing value of $1,328,987(HK$10,314,000); 1 piece of Yixing collectable with a listing value of $128,853 (HK$1,000,000); and 7 pieces of Sports memorabilia with a listing value of $1,096,459 (HK$8,509,400), of which 22.5%-48% (for 67 sets of paintings), 24%-48.5% (for the 134 pieces of precious stones), 29%-48% (for the 35 pieces of jewelry), 47%-48.5% (for 4 piece of antique mammoth ivory carvings), 32%-48% (for the 29 pieces of amber), 45%-46% (for the 2 pieces of porcelain pastel paintings), 25%-48% (for the 7 pieces of porcelain), 30.25%-45% (for the 6 sets of Unit+ products), 45% (1 piece of Yixing collectable) and 45% (for the 7 pieces of Sports memorabilia) of the listed values were charged as listing fees, respectively.
During the three months ended June 30, 2020, there were 5 new sets of paintings listed on our platform. Their total listing values were $1,675,085 (HK$13,000,000) for the paintings, of which 22.90-23% (for the paintings) of the listed values were charged as listing fees.
The listing fees charged fell to $283,302 during the three months ended June 30, 2021 compared to $380,846 for the same period ended June 30, 2020. Compared to those for the three months ended June 30, 2020, the number of new listing of paintings and the value of the artworks were lower during the same period in 2020. There were five sets of paintings listed during the three months ended June 30, 2020 while there was one new artwork listed on our platform during the same period in 2021.
|
(ii) |
Commission fee revenue |
We generate commission fee from non-VIP traders and selected traders as follows:
For non-VIP traders, the commission revenue was calculated based on a percentage of transaction value of artworks, where we charge trading commissions for the purchase and sale of the ownership shares of the artworks. The commission is typically 0.3% of the total amount of each transaction, we currently charge a reduced fee of 0.2% (resulting in an aggregate of 0.4% for both buy and sell transactions) of the total transaction amount with the minimum charge of $0.0013 (HK$0.01).
For selected traders, starting from April 1, 2016, we charged a predetermined monthly fee (unlimited trades for specific artworks) for specific artworks. These traders are selected by authorized agents and reviewed by us. After review, we negotiate individually with each one of them to determine a fixed monthly fee. Different traders may have different rates but once negotiated and agreed to, the monthly fee is fixed. Using the output method, we recognize the monthly commission revenue when the selected traders receive access to our trading platform to make unlimited trades for specific artwork.
We define traders as “inactive” if they meet the following criteria;
| ● | The trader defaults in payment over three months; |
| ● | The trader did not incur any transactions in the month of reassessment; |
| ● | The service agent has confirmed with the relevant trader that he/she was inactive. |
Once an inactive trader has been assessed and identified, his/her contract will be reassessed pursuant to ASC 606-10-25-5 because there has been a significant change in fact and circumstances and pursuant to ASC 606-10-25-1(e), his/her contract will not be deemed to exist and revenue will not be recognized until consideration is received in accordance with ASC 606-10-25-7(a) as we would have already performed our obligations ahead of receiving consideration.
We charge a non-transactional transfer commission on the transfer of the ownership of an artwork. The commission amount is calculated based on 0.3% of the close value of the artwork and each artwork unit. For the large volume of transfer or under certain special circumstances, we charge at an agreed-upon percentage of artworks units.
We used to offer commissions to traders and service agents. Effective January 1, 2019, we no longer offered commission to our traders. For service agents, we offer a total of 40% to 75% of the commission earned from transactions with new traders to the service agents when they bring in an agreed number of traders to the trading platform.
20
The commission paid to the service agents and discounts are recognized as a cost of revenue in the same period the related revenue is recognized.
