Takung Art Co., Ltd - FORM 10-Q

Attached files

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EX-31.2 - EXHIBIT 31.2 - Takung Art Co., Ltd	v424098_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - Takung Art Co., Ltd	v424098_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - Takung Art Co., Ltd	v424098_ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - Takung Art Co., Ltd	v424098_ex31-1.htm

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 September 30, 2015

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:333-176329

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.)

Flat/RM 03-04 20/F Hutchison House 10 Harcourt Road, Central, Hong Kong
(Address of principal executive offices)	(Zip Code)

+852 3158 0977

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). x Yes ¨No

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer (Do not check if a smaller reporting company) ¨	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨Yes x No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ¨ Yes ¨ No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of common stock issued and outstanding as of November 12, 2015 is 9,632,276.

FORM 10-Q

TAKUNG ART CO, LTD

INDEX

		Page

PART I.	Financial Information	3

	Item 1. Financial Statements (Unaudited).	3

	Item 2. Management’s Discussion and Analysis of Financial Condition and results of Operation.	15

	Item 3. Quantitative and Qualitative Disclosures About Market Risk.	27

	Item 4. Controls and Procedures.	27

PART II.	Other Information	27

	Item 1. Legal Proceedings.	27

	Item 1A. Risk Factors.	27

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	27

	Item 3. Defaults Upon Senior Securities.	28

	Item 4. Mine Safety Disclosures.	28

	Item 5. Other Information.	28

	Item 6. Exhibits.	28

	Signatures	29

PART I –FINANCIAL INFORMATION

Item 1. Financial Statements

TAKUNG ART CO., LTD

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30, 2015		December 31, 2014

ASSETS
CURRENT ASSETS
Cash & equivalents	$	4,591,681	$	2,355,839
Restricted cash		14,719,845		6,865,821
Deposits		191,595		73,852
Accounts receivables		291,617		291,496
Other receivables		50,536		295,870
Prepayment		745,584		183,083
Due from director		502		-
Total current assets		20,591,360		10,065,961

PROPERTY AND EQUIPMENT, net		1,304,020		1,037,758
INTANGIBLES, net		20,555		20,547

TOTAL ASSETS	$	21,915,935	$	11,124,266

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable	$	14,987	$	-
Accrued expenses and other payables		534,141		1,891,525
Customer deposits		14,719,845		6,865,821
Due to director		-		2,730
Tax payables		744,875		249,092
Total current liabilities		16,013,848		9,009,168

NON-CURRENT LIABILITIES
Deferred tax liabilities	$	51,261	$	66,555
Total non-current liabilities		51,261		66,555

TOTAL LIABILITIES		16,065,109		9,075,723

STOCKHOLDERS' EQUITY
Common stock, 1,000,000,000 shares authorized; $0.001 par value; 9,632,267 shares issued and outstanding at September 30, 2015; 9,332,267 shares issued and outstanding at December 31, 2014		9,632		9,332
Additional paid-in capital		2,755,798		2,570,098
Subscription receivables		-		(1,896,548	)
Retained earnings		3,081,213		1,365,868
Accumulated other comprehensive loss		4,183		(207	)
Total stockholders' equity		5,850,826		2,048,543
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	21,915,935	$	11,124,266

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

TAKUNG ART CO., LTD

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2014 (restated)			2015			2014 (restated)
Revenue	$	2,706,388		$	921,860		$	4,917,368		$	2,435,448

Cost of revenue		(214,530	)		(119,156	)		(592,342	)		(296,029	)

Gross profit		2,491,858			802,704			4,325,026			2,139,419

Operating expenses:
General and administrative expenses		(999,072	)		(415,437	)		(2,124,550	)		(970,951	)

Income from operations		1,492,786			387,267			2,200,476			1,168,468

Other income (loss)		(5,201	)		59			(4,718	)		122

Income before provision for income taxes		1,487,585			387,326			2,195,758			1,168,590

Provision for income taxes		(343,512	)		(68,214	)		(480,414	)		(205,116	)

Net income	$	1,144,073		$	319,112		$	1,715,344		$	963,474

Foreign currency translation adjustment		(22,523	)		(4,006	)		(21,903	)		(2,302	)

