UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2022

☐ 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.)

1325 Avenue of the Americas, Room 2740, 27^th New York,		NY 10019
(Address of principal executive offices)		(Zip Code)

+1 (332) 250-4207

(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. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

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

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

As of August 15, 2022, 24,611,263 shares of the Company’s common stock, $0.001 par value, were issued and outstanding.

FORM 10-Q

TAKUNG ART CO., LTD

INDEX

		Page Number

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2022 and December 31, 2021	1

	Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the Six Months Ended June 30, 2022 and 2021	2

	Condensed Consolidated Statements of Changes in Equity (unaudited) for The Six Months Ended June 30, 2022 and 2021	3

	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2022 and 2021	4

	Notes to the Condensed Consolidated Financial Statements (unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities	33

Item 4.	Mine Safety Disclosure	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

SIGNATURES		34

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,
	2022			2021
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	32,538,211		$	1,503,153
Restricted cash		4,645,449			-
Account receivables, net		99,290			120,000
Prepayment and other current assets, net		73,492			169,908
Current assets – discontinued operations		162,737			373,479
Total current assets		37,519,179			2,166,540

Non-current assets
Property and equipment, net		6,378			6,883
Intangible assets		140			140
Non-marketable investment, net		3,030,928			9,296,614
Non-current assets – discontinued operations		114,015			183,559
Total non-current assets		3,151,461			9,487,196
Total assets	$	40,670,640		$	11,653,736

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES
Current liabilities
Accrued expenses and other payables	$	2,007,062		$	143,429
Current liabilities - discontinued operations		8,939,854			8,733,624
Advance from customers		4,645,449			-
Tax payables		48,996			-
Total current liabilities		15,641,361			8,877,053

Non-current liabilities
Operating lease liabilities, non-current		-			-
Total non-current liabilities		-			-
Total liabilities		15,641,361			8,877,053

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY
Common stock (1,000,000,000 shares authorized; $0.001 par value; 24,611,623 shares issued and outstanding as of June 30, 2022; 14,372,353 shares issued and outstanding as of December 31, 2021)		24,611			14,372
Additional paid-in capital		62,537,353			32,547,585
Accumulated deficit		(37,393,294	)		(29,444,185	)
Accumulated other comprehensive loss		(139,392	)		(341,089	)
Total shareholders’ equity		25,029,278			2,776,683
Total liabilities and shareholders’ equity	$	40,670,640		$	11,653,736

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

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenue
Listing fee-Continuing operations	$	-		$	-		$	-		$	-
Listing fee-Discontinued operations		-			283,302						557,094
Commission-Continuing operations		694,175			-			694,175			-
Commission-Discontinued operations					648,310						1,006,396
Management fee-Continuing operations		-			-			-
Management fee-Discontinued operations		-			211,883						359,113
Revenue-Continuing operations		694,175			-			694,175			-
Revenue-Discontinued operations		-			1,143,495			-			1,922,603

Cost of revenue-continuing operations		(150,930	)		-			(150,930	)		-
Cost of revenue-discontinued operations		-			(452,465	)					(704,702	)

Gross profit-continuing operations		543,245			-			543,245			-
Gross profit-discontinued operations		-			691,030			-			1,217,901

Operating expenses:
General and administrative expenses-Continuing operations		(7,578,425	)		(7,182,662	)		(8,189,900	)		(7,542,652	)
General and administrative expenses-Discontinued operations		(73,419	)		(769,652	)		(253,017	)		(1,422,820	)
Selling expenses-Continuing operations		-			-			-			-
Selling expenses-Discontinued operations		-			(131,558	)		-			(236,469	)
Total operating expenses - Continuing operations		(7,578,425	)		(7,182,662	)		(8,189,900	)		(7,542,652	)
Total operating expenses - Discontinued operations		(73,419	)		(901,210	)		(253,017	)		(1,659,289	)

Loss from continuing operations		(7,035,180	)		(7,182,662	)		(7,646,655	)		(7,542,652	)

Other income and expenses:
Other(expenses) income-Continuing operations		(177	)		161,762			(276	)		161,710
Other(expenses) income-Discontinued operations		2			16,615			(165	)		30,504
Total other income (expenses)		(175	)		178,377			(441	)		192,214

Loss before income taxes-Continuing operations		(7,035,357	)		(7,020,900	)		(7,646,931	)		(7,380,942	)

Income tax expenses-Continuing operations		48,996			-			48,996			-

Net loss from continuing operations		(7,084,353	)		(7,020,900	)		(7,695,927	)		(7,380,942	)

Loss before income tax-Discontinued operations:
Loss from Discoutinued operations		(73,417	)		(193,565	)		(253,182	)		(410,884	)
Income tax expenses-Discontinued operations
Tax expense					24,334						4,126
Deferred tax benefit					(35,700	)					(10,719	)

Net Loss from discontinued operations		(73,417	)		-			(253,182	)		-

Net loss	$	(7,157,770	)	$	(7,225,831	)	$	(7,949,109	)	$	(7,798,419	)

Foreign currency translation adjustment		180,638			3,933			201,697			(33,830	)

Comprehensive loss	$	(6,977,132	)	$	(7,221,898	)	$	(7,747,412	)	$	(7,832,249	)

Loss from continuing operations per common share - basic	$	(0.308	)	$	(0.606	)	$	(0.411	)	$	(0.646	)
Loss from continuing operations per common share -Diluted	$	(0.144	)	$	(0.606	)	$	(0.242	)	$	(0.646	)
Loss from discontinued operations per common share - basic	$	(0.003	)	$	(0.018	)	$	(0.014	)	$	(0.037	)
Loss from discontinued operations per common share - Diluted	$	(0.001	)	$	(0.018	)	$	(0.008	)	$	(0.037	)
Weighted average number of common shares outstanding-basic		23,036,046			11,579,690			18,728,132			11,427,248
Weighted average number of common shares outstanding-diluted		49,027,125			11,579,690			31,795,470			11,427,248

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

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

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

(UNAUDITED)

	Number of shares		Common Stock		Additional Paid-in capital		Accumulated deficit			Accumulated other comprehensive loss			Total
Balance, December 31, 2021	$	14,372,353	$	14,372	$	32,547,585	$	(29,444,185	)	$	(341,089	)	$	2,776,683
Shared-based compensation
Net loss from continuing operations		-		-		-		(611,574	)		-			(611,574	)
Net loss from discontinued operations		-		-		-		(179,765	)		-			(179,765	)
Foreign currency translation adjustment		-		-		-		-			21,059			21,059
Balance, March 31, 2022		14,372,353		14,372		32,547,585		(30,235,524	)		(320,030	)		2,006,403