Total commission revenue significantly decreased by $540,003 or 45.4% for the three months ended June 30, 2021 to $ 648,310 compared to $1,188,313 for the three months ended June 30, 2020. For the three months ended June 30, 2021, the trading amount was approximately $3,485,629,605 (HK$27,068,913,439) compared to $2,215,309,610 (HK$17,192,574,819) in the same period in 2020. The number of active traders reduced by 16,114, from 65,957 in the three months ended June 30, 2020 to 49,843 in the same period in 2021. Although we incurred a higher amount of trading amount in the three months ended June 30, 2021 compared to that in the same period in 2020, majority of the transactions were initiated by our selected traders. Other than the fixed commission revenue from those selected traders, we did not earn additional commission revenue based on the trading transaction volume of those selected traders. Therefore, our commission revenue for the three months ended June 30, 2021 was significantly lower than that in the same period in 2020.
|
(iii) |
Management fee revenue |
We charge traders a management fee to cover the costs of insurance, storage, and transportation for artwork and trading management of artwork units, which are calculated at $0.0013 (HK$0.01) per 100 artwork units per day. The management fee is deducted from proceeds from the sale of artwork units.
During the three months ended June 30, 2021 management fee revenue increased by $101,877 or 92.6%, from $110,006 for the three months ended June 30, 2020 to $211,883 due to an increase in trading transaction volume in the three months ended June 30, 2021 compared to that in the same period in 2020 as discussed above.
Revenue by customer type
The following table presents our revenue by customer type:
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
||||
|
|
|
2021 |
|
2020 |
||
|
|
|
(Unaudited) |
|
(Unaudited) |
||
|
Commissions paid to service agents |
|
$ |
351,352 |
|
$ |
601,704 |
|
Depreciation |
|
|
45,482 |
|
|
88,245 |
|
Internet service charge |
|
|
26,808 |
|
|
36,303 |
|
Artwork insurance |
|
|
12,731 |
|
|
12,151 |
|
Artwork storage |
|
|
16,092 |
|
|
15,659 |
|
Total |
|
$ |
452,465 |
|
$ |
754,062 |
Cost of revenue for the three months ended June 30, 2021 and June 30, 2020 was $452,465 and $754,062, respectively. The decrease in cost of revenue by $301,597 for the three months ended June 30, 2021 compared to June 30, 2020, was mainly due to a plummet in commissions paid to service agents by $250,352 because of a decrease in trading transactions initiated by non-VIP traders during the three months ended June 30, 2021 as discussed above. Additionally, the decrease in the overall cost of revenue was also driven by a fall in depreciation by $42,763 due to some of our computer equipment and trading systems having been fully depreciated.
Gross Profit
Gross profit was $691,030 or 60.4% of the total revenue for the three months ended June 30, 2021 compared to $925,103 or 55.1% of the total revenue for the three months ended June 30, 2020.
21
Although our gross profit for the three months ended June 30, 2021 was lower than that for the same period in 2020, the gross profit margin for the three months ended June 30, 2021 was slightly higher by 5.3% compared to the same period in 2020. The higher gross profit margin was primarily driven by a comparatively lower cost of revenue percentage amount for the three months ended June 30, 2021. The cost of revenue percentage for the three months ended June 30, 2021 was 39.6% whilst it was 44.9% for the same period in 2020.
Operating Expenses
General and administrative expenses for the three months ended June 30, 2021 were $7,952,314 compared to $929,728 for the three months ended June 30, 2020. The increase in general and administrative expenses by $7,022,586 or 755.3% was attributable to a spike in share based compensation expense by $6,844,847 as we granted 335,000 shares to our independent directors, employees and consultants in April 2021, an increase in consultancy fee by $280,026 due to a rise in service fee, an increase in legal and professional fees by $84,781 as a result of additional amounts paid to legal counsel for the closing of capital financing deal and review of agreements as well as to the predecessor auditor for a consent for the annual eport filing and an increase in travel and accommodation fee by $17,349 as we had rented a staff accommodation. The overall increase was offset by a fall in salary and welfare by $59,965 as a result of salary reductions for our executives, a decrease in input VAT expense, $31,747 and others by $94,276 during the three months ended June 30, 2021 compared to the same period in 2020.
