Art appreciation

TAKUNG ART CO., LTD Management’s discussion and analysis of financial condition and results of operations. (Form 10-Q)

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

CAUTION 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 2021Takung appointed Mr. Kwok Leung Li as CEO to lead the new direction with three initiatives to grow our blockchain and NFT businesses.

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

The company’s NFT business prospects can be described in several aspects below.



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.



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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 types


A. Provide advisory services such as appraisal/appreciation potential of works of art




Away from poor offline communication and incomplete information, there is no
misunderstanding of the pain points, and to tap 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 is in the stage of
testing to be launched. The platform can meet 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. And it can realize the whole business process of user
registration-certification-work uploading-work casting-work trading. 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 extracts a portion of the handling fee (including
token minting, first sale, and second sale) to create value.



C. Advertising service



After the TKAT platform has a certain 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: basic platform
building-targeted population entry-providing services (consulting services,
transaction services, advertising services)-optimizing the platform and
expanding the scope of services-full service.



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


Takung’s advantages in the NFT and blockchain transaction market are as follows:



Innate industry advantages



In recent years, NFT digital artworks based on blockchain technology have become popular assets. The NFT online platform the company has built can effectively solve the current situation, such as uncertain ownership of property, difficulty in distinguishing authenticity, and low efficiency of artwork circulation. Transform offline business development into online operation, so the value of digital works can flow freely online.


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Core Management Team Benefits

Takung core team members have experience in developing blockchain technology and operating the NFT trading platform, which can ensure smoother development and business operation at a 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 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



The 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 the later system
optimization and iterative update.



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 demanders 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 member fee, trading commission,
and advertising fee.



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THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2021



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



                                                            Three months ended March 31,
                                                                 % of                             % of
                                                2022           Revenue           2021           Revenue
                                             (Unaudited)                      (Unaudited)
Revenue                                     $           -              -     $           -              -
Cost of revenue                                         -              -                 -              -
Selling expense                                         -              -                 -              -
General and administrative expenses              (611,475 )            -   
      (359,990 )            -
Total costs and expenses                         (611,475 )            -          (359,990 )            -
Loss from operations                             (611,475 )            -          (359,990 )            -
Interest and other income (expenses), net             (99 )            -               (52 )            -
Loss before income tax expense                   (611,574 )            -          (360,042 )            -
Loas from discontinued operations                (179,765 )            -   
      (217,319 )            -
Income tax benefit (expense)                            -              -             4,773              -
Net loss                                    $    (791,339 )            -     $    (572,588 )            -




Revenue



For the three months ended March 31, 2022 and 2021, our continuing operations
did not generate any revenue as our online NFT trading platform was launched in
May 2022. For the three months ended March 31, 2022 and 2021, our discontinued
operations generated revenues in an amount of nil and $779,108, respectively.



The listing fee revenue, commission fee revenue and management fee revenue which
were generated by Hong Kong Takung were reclassified to and included in the
discontinued operations for the three months ended March 31, 2021. Due to the
suspension of the legacy online trading platform since the fourth quarter of
2021, Hong Kong Takung did not earn and recognize any listing fee revenue,
commission fee revenue and management fee revenue for the three months ended
March 31, 2022. We expect that the NFT trading platform, which has been placed
in service in May 2022, will generate three kinds of revenue in later periods,
which are membership fee, commission and advertising fee.



Revenue by category


The following table presents our revenues from our discontinued operations:


                                                        Three months ended
                                                             March 31,
                                                      2022              2021
                                                   (Unaudited)       (Unaudited)
Listing fee revenue                               $           -     $     273,792
Commission revenue                                            -           358,086
Management fee revenue                                        -           147,230
Subtotal                                                      -           779,108
Less: Cost of revenue - discontinued operations               -          (779,108 )
Total                                             $           -     $           -




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Revenue by customer type



The following table presents our revenue by customer type of our discontinued
operations:



                                           Three months ended
                                                March 31,
                                           2022          2021
Artwork owners                           $      -     $  273,792
Non - VIP traders                               -        312,640
VIP traders                                     -        192,676
Subtotal                                        -        779,108
Less: Revenue- discontinued operations          -       (779,108 )
Total                                    $      -     $        -




 (i) Listing fee revenue



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


In the three months ended March 31, 2022, we had no new artwork listed on our legacy platform. Therefore, no registration revenue has been recognized.