Comprehensive income	$	1,121,550		$	315,106		$	1,693,441		$	961,172

Earnings per common share– basic and diluted	$	0.12		$	0.04		$	0.18		$	0.12
Weighted average number of common shares outstanding		9,452,919			8,339,040			9,407,386			8,339,040

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

TAKUNG ART CO., LTD

CONSOLIDATED STATEMENTS OF CASH FLOW

(STATED IN U.S. DOLLARS)

(UNAUDITED)

	For the Nine Months Ended September 30,
	2015			2014 (restated)
Cash flows from operating activities:

Net income	$	1,715,344		$	963,474
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		240,921			134,901
Share-based compensation		186,000			-

Changes in operating assets and liabilities:
Deposit		(117,678	)		(302	)
Other receivables		213,665			(30,415	)
Prepayment		(562,231	)		24,796
Account receivables		-			(82,554	)
Restricted cash		(7,949,252	)		(1,510,621	)
Accounts payables		14,980			-
Due todirector		(3,231	)		8,357
Customer deposits		7,949,252			1,511,666
Deferred tax assets		-			27,504
Deferred tax liabilities		(15,303	)		(4,557	)
Tax payable		495,775			182,170
Accrued expenses and other payables		(1,356,612	)		90,058
Net cash provided by operating activities		811,630			1,314,477

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(507,032	)		(20,544	)
Deposit for property, plant and equipment					(164,665	)
Net cash used in investing activities		(507,032	)		(185,209	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from subscription receivables		1,928,191			-
Net cash provided by (used in) investing activities		1,928,191			-

Effect of exchange rate change on cash and cash equivalents		3,053			(1,854	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		2,235,842			1,127,414

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		2,355,839			260,187

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	4,591,681		$	1,387,601

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITY
Cash paid during the year for income taxes	$	-		$	-
Cash paid during the year for interest expense	$	-		$	-

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

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

HongKong Takung Assets & Equity of Artworks Exchange Co., Ltd. (“Takung”) was incorporated in Hong Kong on September 17, 2012 and operates an electronic online platform for offering and trading artwork. For the period from September 17, 2012 (inception) to December 31, 2012, there was no operation except the issuance of shares for subscription receivable. We generate revenue from our services in connection with the offering and trading of artwork on our system, primarily consisting of listing fees, trading commissions, and management fees. We conduct our business primarily in Hong Kong, People’s Republic of China.

Takung (Shanghai) Co., Ltd (“Takung Shanghai”) is a limited liability company, with a registered capital of $1 million, located in the Shanghai Pilot Free Trade Zone. Takung Shanghai was incorporated on July 28, 2015. It is engaged in providing services to its parent company Hong Kong Takung Assets and Equity of Artworks Exchange Co. Ltd. ("Takung") by receiving deposits from and making payments to online artwork traders of Takung for and on behalf of Takung.

REVERSE MERGER

On October 20, 2014, Cardigant Medical Inc. (or “Cardigant”) acquired all the issued and outstanding shares of Takung, a privately held Hong Kong corporation, pursuant to the Share Exchange Agreement and Takung became the wholly owned subsidiary of Cardigant in a reverse merger, or the Merger. Pursuant to the Merger, all of the issued and outstanding shares of Takung common stock were converted, at an exchange ratio of 10.4988-for-1, into an aggregate of 209,976,000 shares of Cardigant common stock and Takung became a wholly owned subsidiary of Cardigant. The holders of Cardigant’s common stock as of immediately prior to the Merger held an aggregate of 23,330,662 shares of Cardigant’s common stock, The accompanying financial statements share and per share information has been retroactively adjusted to reflect the exchange ratio in the Merger. Subsequent to the Merger, Cardigant’s name was changed from “Cardigant Medical Inc.” to “Takung Art Co., Ltd.”.

Under generally accepted accounting principles in the United States, (“U.S. GAAP”) because Takung’s former stockholders received the greater portion of the voting rights in the combined entity and Takung’s senior management represents all of the senior management of the combined entity, the Merger was accounted for as a recapitalization effected by a share exchange, wherein Takung is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of Takung have been brought forward at their book value and no goodwill has been recognized. Accordingly, the assets and liabilities and the historical operations that are reflected in Takung's consolidated financial statements are those of Takung and are recorded at the historical cost basis of Takung.