The following table sets forth the main components of the Company’s general and administrative expenses for the three months ended June 30, 2021 and June 30, 2020.
Other income
Other income for the three months ended June 30, 2021 was $178,377 compared to other income of $58,902 for the same period in 2020. The significant increase in other income for the three months ended June 30, 2021 is predominantly due to a significant increase in foreign currency exchange gain by $145,899, arising from the appreciation of the Renminbi against the US dollar.
Income tax expense
The Company’s effective tax rate varies due to the multiple jurisdictions in which it books its pretax income or losses. The Company was subject to a U.S. income tax rate of 21%, Hong Kong profits tax rate of 8.25% for the first HK$ 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 three months ended June 30, 2021 and 2020 were (0.2)% and (102.1)% respectively.
22
The income tax expense and income tax expense were $11,366 and $7,461 for the three months ended June 30, 2021 and 2020, respectively. The income tax expense was due to Tianjin Takung generating taxable income before tax for the three months ended June 30, 2021.
Net loss
We recorded a net loss of $7,225,831 and $14,769 for the three months ended June 30, 2021 and 2020, respectively.
The increase in the net loss by $7,211,062 during this current period compared to the same period in 2020 was predominantly due to a significant increase in total general and administrative expenses as discussed aforementioned.
SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO SIX MONTHS ENDED JUNE 30, 2020
The following tables set forth our condensed consolidated statements of income data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
||||||||
|
|
|
June 30, |
||||||||
|
|
|
|
|
|
% of |
|
|
|
|
% of |
|
|
|
2021 |
|
Revenue |
|
2020 |
|
Revenue |
||
|
|
|
(Unaudited) |
|
|
|
(Unaudited) |
|
|
||
|
Revenue |
|
$ |
1,922,603 |
|
100 |
|
$ |
2,860,451 |
|
100 |
|
Cost of revenue |
|
|
(704,702) |
|
(37) |
|
|
(1,410,576) |
|
(49) |
|
Selling expense |
|
|
(236,469) |
|
(12) |
|
|
(104,574) |
|
(4) |
|
General and administrative expenses |
|
|
(8,965,472) |
|
(466) |
|
|
(2,040,175) |
|
(71) |
|
Total costs and expenses |
|
|
(9,906,643) |
|
(515) |
|
|
(3,555,325) |
|
(124) |
|
Loss from operations |
|
|
(7,984,040) |
|
(415) |
|
|
(694,874) |
|
(24) |
|
Interest and other expenses, net |
|
|
192,214 |
|
10 |
|
|
(178,401) |
|
(6) |
|
Loss before income taxes |
|
|
(7,791,826) |
|
(405) |
|
|
(873,275) |
|
(30) |
|
Income tax expense |
|
|
6,593 |
|
0 |
|
|
94,856 |
|
3 |
|
Net loss |
|
$ |
(7,798,419) |
|
(405) |
|
$ |
(968,131) |
|
(33) |
Revenue
The following table sets forth our condensed consolidated revenue by revenue source:
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
||||
|
|
|
June 30, |
||||
|
|
|
2021 |
|
2020 |
||
|
|
|
(Unaudited) |
|
(Unaudited) |
||
|
Listing fee revenue |
|
$ |
557,094 |
|
$ |
557,789 |
|
Commission |
|
|
1,006,396 |
|
|
2,089,136 |
|
Management fee revenue |
|
|
359,113 |
|
|
213,526 |
|
Total |
|
$ |
1,922,603 |
|
$ |
2,860,451 |
23
| (i) | Listing fee revenue |