As of March 31, 2021, a total of 298 sets of artwork were listed for trade on
our platform -comprising 73 sets of paintings and calligraphies from famous
Chinese, Russian and Mongolian artists, with a total listing value of
$30,627,634 (HK$237,600,000); 35 pieces of jewelry with a total listing value of
$9,366,178 (HK$72,660,000); 134 pieces of precious stones with a total listing
value of $17,020,509 (HK$132,040,000); 29 pieces of amber with a total listing
value of $12,245,898 (HK$95,000,000); 4 pieces of antique mammoth ivory carvings
with a total listing value of $670,302 (HK$5,200,000); 2 pieces of porcelain
pastel paintings with a total listing value of $335,151 (HK$2,600,000); 7 pieces
of porcelain with a total listing value of $1,095,686 (HK$8,500,000); 6 sets of
Unit+ products with a total listing value of $1,329,518 (HK$10,314,000); 1 piece
of Yixing collectable with a listing value of $128,904 (HK$1,000,000); and 7
pieces of Sports memorabilia with a listing value of $1,096,897 (HK$8,509,400),
of which 22.5%-48% (for 73 sets of paintings), 24%-48.5% (for the 134 pieces of
precious stones), 29%-48% (for the 35 pieces of jewelry), 47%-48.5% (for 4 piece
of antique mammoth ivory carvings), 32%-48% (for the 29 pieces of amber),
45%-46% (for the 2 pieces of porcelain pastel paintings), 25%-48% (for the 7
pieces of porcelain), 30.25%-45% (for the 6 sets of Unit+ products), 45% (1
piece of Yixing collectable) and 45% (for the 7 pieces of Sports memorabilia) of
the listed values were charged as listing fees, respectively.



During the three months ended March 31, 2021, there were 3 sets of paintings
listed on our platform. Their total listing values were $1,095,686
(HK$8,500,000) for the paintings, of which 24.9%-25% (for the paintings) of the
listed values were charged as listing fees. Our listing revenue for the three
months ended March 31, 2021 was included in discontinued operations.



 (ii) Commission fee revenue



For the three months ended March 31, 2021our former online art trading system generated commission income as follows:



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



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For selected Traders, starting from April 1, 2016, we charged a predetermined
monthly fee (unlimited trades for specific artworks) for specific artworks.
These traders are selected by authorized agents and reviewed by us. After
review, we negotiate individually with each one of them to determine a fixed
monthly fee. Different Traders may have different rates but once negotiated and
agreed to, the monthly fee is fixed. Using the output method, we recognize the
monthly commission revenue when the selected Traders receive access to our
trading platform to make unlimited trades for specific artwork.



We have defined a Selected Trader as an “inactive trader” who meets the following criteria;

? The merchant has defaulted on three monthly commission payments

    months;

  ? The Trader did not incur any transactions in the month of reassessment;

? The service agent has confirmed with the merchant concerned that he has been

    inactive.



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



We charge a non-transactional transfer commission on the transfer of the
ownership of an artwork. The commission amount is calculated based on 0.3% of
the close value of the artwork and each artwork unit. For the large volume of
transfer or under certain special circumstances, we charge at an agreed-upon
percentage of artworks units.



The Company offered a commission to service agents. We offer a total of 40% to 75% of the commission earned on trades with new traders to service agents when they bring an agreed number of traders to the trading platform.

Commission paid to service agents and rebates are recognized as cost of revenue in the same period in which the corresponding revenue is recognised.

