UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2019

 

or

 

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

 

For the transition period from _________________________ to_________________________

 

Commission File Number: 001-38036

 

TAKUNG ART CO., LTD

(Exact name of registrant as specified in its charter)

 

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

 

Room 1105 Wing On Plaza, 62 Mody Road, Tsim Sha Tsui, Kowloon, Hong Kong

(Address of principal executive offices) (Zip Code)

 

+852 3158 0977

(Registrant’s telephone number, including area code)

 

 

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

 

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

 

Title of each class Trading Symbol(s) Name of each exchange on which
registered
Common Stock TKAT NYSE American

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x      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). x     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.

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer x Smaller reporting company x
  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 x      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 14, 2019 is 11,255,129.

 

 

 

 

 

 

FORM 10-Q

TAKUNG ART CO., LTD

INDEX

 

      Page 
        
PART I.  Financial Information   3 
         
   Item 1.  Interim Condensed Consolidated Financial Statements (Unaudited)   3 
         
   Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operation.   17 
         
   Item 3.  Quantitative and Qualitative Disclosures About Market Risk.   29 
         
   Item 4.  Controls and Procedures.   29 
         
PART II.  Other Information   30 
         
   Item 6.  Exhibits.   30 
         
   Signatures   31 

 

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)  

 

   June 30,   December 31, 
   2019   2018 
    (Unaudited)      
ASSETS          
Current assets          
Cash and cash equivalents  $7,451,172   $7,974,884 
Restricted cash   27,001,865    4,549,202 
Account receivables, net   -    568,757 
Prepayment and other current assets   513,289    955,249 
Amount due from a related party   5,916,824    5,907,789 
Loan receivables   -    2,391,350 
Total current assets   40,883,150    22,347,231 
           
Non-current assets          
Property and equipment, net   1,111,462    1,445,679 
Intangible assets   22,341    22,284 
Operating lease right-of-use assets   1,070,655    - 
Deferred tax assets, net   672,223    611,738 
Other non-current assets   116,380    142,293 
Total non-current assets   2,993,061    2,221,994 
Total assets  $43,876,211   $24,569,225 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
           
LIABILITIES          
Current liabilities          
Accrued expenses and other payables  $618,014   $641,692 
Customer deposits   27,001,865    4,549,202 
Advance from customers   7,043    8,995 
Short-term borrowings from a related party   -    2,499,500 
Amount due to related parties   6,790,399    6,385,288 
Operating lease liabilities – current   178,917    - 
Tax payables   12,382    15,101 
Total current liabilities   34,608,620    14,099,778 
           
Non-current liabilities          
Operating lease liabilities, non-current   133,200    - 
Amount due to a related party, non-current   411,389    - 
           
Total liabilities   35,153,209    14,099,778 
           
COMMITMENTS AND CONTINGENCIES          
           
SHAREHOLDERS’ EQUITY          
Common stock (1,000,000,000 shares authorized; $0.001 par value; 11,255,129 shares issued and outstanding as of June 30, 2019; 11,226,025 shares issued and outstanding as of December 31, 2018)   11,255    11,226 
Additional paid-in capital   6,312,372    6,281,790 
Retained earnings   2,642,804    4,479,133 
Accumulated other comprehensive loss   (243,429)   (302,702)
Total shareholders’ equity   8,723,002    10,469,447 
Total liabilities and shareholders’ equity  $43,876,211   $24,569,225 

 

The accompanying notes are an integral part of these 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)

(UNAUDITED)

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Revenue                
Listing fee  $-   $2,000,068   $284,090   $3,978,735 
Commission   532,740    1,668,563    716,080    3,304,080 
Management fee   93,343    178,913    161,614    347,228 
Annual fee   -    162    -    324 
Authorized agent subscription revenue   -    -    -    191,623 
Online artwork sales   -    6,304    -    6,304 
Total revenue   626,083    3,854,010    1,161,784    7,828,294 
                     
Cost of revenue   (441,028)   (940,221)   (708,307)   (1,873,814)
                     
Gross profit   185,055    2,913,789    453,477    5,954,480 
                     
Operating expenses:                    
General and administrative expenses   (888,460)   (2,574,598)   (2,163,045)   (5,583,483)
Selling expenses   (3,784)   (458,547)   (34,596)   (702,138)
Total operating expenses   (892,244)   (3,033,145)   (2,197,641)   (6,285,621)
                     
Loss from operations   (707,189)   (119,356)   (1,744,164)   (331,141)
                     
Other income and expenses:                    
Other (expenses) income   (79,772)   165,862    (101,762)   405,265 
Loan interest expense   -    (149,683)   -    (304,466)
Exchange loss   (407,159)   (1,255,187)   (48,425)   (262,292)
Total other expenses   (486,931)   (1,239,008)   (150,187)   (161,493)
                     
Loss before provision for income taxes   (1,194,120)   (1,358,364)   (1,894,351)   (492,634)
                     
Income tax benefit (expense)   66,584    273,972    58,022    (168,468)
                     
Net loss  $(1,127,536)  $(1,084,392)  $(1,836,329)  $(661,102)
                     
Foreign currency translation adjustment   64,753    (111,111)   59,273    (128,278)
                     
Comprehensive loss  $(1,062,783)  $(1,195,503)  $(1,777,056)  $(789,380)
                     
Loss per common share – basic  $(0.10)  $(0.10)  $(0.16)  $(0.06)
Loss per common share – diluted   (0.10)   (0.10)   (0.16)   (0.06)
Weighted average number of common shares outstanding-basic   11,247,773    11,217,359    11,236,959    11,210,918 
Weighted average number of common shares outstanding-diluted   11,247,773    11,217,359    11,236,959    11,210,918 

 

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

 

4

 

 

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUTIY

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

(UNAUDITED)

 

                            Accumulated        
                Additional           other        
    Number     Common     Paid-in     Retained     comprehensive        
    of shares     stock     capital     earnings     Income (loss)     Total  
Balance, December 31, 2018     11,226,025       11,226       6,281,790       4,479,133       (302,702 )     10,469,447  
                                                 
Issuance of ordinary shares for restricted stock award     -       -       -       -       -       -  
                                                 
Shared-based compensation     -       -       16,851       -       -       16,851  
                                                 
Net loss     -       -       -       (708,793 )     -       (708,793 )
                                                 
Foreign currency translation adjustment     -       -       -       -       (5,480 )     (5,480 )
                                                 
Balance, March 31, 2019     11,226,025       11,226       6,298,641       3,770,340       (308,182 )     9,772,025  
                                                 
Issuance of ordinary shares for restricted stock award     29,104       29       4,012       -       -       4,041  
                                                 
Shared-based compensation     -       -       9,719       -       -       9,719  
                                                 
Net loss     -       -       -       (1,127,536 )     -       (1,127,536 )
                                                 
Foreign currency translation adjustment     -       -       -       -       64,753        64,753   
                                                 
Balance, June 30, 2019     11,255,129       11,255       6,312,372       2,642,804       (243,429 )     8,723,002   

 

                   Accumulated     
           Additional       other     
   Number   Common   Paid-in   Retained   comprehensive     
   of shares   stock   capital   earnings   loss   Total 
Balance, December 31, 2017   11,188,882    11,189    6,116,216    12,111,096    (320,290)   17,918,211 
                               
Issuance of ordinary shares for restricted stock award   20,000    20    (20)   -    -    - 
                               
Shared-based compensation   -    -    73,749    -    -    73,749 
                               
Net income   -    -    -    423,290    -    423,290 
                               
Foreign currency translation adjustment   -    -    -    -    (17,167)   (17,167)
                               
Balance, March 31, 2018   11,208,882    11,209    6,189,945    12,534,386    (337,457)   18,398,083 
                               
Issuance of ordinary shares for restricted stock award   17,143    17    (17   -    -    - 
                               
Shared-based compensation   -    -    55,672    -    -    55,672 
                               
Net income   -    -    -    (1,084,392   -    (1,084,392)
                               
Foreign currency translation adjustment   -    -    -    -    (111,111)   (111,111)
                               
Balance, June 30, 2018   11,226,025    11,226    6,245,600    11,449,994    (448,568)   17,258,252 

 

5

 

 

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in U.S. Dollars)

(UNAUDITED)

 

   Six Months   Six Months 
   Ended   Ended 
   June 30,   June 30, 
   2019   2018 
Cash flows from operating activities:          
Net cash provided by (used in) operating activities  $21,615,744   $(5,625,065)
           
Cash flows from investing activities:          
Purchase of property and equipment   (33,792)   (790,159)
Purchase of available-for-sale investments   (21,372,178)   (74,934,730)
Maturity and redemption of available-for-sale investments   21,372,178    74,934,730 
Loan to related parties   -    (6,369,809)
Repayment of loan from third parties   2,443,251    239,356 
Net cash provided by (used in) investing activities   2,409,459    (6,920,612)
           
Cash flows from financing activities:          
Proceeds from a related party’s loans   393,158    6,372,430 
Loan repayment to a third party   (2,499,500)   (483,822)
Net cash (used in) provided by financing activities   (2,106,342)   5,888,608 
           
Effect of exchange rate change on cash, cash equivalents and restricted cash   10,090    (239,255)
           
Net increase (decrease) in cash, cash equivalents and restricted cash   21,928,951    (6,896,324)
           
Cash, cash equivalents and restricted cash, beginning balance   12,524,086    37,140,582 
           
Cash, cash equivalents and restricted cash, ending balance  $34,453,037   $30,244,258 
           
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets          
Cash and cash equivalents as of June 30, 2019 and 2018, respectively  $7,451,172   $10,327,827 
Restricted cash as of June 30, 2019 and 2018, respectively   27,001,865    19,916,431 
Total cash, cash equivalents, and restricted cash as of June 30, 2019 and 2018, respectively  $34,453,037   $30,244,258 
           
Supplemental cash flows information:          
           
Cash paid for interest  $-   $144,311 
Cash paid for income tax  $-   $261,285 

 

The accompanying notes are an integral part of these 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” or the “Company”), a Delaware corporation (formerly Cardigant Medical Inc.) through Hong Kong Takung Art Company Limited (formerly Hong Kong Takung Assets and Equity of Artworks Exchange Co., Ltd.), a Hong Kong company (“Hong Kong Takung”) and our wholly owned subsidiary, operates an electronic online platform located at www.takungae.com for artists, art dealers and art investors to offer and trade in valuable artwork.