As of June 30, 2021, a total of 299 sets of artwork were listed for trade on our platform —comprising 74 sets of paintings and calligraphies from famous Chinese, Russian and Mongolian artists, with a total listing value of $31,900,228 (HK$247,600,000); 35 pieces of jewelry with a total listing value of $9,361,351(HK$72,660,000); 134 pieces of precious stones with a total listing value of $17,011,737 (HK$132,040,000); 29 pieces of amber with a total listing value of $12,239,587 (HK$95,000,000); 4 pieces of antique mammoth ivory carvings with a total listing value of $669,956 (HK$5,200,000); 2 pieces of porcelain pastel paintings with a total listing value of $334,978 (HK$2,600,000); 7 pieces of porcelain with a total listing value of $1,095,121(HK$8,500,000); 6 sets of Unit+ products with a total listing value of $1,328,833 (HK$10,314,000); 1 piece of Yixing collectable with a listing value of $128,838 (HK$1,000,000); and 7 pieces of Sports memorabilia with a listing value of $1,096,332 (HK$8,509,400), of which 22%-48% (for 74 sets of paintings), 24%-48.5% (for the 134 pieces of precious stones), 29%-48% (for the 35 pieces of jewelry), 47%-48.5% (for 4 piece of antique mammoth ivory carvings), 32%-48% (for the 29 pieces of amber), 45%-46% (for the 2 pieces of porcelain pastel paintings), 25%-48% (for the 7 pieces of porcelain), 30.25%-45% (for the 6 sets of Unit+ products), 45% (1 piece of Yixing collectable) and 45% (for the 7 pieces of Sports memorabilia) of the listed values were charged as listing fees, respectively.
During the six months ended June 30, 2021, there were 4 sets of paintings listed on our platform. Their total listing values were $2,383,498 (HK$18,500,000) for the paintings, of which 22%-25% (for the paintings) of the listed values were charged as listing fees.
As of June 30, 2020, a total of 292 sets of artwork were listed for trade on our platform —comprising 67 sets of paintings and calligraphies from famous Chinese, Russian and Mongolian artists, with a total listing value of $28,489,331 (HK$221,100,000); 35 pieces of jewelry with a total listing value of $9,362,437 (HK$72,660,000); 134 pieces of precious stones with a total listing value of $17,013,710 (HK$132,040,000); 29 pieces of amber with a total listing value of $12,241,006 (HK$95,000,000); 4 pieces of antique mammoth ivory carvings with a total listing value of $670,034 (HK$5,200,000); 2 pieces of porcelain pastel paintings with a total listing value of $335,017 (HK$2,600,000); 7 pieces of porcelain with a total listing value of $1,095,248 (HK$8,500,000); 6 sets of Unit+ products with a total listing value of $1,328,987(HK$10,314,000); 1 piece of Yixing collectable with a listing value of $128,853 (HK$1,000,000); and 7 pieces of Sports memorabilia with a listing value of $1,096,459 (HK$8,509,400), of which 22.5%-48% (for 67 sets of paintings), 24%-48.5% (for the 134 pieces of precious stones), 29%-48% (for the 35 pieces of jewelry), 47%-48.5% (for 4 piece of antique mammoth ivory carvings), 32%-48% (for the 29 pieces of amber), 45%-46% (for the 2 pieces of porcelain pastel paintings), 25%-48% (for the 7 pieces of porcelain), 30.25%-45% (for the 6 sets of Unit+ products), 45% (1 piece of Yixing collectable) and 45% (for the 7 pieces of Sports memorabilia) of the listed values were charged as listing fees, respectively.
During the six months ended June 30, 2020, there were 7 new sets of paintings listed on our platform. Their total listing values were $2,448,201 (HK$19,000,000) for the paintings, of which 22.83-23% (for the paintings) of the listed values were charged as listing fees.