Commission revenue for the three months ended March 31, 2021 was $358,086. We
included this amount in the discontinued operations. For the three months ended
March 31, 2022, we did not earn commission revenue from our legacy online
artwork trading system.



 (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, which is calculated at $0.0013 (HK$0.01) per 100
artwork units per day. The management fee is recognized when the artwork is sold
and is deducted from proceeds from the sale of artwork ownership shares when
there is a purchase and sale transaction.



During the three-month period ended March 31, 2021income from management fees was
$147,230 and has been included in discontinued operations. Our discontinued operations did not generate management fee revenue from our legacy trading platform for the three months ended March 31, 2022.


Cost of Revenue


The cost of revenue from our discontinued operations mainly includes the following items: commissions paid to service agents, depreciation, Internet service charges, artwork insurance and artwork storage fees .


                                                    For three months ended
                                                           March 31,
                                                    2022             2021
Commission paid to service agents                 $       -       $   135,174
Depreciation                                              -            69,062
Internet service charge                                   -            19,169
Artwork insurance                                         -            12,744
Artwork storage                                           -            16,088
Subtotal                                                  -           252,237
Less: Cost of revenue - discontinued operations           -          (252,237 )
Total                                             $       -       $         -




Cost of revenue of our discontinued operations for the three months ended March
31, 2022 and 2021 were $nil and $252,237 respectively. The cost of revenue for
the three months ended March 31, 2021 was incurred related to the revenue
generated by our legacy online trading system and was reclassified to and
included in the net loss from discontinued operations. Since the legacy online
trading system was suspended in the fourth quarter in 2021 and our NFT online
trading platform was not launched until May 2022, our discontinued and
continuing operations did not generate any revenues and cost of revenue during
the three months ended March 31, 2022.



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Gross Profit



Gross profit for our continuing operations was nil for three months ended March
31, 2022 and 2021. Due to the suspension of Tianjin's operation, we reclassified
listing revenue, commission revenue and management revenue as well as the
corresponding cost of revenue to net loss from discontinued operations for the
three months ended March 31, 2021. As our online NFT trading platform was not
placed in service until May 2022, no revenue and cost of revenue was generated
for the three months ended March 31, 2022.



Operating Expenses



General and administrative expenses for our continuing operations were $611,475
and $359,990 for the three months ended March 31, 2022 and 2021, respectively.
Our general and administrative expenses for continuing operations for the three
months ended March 31, 2022 was $251,485 higher than that for the same period in
2021 primarily due to an increase in consultancy fee by $126,834, a rise in
salary and welfare by $75,052 and an increase in other expenses by $60,011,
offset by a decrease in legal and professional fees by $25,096. During the three
months ended March 31, 2022, our continuing operations recruited consultants and
employees to assist in setup of the online NFT platform. Additionally, we
incurred higher service fees paid to NYSE, LLC for the private placement and the
acquisition of an investment in Cultural Objects Provenance Holdings Limited.
Our legal and professional fees were reduced in the three months ended March 31,
2022 as we paid additional audit fees to our predecessor auditor.



General and administrative expenses for our discontinued operations were
$185,334 and $653,168 for the three months ended March 31, 2022 and 2021,
respectively. Our general and administrative expenses for our discontinued
operations for the three months ended March 31, 2022 were significantly reduced
by $467,834 compared to the same period in 2021. Such decline was mainly driven
by the deconsolidation of Tianjin Takung in the fourth quarter of 2021 and the
result of the operations of Tianjin Takung was no longer included in our
discontinued operations for the three months ended March 31, 2022.



The following table shows the main components of our general and administrative expenses from our continuing operations and discontinued operations for the three months ended March 31, 2022 and 2021.