Issuance of ordinary shares for restricted stock award		10,238,910		10,239		29,989,768		-			-			30,000,007
Exercise of stock options		-		-		-		-			-			-
Shared-based compensation		-		-		-		-			-			-
Net loss from continuing operations		-		-		-		(7,084,353	)		-			(7,084,353	)
Net loss from discontinued operations		-		-		-		(73,417	)		-			(73,417	)
Foreign currency translation adjustment		-		-		-		-			180,638			180,638
Balance, June 30, 2022		24,611,263	$	24,611	$	62,537,353	$	(37,393,294	)	$	(139,392	)	$	25,029,278

	Number of shares		Common Stock		Additional Paid-in Capital		Retained earnings (accumulated deficit)			Accumulated other comprehensive loss			Total
Balance, December 31, 2020		11,271,379	$	11,271	$	6,358,115	$	(226,311	)	$	(328,030	)	$	5,815,045
Shared-based compensation		-		-		3,717		-			-			3,717
Net loss from continuing operations		-		-		-		(360,042	)		-			(360,042	)
Net loss from discontinued operations								(212,546	)					(212,546	)
Foreign currency translation adjustment		-		-		-		-			(37,763	)		(37,763	)
Balance, March 31, 2021		11,271,379		11,271		6,361,832		(798,899	)		(365,793	)		5,208,411

Issuance of ordinary shares for restricted stock award		335,000		335		6,863,814		-			-			6,864,149
Exercised of stock options		61,065		61		180,424		-			-			180,485
Shared-based compensation		-		-		-		-			-			-
Net loss from continuing operations		-		-		-		(7,020,900	)		-			(7,020,900	)
Net loss from discontinued operations								(204,931	)					(204,931	)
Foreign currency translation adjustment		-		-		-		-			3,933			3,933
Balance, June 30, 2021		11,667,444	$	11,667	$	13,406,070	$	(8,024,730	)	$	(361,860	)	$	5,031,147

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

TAKUNG ART CO., LTD AND SUBSIDIARIES

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in U.S. Dollars)

(UNAUDITED)

	Six Months Ended
	June 30,			June 30,
	2022			2021
Cash flows from operating activities:
Net loss from continuing operations	$	(7,695,927	)	$	(7,380,942	)
Net loss from discontinued operations		(253,182	)		(417,477	)

Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		465			930
Impairment loss		6,265,686			-
Changes in exchange rate		-			-
Share-based compensation		-			3,717
Changes in operating assets and liabilities(decrease)increase in:
Accounts receivable, net		20,710			41,420
Prepayment and other current assets		96,416			106,058
Accrued expenses and other payables		6,509,082			16,073,055
Net cash provided by operating activities - continuing operations	$	5,196,432		$	8,844,238
Net cash provided by operating activities - discontinued operations		185,654			987,134
Net cash provided by operating activities		5,382,086			9,831,372

Cash flows from investing activities:
Net cash used in investing activities-continuing operations		(505	)		145,824
Net cash used in investing activities-discontinued operations		(1,151	)		243,143
Net cash used in investing activities		(1,656	)		388,967

Cash flows from financing activities:
Proceeds from a short-term borrowing from a third party		300,000			-
Net cash provided by financing activities-continuing operations		30,000,007			-
Net cash provided by financing activities-discontinued operations		-			180,485
Net cash provided by financing activities		30,300,007			180,485

Effect of exchange rate change on cash, cash equivalents and restricted cash from continuing operations		184,573			19,976
Effect of exchange rate change on cash, cash equivalents and restricted cash from discontinued operations		(400,243	)		33,293

Net change in cash and cash equivalents, and restricted cash from continuing operations		35,680,507			9,010,038
Net change in cash and cash equivalents, and restricted cash from discontinued operations		(215,740	)		1,444,055

Cash, cash equivalents and restricted cash, beginning balance		1,503,153			31,188
Cash and cash equivalents, and restricted cash beginning balance from discontinued operations		338,542			13,811,557
Cash and cash equivalents, and restricted cash beginning balance		1,841,695			13,842,745

Cash and cash equivalents, and restricted cash ending balance from continuing operations	$	37,183,660		$	9,041,226
Cash and cash equivalents and restricted cash ending balance from discontinued operations		122,802			15,255,612
Cash and cash equivalents and restricted cash ending balance	$	37,306,462		$	24,296,838

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents-continuing operations	$	32,538,211		$	9,041,226
Restricted cash as of June 30, 2021 and 2020, respectively		4,645,449			-
Total cash, cash equivalents and restricted cash-continuing operations	$	37,183,660		$	9,041,226

Cash and cash equivalents-discontinued operations	$	122,802		$	9,221,029
Restricted cash - discontinued operations		-			6,034,583
Total cash, cash equivalents and restricted cash-discontinued operations	$	122,802		$	15,255,612

Supplemental cash flows information:
Cash paid for interest-continuing operations	$	-		$	-
Cash paid for interest-discontinued operations	$	-		$	-
Cash paid for income taxes-continuing operations	$	-		$	112,491
Cash paid for income taxes-discontinued operations	$	-		$	-

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

TAKUNG ART CO., LTD AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

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

Hong Kong Takung was incorporated in Hong Kong on September 17, 2012 and operates an electronic online platform for offering and trading artwork. The Company generates revenue from its services in connection with the offering and trading of artwork on its system, primarily consisting of listing fees, trading commissions, and management fees. The Company conducts business primarily in Hong Kong, People’s Republic of China.

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

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

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

Hong Kong MQ Group Limited (“Hong Kong MQ”) was formed in Hong Kong on November 27, 2018, and is engaged in blockchain and non-fungible tokens (“NFT”) businesses, including consultancy service for NFT launch projects, developing its own NFT marketplace to facilitate users to buy and sell NFTs, as well as development of block chain-based online games. On June 19, 2019, as a result of a private transaction, one (1) share of common stock of Hong Kong MQ was transferred from Ms. Hiu Ngai Ma to the Company. The net asset of Hong Kong MQ was $nil as of the acquisition date. The consideration paid for the ownership transfer, which represent 100% of the issued and outstanding share capital of Hong Kong MQ, was $0.13 (HK$1). Hong Kong MQ became a direct wholly-owned subsidiary of the Company.