The listing fee revenue, $557,094, for the six months ended June 30, 2021, compared to $557,789 for the same period ended June 30, 2020. The listing fee was charged based on the listing value. Since the total listing value for the six months ended June 30, 2021, $2,383,498 (HK$18,500,000) for the paintings was comparable to $2,448,201 (HK$19,000,000) for the same period in 2020, the listing fee revenue for the six months ended June 30, 2021 was comparable to that in the same period in 2020.
| (ii) | Commission fee revenue |
We generate commission fee from non-VIP traders and selected traders as follows:
For non-VIP traders, the commission revenue was calculated based on a percentage of transaction value of artworks, where we charge trading commissions for the purchase and sale of the ownership shares of the artworks. The commission is typically 0.3% of the total amount of each transaction, we currently charge a reduced fee of 0.2% (resulting in an aggregate of 0.4% for both buy and sell transactions) of the total transaction amount with the minimum charge of $0.0013 (HK$0.01).
For selected traders, starting from April 1, 2016, we charged a predetermined monthly fee (unlimited trades for specific artworks) for specific artworks. These traders are selected by authorized agents and reviewed by us. After review, we negotiate individually with each one of them to determine a fixed monthly fee. Different traders may have different rates but once negotiated and agreed to, the monthly fee is fixed. Using the output method, we recognize the monthly commission revenue when the selected traders receive access to our trading platform to make unlimited trades for specific artwork.
24
We defined a selected trader as an inactive trader who meets one of the following criteria:
| ● | The trader has been default in making monthly commission payment over three months. |
| ● | The trader has not incurred any sales or purchase transactions in the month of reassessment. |
| ● | The offering agent confirms that the respective selected trader is inactive. |
Once an inactive trader has been assessed and identified, his/her contract will be reassessed pursuant to ASC 606-10-25-5 because there has been a significant change in fact and circumstances and pursuant to ASC 606-10-25-1(e), his/her contract will not be deemed to exist and revenue will not be recognized until consideration is received in accordance with ASC 606-10-25-7(a) as we would have already performed our obligations ahead of receiving consideration.
We charge a non-transactional transfer commission on the transfer of the ownership of an artwork. The commission amount is calculated based on 0.3% of the close value of the artwork and each artwork unit. For the large volume of transfer or under certain special circumstances, we charge at an agreed-upon percentage of artworks units.
We used to offer commissions to traders and service agents. Effective January 1, 2019, we no longer offered commission to our traders. For service agents, we offer a total of 40% to 75% of the commission earned from transactions with new traders to the service agents when they bring in an agreed number of traders to the trading platform.
The commission paid to the service agents and discounts are recognized as a cost of revenue in the same period the related revenue is recognized.
Total commission revenue dropped by $1,082,740 or 51.8% for the six months ended June 30, 2021 to $1,006,396 compared to $2,089,136 for the six months ended June 30, 2020. Total transaction amounts for the six months ended June 30, 2021 and 2020 were $7,111,163,218 (HKD55,194,715,548) and $3,884,557,747 (HKD30,163,968,248), respectively. Although we incurred a higher trading amount in the six months ended June 30, 2021 compared to that in the same period in 2020, majority of the transactions were initiated by our selected traders. Other than the fixed commission revenue from those selected traders, we did not earn additional commission revenue based on the trading transaction volume of those selected traders. Therefore, our commission revenue for the six months ended June 30, 2021 was significantly lower than that in the same period in 2020.
| (iii) | Management fee revenue |
We charge traders a management fee to cover the costs of insurance, storage, and transportation for an artwork and trading management of artwork units, which are calculated at $0.0013 (HK$0.01) per 100 artwork units per day. The management fee is deducted from proceeds from the sale of artwork units.
During the six months ended June 30, 2021, management fee revenue increased by $145,587, from $213,526 for the six months ended June 30, 2020 to $359,113, due to the higher trading transactions in the current period as discussed aforementioned.