 

Hong Kong Takung was incorporated in Hong Kong on September 17, 2012 and operates an electronic online platform for offering, selling and trading artwork. For the period from September 17, 2012 (inception) to December 31, 2012, the company had no operation except for the issuance of shares for subscription receivables. 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 its business primarily in Hong Kong, People’s Republic of China (the “PRC”).

 

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 in the PRC. 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.

 

Takung Cultural Development (Tianjin) Co., Ltd (“Tianjin Takung”) is a limited liability company, with a registered capital of $1 million located in the Pilot Free Trade Zone in Tianjin. Tianjin Takung was incorporated on January 27, 2016 and is a direct wholly-owned subsidiary of Hong Kong Takung.

 

Tianjin Takung provides technology development services to Hong Kong Takung and Shanghai Takung and also carries out marketing and promotion activities in mainland China.

 

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.

 

Art Era Internet Technology (Tianjin) Co., Ltd (“Art Era”) was formed in Tianjin on September 7, 2018, is a directly wholly owned subsidiary of Takung Art Holdings, and formed as a limited liability company with a registered capital of $2 million located in the Pilot Free Trade Zone in Tianjin. Art Era mainly focuses on developing our e-commerce platform for art. Art Era was deregistered on June 18, 2019 due to Company’s plan to put off the e-commerce platform development.

 

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 has been 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.

 

7

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying consolidated balance sheet as of December 31, 2018, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 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, 2018, previously filed with the SEC.

 

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 consolidated financial position as of June 30, 2019, its consolidated results of operations and cash flows for the six-month periods ended June 30, 2019 and 2018, 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

 

Recently Adopted Accounting Standards

 

On January 1, 2019, the Company adopted ASC 842, Leases , using the modified retrospective method which allows for the application of the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in these condensed consolidated financial statements. As permitted by the guidance, the Company elected to retain the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date and did not reassess contracts entered into prior to the adoption date for the existence of a lease. The Company also did not recognize ROU assets and lease liabilities for short-term leases, which are leases in existence as of the adoption date with an original term of twelve months or less.

 

As a result of the adoption of the standard, the Company recognized operating lease right-of-use assets and operating lease liabilities on its condensed consolidated balance sheet as of June 30, 2019. The assets and liabilities recognized upon application of the transition provisions were primarily associated with existing office and storage leases. Please refer to footnote 9. Leases for details.

 

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, 2018, 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. 

 

8

 

 

3. PREPAYMENT AND OTHER CURRENT ASSETS

 

Prepayment and other current assets consisted of the following:

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
Tax receivables  $280,891   $399,026 
Staff advance   66,861    93,676 
Prepaid service fee   72,807    140,934 
Short-term borrowings to third party   53,775     -  
Deposit   5,096    241,827 
Other current assets   33,859    79,786 
Prepayment and other current assets  $513,289   $955,249 

 

4. ACCOUNT RECEIVABLES, NET

 

Account receivables consisted of the following:

 

   June 30,
2019
   December 31,
2018
 
   (Unaudited)      
Listing fee  $-   $568,757 
Authorized agent subscription revenue   559,280    557,837 
Monthly commission fee   1,381,712    1,378,148 
Others   53,765    53,626 
Less: allowance for doubtful accounts   (1,994,757)   (1,989,611)
Account receivables, net  $-   $568,757 

 

9

 

 

5. PROPERTY AND EQUIPMENT, NET

 

Property and equipment consisted of the following:

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)      
Furniture, fixtures and equipment  $162,712   $156,656 
Leasehold improvements   343,361    447,048 
Computer trading and clearing system   3,390,702    3,382,168 
Transport equipment   104,787    104,628 
Sub-total   4,001,562    4,090,500 
Less: accumulated depreciation   (2,890,100)   (2,644,821)
 Property and equipment, net  $1,111,462   $1,445,679 

 

Depreciation expense was $157,687 and $243,781 for the three months ended June 30, 2019 and 2018, respectively, and $314,466 and $472,485 for the six months ended June 30, 2019 and 2018, respectively.

 

6. ACCRUED EXPENSES AND OTHER PAYABLES

 

Accrued expenses and other payables as of June 30, 2019 and December 31, 2018 consisted of the following:

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
Accruals for consulting fees  $265,478   $264,793 
Accruals for professional fees   225,100    49,518 
Payroll payables   54,193    104,437 
Trading and clearing system   50,161    86,208 
Other payables   23,082    136,736 
Total accrued expenses and other payables  $618,014   $641,692 

 

7. RELATED PARTY BALANCES AND TRANSACTIONS

 

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

 

(a) Wang Song (“Wang”), the General Manager of Tianjin Takung and Shanghai Takung, and Director of Hong Kong Takung, Tianjin Takung and Shanghai Takung.

 

(b) Liu Zhenying (“Liu”), the former Vice President of Hong Kong Takung. Liu resigned from the Company on September 30, 2018.

 

(c) Mao Jianping (“Mao”), the Human Resources Management Director of Hong Kong Takung.

 

Amount due from a related party consisted of the following as of the years indicated:

 

   June 30,
2019
   December 31,
2018
 
   (Unaudited)     
Wang (a)  $5,916,824   $5,907,789 
Total   5,916,824    5,907,789 

 

10

 

 

Amount due to related parties

 

Amount due to related parties consisted of the following as of the years indicated:

 

   June 30,
2019
   December 31,
2018
 
   (Unaudited)     
Wang (a) (i)  $6,401,803   $6,385,288 
Mao (c) (ii)   388,596    - 
Total current amount due to related parties   6,790,399    6,385,288 

 

   June 30,
2019
   December 31,
2018
 
   (Unaudited)      
Mao (c) (ii)   411,389                     - 
Total noncurrent amount due to a related party   411,389    - 

 

(i)Amount due from and due to Wang

 

On May 16, 2018, Hong Kong Takung entered into an interest-free loan agreement (the "HK Dollar Loan") with Liu that was transferred to Wang on October 18, 2018 for the loan of $6,401,803 (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 is May 15, 2019. On May 15, 2019, Hong Kong Takung entered into an extension agreement with Wang to extend the HK Dollar Loan with a due date on May 15, 2020.

 

In the meantime, Tianjin Takung entered into an interest-free loan agreement (the "RMB Loan") with Liu that was transferred to Wang on October 18, 2018 for the loan of $5,916,824 (RMB40,619,000) to Wang with the maturity date of the loan is May 15, 2019. On May 15, 2019, Tianjin Takung entered into an extension agreement with Wang to extend the RMB Loan with a due date on May 15, 2020.

 

Through an understanding between Wang and the Company, the HK Dollar Loan is "secured" by the RMB Loan. It is the understanding between the parties that the HK Dollar Loan and the RMB Loan will be repaid simultaneously. 

 

(ii)Amount due to Mao

 

The amount due to Mao is primarily related to the lease from Mao. On May 13, 2019, we entered into a non-cancellable lease agreement with a related party, Mao for our office location in Tianjin, PRC. The leased office location is approximately 2,090.61 square meters. The lease will be expired on May 12, 2021. We are charged rent at a rate of $0.55 per square meter per day. The agreement requires a lump sum payment of $211,193 (RMB1,449,838.04) every six months and a deposit in an amount of $105,596 (RMB724,919.02). The total lease liability is $793,737 as of June 30, 2019.

 

As of June 30, 2019, Mao also lent a startup deposit of $6,248 to Hong Kong MQ.

 

8. INCOME TAXES

 

Takung was incorporated in the State of Delaware and is subject to United States income tax. Hong Kong Takung, Takung Art Holding 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 and Tianjin Takung are PRC corporations and are subject to enterprise taxes in the PRC.