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

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

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

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

Cultural Objects Provenance Holdings Limited

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

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

On August 21, 2021, Takung and Cultural Objects entered to an amendment to the SPA. The amendment provides that the original purchase price was amended to be $500,000 in cash and the issuance of 771,040 restricted shares of common stock of Takung to Cultural Objects in exchange for 54,100 shares of common stock of Cultural Objects, and, subject to the satisfaction of the conditions stipulated in the SPA, the issuance of 787,440 unvested restricted shares of common stock of Takung to Cultural Objects in exchange for 32,460 unvested shares of common stock of Cultural Objects. The cash consideration of $500,000 was paid to Cultural Objects by the end of August 2021. On September 9, 2021, an aggregate amount of 1,558,480 restricted shares of common stock of Takung issued to Cultural Objects in an exchange for an aggregate 86,560 shares of common stock of Cultural Objects. Together with the cash consideration paid $500,000 and the total value of the restricted shares issued to Cultural Objects, $10,130,120, the total value of the investment in Cultural Objects was $10,630,120. As of June 30, 2022 the initial cost of this investment was adjusted to $3,030,928 after a further impairment charge, $6,265,686 was recorded (see Note 5).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

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

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

Use of estimates

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

Basis of consolidation

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

Discontinued operations

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

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

Due to the suspension of the operation of Tianjin Takung by the local authority in the fourth quarter of 2021, Hong Kong Takung lost its control over Tianjin Takung. The Company plans to dispose Hong Kong Takung, and is actively seeking buyers for Hong Kong Takung and related operations in order to focus on its blockchain and NFT business operation. As of June 30, 2022 and December 31, 2021, the operation of Hong Kong Takung was classified as a discontinued operation and as of December 31, 2021, the operation Tianjin Takung was deconsolidated. For the six months ended June 30, 2022, the operation of Hong Kong Takung was presented in discontinued operations.

Deconsolidation

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

Fair value measurements

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

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

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

●

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

●

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

●

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

There were no assets or liabilities measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820 as of June 30, 2022 and December 31, 2021.

Comprehensive loss

The Company follows the provisions of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 220 “Reporting Comprehensive Income” and establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements. For the six months ended June 30, 2022 and 2021, the Company’s comprehensive loss includes net loss and foreign currency translation adjustment.

Foreign currency translation and transaction

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

The reporting currency of the Company is USD.

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

For the purpose of presenting these financial statements, the Company’s assets and liabilities with functional currency of HKD are expressed in USD at the exchange rate on the balance sheet’s dates, which is 7.8472 and 7.7996 as of June 30, 2022 and December 31, 2021, respectively;

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

Cash and cash equivalents

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

Restricted cash

Restricted cash represents the cash deposited by the NFT traders into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading of NFT in our online NFT platform. After the user’s registration is successful, the customer deposits must be transferred to the designated account of the platform through the bank account added by the user before the transaction starts, and a transfer application is submitted on the platform, which can enter the buyer’s platform account after financial review. Except for instructing the bank to deduct the commission, Takung has no right to use any funds in the broker’s account. Our restricted cash is denominated in USD. As of June 30, 2022, the ending balance of our restricted cash was $4,645,449.

Accounts receivable and allowance for doubtful accounts

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

Prepayment and other current assets, net

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

Property and equipment, net

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

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

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

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

Long-lived assets

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

During 2021, we recorded $16.5million in asset impairments due to the deconsolidation of Tianjin Takung as a result of the loss of control in this entity. Please refer to Note 6 for details. In addition, we determined that the future undiscounted cash flow was less than the carrying cost of our non-marketable investment and recognized an impairment charge of $1,333,506 for twelve months ended December 31, 2021 and a further charge of $6,265,686 for six months ended June 30, 2022 against our non-marketable investment. Please refer to Note 5 for details.

Intangible assets

Intangible assets represent the licensing cost for the trademark registration. For intangible assets with indefinite lives, the Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. For intangible assets with definite lives, they are amortized over estimated useful lives, and are reviewed annually for impairment. The Company has not recorded impairment of intangible assets as of June 30, 2022 and December 31, 2021.

Advance from customers

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

Revenue Recognition

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

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

Our discontinued operations generated revenue from its services in connection with the offering and trading of artworks on the Company’s legacy online trading system primarily consisted of listing fee, commission fee and management fee.

Listing fee

The Company recognizes the listing fee revenue at a point in time when the ownership units of the artwork are listed and available for trading on the Company’s system, at an amount of an agreed percentage of the total offering price. The amount is collected from the money raised from the issuance of such units.

Commission

The Company generates commission fee from non-VIP traders and selected traders.

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

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

Management fee

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

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

Cost of revenue

The Company’s cost of revenue primarily consists of expenses associated with the delivery of its service of our continued operations. These include expenses related to the operation of the data centers, such as facility and lease of the server equipment, development and maintenance of the platform system, as well as the cost of insurance, storage and transportation of the artworks. Cost of revenue also includes commission paid to service agent.

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

The contract liabilities are the Company’s obligation to transfer services to traders for which the Company has received consideration from the traders. All contract liabilities are expected to be recognized as revenue within one month and are presented in Advance from Customers in the Interim Condensed Consolidated Balance Sheet.

Leases

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

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

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

Income taxes

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

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

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

The Company did not accrue any liability, interest or penalties related to uncertain tax positions in the provision for income taxes line of the interim condensed consolidated statements of operations for the six months ended June 30, 2022 and as of December 31, 2021.

Earnings (loss) per share

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

Concentration of risks

Concentration of credit risk

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

Concentration of customers

There were no revenues from customers that individually represent greater than 10% of the total revenues during the six months ended June 30, 2022 and 2021.

Concentration of customer deposits

As of June 30, 2022 and December 31, 2021, there were no traders that individually accounted for greater than 10% of the Company’s total customer deposits.

Accounting standards adopted on January 1, 2021

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

Accounting pronouncements issued but not yet adopted

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

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

3. PREPAYMENT AND OTHER CURRENT ASSETS, NET

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

	June 30,			December 31,
	2022			2021
	(Unaudited)
Prepaid tax	$	-		$	-
Prepaid service fees		81,240			196,497
Deposit		5,557			5,557
Other current assets		-			2,791
Subtotal		86,797			204,845
Less: Prepayment and other current assets, net-discontinued operations		(13,305	)		(34,937	)
Prepayment and other current assets, net	$	73,492		$	169,908

No provision for doubtful accounts was recognized for the three and six months ended June 30, 2022 and 2021, respectively.