Revenue by customer type
The following table presents our revenue by customer type:
25
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
||||
|
|
|
June 30, |
||||
|
|
|
2021 |
|
2020 |
||
|
|
|
(Unaudited) |
|
(Unaudited) |
||
|
Commissions paid to service agents |
|
$ |
486,526 |
|
$ |
1,099,305 |
|
Depreciation |
|
|
114,544 |
|
|
184,436 |
|
Internet service charge |
|
|
45,977 |
|
|
70,635 |
|
Artwork insurance |
|
|
25,475 |
|
|
24,271 |
|
Artwork storage |
|
|
32,180 |
|
|
31,929 |
|
Total |
|
$ |
704,702 |
|
$ |
1,410,576 |
Cost of revenue for the six months ended June 30, 2021 and June 30, 2020 was $704,702 and $1,410,576, respectively. The decline in cost of revenue for the six months ended June 30, 2021 compared to June 30, 2020 was mainly due to a decrease in the commissions paid to service agents by $612,779. The decrease in commission paid to service agents was also driven by a decrease in trading transactions initiated by non-VIP traders during the six months ended June 30, 2021 as discussed above. The overall decrease was also triggered by a decrease in depreciation by $69,892 due to some of our computer equipment and trading systems having been fully depreciated and a reduction in internet service charges by $24,658.
Gross Profit
Gross profit was $1,217,901 or 63.3% of the total revenue for the six months ended June 30, 2021, compared to $1,449,875 or 50.7% of the total revenue for the six months ended June 30, 2020. Gross profit amount was reduced by $231,974 while the gross profit margin was increased by 12.6%.
Overall total revenue for the six months ended June 30, 2021 dropped by $937,848 or 32.8% compared to the same period in 2020. Compared to the same period in 2020, there was a significant decrease in commission revenue for the six months ended June 30, 2021 by $1,082,740 or 51.8%. The cost of revenue for the six months ended June 30, 2021, $704,702 or 36.7% compared to $1,410,576 or 49.3% of the total revenue for the same period in 2020. The percentage of commissions paid to service agents over total cost of revenue, 69%, was lower in six months ended June 30, 2021 compared to 77% in the same period in 2020. Consequently, our gross profit amount was reduced by 231,974 while we posted a higher gross profit margin of 63.3% for the six months ended June 30, 2021 compared to 50.7% for the same period in 2020.
Operating Expenses
General and administrative expenses for the six months ended June 30, 2021 were $8,965,472, compared to $2,040,175, for the six months ended June 30, 2020. The spike in general and administrative expense by $6,925,297 or 339% was attributed to the grant of 335,000 common stock to our independent directors, employees and consultants in April 2021 which triggered a significant rise in share-based compensation by $6,842,578, an increase in consultancy fee by $479,840 due to a rise in service fee, an increase in legal and professional fees by $156,541 as a result of additional amounts paid to legal counsel for the closing of capital financing deal and review of agreements as well as to the predecessor auditor for a consent for the annual report filing. The overall increase was offset by a fall in salary and welfare by $158,455 as a result of salary reductions for our executives, a decrease in input VAT expense, $67,698 and others by $95,896 during the six months ended June 30, 2021 compared to the same period in 2020.
26
The following table sets forth the main components of the Company’s general and administrative expenses for the six months ended June 30, 2021 and June 30, 2020.
Other income (expenses)
During the six months ended June 30, 2021, the Company incurred other income in an amount of $192,214 whilst it incurred other expenses in an amount of $178,401 for the six months ended June 30, 2020. The Company incurred exchange gain, $170,133 in the six months ended June 30, 2021 whereas it incurred exchange loss, $203,485 in the same period in 2020. The exchange gain or loss was attributable to the fluctuations of the Renminbi against the US dollar.
Income tax expense
The Company’s effective tax rate varies due to the multiple jurisdictions in which it books its pretax income or losses. The Company was subject to a U.S. income tax rate of 21%, Hong Kong profits tax rate of 8.25% for the first HK$ 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, 2021 and 2020 were (0.1)% and (10.9)%, respectively.
The income tax expense were $6,593 and $94,856 for the six months ended June 30, 2021 and 2020, respectively.