 

United States of America

 

Tax Cuts and Jobs Act Enacted in 2017

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal corporate income taxes on dividends from foreign subsidiaries; and (4) providing modification to subpart F provisions and new taxes on certain foreign earnings such as Global Intangible Low-Taxed Income (GILTI). Except for the one-time transition tax, most of these provisions went into effect starting January 1, 2018.

 

11

 

 

On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB118”) was issued to provide guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. As of December 22, 2018, the Company has completed the assessment of the income tax effect of the Tax Act and there were no adjustments recorded to the provisional amounts.

 

The Global Intangible Low-taxed Income (GILTI) is a new provision introduced by the Tax Cuts and Jobs Act. U.S. shareholders, who are domestic corporations, of controlled foreign corporations (CFCs) are eligible for up to an 80% deemed paid foreign tax credit (FTC) and a 50% deduction of the current year inclusion with the full amount of the Section 78 gross-up subject to limitation. This new provision is effective for tax years of foreign corporations beginning after December 31, 2017. The Company has evaluated whether it has additional provision amount resulted by the GILTI inclusion on current earnings and profits of its foreign controlled corporations. The Company has made an accounting policy choice of treating taxes due on future U.S. inclusions in taxable amount related to GILTI as a current period expense when incurred. For the three and six months ended June 30, 2019 and 2018, the Company does not have any aggregated positive tested income; and as such, does not have additional provision amount recorded for GILTI tax.

 

As of June 30, 2019, and December 31, 2018, the Company in the United States had $1,680,046 and $1,332,438 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. Carrybacks are now prohibited. 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 $255,010) 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 Art Co., Ltd, both 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. We elected Hong Kong Takung to be subject to the two-tier profits tax rates.

 

The provision for current income taxes of Hong Kong Takung has been calculated by applying the current rate of taxation of 8.25% for three and six months ended June 30, 2019, 16.5% for three and six months ended June 30, 2018, if applicable. Takung Art Holdings and Hong Kong MQ still applied  the original tax rate of 16.5% for three and six months ended June 30, 2019 and 2018.

 

PRC

 

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

 

The income tax provision consists of the following components:

 

   Three Months Ended
June 30,
   Six Months Ended
June 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Current:                    
Federal  $-   $-   $-   $- 
State   -    -    -    - 
Foreign   -    (183,911)   -    172,370 
Total Current  $-   $(183,911)  $-   $172,370 
                     
Deferred:                    
Federal  $    $-   $    $37,398 
State        -         - 
Foreign   (66,584)   (90,061)   (58,022)   (41,300)
Total Deferred  $(66,584)  $(90,061)  $(58,022)  $(3,902)
                     
Total income tax (benefit) expense  $(66,584)  $(273,972)  $(58,022)  $168,468 

 

12

 

 

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

 

   For the Three Months Ended
June 30,
   For the Six Months Ended
June 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Loss before income tax expense  $(1,194,120)  $(1,358,364)  $(1,894,351)  $(492,634)
                     
Computed tax (benefit) expense with statutory tax rate   (197,073)   (224,130)   (312,567)   (81,285)
Impact of different tax rates in other jurisdictions   69,620    17,108    109,101    37,808 
                     
Non-deductible items:                    
Tax effect of non-deductible expenses   11,061    (137,980)   17,886    3,330 
Previous years unrecognized taxation effect        -         - 
Changes in valuation allowance   49,808    71,030    127,558    208,615 
                     
Total income tax (benefit) expense  $(66,584)  $(273,972)  $(58,022)  $168,468 

 

The effective tax rate was 5.6% and 20.2% for the three months ended June 30, 2019 and 2018, respectively, and 3.1% and (34.2)% for the six months ended June 30, 2019 and 2018, respectively.

 

13

 

 

9. LEASES

 

The Company has operating leases for its office facilities and artwork storages. The Company's leases have remaining terms of less than one year to approximately six years. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company does not separate non-lease components from the lease components to which they relate, and instead accounts for each separate lease and non-lease component associated with that lease component as a single lease component for all underlying asset classes.

 

The following table provides a summary of leases by balance sheet location as of June 30, 2019:

 

 Assets/liabilities  Classification  As of June 30,
2019
 
Assets        
Operating lease right-of-use assets  Operating lease assets  $1,070,655 
         
Liabilities        
Current        
Operating lease liability - current  Current operating lease liabilities  $178,917 
   Amount due to related parties   382,348 
         
Long-term        
Operating lease liability - non-current  Long-term operating lease liabilities   133,200 
   Amount due to related parties, non-current   411.389 
         
Total lease liabilities     $1,105,854 

 

The operating lease expenses, including lease from the related party, for the six and three months ended June 30, 2019 were as follows:

 

      Three months
ended
   Six months
ended
 
Lease Cost  Classification  June 30, 2019   June 30, 2019 
Operating lease cost  Cost of revenue, general and administrative expenses  $86,395   $137,173 
Total lease cost     $86,395   $137,173 

 

Maturities of operating lease liabilities at June 30, 2019 were as follow:

 

Maturity of Lease Liabilities  Operating Leases 
2019 (remainder)  $524,245 
2020   600,072 
2021   14,566 
2022   14,566 
2023   14,566 
Thereafter   21,849 
Total lease payments  $1,189,864 
Less: interest   (84,010)
Present value of lease payments  $1,105,854 

 

14

 

 

Future minimum lease payments as of December 31, 2018 were as follows:

 

   Lease (1) 
Year ending December 31, 2019  $396,243 
      
Year ending December 31, 2020   230,683 
      
Year ending December 31, 2021   14,737 
      
Year ending December 31, 2022   14,737 
      
Year ending December 31, 2023 and thereafter   37,457 
      
Total  $693,857 

 

(1) Amounts are based on ASC 840, Leases that was superseded upon our adoption of ASC 842, Lease on January 1, 2019.

 

Lease Term and Discount Rate  June 30, 2019 
Weighted-average remaining lease term (years)     
Operating leases   2.06 
      
Weighted-average discount rate (%)     
Operating leases   8%

 

Other Information  June 30, 2019 
Cash paid for amounts included in the measurement of lease liabilities     
  Operating cash flows from operating leases  $94,573 
Leased assets obtained in exchange for new operating lease liabilities   275,189 

 

10. EARNINGS PER SHARE

 

Basic losses per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted losses 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
June 30,
   Six Months Ended
June 30,
 
   2019   2018   2019   2018 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Numerator:                    
Net loss  $(1,127,536)  $(1,084,392)  $(1,836,329)  $(661,102)
                     
Denominator:                    
Weighted-average shares outstanding - Basic   11,247,773    11,217,359    11,236,959    11,210,918 
Stock options and restricted shares        -         - 
Weighted-average shares outstanding - Diluted   11,247,773    11,217,359    11,236,959    11,210,918 
                     
Loss per share                    
-Basic   (0.10)   (0.10)   (0.16)   (0.06)
-Diluted   (0.10)   (0.10)   (0.16)   (0.06)

 

15

 

 

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

 

Due to the loss from continued operations for the three and six months ended June 30, 2019, approximately 148,890 and 15,000 options and restricted shares, respectively, were excluded from the calculation of diluted net loss per share. 

 

11. SUBSEQUENT EVENTS

 

In July 2019, Hong Kong Takung entered into a loan agreement (the “HKD Loan”) with Friend Sourcing Ltd, a Hong Kong company (“Friend Sourcing”) with interest accruing at a rate of 8% per annum. The HKD Loan is 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. In the meantime, Tianjin Takung entered an interest-free loan (the “RMB Loan”) to another third party as a guarantee for the HKD Loan. The loan amount was $ 2,039,330 (RMB 14,000,000). Through an understanding between the two third parties, the HKD Loan is “secured” by the RMB Loan. It is the understanding between the parties that when the HKD Loans is repaid, the RMB Loan will be repaid at the same time. 

 

On August 6, 2019, Mr. Chun Hin Leslie Chow tendered his resignation as Chief Executive Officer of Takung Art Co., Ltd (the “Company”) for personal reasons. In order to fill the vacancy, the Company’s Nominating and Compensation Committee met on August 6, 2019 to nominate Ms. Fang Mu as the Company’s new Chief Executive Officer. On August 6, 2019, the Company’s Board of Directors approved Ms. Fang Mu’s appointment.

 

Other than that, there were no other subsequent events occurred that would require recognition or disclosure in the interim condensed consolidated financial statements.

 

16

 

 

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 were incorporated in Delaware under the name Cardigant Medical Inc. on April 17, 2009. Our initial business plan was to focus on the development of novel biologic and peptide based compounds and enhanced methods for local delivery for the treatment of vascular disease including peripheral artery disease and ischemic stroke.

 

Hong Kong Takung is a limited liability company incorporated on September 17, 2012 under the laws of Hong Kong, Special Administrative Region, China. Although Takung was incorporated in 2012, it did not commence business operations until late 2013.

 

17

 

 

As a result of the transfer of the excluded assets pursuant to the Contribution Agreement and the acquisition of all the issued and outstanding shares of Hong Kong Takung, we are no longer conducting the Cardigant Business and have now assumed Hong Kong Takung’s business operations as it now our only operating wholly-owned subsidiary.