4. ACCOUNT RECEIVABLES, NET

Account receivables consisted of the following:

	June 30,		December 31,
	2022		2021
	(Unaudited)
Listing fee	$	-	$	154,771
Consultancy service		99,290		120,000
Less: allowance for doubtful accounts		-		(154,771	)
Account receivables, net	$	99,290	$	120,000

No provision for doubtful accounts was recognized for the three and six months ended June 30, 2022 and 2021, respectively.

5. INVESTMENTS

We adopted ASU 2016-01 on January 1, 2018. This guidance requires us to measure all equity investments that are not accounted for under the equity method or result in consolidation at fair value and recognize any changes in net income. For equity investments with readily determinable and observable fair values, we use quoted market prices to determine the fair value of equity securities. For equity investments without readily determinable fair values, we have elected the measurement alternative under which we measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

Equity investments with readily determinable fair values that are not accounted for under the equity method classified as trading are not assessed for impairment, since they are carried at fair value with the change in fair value included in net income. Similarly, prior to the adoption of ASU 2016-01, equity investment classified as trading was not tested for impairment.

Equity investments without readily determinable fair values are reviewed each reporting period to determine whether a significant event or change in circumstances has occurred that may have an adverse effect on the fair value of each investment. When such events or changes occur, we assess the fair value compared to our cost basis in the investment. We also perform this assessment every reporting period for each investment for which our cost basis has exceeded the fair value.

For investments in privately-held companies, management’s assessment of fair value is based on valuation methodologies such as discounted cash flows, estimates of revenue and appraisals, as applicable. We consider and apply the assumptions that we believe market participants would use in evaluating estimated future cash flows when utilizing the discounted cash flow or estimates of revenue valuation methodologies. In the event the fair value of an investment declines below our cost basis, management determines if the decline in fair value is other than temporary and records an impairment accordingly.

As of December 31, 2021, our investment merely includes a non-marketable investment in a privately held company incorporated in British Virgin Islands without readily determinable market values. We elected the measurement alternative under which we measured the investment at cost minus impairment with an adjustment to the changes from observable price changes in orderly transactions for the similar investments of the same issuer.

Management considered market conditions as the result of the global pandemic and other global macroeconomic conditions and the potential impact on the value of the Company’s investment; accordingly, management conducted a review of each of its investments. After its review management determined that the future undiscounted cash flows were less than the carrying cost of our non-marketable investment and recognized an impairment charge, $7,599,192 against our non-marketable investment. Management estimated future revenues and costs, and the related cash flows regarding this investment, as well as applying assumptions regarding the proper inputs into the weighted average cost of capital which included the consideration of comparable market participants and the Company’s own capital structure in developing a discounted flow model to determine an update carrying value for the private-held investment.

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

	June 30,			December 31,
	2022			2021

Total initial cost	$	10,630,120		$	10,630,120
Cumulative net gain (loss)		-			-
Provision for impairment		(7,599,192	)		(1,333,506	)
Total carrying value	$	3,030,928		$	9,296,614

We recorded an unrealized loss in connection with the non-marketable investment, a further impairment loss of $6,265,686 was recognized for six months ended June 30, 2022.

6. ASSET IMPAIRMENTS

Our subsidiary, Hong Kong Takung, recorded an asset impairment charge of $16,538,781, as a result of the deconsolidation of Tianjin Takung due to the loss of control of Tianjin Takung in the fourth quarter of 2021. Hong Kong Takung considered the receivables from Tianjin Takung to be uncollectible and wrote off its investment in Tianjin Takung. These charges have been included in the net loss from discontinued operations for the year ended December 31, 2021. As of the June 30, 2022, we did not incur additional receivable balances nor impairments.

The following represents the detail of the asset impairments as of June 30, 2022 and December 31, 2021.

	June 30,		December 31,
	2022		2021

Receivables from Tianjin Takung	$	-	$	16,388,254
Investment in Tianjin Takung		-		150,527
Subtotal		-		16,538,781
Less: asset impairments – discontinued operations	$	-	$	(16,538,781	)
Total		-		-

7. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

	June 30,			December 31,
	2022			2021
	(Unaudited)
Furniture, fixtures and equipment	$	68,910		$	63,392
Leasehold improvements		22,938			23,078
Computer trading and clearing system		2,410,388			2,429,883
Sub-total		2,502,236			2,516,353
Less: accumulated depreciation		(2,437,316	)		(2,428,936	)
Sub-total	$	64,920		$	87,417
Less: Property and equipment, net-discontinued operations		(58,542	)		(80,534	)
Property and equipment, net		6,378			6,883

8. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables as of June 30, 2022 and December 31, 2021 consisted of the following:

	June 30,			December 31,
	2022			2021
	(Unaudited)
Accruals for professional fees	$	272,318		$	90,642
Accruals for consulting fees		278,604			266,304
Payroll payables		285,277			55,964
Trading and clearing system		-			2,364
Other payables		1,447,879			1,546
Subtotal	$	2,284,078		$	416,820
Less: Accrued expenses and other payables-discontinued operations		(277,016	)		(273,391	)
Total accrued expenses and other payables		2,007,062			143,429

9. RELATED PARTY BALANCES AND TRANSACTIONS

On May 29, 2021, our discontinued operation, Hong Kong Takung, entered into an interest-free loan agreement (the “HK Dollar Working Capital Loan”) with Sze Chan (“Chan”), Vice President of Hong Kong Takung, for the loan of $6,371,699 (HK$50,000,000) to Hong Kong Takung. The purpose of the loan is to provide Hong Kong Takung with sufficient Hong Kong Dollar-denominated currency to meet its working capital requirements with the maturity date of the loan as May 15, 2022.

In April 2022 Chan assigned loan receivables in Hong Kong Takung to Jin Wang, one of the members of management team and it was still outstanding as at June 30, 2022.

The ending balance of the amount due to a related party as of respective period is indicated as follows:

	June 30,			December 31,
	2022			2021
	(Unaudited)
Chan	$	-		$	6,410,585
Wang		6,371,699			-
Subtotal	$	6,371,699		$	6,410,585
Less: amount due to related party – discontinued operations		(6,371,699	)		(6,410,585	)
Total		-			-

10. INCOME TAXES

Takung, NFT Exchange and NFT Digital were incorporated in the State of Delaware, Wyoming and New York, respectively; therefore, are subject to United States income tax. Metaverse Payment, Hong Kong Takung and Hong Kong MQ were incorporated in Hong Kong S.A.R. and are subject to Hong Kong profits tax. Tianjin Takung was incorporated in the PRC and is subject to the Enterprise Tax.