Net loss
We recorded a net loss for the six months ended June 30, 2021 of $7,798,419 compared to net loss of $968,131 for the six months ended June 30, 2020.
The increase in the net loss by $6,830,288 during this current period compared to the same period in 2020 was predominantly triggered by the spike in general and administrative expenses in the six months ended June 30, 2021 as discussed above.
27
Liquidity and Capital Resources
The following tables set forth our consolidated statements of cash flow:
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
||||
|
|
|
June 30, |
||||
|
|
|
2021 |
|
2020 |
||
|
|
|
(Unaudited) |
|
(Unaudited) |
||
|
Net cash provided by (used in) operating activities |
|
$ |
9,831,372 |
|
$ |
(3,782,887) |
|
Net cash provided by (used in) investing activities |
|
|
388,967 |
|
|
(18,388) |
|
Net cash provided by financing activities |
|
|
180,485 |
|
|
— |
|
Effect of exchange rate change on cash and cash equivalents |
|
|
53,269 |
|
|
(80,470) |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
10,454,093 |
|
|
(3,881,745) |
|
Cash, cash equivalents and restricted cash, beginning balance |
|
|
13,842,745 |
|
|
21,829,154 |
|
Cash, cash equivalents and restricted cash, ending balance |
|
$ |
24,296,838 |
|
$ |
17,947,409 |
Sources of Liquidity
During the six months ended June 30, 2021, net cash generated from operating activities totaled $9,831,372. Although the Company incurred a net loss of $7,798,419 during the six months ended June 30, 2021, such net loss was offset by an increase in net change in operating assets and liabilities of $10,768,770 and non-cash adjustments to net loss of $6,861,021. Net cash generated from investing activities totaled $388,967. Net cash provided by financing activities totaled $180,485. The resulting change in cash for the period was an increase of $10,454,093. The cash balance at the beginning of the period was $13,842,745. The cash balance on June 30, 2021 was $24,296,838.
During the six months ended June 30, 2020, net cash used in operating activities totaled $3,782,887, which predominantly resulted from the net loss of $968,131 and a decline in net change in operating assets and liabilities of $3,462,397 and offset by non-cash adjustments to net loss of $647,641. Net cash used in investing activities included purchase of furniture and computer equipment by Tianjin Takung. There was no net cash used in or provided by financing activities for the six months ended June 30, 2020. The resulting change in cash for the period was a decrease of $3,881,745. The cash balance at the beginning of the period was $21,829,154. The cash balance as of June 30, 2020 was $17,947,409.
As of June 30, 2021, the Company had $29,562,835 in total current liabilities, which included $1,023,314 in accrued expenses and other payables, $20,033,483 in customer deposits, $1,973,952 in short-term borrowings from a third party, $6,438,487 in amount due to a related party, $7,728 in advances from customers, $75,336 in lease liabilities and $10,535 in VAT payables.
As of December 31, 2020, the Company had $18,494,724 in total current liabilities, which consisted of $728,088 in accrued expenses and other payables, $9,144,610 in customer deposits, $1,977,109 in short-term borrowings from a third party, $6,448,784 in amount due to related parties, $17,412 in advance from customers, $72,367 in lease liabilities and $106,354 in VAT payables.
The Company is aware of events or uncertainties which may affect its future liquidity because of capital controls in the PRC. The RMB is only currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries or variable interest entities. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. The existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our stockholders, including holders of our shares of common stock. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our PRC subsidiaries.
28
Applicable PRC law permits payment of dividends to us by our operating subsidiaries in China only out of their net income, if any, determined in accordance with PRC accounting standards and regulations. Our operating subsidiaries in China are also required to set aside a portion of their net income, if any, each year to fund general reserves for appropriations until such reserves have reached 50% of the subsidiary’s registered capital. These reserves are not distributable as cash dividends. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. In contrast, there is no foreign exchange control or restrictions on capital flows into and out of Hong Kong. Hence, our Hong Kong operating subsidiary is able to transfer cash without any limitation to the U.S. under normal circumstances.