 

Hong Kong Takung operates an electronic online platform located at http://eng.takungae.com for artists, art dealers and art investors to offer and trade in valuable artwork.

 

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

 

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

 

On July 28, 2015, Hong Kong Takung incorporated a wholly owned subsidiary, Takung (Shanghai) Co., Ltd. (“Shanghai Takung”), in Shanghai Free-Trade Zone (SFTZ) in Shanghai, China, with a registered capital of $1 million. Shanghai Takung assists in Hong Kong Takung’s operations by receiving deposits from and making payments to online artwork traders in mainland China on behalf of Hong Kong Takung. On January 27, 2016, Hong Kong Takung incorporated a wholly owned subsidiary, Takung Cultural Development (Tianjin) Co., Ltd (“Tianjin Takung”) in the Tianjin Free Trade Zone (TJFTZ) in Tianjin, China with a registered capital of $1 million. Tianjin Takung provides technology development services to Hong Kong Takung and Shanghai Takung, and also carries out marketing and promotion activities in mainland China. Management has recently determined to merge the operations of Shanghai Takung with Tianjin Takung’s and eventually dissolve Shanghai Takung in order to save costs.

 

Hong Kong Takung Art Holdings Company Limited (“Takung Art Holdings”) was incorporated in Hong Kong on July 20, 2018 and operates as a holding company to operate an e-commerce platform for offering, selling and trading whole pieces of artwork instead of units of artwork.

 

Art Era Internet Technology (Tianjin) Co., Ltd (“Art Era”) was incorporated in Tianjin, China on September 7, 2018, and is a directly wholly-owned subsidiary of Takung Art Holdings. It is a limited liability company with a registered capital of $2 million located in the Pilot Free Trade Zone in Tianjin. Art Era will focus on developing our e-commerce platform. Art Era was deregistered on June 18, 2019 due to Company’s plan to put off the e-commerce platform development.

 

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 has been transferred from Ms. Hiu Ngai Ma to the Company. 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.

 

Our headquarters are located in Hong Kong, Special Administrative Region, People’s Republic of China and we conduct our business primarily in Hong Kong, Shanghai and Tianjin. Our principal executive offices are located at Room 1105 Wing On Plaza, 62 Mody Road, Tsim Sha Tsui, Kowloon, Hong Kong.

 

Our common stock began trading on the NYSE American under the symbol “TKAT” on March 22, 2017.

 

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-MONTH PERIOD ENDED JUNE 30, 2019 COMPARED TO THREE-MONTH PERIOD ENDED JUNE 30, 2018

 

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

 

   Three Months Ended June 30, 
   2019   % of
Revenue
   2018   % of
Revenue
 
   (Unaudited)       (Unaudited)     
Revenue  $626,083    100   $3,854,010    100 
Cost of revenue   (441,028)   (70)   (940,221)   (24)
Selling expense   (3,784)   (1)   (458,547)   (12)
General and administrative expenses   (888,460)   (142)   (2,574,598)   (67)
Total costs and expenses   (1,333,272)   (213)   (3,973,366)   (103)
Loss from operations   (707,189)   (113)   (119,356)   (3)
Total other expenses   (486,931)   (78)   (1,239,008)   (32)
(Loss) income before income tax expenses   (1,194,120)   (191)   (1,358,364)   (35)
Income tax benefit   66,584    11    273,972    7 
Net loss  $(1,127,536)   (180)  $(1,084,392)   (28)

 

Revenue

 

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

 

  

Three months ended

June 30,

 
   2019   2018 
   (Unaudited)   (Unaudited) 
Listing fee revenue  $-   $2,000,068 
Commission   532,740    1,668,563 
Management fee revenue   93,343    178,913 
Online artwork sales   -    6,304 
Annual fee revenue   -    162 
Total  $626,083   $3,854,010 

 

19

 

 

  (i) Listing fee revenue

 

As of June 30, 2019, a total of 285 sets of artwork were listed for trade on our platform —comprising 60 sets of paintings and calligraphies from famous Chinese, Russian and Mongolian artists, with a total listing value of $25,768,858 (HK$202,100,000); 35 pieces of jewelry with a total listing value of $9,264,548 (HK$72,660,000); 134 pieces of precious stones with a total listing value of $16,835,824 (HK$132,040,000); 29 pieces of amber with a total listing value of $12,113,021 (HK$95,000,000); 4 pieces of antique mammoth ivory carvings with a total listing value of $663,029 (HK$5,200,000); 2 pieces of porcelain pastel paintings with a total listing value of $331,514 (HK$2,600,000); 7 pieces of porcelains with a total listing value of $1,083,797 (HK$8,500,000); 6 sets of Unit+ products with a total listing value of $1,315,092 (HK$10,314,000); 1 piece of Yixing collectable with a listing value of $127,505 (HK$1,000,000); and 7 pieces of Sports memorabilia with a listing value of $1,084,995 (HK$8,509,400), of which 22.5%-48% (for 60 sets of paintings), 24%-48.5% (for the 134 pieces of precious stones), 29%-48% (for the 35 pieces of jewelry), 47%-48.5% (for 4 piece of antique mammoth ivory carvings), 32%-48% (for the 29 pieces of amber), 45%-46% (for the 2 pieces of porcelain pastel paintings), 25%-48% (for the 7 pieces of porcelains), 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, 2019, there were no new artworks listed on our platform.

 

The listing fees charged decreased to $0 during the three months ended June 30, 2019 compared to $2,000,068 for the same period ended June 30, 2018. During the second quarter of 2019, we did not have any new listings of artwork on our platform because we focused on the promotion of transactions on our platform as opposed to new listings. We are also more discreet about the future listings of more valuable artworks. Accordingly, new listings were put off during the three months ended June 30, 2019.

 

  (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, but as an initial promotion, we currently charge a reduced fee of 0.2% (resulting in an aggregate of 0.4% for both buy and sell transactions) of the total transaction amount with the minimum charge of $0.13 (HK$1). The commission is accounted for as revenue and immediately deducted from the proceeds from the sales of artwork units when a transaction is completed. On November 7, 2018 we lowered the minimum charge to $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.

 

20

 

 

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

 

Commission rebate programs are offered to traders and service agents. We pay to existing traders 5% of the commission earned from the transactions of new traders referred by them. The rebate was adjusted from 15% to 5%, starting January 1, 2017. For service agents, we rebate 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. For service agents who have individual referrers referring traders to us, we will, after rebating such individual referrers 5% of the commission earned from the transactions of new traders they referred, deduct such 5% of the commission from the rebates payable to the service agents to which such individual referrers relate.

 

The rebates and discounts are recognized in the same period the related revenue is recognized.

 

Our trading volume and transaction value amounts increased significantly from 2016 when we commenced operations in Shanghai and consequently added a significant number of traders from mainland China as they could now settle their trades in Renminbi. This trend continued into 2017. However, there was a decrease in our trading volume and transaction value amounts during the second half of 2018 because of the deteriorating economy in China due to the under-performance of its financial stock markets as well as the fall-out from the P2P (peer-to-peer) lending market.

 

Total commission revenue decreased by $1,135,823 or 68% for the three months ended June 30, 2019 to $532,740 compared to $1,668,563 for the three months ended June 30, 2018 primarily because of there were no new listings of artwork during the three months ended June 30, 2019, resulting in a decrease in trading activities on our platform.

 

  (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. On November 7, 2018 we lowered the minimum charge to $0.0013 (HK$0.01). The management fee is deducted from proceeds from the sale of artwork units.

 

During the three-month period ended June 30, 2019, management fee revenue decreased by $85,570, from $178,913 for the three months ended June 30, 2018 to $93,343, due to the decrease in trading transactions.

 

  (iv) Annual fee revenue

 

During the three-month period ended June 30, 2019, there is no annual fee revenue, compared to $162 for the three-month period ended June 30, 2018

 

  (v)

Online artwork sales

 

During the three-month period ended June 30, 2019, there is no online artwork sales, compared to $6,304 for the three-month period ended June 30, 2018

 

21

 

 

 

Revenue by customer type

 

The following table presents our revenue by customer type:

 

  

Three months ended

June 30,

 
   2019   2018 
   (Unaudited)   (Unaudited) 
Artwork owners  $-   $2,000,068 
Non - VIP  traders   481,162    993,674 
VIP  traders   144,921    853,964 
Online artwork sales   -    6,304 
Total  $626,083   $3,854,010 

 

Cost of Revenue

 

   Three months ended
June 30,
 
   2019   2018 
   (Unaudited)   (Unaudited) 
Commission rebate to service agent  $235,088   $598,519 
Depreciation   121,763    168,424 
Internet service charge   47,104    94,051 
Artwork insurance   11,971    50,958 
Artwork storage   25,091    24,995 
Others   11    3,274 
Total  $441,028   $940,221 

 

Cost of revenue for the three months ended June 30, 2019 and June 30, 2018 was $441,028 and $940,221, respectively. The decrease in cost of revenue for the three months ended June 30, 2019 compared to June 30, 2018, was mainly due to the decrease in the commission rebates to service agents by $363,431. Management was focused on resuscitating interest in the existing listed artwork in the second quarter of 2019. Besides the decrease in commission rebates, the decrease in cost of revenue was also due to a decrease in the depreciation and amortization of hardware and software on our trading platform by $46,661 as a result of the suspension of e-commerce activity and impairment of all online software development assets in 2018, the decrease in internet services charges by $46,947 due to the termination of two network lines between Macau and Hong Kong, and the decrease in artwork insurance by $38,987 due to a negotiated discount in our new insurance contract for 2019.