United States of America

Takung, NFT Exchange and NFT Digital are subject to the U.S. federal and state corporate income taxes. The federal corporate income tax rate is 21%. Corporate entities are required to file state income taxes in accordance with the applicable state corporate income regulations.

Hong Kong

Two-tier Profits Tax Rates

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

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

PRC

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

The income tax provision consists of the following components:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2022		2021			2022		2021
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Current:
Federal	$	-	$	-		$	-	$	-
State		-		-			-		-
Foreign		48,996		(9,261	)		48,996		10,947
Total Current	$	48,996	$	(9,261	)	$	48,996	$	10,947

Deferred:
Federal	$	-	$	-		$	-	$	-
State		-		-			-		-
Foreign		-		20,627			-		(4,354	)
Total Deferred	$	-	$	20,627		$	-	$	(4,354	)
Total income tax expense	$	48,996	$	11,366		$	48,996	$	6,593

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Loss before income tax expense	$	(7,108,774	)	$	(7,214,465	)	$	(7,900,113	)	$	(7,791,826	)
Computed tax benefit with statutory tax rate		(344,263	)		(1,515,040	)		(1,089,572	)		(1,636,285	)
Impact of different tax rates in other jurisdictions		(13,363	)		(2,622	)		(13,363	)		1,097
Impact of preferred tax rate		56,724			(40,760	)		272,399			5,390
Non-deductible items:
Tax effect of non-deductible expenses		-			71,454			-			64,376
Changes in valuation allowance		349,898			1,498,334			879,532			1,573,161
Others		-			-			-			(1,146	)
Total income tax expense	$	48,996		$	11,366		$	48,996		$	6,593

Uncertain tax positions

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

	June 30,		December 31,
	2022		2021
Uncertain tax liabilities, beginning of period	$	-	$	101,789
Settlements with tax authority during current year		-		(101,789	)
Uncertain tax liabilities, end of period	$	-	$	-

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

The amounts of uncertain tax liabilities listed above are based on the recognition and measurement criteria of ASC Topic 740, and the balance is presented as current liability in the consolidated financial statements as of March 31, 2022 and December 31, 2021. The Company anticipated that the settlements with the taxing authority are remitted within one year.

Our policy is to include interest and penalty charges related to uncertain tax liabilities as necessary in the provision for income taxes. The Company has a liability for accrued interest of $nil as of June 30, 2022 and December 31, 2021, respectively.

Our discontinued operation, Hong Kong Takung, was selected for routine examination for its tax years ended December 31, 2016 through 2018 by Hong Kong Inland Revenue Department (“IRD”) during the fiscal year ended 2020. The examination had been concluded in May 2021 and the ultimate resolution of the tax examination concurred with the uncertain tax liabilities previously accrued. Hong Kong Takung settled the entire tax liabilities in June 2021. The Company does not expect the position of uncertain tax liabilities will significantly fluctuate within the next twelve months.

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

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

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

11. LEASES

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

The following table provides a summary of leases by balance sheet location as of June 30, 2022 and December 31, 2021 respectively:

		As of		As of
		June 30,		December 31,
Assets/liabilities	Classification	2022		2021
		(Unaudited)		(Unaudited)
Assets
Operating lease right-of-use assets	Operating lease assets	$	31,908	$	62,397

Liabilities
Current
Operating lease liability - current	Current operating lease liabilities	$	31,908	$	62,397

Long-term
Operating lease liability - non-current	Long-term operating lease liabilities		-		-

Total lease liabilities		$	31,908	$	62,397

The operating lease expenses for the three months and six months ended June 30, 2022 and 2021 were as follows:

		Three Months Ended June 30,						Six Months Ended June 30,
Lease Cost	Classification	2022			2021			2022			2021
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Operating lease cost	Cost of revenue, general and administrative expenses	$	21,864		$	109,951		$	83,869		$	167,226
Total lease cost		$	21,864		$	109,951		$	83,869		$	167,226
Operating lease cost-discontinued operations	Cost of revenue, general and administrative expenses		(21,864	)		(109,951	)		(83,869	)		(167,226	)
Total lease cost			-			-			-			-

Maturities of operating lease liabilities at June 30, 2022 were as follows:

	Operating
Maturity of Lease Liabilities	Leases
2022	$	32,563
2023		-
2024		-
2025		-
Thereafter		-
Total lease payments	$	32,563
Less: interest		(655	)
Present value of lease payments	$	31,908

12. LOSS PER SHARE

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

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Numerator:
Net loss - continuing operations	$	(7,084,353	)	$	(7,020,900	)	$	(7,695,927	)	$	(7,380,942	)
Net loss - discontinued operations		(73,417	)		(204,931	)		(253,182	)		(417,477	)
Total net loss		(7,157,770	)		(7,225,831	)		(7,949,109	)		(7,798,419	)

Denominator:
Weighted-average shares outstanding - Basic		23,036,046			11,579,690			18,728,132			11,427,248
Stock options and restricted shares		-			-			-			-
Weighted-average shares outstanding - Diluted		49,027,125			11,579,690			31,795,470			11,427,248

Loss per share-continuing operations
-Basic		(0.308	)		(0.606	)		(0.411	)		(0.646	)
-Diluted		(0.144	)		(0.606	)		(0.242	)		(0.646	)

Loss per share-discontinued operations
-Basic		(0.003	)		(0.018	)		(0.014	)		(0.037	)
-Diluted		(0.001	)		(0.018	)		(0.008	)		(0.037	)

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

As of June 30, 2022 and December 31, 2021, there were no outstanding stock options, but there were warrants attached to PIPE executed on April 14, 2022 securities that would potentially be converted to additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued were excluded from the calculation of diluted net loss per share.

13. SUBSEQUENT EVENTS

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

Upon further discussion among the parties, on July 27, 2022, the Company and the Purchasers agreed to amend and restate the SPA to make amendments to the number of Units and the Unit purchase price (the “Amended SPA”). Pursuant to the Amended SPA, the Company agreed to sell 10,380,623 Units. The purchase price of each Unit is $2.89. The gross proceeds to the Company from this offering will be approximately $30 million. The Amended SPA is subject to various conditions to closing including NYSE American’s completion of its review of the notification to NYSE American regarding the listing of the Units.