                                                For three months ended               For three months ended
                                                    March 31, 2022                       March 31, 2021
                                                     (Unaudited)                          (Unaudited)
                                             Amount($)          % of Total        Amount($)          % of Total
Salary and welfare                                90,052               11.3 %           15,000               1.5 %
Office, insurance and rental expenses             89,206               11.2
%           71,125               7.0 %
Legal and professional fees                      186,781               23.4 %          211,877              20.9 %
Consultancy fee                                  126,834               15.9 %                -                 - %
Depreciation expenses                                350                0.0 %                -                 - %
Traveling and accommodation expenses                   -                0.0
%               30               0.0 %
Share-based compensation                               -                0.0 %            3,717               0.4 %
Others                                           118,252               14.8 %           58,241               5.7 %
Total general & administrative
expenses-continuing operations                   611,475               76.7 %          359,990              35.5 %
Total general & administrative
expenses-discontinued operations                 185,334               23.3
%          653,168              64.5 %
Total                                      $     796,809              100.0 %   $    1,013,158             100.0 %




Our continuing operations did not incur any selling expense for the three months
ended March 31, 2022 and 2021. The selling expense of our discontinued operation
was nil and $104,911 for the three months ended March 31, 2022 and 2021,
respectively. The selling expense was related to an advertising and promotion
expense incurred by Tianjin Takung during the three months ended March 31, 2021.
The operation of Tianjin Takung was suspended since the fourth quarter of 2021.



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Other (expenses) income



Other expenses for the continuing operations for the three months ended March
31, 2022 and 2021 were $99 and $52, respectively. Other expenses were related to
bank charges.



Other (expenses) income for the discontinued operations for the three months
ended March 31, 2022 and 2021 were $(167) and $39,018. During the three months
ended March 31, 2022, the operation of Tianjin Takung was deconsolidated and
other expenses, mainly related to bank charges, were incurred by Hong Kong
Takung. Other income for the three months ended March 31, 2021 was mainly
related to foreign currency transaction gain incurred by Hong Kong Takung.

Loss (income) before income taxes



Our continuing operations incurred loss before income taxes $611,574 and
$360,042 for the three months ended March 31, 2022 and 2021, respectively. Loss
before income taxes of our continuing operations was significantly higher for
the three months ended March 31, 2022 compare to the same period in 2021 as we
incurred a higher consultancy fee, salary expense and service fees in 2022
as
discussed above.


Our discontinued operations incurred loss before income taxes, $179,765 and
$217,319 for the three months ended March 31, 2022 and 2021, respectively. The
loss before income taxes of our discontinued operations was comparatively lower
for the three months ended March 31, 2022. Due to the loss of control in and
deconsolidation of Tianjin Takung in November 2021, the operation of Tianjin
Takung was not included in our interim condensed consolidated financial
statements for the three months ended March 31, 2022.



Income tax expense



For the three months ended March 31, 2022 and 2021, our continuing operations
did not incur income tax expense as Takung, NFT Exchange and Hong Kong MQ
incurred book loss and tax loss as a full valuation allowance was recognized
against the net operating loss carryforwards. It is more likely than not that
these two entities will not generate sufficient taxable income to utilize the
net operating loss carryforward in the near future.



The income tax benefit from the discontinued operations for the three months
ended March 31, 2022 and 2021 were $nil and $4,773, respectively. Since the
fiscal year 2021, we derecognized the deferred tax assets incurred by Hong Kong
Takung as the Company expected that the net operating loss or deferred tax
assets may not be utilized or reversed in a near future due to the shift of its
operations from its legacy artwork trading to NFT business.



Net Loss



As a result of our operations aforementioned, our net losses after income taxes
for continuing operations for the three months ended March 31, 2022 and 2021
were $611,574 and $360,042, respectively. Our discontinued operations generated
net loss after income tax $179,765 and $212,546 for the three months ended March
31, 2022 and 2021, respectively.



Foreign currency translation gain (loss)

We recorded a foreign currency translation gain (loss) for the three months ended
March 31, 2022 and 2021 from $21,059 and ($37,763)respectively.


Comprehensive loss


As a result of the above, we recorded an overall loss of $770,280 and
$610,351 for the three months ended March 31, 2022 and 2021, respectively.