If our operating subsidiaries were to incur additional debt on their own behalf in the future, the instruments governing the debt may restrict the ability of our operating subsidiaries to transfer cash to our U.S. investors.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support, and credit risk support or other benefits.
Future Financings
Although we are suffering business downturn including a decrease in trading activities by our non-VIP traders, we are also undergoing a company restructuring, including re-evaluating the company’s business model and a downsize of the workforce. Our management forecasts that we have sufficient cash from our operations to fund our business organically. However, we may conduct equity sales of our common shares in order to fund further expansion and growth of our business. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any sales of the equity securities to fund expansion and other activities, and if we are able to, there is no guarantee that existing shareholders will not be substantially diluted. In essence, we do not need to rely on equity sales to fund our business operations.
Critical Accounting Policies
We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
See Note 2 to the financial statements included herewith and Note 2 to the financial statements on Form 10-K for the fiscal year ended December 31, 2020, previously filed with the SEC.
Recent Accounting Pronouncements
See Note 2 to the financial statements included herewith and Note 2 to the financial statements on Form 10-K for the fiscal year ended December 31, 2020, previously filed with the SEC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
29
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. Kwok Leung Paul Li and our Chief Financial Officer, Ms. Tracy Chui-Kam Ng. 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, 2021 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, 2021 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On or around July 2020, a claim was filed in the Shanghai Pudong People’s Court, China against Hong Kong Takung on the basis of alleged breaches of contract. The claim amount has yet to be determined. A court hearing was initially scheduled on July 20, 2021 but the Company never received any court order or subpoena. As of the filing of this report, the Company did not have further details nor received any court order related to this claim.
30
Item 6. Exhibits.
Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.
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Exhibit
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Description |
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10.1(1) |
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10.2(2) |
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31.1 |
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31.2 |
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32.1 |
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101.INS |
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Inline XBRL Instance Document |
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101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
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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). |
| (1) | Incorporated by reference to the exhibit 10.1 to our current report on Form 8-K filed with the SEC on July 13, 2021. |
| (2) | Incorporated by reference to the exhibit 10.2 to our current report on Form 8-K filed with the SEC on July 13, 2021. |
31
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.
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TAKUNG ART CO., LTD |
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Date: August 13, 2021 |
By: |
/s/ Kwok Leung Paul Li |
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Kwok Leung Paul Li |
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Chief Executive Officer |
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|
(Principal Executive Officer) |
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|
Date: August 13, 2021 |
By: |
/s/ Tracy Chui-Kam Ng |
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|
|
Tracy Chui-Kam Ng |
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|
|
Chief Financial Officer |
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|
|
(Principal Financial Officer) |
32
Exhibit 31.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kwok Leung Paul Li, certify that:
(1)I have reviewed this report on Form 10-Q of Takung Art Co., Ltd;
(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
(5)The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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|
Date: August 13, 2021 |
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|
/s/ Kwok Leung Paul Li |
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Kwok Leung Paul Li |
|
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Chief Executive Officer |
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Tracy Chui-Kam Ng, certify that:
(1)I have reviewed this report on Form 10-Q of Takung Art Co., Ltd;
(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
(5)The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: August 13, 2021 |
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|
/s/ Tracy Chui-Kam Ng |
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Tracy Chui-Kam Ng |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S. C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Takung Art Co., Ltd (the “Company”) on Form 10-Q for the quarter ended June 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Kwok Leung Paul Li, Chief Executive Officer, and Tracy Chui-Kam Ng, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
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Date: August 13, 2021 |
|
|
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|
/s/ Kwok Leung Paul Li |
|
|
Kwok Leung Paul Li |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
|
|
/s/ Tracy Chui-Kam Ng |
|
|
Tracy Chui-Kam Ng |
|
|
Chief Financial Officer |
|
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(Principal Accounting and Financial Officer) |