Other than the events aforementioned, the Company has evaluated subsequent events through the date of issuance of the consolidated financial statements, there were no other subsequent events occurred that would require recognition or disclosure in the consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our financial statements and related notes thereto.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, our management as well as estimates and assumptions made by our management. When used in the report the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan” or the negative of these terms and similar expressions as they relate to us or our management identify forward-looking statements. Such statements reflect the current view of our management with respect to future events and are subject to risks, uncertainties, assumptions and other factors as they relate to our industry, our operations and results of operations, and any businesses that we may acquire. Should one or more of the events described in these risk factors materialize, or should our underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

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

Overview

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

In July 2021, Takung appointed Mr. Kwok Leung Li as the CEO to lead the new direction with three initiatives to develop our blockchain and NFT related businesses.

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

NFT Market Insights

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

New Business Model

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

New Business Services

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

TKAT taps into the needs of users to provide comprehensive consulting services such as labor cost, artist influence, artistic value of works, and channels for obtaining works, which not only serves customers but also creates value for the company.

B.	NFT trading service

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

C.	Advertising service

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

New Strategic Direction

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

Competitor analysis

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

Competitive Advantages

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

Innate industry advantages

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

Advantages of the core management team

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

Takung’s platform advantages

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

Technical advantages

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

Marketing advantages

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

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

THREE MONTHS ENDED JUNE 30, 2022 COMPARED TO THREE MONTHS ENDED JUNE 30, 2021

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

	Three Months Ended June 30,
	2022			% of Revenue			2021			% of Revenue
	(Unaudited)						(Unaudited)
Revenue-Continuing operations	$	694,175			100		$	-			-
Revenue-Discontinued operations		-			-			1,143,495			100
Cost of revenue-Continuing operations		(150,930	)		(22	)		-			-
Cost of revenue-Discontinued operations		-			-			(452,465	)		(40	)
Selling expenses-Continuing operations		-			-			-			-
Selling expenses-Discontinued operations		-			-			(131,558	)		(12	)
General and administrative expenses-Continuing operations		(7,578,425	)		(1092	)		(7,182,662	)		-
General and administrative expenses-Discontinued operations		(73,419	)		-			(769,652	)		67
Total costs and expenses-Continuing opertions		(7,729,355	)		(1113	)		(7,182,662	)		-
Total costs and expenses-Discontinuing opertions		(73,419	)		-			(1,353,675	)		(118	)
Loss from continuing operations		(7,035,180	)		(1013	)		(7,182,662	)		-
Other(expenses)income - Continuing opertions		(177	)		(0	)		161,762			-
Other(expenses)income - Discontinuing opertions		2			-			16,615			1
Loss before income taxes -Continuing operations		(7,035,357	)		(1,013	)		(7,020,900	)		-
Income tax expense		48,996			7			0			-
Net loss from Continuing operation	$	(7,084,353	)		(1,021	)	$	(7,020,900	)		-
Loss before income tax-Discontinued operatons		(73,417	)		-			(193,565	)		(17	)
Income tax expenses-Discontinued operations
Tax expense		-			-			24,334			2
Deferred tax benefit		-			-			(35,700	)		(3	)
Net loss from Discontinued operations		(73,417	)		-			(204,931	)		(18	)
Net loss		(7,157,770	)		(1,031	)		(7,225,831	)		(632	)

Revenue

For the three months ended June 30, 2022 and 2021, our operations generated revenues in an amount of $694,175 and $1,143,495, respectively.

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

	Three Months Ended June 30,
	2022		2021
	(Unaudited)		(Unaudited)
Listing fee-Continuing operations	$	-	$	-
Listing fee-Discontinued operations		-		283,302
Commission-Continuing operations		694,175		-
Commission-Discontinued operations		-		648,310
Management fee-Continuing operations		-		-
Management fee-Discontinued operations		-		211,883
Total Revenue-Continuing operations	$	694,175	$	-
Total Revenue-Discontinued operations		-		1,143,495

(i)

Listing fee revenue

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

Listing value is the total offering price of an artwork when the ownership units are initially listed on our trading platform. We utilize an appraised value as a basis to determine the appropriate listing value for each artwork, or portfolio of artworks. For the three months ended June 30, 2021 and 2022, listing fee was $283,302 and $nil from discontinued and continued operations respectively.

(ii)

Commission fee revenue

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

Commission revenue for the three months ended June 30, 2021 and 2022 was $648,310 and $694,175 from discontinued and continued operations respectively.

(iii)

Management fee revenue

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

Our operations did not generate management fee revenue from our legacy trading platform for the three months ended June 30, 2022 and had $211,883 for the three months ended June,30, 2021.

Revenue by customer type

The following table presents our revenue by customer type:

	Three months ended June 30,
	2022		2021
	(Unaudited)		(Unaudited)
Artwork owners	$	-	$	283,302
Non – VIP Traders		694,175		645,954
Selected Traders		-		214,239
Total	$	694,175	$	1,143,495

Cost of Revenue

	Three months ended June 30,
	2022		2021
	(Unaudited)		(Unaudited)
Commissions paid to service agents	$	-		351,352
Depreciation		-	$	45,482
Internet service charge		150,930		26,808
Artwork insurance		-		12,731
Artwork storage		-		16,092
Total	$	150,930	$	452,465

Cost of revenue of our continued and discontinued operations for the three months ended June 30, 2022 and 2021 were $150,930 and $452,465, respectively. The cost of revenue for the three months ended June 30, 2022 was incurred related to the revenue generated by our NFT online trading system.

Gross Profit

Gross profit for our operations was $543,245 and $691,030 for three months ended June 30, 2022 and 2021, respectively.

Operating Expenses

General and administrative expenses for the three months ended June 30, 2022 were $7,651,844 compared to $7,952,314 for the three months ended June 30, 2021.

The following table sets forth the main components of the Company’s general and administrative expenses for the three months ended June 30, 2022 and June 30, 2021.

	Three months ended June 30,
	2022			% of Total		2021			% of Total
	(Unaudited)					(Unaudited)
Salary and welfare	$	767,214			10.0	$	234,071			2.9
Office, insurance and rental expenses		34,682			0.5		172,986			2.2
Legal and professional fees		339,836			4.4		239,685			3.0
Non-deductible input VAT expense		-			-		48,739			0.6
Travel and accommodation fees		-			-		24,639			0.3
Consultancy fee		170,892			2.2		315,214			4.0
Depreciation		115			0.0		25,547			0.3
Share based compensation expense		-			-		6,864,150			86.3
Impairment loss		6,265,686			81.9		-			-
Others		73,419			1.0		27,283			0.4
Total general and administrative expense	$	7,651,844			100.0	$	7,952,314			100.0
Deduct:General and administrative expense-Discontinued operations		(73,419	)		1.0		(769,652	)		9.7
General and administrative expense-Discontinuing operations		7,578,425			99.0		7,182,662			90.3

Other (expenses) income

Other expenses for the operations for the three months ended June 30, 2022 and 2021 were $(175) and $178,377, respectively.