The results of operations of the acquired Cardigant business have been included in the consolidated statement of operations since the date of Merger.

Unless otherwise indicated or the context otherwise requires, references to “the Company” refer to Takung Art Co., Ltd. Disclosures relating to the pre-merger business of Takung, unless noted as being the business of Cardigant prior to the Merger, pertain to the business of Takung prior to the Merger.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information article 10 of Regulation S-X.

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 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 consolidated financial statements and the amount of revenues and expenses during the reporting periods. Actual results could differ materially from those results.

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 September 30, 2015 and December 31, 2014, respectively.

Comprehensive Income

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 period ended September 30, 2015 and 2014, the Company’s comprehensive income includes net income and foreign currency translation adjustments.

Foreign Currency Translation

The functional currency of Takung is the Hong Kong Dollar (“HKD”).

The functional currency of Takung Shanghai is the Renminbi (“RMB”).

The reporting currency of the Company is the United States Dollar (“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 are expressed in USD at the exchange rates on the balance sheet dates, which are 7.7499 and 7.7531 as of September 30, 2015 and December 31, 2014 respectively; stockholder’s equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rates during the years, which are 7.7530 and 7.7545 for the period ended September 30, 2015 and 2014 respectively. For Renminbi currency, the Company’s assets and liabilities are expressed in USD at the exchange rate on the balance sheet dates, which is 6.3556 as of September 30, 2015; stockholder’s equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rates during the years, which is 6.2477 for the period ended September 30, 2015. The resulting translation adjustments are reported under accumulated other comprehensive income in the stockholder’s equity section of the balance sheets.

Cash and Cash Equivalents

The Company considers highly liquid investments with maturities of three months or less, when purchased, to be cash equivalents. As of September 30, 2015 and December 31, 2014, the Company’s cash and cash equivalents amounted $4,591,681 and $2,355,839, respectively. All of the Company’s cash deposit is held in a financial institution located in Hong Kong where there is currently regulation mandated on obligatory insurance of bank accounts.

Restricted Cash

Restricted cash represents the cash deposited by the traders (“buyers and sellers”) into a specific bank account under Takung (“the broker’s account”) in order to facilitate the trading ownership units of the artwork. The buyers are required to have their funds transferred to the broker’s account before the trading take place. Upon the delivery of the ownership units, the seller can send instructions to the bank, requesting the amount to be transferred to their personal accounts. After deducting the commission and the management fee as per Takung’s instruction, the bank will transfer the remainder to the seller’s personal account. Except for instructing the bank to deduct the commission and management fee, Takung has no right to manipulate any funds in the broker’s account. Restricted cash was $14,719,845 and $6,865,821 as of September 30, 2015 and December 31, 2014, respectively.

Property and Equipment

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 (loss). 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. 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		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.

No impairments were recorded during the period ended September 30, 2015 and December 31, 2014, respectively.

Revenue Recognition

The Company generates revenue from its services in connection with the offering and trading of artwork on our system, primarily consisting of listing fees, trading commissions, and management fees.

We recognize revenue once all of the following criteria have been met:

persuasive evidence of an arrangement exists;

delivery of our obligations to our customer has occurred;

the price is fixed or determinable; and

collectability of the related receivable is reasonably assured

Listing fee – The Company collects a listing fee once the ownership shares of the artwork are listed and successfully traded on our system, based on the agreed percentage of the total offering price. This amount is collected from the money raised from the issuance of such shares accounted as the listing fee revenue accordingly. When the ownership shares of the artwork is listed and starts trading on our system, the Original Owner and/or the Offering Agent pay(s) us a one-time offering fee and a listing deposit. The offering fee is determined based on many factors, such as the type of artwork and the offering size. We generally charge approximately 22.5-47% of the total offering price for calligraphies, paintings, jewelry and comprehensive arts, which are the major types of artwork listed and traded on our system as of September 30, 2015. Listing fee revenue was $439,811 and $1,549,587 for the three and nine months ended September 30, 2015, respectively, $309,637 and $915,632 for the three and nine months ended September 30, 2014.