 

Gross Profit

 

Gross profit was $185,055 for the three months ended June 30, 2019, compared to $2,913,789 for the three months ended June 30, 2018. The decrease was due to the decrease in total revenue.

 

Listing fees contributed 0% of the total revenue for the quarter ended June 30, 2019 compared to 51.9% in the corresponding period in 2018, while commission revenue contributed 85.1% for the quarter ended June 30, 2019 compared to 43.3% in the corresponding period in 2018. Compared to the same period in 2018, there was a significant decrease in listing fee revenue and commission revenue. Consequently, we posted a gross profit margin of 29.6% for the three months ended June 30, 2019 compared to 75.6% for the same period in 2018.

 

22

 

 

Operating Expenses

 

General and administrative expenses for the three months ended June 30, 2019 were $888,460 compared to $2,574,598 for the three months ended June 30, 2018. The significant plunge in general and administrative expense by $1,686,138 was attributed to a decrease in salary and welfare by $826,334 due to redundancies since July 2018, a decrease in insurance and rental expenses by $297,275 due to the relocation of our Hong Kong office to a non-central district, a decrease in legal and professional fees by $106,624, a decrease in traveling and accommodation expenses by $113,152 as a result of fewer marketing events, a decrease in non-deductible input VAT by $88,699, a decrease in consultancy fees by $21,075, share-based compensation by $53,412, depreciation by $39,434 and also other expenses by $140,133.

 

The following table sets forth the main components of the Company’s general and administrative expenses for the three months ended June 30, 2019 and 2018.

 

   Three months ended
June 30, 2019
   Three months ended
June 30, 2018 
 
   (Unaudited)   (Unaudited) 
  Amount($)   % of Total   Amount($)   % of Total 
Salary and welfare   430,369    48.4    1,256,703    48.8 
Office, insurance and rental expenses   147,542    16.6    444,817    17.3 
Legal and professional fees   108,542    12.2    215,166    8.4 
Traveling and accommodation fees   30,985    3.5    144,137    5.6 
Non-deductible input VAT expense   44,567    5.0    133,266    5.2 
Consultancy fee   67,277    7.6    88,352    3.4 
Share Based Compensation Expense   13,760    1.6    67,172    2.6 
Depreciation   35,924    4.0    75,358    2.9 
Others   9,494    1.1    149,627    5.8 
Total general and administrative expense  $888,460    100   $2,574,598    100 

 

Other expenses

 

Other expenses for the three-month period ended June 30, 2019 were $486,931, compared to other expenses of $1,239,008 for the same period in 2018. There was a significant decrease in exchange loss by $848,028, arising from the appreciation of Renminbi against US dollar.

 

Income tax benefit

 

The Company’s effective tax rate varies due to its multiple jurisdictions in which the pretax book incomes or losses incur. The Company was subject to a U.S. income tax rate of 21% (34 % prior to January 1, 2018), Hong Kong profits tax rate at 8.25% for the first HKD 2 million (approximately $255,010) assessable profits and at 16.5% for assessable profits above HKD 2 million (approximately $255,010)(16.5% prior to January 1, 2018) and PRC enterprise income tax rate at 25%.

 

The effective tax rates for the three months ended June 30, 2019 and 2018 were 5.6% and 20.2%, respectively.  

 

Income taxes benefit for the three months ended June 30, 2019 and 2018 were $66,584 and $273,972, respectively.

 

Net Loss

 

We had a net loss for the three months ended June 30, 2019 of $1,127,536 compared net loss of $1,084,392 for the three months ended June 30, 2018.

 

Increase in net loss during the three months ended June 30, 2019 was predominately due to a fall in revenue by $3,227,927 at 84%, and a decrease in operating expenses by $2,140,901, or 71% compared to the three months ended June 30, 2018 because of cost-cutting measures. It was also affected by a decrease of exchange losses by $848,028.

 

We announced on August 13, 2018 the suspension of new listings of artwork. We were on the downside of a downturn in the online fine art and collectibles platform space, a by-product of a downturn in A-shares on the Chinese markets tightening of liquidity in China, declines in both the Shanghai and Shenzhen stock exchanges and the fallout from increased peer-to-peer (P2P) loan defaults. We slowly resumed new listings in January 2019 but there were no new listings this quarter. We are focusing on resuscitating interest in the trading of our existing artwork and generating more commission revenue.

 

23

 

 

SIX-MONTH PERIOD ENDED JUNE 30, 2019 COMPARED TO SIX-MONTH PERIOD ENDED JUNE 30, 2018

 

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

 

   Six Months Ended     
   June 30,     
   2019   % of
Revenue
   2018   % of
Revenue
 
   (Unaudited)       (Unaudited)     
Revenue  $1,161,784    100     $7,828,294    100 
Cost of revenue   (708,307)   (61)     (1,873,814)   (24)
Selling expense   (34,596)   (3)     (702,138)   (9)
General and administrative expenses   (2,163,045)   (186)     (5,583,483)   (71)
Total costs and expenses   (2,905,948)   (250)     (8,159,435)   (104)
(Loss) income from operations   (1,744,164)   (150)     (331,141)   (4)
Interest and other (expenses) income, net   (150,187)   (13)     (161,493)   (2)
(Loss) income before income taxes   (1,894,351)   (163)     (492,634)   (6)
Income tax benefit (expense)   58,022    5      (168,468)   (2)
Net loss  $(1,836,329)   (158)    $(661,102)   (8)

  

Revenue

   

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

 

   Six months ended 
   June 30, 
   2019   2018 
   (Unaudited)   (Unaudited) 
Listing fee revenue  $284,090   $3,978,735 
Commission   716,080    3,304,080 
Management fee revenue   161,614    347,228 
Authorized agent subscription revenue   -    191,623 
Annual fee revenue        324 
Online artwork sales   -    6304 
Total  $1,161,784   $7,828,294 

  

  (i) Listing fee revenue

 

As of June 30, 2019, a total of 285 sets of artwork were listed for trade on our platform -comprising 60 sets of paintings and calligraphies from famous Chinese, Russian and Mongolian artists, with a total listing value of $25,768,858 (HK$202,100,000); 35 pieces of jewelry with a total listing value of $9,264,548 (HK$72,660,000); 134 pieces of precious stones with a total listing value of $16,835,824 (HK$132,040,000); 29 pieces of amber with a total listing value of $12,113,021 (HK$95,000,000); 4 pieces of antique mammoth ivory carvings with a total listing value of $663,029 (HK$5,200,000); 2 pieces of porcelain pastel paintings with a total listing value of $331,514 (HK$2,600,000); 7 pieces of porcelains with a total listing value of $1,083,797 (HK$8,500,000); 6 sets of Unit+ products with a total listing value of $1,315,092 (HK$10,314,000); 1 piece of Yixing collectable with a listing value of $127,505 (HK$1,000,000); and 7 pieces of Sports memorabilia with a listing value of $1,084,995 (HK$8,509,400), of which 22.5%-48% (for 60 sets of paintings), 24%-48.5% (for the 134 pieces of precious stones), 29%-48% (for the 35 pieces of jewelry), 47%-48.5% (for 4 piece of antique mammoth ivory carvings), 32%-48% (for the 29 pieces of amber), 45%-46% (for the 2 pieces of porcelain pastel paintings), 25%-48% (for the 7 pieces of porcelains), 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.

 

24

 

 

During the six months ended June 30, 2019, there were 6 sets of paintings listed on our platform. Their total listing values were $1,147,549 (HK$9,000,000) for the paintings, of which 22.9%-28% (for the paintings) of the listed values were charged as listing fees.

 

The listing fees charged decreased to $284,090 during the six months ended June 30, 2019 compared to $3,978,735 for the same period ended June 30, 2018. During the six months ended June 30, 2019, we have slowed down the listings of artwork on our platform because we focused on the promotion of transactions on our platform as opposed to new listings. We will also be more discreet about the future listings of more valuable artworks. Hence, new listings were put off during the six months ended June 30, 2019.

  

  (ii) Commission fee revenue

 

We generate a 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, which we charge trading commissions for the purchase and sale of the ownership shares of the artworks. The commission is typically 0.3% of the total amount of each transaction, but as an initial promotion, we currently charge a reduced fee of 0.2% (resulting in an aggregate of 0.4% for both buy and sell transactions) of the total transaction amount with the minimum charge of $0.13 (HK$1). On November 7, 2018, we lowered the minimum charge to $0.0013 (HK$0.01). The commission is accounted for as revenue and immediately deducted from the proceeds from the sales of artwork units when a transaction is complete.

 

For selected traders, starting from April 1, 2016, we charged a predetermined monthly fee that allows unlimited trades for specific artworks. These traders are selected by authorized agents and reviewed by us. After review, we negotiate individually with each reviewed traders 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 upon the selected traders that receives access to our trading platform to make unlimited trades for specific artworks. 