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Cash and capital resources



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



                                                                  For three months ended
                                                                         March 31
                                                                  2022             2021
Net cash provided by (used in) operating
activities-continuing operations                               $ 1,716,197     $       (943 )
Net cash provided by (used in) operating activities-
discontinued operations                                           (156,101 )      1,652,638
                                                                 1,560,096        1,651,695
Net cash used in investing activities- continuing operations             -                -
Net cash used in investing activities- discontinued
operations                                                          (1,153 )        389,171
                                                                    (1,153 )        389,171

Net cash provided by financing activities-continuing
operations                                                         300,000                -
Net cash provided by financing activities-discontinued
operations                                                               -                -
                                                                   300,000                -

Effect of change in exchange rate on cash and cash equivalents and on restricted cash from continuing operations

                      42,534                -

Effect of change in exchange rate on cash and cash equivalents and on restricted cash from discontinued operations

                   (56,203 

) (21,443)

                                                                   (13,669 

) (21,443)

Net increase (decrease) in cash and cash equivalents – continuing operations

                                            2,058,731             (943 )

(Decrease) net increase in cash and cash equivalents and restricted cash – discontinued operations

                          (213,457 

) 2,020,366

                                                                 1,845,274  

2,019,423

Cash and cash equivalents, beginning balance- continuing
operations                                                       1,503,153 

31,188

Cash and cash equivalents and restricted cash, opening balance – discontinued operations

                                   338,542  

13,811,557

                                                                 1,841,695  

13,842,745

Cash and cash equivalents and restricted cash, closing balance – continuing operations

                                 $ 3,561,884  

$30,245
Cash and cash equivalents and restricted cash, closing balance – discontinued operations

                                   125,085       15,831,923
                                                               $ 3,686,969     $ 15,862,168




Sources of Liquidity



The cash and cash equivalent and the restricted cash balances from the
continuing operations as of March 31, 2022 were $1,533,468 and $2,028,416,
respectively. Out of the total cash and cash equivalent and restricted cash
amount, $3,561,884, we had $2,337,990 denominated in U.S. dollars deposited in
the financial institutions in the United States or other countries, $1,223,894,
denominated in HK$ in Hong Kong financial institutions.



The cash and cash equivalent balance from the discontinued operations as of
March 31, 2022 was $125,085. Out of this amount, we had $8,457 denominated in
U.S. dollars deposited in the financial institutions in Hong Kong, $116,627,
denominated in HK$ in Hong Kong financial institutions.



For the three months ended March 31, 2022, net cash provided by operating
activities from continuing operation was $1,716,197 which was predominantly
driven by the receipt of customer deposits, $2,028,416 and an increase in
accrued expenses and other payables, $231,814, offset by the net loss of
$611,574. While there was no cash inflow or outflow from investing activities
from our continuing operations during the three months ended March 31, 2022, our
continuing operations incur net cash provided by financing activities, $300,000,
as NFT Exchange obtained a short-term borrowing from a third party.



For the three months ended March 31, 2022, net cash used in operating activities
by our discontinued operations was $156,101, which was a result of net loss from
discontinued operations, $179,765, offset by non-cash item: depreciation
expense, $17,086 and an increase in accrued expenses and other payable, $11,480.
Net cash used in investing activities by our discontinued operations was $1,153,
which was related to a purchase of a computer equipment by Hong Kong Takung. Our
discontinued operations did not incur cash inflow or outflow from financing
activities.



The balance of cash and cash equivalents from continuing operations as at
December 31, 2021 been $1,503,153. Of this amount, we had $273,151
worded in WE dollars deposited in financial institutions in United States, $1,230,002denominated in HK$ in hong kong financial institutions.

The cash and cash equivalent balance from the discontinued operations as of
December 31, 2021 was $338,542. Out of this amount, we had $112,397 denominated
in U.S. dollars deposited in the financial institutions in Hong Kong, $226,145,
denominated in HK$ in Hong Kong financial institutions.