Loss before income taxes

Our continuing operations incurred loss before income taxes $7,084,353 and $7,020,900 for the three months ended June 30, 2022 and 2021, respectively.

Our discontinued operations incurred loss before income taxes, $73,417 and $(204,931) for the three months ended June 30, 2022 and 2021, respectively.

Income tax expense

For the three months ended June 30, 2022 and 2021, our continuing operations incurred income tax expense as $48,996 and $nil, respectively.

The income tax expense from the discontinued operations for the three months ended June 31, 2022 and 2021 were $nil and $(11,366).

Net Loss

As a result of our operations aforementioned, our net losses after income taxes for continuing operations for the three months ended June 30, 2022 and 2021 were $7,084,353 and $7,020,900, respectively. Our discontinued operations generated net loss after income tax $73,417 and $204,931 for the three months ended June 30, 2022 and 2021, respectively.

Foreign currency translation gain (loss)

We had a foreign currency translation gain (loss) for the three months ended June 30, 2022 and 2021 of $180,638 and $3,933, respectively.

Comprehensive loss

As a result of the above, we posted a comprehensive loss of $6,977,132 and $7,221,898 for the three months ended June 30, 2022 and 2021, respectively.

SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO SIX MONTHS ENDED JUNE 30, 2021

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

	Six Months Ended June 30,
				% of						% of
	2022			Revenue			2021			Revenue
	(Unaudited)						(Unaudited)
Revenue-Continuing operations		694,175			100			-			-
Revenue-Discontinued operations		-			-			1,922,603			100
Cost of revenue-Continuing operations		(150,930	)		(22	)		-			-
Cost of revenue-Discontinued operations								(704,702	)		(37	)
Selling expenses-Continuing operations		-			-			-			-
Selling expenses-Discontinued operations		-			-			(236,469	)		(12	)
General and administrative expenses-Continuing operations		(8,189,900	)		(1,180	)		(7,542,652	)		-
General and administrative expenses-Discontinued operations		(253,017	)		-			(1,422,820	)		(74	)
Total costs and expenses-Continuing operations		(8,340,830	)		(1,202	)		(7,542,652	)		-
Total costs and expenses-Discontinued operations		(253,017	)		-			(2,363,991	)		(123	)
Loss from continuing operations		(7,646,655	)		(1,102	)		(7,542,652	)		-
Other(expenses)income-Continuing operations		(276	)		-			161,710			-
Other(expenses)income-Discontinued operations		(165	)		-			30,504			2
Loss before income taxes-Continuing operations		(7,646,931	)		(1,102	)		(7,380,942	)		-
Income tax expenses-Continuing operations		48,996			7			-			-
Net loss from Continuing operations	$	(7,695,927	)		(1,109	)	$	(7,380,942	)		-
Loss before income tax-Discontinued operatons		(253,182	)		-			(410,884	)		(21	)
Income tax expenses-Discontinued operations
Tax expense		-			-			4,126			-
Deferred tax benefit		-			-			(10,719	)		(1	)
Net loss from Discontinued operations		(253,182	)		-			(417,477	)		(22	)
Net loss		(7,949,109	)		(1,145	)		(7,798,419	)		(406	)

Revenue

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

	Six months ended
	June 30,
	2022		2021
	(Unaudited)		(Unaudited)
Listing fee-Continuing operations	$	-	$	-
Listing fee-Discontinued operations				557,094
Commission-Continuing operations		694,175		-
Commission-Discontinued operations				1,006,396
Management fee-Continuing operations		-		-
Management fee-Discontinued operations		-		359,113
Revenue-Continuing operations	$	694,175	$	-
Revenue-Discontinued operations		-		1,922,603

(i)

Listing fee revenue

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

Listing value is the total offering price of an artwork when the ownership units are initially listed on our trading platform. We utilize an appraised value as a basis to determine the appropriate listing value for each artwork, or portfolio of artworks. For the six months ended June 30, 2021 and 2022, listing fee was $557,094 and $nil from discontinued and continued operations respectively.

(ii)

Commission fee revenue

Commission revenue for the six months ended June 30, 2021 and 2022 was $1,006,396 and $694,175 from discontinued and continued operations respectively.

(iii) Management fee revenue

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

Our operations did not generate management fee revenue from our legacy trading platform for the six months ended June 30, 2022, but generate $359,113 management fee revenue for the six months ended June 30, 2021.

Revenue by customer type

The following table presents our revenue by customer type:

	Six months ended
	June 30,
	2022		2021
	(Unaudited)		(Unaudited)
Artwork owners	$	-	$	557,094
Non – VIP traders		694,175		958,593
Selected traders		-		406,916
Total	$	694,175	$	1,922,603

Cost of Revenue

	Six months ended
	June 30,
	2022		2021
	(Unaudited)		(Unaudited)
Commissions paid to service agents	$	-	$	486,526
Depreciation		-		114,544
Internet service charge		150,930		45,977
Artwork insurance		-		25,475
Artwork storage		-		32,180
Total	$	150,930	$	704,702

Cost of revenue for the six months ended June 30, 2022 and June 30, 2021 was $150,930 and $704,702, respectively. The decline in cost of revenue for the six months ended June 30, 2022 compared to June 30, 2021 was mainly due to the continuing operations from the new NFT business is on the start stage and legacy business is treated as discontinued operations.

Gross Profit

Gross profit was $543,245 or 78.3% of the total revenue for the six months ended June 30, 2022, compared to $1,217,901 or 63.3% of the total revenue for the six months ended June 30, 2021. Gross profit amount was reduced by $674,656 while the gross profit margin was increased by 15%.

Overall total revenue for the six months ended June 30, 2022 dropped by $1,228,428 or 63.9% compared to the same period in 2021, due to new NFT business is in the initial stage.

Operating Expenses

General and administrative expenses for the six months ended June 30, 2022 were $8,442,917, compared to $8,965,472, for the six months ended June 30, 2021.

The following table sets forth the main components of the Company’s general and administrative expenses for the six months ended June 30, 2022 and June 30, 2021.