 

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.

 

Commission rebate programs are offered to traders and service agents. We pay to existing traders 5% of the commission earned from the transactions of new traders referred by them. The rebate was adjusted from 15% to 5%, starting from January 1, 2017. For service agents, we rebate a total of 40% to 68% 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. For service agents who have individual referrers referring traders to us, we will, after rebating such individual referrers 5% of the commission earned from the transactions of new traders they referred, deduct such 5% of the commission from the rebates payable to the service agents to which such individual referrers relate.

 

The rebates and discounts are recognized in the same period the related revenue is recognized.

 

Total commission revenue decreased by $2,588,000 or 78% for the six months ended June 30, 2019 to $716,080 compared to $3,304,080 for the six months ended June 30, 2018 primarily because there were no new listings of artwork on our platform in the second quarter and this drove down trading activity during the second quarter.

 

  (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-month period ended June 30, 2019, management fee revenue decreased by $185,614, from $347,228 for the six months ended June 30, 2018 to $161,614, due to the decrease in trading transactions in the current quarter.

 

  (iv) Annual fee revenue

 

During the six-month period ended June 30, 2019, there is no annual fee revenue, compared to $324 for the six-month period ended June 30, 2018.

 

25

 

 

  (v) Authorized agent subscription revenue

 

During the six-month period ended June 30, 2019, there are no authorized agent subscription revenue, compared to $191,623 for the six-month period ended June 30, 2018.

 

  (v) Online artwork sales

 

During the six-month period ended June 30, 2019, there are no online artwork sales, compared to $6,304 for the six-month period ended June 30, 2018 primarily because of shutting down of online artwork sales on our platform.  

 

Revenue by customer type

 

The following table presents our revenue by customer type:

 

  

Six months ended

June 30,

 
   2019   2018 
   (Unaudited)   (Unaudited) 
Artwork owners  $284,090   $3,978,735 
Non - VIP  traders   640,789    2,095,208 
VIP  traders   236,905    1,556,424 
Authorized agents   -    191,623 
Online artwork sales   -    6,304 
Total  $1,161,784   $7, 828,294 

 

Cost of Revenue

 

   Six months ended
June 30,
 
   2019   2018 
   (Unaudited)   (Unaudited) 
Commission rebate to service agent  $290,004   $1,205,010 
Depreciation   243,795    327,561 
Internet service charge   97,778    186,489 
Artwork insurance   23,933    104,652 
Artwork storage   52,333    46,577 
Others   464    3,525 
Total  $708,307   $1,873,814 

  

Cost of revenue for the six months ended June 30, 2019 and June 30, 2018 was $708,307 and $1,873,814, respectively. The decrease in cost of revenue for the six months ended June 30, 2019 compared to June 30, 2018, was mainly due to the decrease in the commission rebates to service agents by $915,006. Management was focused on resuscitating interest in the listed artwork and no new artwork was listed in the second quarter of 2019. Besides the decrease in commission rebates, the decrease in cost of revenue was also due to a decrease in the depreciation and amortization of hardware and software on our trading platform by $83,766 as a result of the suspension of e-commerce activity and impairment of all online software development assets in 2018, the decrease in internet services charges by $88,711 due to the termination of two network lines between Macau and Hong Kong, and the decrease in artwork insurance by $80,719 due to a negotiated discount in our new insurance contract for 2019.

 

Gross Profit

 

Gross profit was $453,477 for the six months ended June 30, 2019, compared to $5,954,480 for the six months ended June 30, 2018. The decrease was mainly due to the decrease in total revenue.

 

Overall total revenue for the six months ended June 30, 2019 dropped by $6,666,510 or 85.2% compared to the same period in 2018. Compared to the same period in 2018, there was a significant decrease in listing fee revenue and commission revenue. Consequently, we posted a gross profit margin of 39.0% for the six months ended June 30, 2019 compared to 76.1% for the same period in 2018.

 

Operating Expenses

 

General and administrative expenses for the six months ended June 30, 2019 were $2,163,045, compared to $5,583,483 for the six months ended June 30, 2018. The significant plunge in general and administrative expense by $3,420,438 was attributed to a decrease in salary and welfare by $1,786,374 due to redundancies since July 2018, a decrease in insurance and rental expenses by $534,273 due to the relocation of our Hong Kong office to a non-central district, a decrease in legal and professional fees by $206,548, a decrease in traveling and accommodation expenses by $415,331 as a result of fewer marketing events, a decrease in non-deductible input VAT by $203,622, a decrease in consultancy fees by $42,155, share-based compensation by $121,810, depreciation by $74,253 and also other expenses by $36,072.

 

26

 

 

The following table sets forth the main components of the Company’s general and administrative expenses for the six months ended June 30, 2019 and June 30, 2018.

 

   Six months ended   Six months ended 
   30-Jun-19   30-Jun-18 
   (Unaudited)   (Unaudited) 
   Amount($)   % of Total   Amount($)   % of Total 
Salary and welfare   877,866    40.6    2,664,240    47.7 
Legal and professional fees   382,640    17.7    589,188    10.6 
Office, insurance and rental expenses   327,682    15.1    861,955    15.4 
Consultancy fee   172,435    8.0    214,590    3.8 
Non-deductible input VAT expense   89,598    4.1    293,220    5.3 
Depreciation   70,671    3.3    144,924    2.6 
Traveling and accommodation fees   52,343    2.4    467,674    8.4 
Share Based Compensation Expense   30,611    1.4    152,421    2.7 
Others   159,199    7.4    195,271    3.5 
Total general and administrative expense  $2,163,045    100   $5,583,483    100 

 

Other income and expenses

 

Other expenses for the six months ended June 30, 2019 was $150,187, compared to $161,493 for the six months ended June 30, 2018. The amount was comparable between two periods.

 

Income tax benefit (expenses)

 

The Company’s effective tax rate varies due to its multiple jurisdictions where pre-tax income or losses occur. The Company is subject to a Hong Kong profits tax rate at 8.25% for the first HKD 2 million (approximately $255,010) assessable profits and at 16.5% for assessable profits above HKD 2 million (approximately $255,010) (16.5% prior to January 1, 2018) and PRC enterprise income tax rate at 25%. PRC enterprise income tax rate of 25% and U.S. income tax rate of 34% prior to January 1, 2018 while 21% after January 1, 2018 due to the Tax Cuts and Jobs Act enacted on December 22, 2017.

 

The effective tax rates for the six months ended June 30, 2019 and 2018 were 3.1% and (34.2)%, respectively.

 

Income taxes benefit (expense) for the six months ended June 30, 2019 and 2018 were $58,022 and $(168,468), respectively.

 

Net loss

 

We had a net loss for the six months ended June 30, 2019 of $1,836,329 compared to net loss of $661,102 for the six months ended June 30, 2018.

 

The net loss after income tax expense incurred during this current period was predominantly driven by a decrease in gross profit by $5,501,003.

 

27

 

 

Liquidity and Capital Resources

 

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

 

   Six months ended 
   June 30, 
   2019   2018 
   (Unaudited)   (Unaudited) 
Net cash provided by (used in) operating activities  $21,615,744   $(5,625,065)
Net cash provided by (used in) investing activities   2,409,459    (6,920,612)
Net cash (used in) provided by financing activities   (2,106,342)   5,888,608 
Effect of exchange rate change on cash and cash equivalents   10,090    (239,255)
Net increase (decrease) in cash, cash equivalents and restricted cash   21,928,951    (6,896,324)
Cash, cash equivalents and restricted cash, beginning balance   12,524,086    37,140,582 
Cash, cash equivalents and restricted cash, ending balance  $34,453,037   $30,244,258 

 

Sources of Liquidity

 

During the six months ended June 30, 2019, net cash generated from operating activities totaled $21,615,744, which resulted from the implementation of ASU2016-18 since the beginning of 2018. In fact, there was an increase in client deposits by $22,452,663 placed by the customers for upcoming transactions which influenced the increased amounts due to clients simultaneously. The Company assessed and evaluated that it was really a presentation issue and there should be no actual impact to the operating activities. Net cash generated from investing activities totaled $2,409,459. Net cash used in financing activities totaled $2,106,342. The resulting change in cash for the period was an increase of $21,928,951. The cash balance at the beginning of the period was $12,524,086. The cash balance on June 30, 2019 was $34,453,037.

 

During the six months ended June 30, 2018, net cash used in operating activities totaled $5,625,065 and it was resulted in the inclusion of the restricted cash balances within the overall cash balance and removal of the changes in (approximately $5.3M provided by) restricted cash activity due to the adoption of ASU2016-18 since beginning of 2018. Actually, there was a decline in client deposits by $5,357,186 in which influenced the drop of the amount due to clients simultaneously. The Company assessed and evaluated it was rather a presentation issue and there should have no actual impact to the operating activities. Net cash used in investing activities totaled $6,920,612. Net cash generated from financing activities totaled $5,888,608. The resulting change in cash for the period was a decrease of $6,896,324. The cash balance at the beginning of the period was $37,140,582. The cash balance on June 30, 2018 was $30,244,258.