For the three months ended March 31, 2021, net cash used in operating activities
by our continuing operations was $943, which was driven by the net loss from
continuing operations, $360,042, offset by an increase in accrued expenses and
other payables, $319,257, a decrease in prepayments, $36,125 and a non-cash
item: share-based compensation expense, $3,717. There were no cash inflows or
outflows from investing activities or financing activities from our continuing
operations.



                                       35





For the three months ended March 31, 2021, net cash provided by operating
activities from our discontinued operations was $1,652,638 which was mainly
resulted from an increase in customers' deposits, $2,333,910, offset by net loss
from discontinued operations, $212,546, prepayments remitted to vendors,
$348,953, payments to vendors, $20,157 and payments to lessors, $15,466. Cash
inflows from investing activities from our discontinued operations was $389,171
as our third-party lender paid off the loan receivable in January 2021. There
was no cash inflow or outflow from financing activities from our discontinued
operations.



As of March 31, 2022, the total current liabilities from the continuing
operations were $2,703,660, which included accrued expense and other payables of
US Takung and Hong Kong MQ, $375,244, customer deposits of NFT Exchange,
$2,028,416 and short-term borrowing from a third party, $300,000. Total current
liabilities from our discontinued operations, Hong Kong Takung, $8,671,980,
included accrued expenses and other payables, $284,870, amount due to a related
party, $6,383,658, a loan payable, $1,957,142 and operating lease
obligation-current portion, $46,310.



As of March 31, 2022, the continuing operations of the Company had cash,
restricted cash and cash equivalents of $3,561,884, a working capital in an
amount of $1,808,968 and the net assets of $10,384,228. The Company's
discontinued operations, which primarily consisted of Hong Kong Takung, as of
March 31, 2022, had cash and cash equivalent of $125,085, a working deficit of
$8,528,910, and net liabilities of $8,377,825. In order to continue to maintain
the liquidity requirements, we commenced our online NFT trading platform in May
2022 with approximately 60 NFT products listed and 107 new registered users. We
continue to promote the NFT trading platform to increase more new registered
users. We will negotiate with the third party and the related party lenders for
extending the financing arrangements. In April 2022, we had also raised
approximately $30 million in connection with the securities purchase agreement
closed in February 2022. Management believed that these measures provided
sufficient liquidity and adequate capital to fund the operations and reasonably
meet the anticipated liquidity requirements for at least the next twelve months.



As of December 31, 2021, total current liabilities from the continuing
operations were $143,429 which was related to accrued expenses and other
payables of US Takung and Hong Kong MQ. Total current liabilities from our
discontinued operation, Hong Kong Takung, totaled $8,733,624 which consisted of
$273,390 in accrued expenses and other payables, $6,410,585 in amount due to
related parties, $21,854 in advance from customers, $1,965,398 in short-term
borrowings from a third party and $62,397 in lease liabilities.



As of December 31, 2021, the Company's continuing operation had cash and cash
equivalents of $1,503,153, a working capital of $1,649,632 and the net assets
amounted to $10,953,269. The Company's discontinued operations, which primarily
related to Hong Kong Takung, had cash and cash equivalents of $338,542, a
working deficit of $8,360,145 and net liabilities of $8,176,586. In order to
continue to maintain the liquidity requirements, the Company introduced NFT
business in the fourth quarter of 2021 and developed consultancy service fee on
NFT projects. The Company also seeks to negotiate and extend financing
arrangements with the related party and the third party. In February 2022, the
Company entered into certain securities purchase agreement with certain
"non-U.S. persons" and expected to raise approximately $30 million from this
offering. Management believed that these measures provided sufficient liquidity
and adequate capital to fund the operations and reasonably meet the anticipated
liquidity requirements for at least the next twelve months.



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.



                                       36




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 recent accounting pronouncements contained in Note 2 to our Consolidated Financial Statements, “Summary of Significant Accounting Policies”, is incorporated herein by reference.

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