	Six months ended June 30,
	2022			% of Total		2021			% of Total
	(Unaudited)					(Unaudited)
Salary and welfare	$	857,266			10.2	$	460,313			5.1
Legal and professional fees		644,869			7.6		500,663			5.6
Office, insurance and rental expenses		123,888			1.5		299,244			3.3
Consultancy fee		297,726			3.5		550,145			6.1
Non-deductible input VAT expense		-			-		84,881			0.9
Depreciation		465			-		53,098			0.6
Traveling and accommodation fees		-			-		33,206			0.4
Share Based Compensation Expense		-			-		6,867,867			76.6
Impairment loss		6,265,686			74.2		-			-
Others		253,017			3.0		116,055			1.4
Total general and administrative expense	$	8,442,917			100.0	$	8,965,472			100.0
Deduct: General and administrative expense-Discontinued operations		(253,017	)		3.0		(1,422,820	)		15.9
General and administrative expense-Continuing operations		8,189,900			97.0		7,542,652			84.1

Other income (expenses)

During the six months ended June 30, 2022, the Company incurred other income in an amount of $(441) whilst it incurred other income in an amount of $192,214 for the six months ended June 30, 2021. The Company incurred exchange gain, of $201,697 in the six months ended June 30, 2022 whereas it incurred exchange loss of $33,830 in the same period in 2021. The exchange gain or loss was attributable to the fluctuations of the Renminbi against the US dollar.

Income tax expense

The Company’s effective tax rate varies due to the multiple jurisdictions in which it books its pretax income or losses. The Company was subject to a U.S. income tax rate of 21%, Hong Kong profits tax rate of 8.25% for the first HK$ 2 million (approximately $257,676) assessable profits and at 16.5% for assessable profits above HK$ 2 million (approximately $257,676) and PRC enterprise income tax rate of 25%.

The effective tax rates for the six months ended June 30, 2021 and 2020 were (0.1)% and (10.9)%, respectively.

The income tax expense were $48,996 and $6,593 for the six months ended June 30, 2022 and 2021, respectively.

Net loss

We recorded a net loss for the six months ended June 30, 2022 of $7,949,109 compared to net loss of $7,798,419 for the six months ended June 30, 2021.

The increase in the net loss by $150,690 during this current period compared to the same period ended June 30, 2021 as discussed above.

Liquidity and Capital Resources

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

	Six months ended
	June 30,
	2022			2021
	(Unaudited)			(Unaudited)
Net cash provided by operating activities-continuing operations	$	5,196,432		$	8,844,238
Net cash provided by operating activities- discontinued operations		185,654			987,134
		5,382,086			9,831,372

Net cash provided by investing activities- continuing operations		(505	)		145,824
Net cash provided by investing activities- discontinued operations		(1,151	)		243,143
		(1,656	)		388,967
Proceeds from a short-term borrowing from a third party		300,000
Net cash provided by financing activities-continuing operations		30,000,007			-
Net cash provided by financing activities-discontinued operations		-			180,485
		30,300,007			180,485

Effect of exchange rate change on cash and cash equivalents, and restricted cash from continuing operations		184,573			19,976
Effect of exchange rate change on cash and cash equivalents, and restricted cash from discontinued operations		(400,243	)		33,293
		(215,670	)		53,269

Net increase in cash and cash equivalents - continuing operations		35,680,507			9,010,038
Net increase in cash and cash equivalents and restricted cash- discontinued operations		(215,740	)		1,444,055
		35,464,767			10,454,093
Cash, cash equivalents and restricted cash, beginning balance- continuing operations		1,503,153			31,188
Cash and cash equivalents and restricted cash, beginning balance- discontinued operations		338,542			13,811,557
		1,841,695			13,842,745
Cash and cash equivalents and restricted cash, ending balance- continuing operations	$	37,183,660		$	9,041,226
Cash and cash equivalents and restricted cash, ending balance- discontinued operations		122,802			15,255,612
		37,306,462			24,296,838

Sources of Liquidity

The cash and cash equivalent and the restricted cash balances from the continuing operations as of June 30, 2022 and 2021 were $37,183,660 and $9,041,226 respectively.

The cash and cash equivalent balance from the discontinued operations as of June 30, 2022 was $122,802, which is $963,482 denominated in HK$ in Hong Kong financial institutions.

For the six months ended June 30, 2022, net cash provided by operating activities from continuing operation was $5,196,432. While there was $505 cash outflow from investing activities from our continuing operations during the six months ended June 30, 2022, our continuing operations incur net cash provided by financing activities, $30,000,007, as TKAT obtained a PIPE financing from investors.

For the six months ended June 30, 2022, net cash provided by in operating activities by our discontinued operations was $185,654, which was a result of net loss from discontinued operations,. Net cash used in investing activities by our discontinued operations was $nil. Our discontinued operations did not incur cash inflow or outflow from financing activities.

As of June 30, 2022, the total current liabilities from the continuing operations were $6,701,507, which included accrued expense and account payables amounting to $2,007,062 and advance from customers amounting to 4,645,449. Total current liabilities from our discontinued operations amount to $8,939,854.

As of June 30, 2022, the continuing operations of the Company had cash, restricted cash and cash equivalents of $37,183,600, a working capital in an amount of $30,654,935 and the total assets of $40,393,888. The Company’s discontinued operations has total assets of $276,752.

As of June 30, 2022, the Company’s continuing operation had cash and cash equivalents of $37,183,660. The Company’s discontinued operations, which primarily related to Hong Kong Takung, had cash and cash equivalents of $122,802.

In order to continue to maintain the liquidity requirements, the Company introduced NFT business in the fourth quarter of 2021 to developed service fee on NFT projects and has generated commission revenue of $694,175 by the end of June 30, 2022. The Company also seeks to negotiate and extend financing arrangements with the related party and the third party.

The Company is aware of events or uncertainties which may affect its future liquidity because of capital controls in the PRC. The RMB is only currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries or variable interest entities. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of the State Administration of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. The existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders, including holders of our shares of common stock. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our PRC subsidiaries.

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

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

Off-Balance Sheet Arrangements

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

Future Financings

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

Critical Accounting Policies

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

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, which presently comprises our Chief Executive Officer, Mr. Kwok Leung Paul Li, Co-Chief Executive Officer, Mr. Kuangtao Wang and our Chief Financial Officer, Mr. Jianguang Qian. Based upon that evaluation, the Company’s Chief Executive Officer, Co-Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of June 30, 2022 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, Co-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, 2022 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

As of the date of this report and except as set forth below, there have been no material changes to the risk factors disclosed in our annual report on Form 10-K filed with the SEC on April 15, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES A

SEC Form 10-Q filed by Takung Art Co. Ltd.