As of June 30, 2019, the Company had $34,608,620 in total current liabilities, which comprised of $618,014 in accrued expense and other payables, $27,001,865 in customers’ deposits, $7,043 in advance from customer, $6,790,399 in amount due to related parties, $178,917 in lease liabilities and $12,382 in tax payables. As of December 31, 2018, the Company had $14,099,778 in total current liabilities, which included $641,692 in accrued expenses and other payables $8,995 in advance from customers, $4,549,202 in customers’ deposits, $2,499,500 in short-term borrowings from third parties, $6,385,288 in amount due to related party, and $15,101 in tax 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.

 

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.

 

28

 

 

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 downside business including a decrease in trading volume and customer deposits, we are also undergoing a company restructuring, including re-evaluating the Company’s core business and a downsizing of its 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 shares of common stock 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, 2018, 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, 2018, previously filed with the SEC.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

 

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, which presently comprises our Chief Executive Officer, Ms. Fang Mu and our Chief Financial Officer, Mr. Jehn Ming Lim. 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, 2019 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, 2019 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

29

 

 

PART II - OTHER INFORMATION

 

Item 6. Exhibits.

 

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

 

Exhibit
No.
  Description
     
3.1   Certificate of Incorporation (1)
3.2   By-laws of the Company (2)
3.3   Certificate of Amendment of the Certificate of Incorporation (1)
3.4   Certificate of Amendment of the Certificate of Incorporation (1)
3.5   Certificate of Amendment (2)
3.6   Certificate of Amendment of the Certificate of Incorporation (4)
3.7   Certificate of Incorporation of Hong Kong Takung Assets and Equity Artworks Exchange Co., Ltd.(3)
3.8   Articles of Association of Hong Kong Takung Assets and Equity Artworks Exchange Co., Ltd.(3)
31.1   Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2   Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1   Certification of the Principal Executive Officer and the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
     
101.INS   XBRL Instance Document*
101.SCH   XBRL Taxonomy Extension Schema Document*
101.CAL   XBRL Taxonomy Calculation Linkbase Document*
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB   XBRL Taxonomy Label Linkbase Document*
101.PRE   XBRL Taxonomy Presentation Linkbase Document*

  

(1)Incorporated by reference to the exhibit to our registration statement on Form S-1 filed with the SEC on August 16, 2011.
(2)Incorporated by reference to the exhibit to our current report on Form 8-K filed with the SEC on March 7, 2013.
(3)Incorporated by reference to the exhibit to our current report on Form 8-K filed with the SEC on October 22, 2014.
(4)Incorporated by reference to the exhibit to our current report on Form 8-K filed with the SEC on November 6, 2014.

 

*Filed herewith.

**Furnished herewith.

 

30

 

 

SIGNATURES

 

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

 

  TAKUNG ART CO., LTD
     
Date: August 14, 2019 By: /s/ Fang Mu
    Fang Mu
    Chief Executive Officer
    (Principal Executive Officer)
     
Date: August 14, 2019 By: /s/ Jehn Ming Lim
    Jehn Ming Lim
    Chief Financial Officer
    (Principal Financial Officer)

 

31

 

Exhibit 31.1

 

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Fang Mu, 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.

 

Date: August 14, 2019  
  /s/ Fang Mu
  Fang Mu
  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, Jehn Ming Lim, 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.

 

Date: August 14, 2019  
  /s/ Jehn Ming Lim
  Jehn Ming Lim
  Chief Financial Officer
  (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, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Fang Mu, Chief Executive Officer, and Jehn Ming Lim, 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.

 

Date: August 14, 2019  
   
  /s/ Fang Mu
  Fang Mu
  Chief Executive Officer
  (Principal Executive Officer)  
   
  /s/ Jehn Ming Lim
  Jehn Ming Lim
  Chief Financial Officer
  (Principal Accounting and Financial Officer)

 

 

v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Aug. 14, 2019
Document and Entity Information [Abstract]    
Document Type 10-Q  
Document Period End Date Jun. 30, 2019  
Entity Registrant Name Takung Art Co., Ltd.  
Entity Current Reporting Status Yes  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Filer Category Non-accelerated Filer  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   11,255,129
Entity Central Index Key 0001491487  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Amendment Flag false  
Trading Symbol TKAT  
v3.19.2
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)
Jun. 30, 2019
Dec. 31, 2018
Current assets    
Cash and cash equivalents $ 7,451,172 $ 7,974,884
Restricted cash 27,001,865 4,549,202
Account receivables, net 0 568,757
Prepayment and other current assets 513,289 955,249
Amount due from a related party 5,916,824 5,907,789
Loan receivables 0 2,391,350
Total current assets 40,883,150 22,347,231
Non-current assets    
Property and equipment, net 1,111,462 1,445,679
Intangible assets 22,341 22,284
Operating lease right-of-use assets 1,070,655 0
Deferred tax assets, net 672,223 611,738
Other non-current assets 116,380 142,293
Total non-current assets 2,993,061 2,221,994
Total assets 43,876,211 24,569,225
Current liabilities    
Accrued expenses and other payables 618,014 641,692
Customer deposits 27,001,865 4,549,202
Advance from customers 7,043 8,995
Short-term borrowings from third party 0 2,499,500
Amount due to related parties 6,790,399 6,385,288
Operating lease liabilities - current 178,917 0
Tax payables 12,382 15,101
Total current liabilities 34,608,620 14,099,778
Non-current liabilities    
Operating lease liabilities, non-current 133,200 0
Amount due to a related party, non-current 411,389 0
Total liabilities 35,153,209 14,099,778
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY    
Common stock (1,000,000,000 shares authorized; $0.001 par value; 11,255,129 shares issued and outstanding as of June 30, 2019; 11,226,025 shares issued and outstanding as of December 31, 2018) 11,255 11,226
Additional paid-in capital 6,312,372 6,281,790
Retained earnings 2,642,804 4,479,133
Accumulated other comprehensive loss (243,429) (302,702)
Total shareholders' equity 8,723,002 10,469,447
Total liabilities and shareholders' equity $ 43,876,211 $ 24,569,225
v3.19.2
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Jun. 30, 2019
Dec. 31, 2018
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS    
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 1,000,000,000 1,000,000,000
Common Stock, Shares, Issued 11,255,129 11,226,025
Common stock, shares outstanding 11,255,129 11,226,025
v3.19.2
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Revenue        
Listing fee $ 0 $ 2,000,068 $ 284,090 $ 3,978,735
Commission 532,740 1,668,563 716,080 3,304,080
Management fee 93,343 178,913 161,614 347,228
Annual fee 0 162 0 324
Authorized agent subscription revenue 0 0 0 191,623
Online artwork sales 0 6,304 0 6,304
Total revenue 626,083 3,854,010 1,161,784 7,828,294
Cost of revenue (441,028) (940,221) (708,307) (1,873,814)
Gross profit 185,055 2,913,789 453,477 5,954,480
Operating expenses        
General and administrative expenses (888,460) (2,574,598) (2,163,045) (5,583,483)
Selling expenses (3,784) (458,547) (34,596) (702,138)
Total operating expenses (892,244) (3,033,145) (2,197,641) (6,285,621)
Loss from operations (707,189) (119,356) (1,744,164) (331,141)
Other income and expenses:        
Other (expenses) income (79,772) 165,862 (101,762) 405,265
Loan interest expense 0 (149,683) 0 (304,466)
Exchange loss (407,159) (1,255,187) (48,425) (262,292)
Total other expense (486,931) (1,239,008) (150,187) (161,493)
Loss before provision for income taxes (1,194,120) (1,358,364) (1,894,351) (492,634)
Income tax benefit (expense) 66,584 273,972 58,022 (168,468)
Net loss (1,127,536) (1,084,392) (1,836,329) (661,102)
Foreign currency translation adjustment 64,753 (111,111) 59,273 (128,278)
Comprehensive loss $ (1,062,783) $ (1,195,503) $ (1,777,056) $ (789,380)
Loss per common share - basic $ (0.10) $ (0.10) $ (0.16) $ (0.06)
Loss per common share - diluted $ (0.10) $ (0.10) $ (0.16) $ (0.06)
Weighted average number of common shares outstanding -basic 11,247,773 11,217,359 11,236,959 11,210,918
Weighted average number of common shares outstanding -diluted 11,247,773 11,217,359 11,236,959 11,210,918
v3.19.2
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($)
Common stock [Member]
Additional paid-in capital [Member]
Retained earnings [Member]
Accumulated other comprehensive Income (loss) [Member]
Total
Balance at Dec. 31, 2017 $ 11,189 $ 6,116,216 $ 12,111,096 $ (320,290) $ 17,918,211
Balance (in Shares) at Dec. 31, 2017 11,188,882        
Issuance of ordinary shares for restricted share award $ 20 (20) 0 0 0
Issuance of ordinary shares for restricted share award (in shares) 20,000        
Share-based compensation $ 0 73,749 0 0 73,749
Net income (loss) 0 0 423,290 0 423,290
Foreign currency translation adjustment 0 0 0 (17,167) (17,167)
Balance at Mar. 31, 2018 $ 11,209 6,189,945 12,534,386 (337,457) 18,398,083
Balance (in Shares) at Mar. 31, 2018 11,208,882        
Balance at Dec. 31, 2017 $ 11,189 6,116,216 12,111,096 (320,290) 17,918,211
Balance (in Shares) at Dec. 31, 2017 11,188,882        
Net income (loss)         (661,102)
Foreign currency translation adjustment         (128,278)
Balance at Jun. 30, 2018 $ 11,226 6,245,600 11,449,994 (448,568) 17,258,252
Balance (in Shares) at Jun. 30, 2018 11,226,025        
Balance at Mar. 31, 2018 $ 11,209 6,189,945 12,534,386 (337,457) 18,398,083
Balance (in Shares) at Mar. 31, 2018 11,208,882        
Issuance of ordinary shares for restricted share award $ 17 (17) 0 0 0
Issuance of ordinary shares for restricted share award (in shares) 17,143        
Share-based compensation $ 0 55,672 0 0 55,672
Net income (loss) 0 0 (1,084,392) 0 (1,084,392)
Foreign currency translation adjustment 0 0 0 (111,111) (111,111)
Balance at Jun. 30, 2018 $ 11,226 6,245,600 11,449,994 (448,568) 17,258,252
Balance (in Shares) at Jun. 30, 2018 11,226,025        
Balance at Dec. 31, 2018 $ 11,226 6,281,790 4,479,133 (302,702) 10,469,447
Balance (in Shares) at Dec. 31, 2018 11,226,025        
Issuance of ordinary shares for restricted share award $ 0 0 0 0 0
Issuance of ordinary shares for restricted share award (in shares) 0        
Share-based compensation $ 0 16,851 0 0 16,851
Net income (loss) 0 0 (708,793) 0 (708,793)
Foreign currency translation adjustment 0 0 0 (5,480) (5,480)
Balance at Mar. 31, 2019 $ 11,226 6,298,641 3,770,340 (308,182) 9,772,025
Balance (in Shares) at Mar. 31, 2019 11,226,025        
Balance at Dec. 31, 2018 $ 11,226 6,281,790 4,479,133 (302,702) 10,469,447
Balance (in Shares) at Dec. 31, 2018 11,226,025        
Net income (loss)         (1,836,329)
Foreign currency translation adjustment         59,273
Balance at Jun. 30, 2019 $ 11,255 6,312,372 2,642,804 (243,429) 8,723,002
Balance (in Shares) at Jun. 30, 2019 11,255,129        
Balance at Mar. 31, 2019 $ 11,226 6,298,641 3,770,340 (308,182) 9,772,025
Balance (in Shares) at Mar. 31, 2019 11,226,025        
Issuance of ordinary shares for restricted share award $ 29 4,012 0 0 4,041
Issuance of ordinary shares for restricted share award (in shares) 29,104        
Share-based compensation $ 0 9,719 0 0 9,719
Net income (loss) 0 0 (1,127,536) 0 (1,127,536)
Foreign currency translation adjustment 0 0 0 64,753 64,753
Balance at Jun. 30, 2019 $ 11,255 $ 6,312,372 $ 2,642,804 $ (243,429) $ 8,723,002
Balance (in Shares) at Jun. 30, 2019 11,255,129        
v3.19.2
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Cash flows from operating activities:    
Net cash provided by (used in) operating activities $ 21,615,744 $ (5,625,065)
Cash flows from investing activities:    
Purchase of property and equipment (33,792) (790,159)
Purchase of available-for-sale investments (21,372,178) (74,934,730)
Maturity and redemption of available-for-sale investments 21,372,178 74,934,730
Loan to related parties 0 (6,369,809)
Repayment of loan from third parties 2,443,251 239,356
Net cash provided by (used in) investing activities 2,409,459 (6,920,612)
Cash flows from financing activities:    
Proceeds from related party's loans 393,158 6,372,430
Loan repayment to a third party (2,499,500) (483,822)
Net cash (used in) provided by financing activities (2,106,342) 5,888,608
Effect of exchange rate change on cash and cash equivalents, and restricted cash 10,090 (239,255)
Net increase (decrease) in cash, cash equivalents and restricted cash 21,928,951 (6,896,324)
Cash, cash equivalents and restricted cash, beginning balance 12,524,086 37,140,582
Cash, cash equivalents and restricted cash, ending balance 34,453,037 30,244,258
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets    
Cash and cash equivalents as of June 30, 2019 and 2018, respectively 7,451,172 10,327,827
Restricted cash as of June 30, 2019 and 2018, respectively 27,001,865 19,916,431
Cash, cash equivalents and restricted cash, ending balance 34,453,037 30,244,258
Supplemental cash flows information:    
Cash paid for interest 0 144,311
Cash paid for income tax $ 0 $ 261,285
v3.19.2
ORGANIZATION AND DESCRIPTION OF BUSINESS
6 Months Ended
Jun. 30, 2019
ORGANIZATION AND DESCRIPTION OF BUSINESS  
ORGANIZATION AND DESCRIPTION OF BUSINESS

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Takung Art Co., Ltd and subsidiaries (“Takung” or the “Company”), a Delaware corporation (formerly Cardigant Medical Inc.) through Hong Kong Takung Art Company Limited (formerly Hong Kong Takung Assets and Equity of Artworks Exchange Co., Ltd.), a Hong Kong company (“Hong Kong Takung”) and our wholly owned subsidiary, operates an electronic online platform located at www.takungae.com for artists, art dealers and art investors to offer and trade in valuable artwork.

Hong Kong Takung was incorporated in Hong Kong on September 17, 2012 and operates an electronic online platform for offering, selling and trading artwork. For the period from September 17, 2012 (inception) to December 31, 2012, the company had no operation except for the issuance of shares for subscription receivables. 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 its business primarily in Hong Kong, People’s Republic of China (the “PRC”).

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 in the PRC. 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.

Takung Cultural Development (Tianjin) Co., Ltd (“Tianjin Takung”) is a limited liability company, with a registered capital of $1 million located in the Pilot Free Trade Zone in Tianjin. Tianjin Takung was incorporated on January 27, 2016 and is a direct wholly-owned subsidiary of Hong Kong Takung.

Tianjin Takung provides technology development services to Hong Kong Takung and Shanghai Takung and also carries out marketing and promotion activities in mainland China.

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.

Art Era Internet Technology (Tianjin) Co., Ltd (“Art Era”) was formed in Tianjin on September 7, 2018, is a directly wholly owned subsidiary of Takung Art Holdings, and formed as a limited liability company with a registered capital of $2 million located in the Pilot Free Trade Zone in Tianjin. Art Era mainly focuses on developing our e-commerce platform for art. Art Era was deregistered on June 18, 2019 due to Company's plan to put off the e-commerce platform development.

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 has been 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.

v3.19.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2019
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated balance sheet as of December 31, 2018, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 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, 2018, previously filed with the SEC.

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 consolidated financial position as of June 30, 2019, its consolidated results of operations and cash flows for the six-month periods ended June 30, 2019 and 2018, 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

Recently Adopted Accounting Standards

On January 1, 2019, the Company adopted ASC 842, Leases, using the modified retrospective method which allows for the application of the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest comparative period presented in these condensed consolidated financial statements. As permitted by the guidance, the Company elected to retain the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date and did not reassess contracts entered into prior to the adoption date for the existence of a lease. The Company also did not recognize ROU assets and lease liabilities for short-term leases, which are leases in existence as of the adoption date with an original term of twelve months or less.

As a result of the adoption of the standard, the Company recognized operating lease right-of-use assets and operating lease liabilities on its condensed consolidated balance sheet as of June 30, 2019. The assets and liabilities recognized upon application of the transition provisions were primarily associated with existing office and storage leases. Please refer to footnote 9. Leases for details.

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, 2018, 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.

v3.19.2
PREPAYMENT AND OTHER CURRENT ASSETS
6 Months Ended
Jun. 30, 2019
PREPAYMENT AND OTHER CURRENT ASSETS  
PREPAYMENT AND OTHER CURRENT ASSETS

3. PREPAYMENT AND OTHER CURRENT ASSETS

Prepayment and other current assets consisted of the following:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2019

 

2018

 

    

(Unaudited)

    

 

Tax receivables

 

$

280,891

 

$

399,026

Staff advance

 

 

66,861

 

 

93,676

Prepaid service fee

 

 

72,807

 

 

140,934

Short-term borrowings to third party

 

 

53,775

 

 

 —

Deposit

 

 

5,096

 

 

241,827

Other current assets

 

 

33,859

 

 

79,786

Prepayment and other current assets

 

$

513,289

  

$

955,249

 

v3.19.2
ACCOUNT RECEIVABLES, NET
6 Months Ended
Jun. 30, 2019
ACCOUNT RECEIVABLES, NET  
ACCOUNT RECEIVABLES, NET

4. ACCOUNT RECEIVABLES, NET

Account receivables consisted of the following:

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

2019

 

2018

 

    

(Unaudited)

    

 

Listing fee

 

$

 —