Commission – The Company charges trading commissions for the purchase and sale of the ownership units 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% 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 ownership units when a transaction of the sales of artwork units is completed.

As part of the referral incentive program, the Company would rebate 5% of the commission earned from the transaction to the related referrer. A discount program is offered to the VIP traders — when their trading volumes of certain artworks reach an agreed level of each month, a contractually determined flat rate of trading commission is applied to the transactions of these certain artworks. Any trading commission charges incurred by the VIP traders over the flat rate will be waived. The discounted rate varies between the selected artworks. Besides, a separate discount program is offered to the buyers by waiving their trading commissions during certain promotion periods. The rebates and discounts are recognized as a reduction of revenue in the same period the related revenue is recognized.

Commission revenue was $2,239,526 and $3,267,516 for the three and nine months ended September 30, 2015, respectively, and $569,482 and $1,442,443 for the three and nine months ended September 30, 2014, respectively.

Management fee – The Company charges management fees for covering the insurance, storage, and transportation for an artwork and trading management of artwork units, which are calculated at $0.0013 (HK$0.01) per 100 artwork ownership units per day. The management fee is accounted for as revenue, and immediately deducted from the proceeds from the sales of artwork ownership units when a transaction is completed.

A discount program is offered to waive the management fee during certain promotion periods. Such discount is recognized as a reduction of the revenue in the same period the related revenue is recognized.

Management fee revenue was $26,889 and $98,674 for the three and nine months ended September 30, 2015, respectively, and $42,741 and $77,373 for the three and nine months ended September 30, 2014, respectively.

Annual fee income – The Company charges an annual fee for providing traders with premium services, including more in-depth information and tools, on the trading platform. This revenue is recognized ratably over the service agreement period.

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.

Earnings per share

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and dilutive potential common shares outstanding during the period.

As of September 30, 2015 and December 31, 2014, respectively, there were no outstanding securities or other contracts to issue common stock, such as options, warrants or conversion rights, which would have a dilutive effect on earnings per share.

Intangible Assets

Intangible assets represent the Company’s trademark. 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. The Company has not recorded impairment of intangible assets as of September 30, 2015 and December 31, 2014.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported net income or losses.

Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for us in our first quarter of fiscal 2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09.

In July 2015, the FASB decided to delay the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. As such, the updated standard will be effective for us in the first quarter of 2018, with the option to adopt it in the first quarter of 2017. We are still evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. The adoption of this ASU is not expected to have a material impact on the Company's consolidated financial statements.

In September 2015, the FASB issued Accounting Standards Update ("ASU") 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments," which requires the acquirer in a business combination recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Public entities are required to apply ASU 2015-16 for annual and interim reporting periods beginning after December 15, 2015. The Company is evaluating the impact that this new guidance will have on its consolidated financial statements.

3. PROPERTY AND EQUIPMENT, NET

	September 30, 2015			December 31, 2014

Cost
Furniture, fixtures and equipment	$	61,414		$	54,429
Leasehold improvements		140,970			139,686
Computer trading and clearing system		1,624,441			1,125,316
Sub-total		1,826,825			1,319,431
Less: accumulated depreciation		(522,805	)		(281,673	)
Property and equipment, net	$	1,304,020		$	1,037,758

Depreciation expense was $84,076 and $240,921 for the three and nine months ended September 30, 2015, respectively, and $48,340 and $134,901 for the three and nine months ended September 30, 2014, respectively.

4. INTANGIBLE ASSETS

Intangible assets consist of the Company’s trademarks with indefinite useful life. The intangible asset was $20,555 and $20,547 as of September 30, 2015 and December 31, 2014, respectively.

5. ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables as of September 30, 2015 and December 31, 2014 consisted of:

	September 30,		December 31,
	2015		2014

Trading and clearing system	$	122,830	$	399,195
Accruals for promotional services related to trading platform		-		894,481
Accruals for professional fees		55,158		73,420
Accruals for consulting fees		201,645		413,900
Accruals for office rental		5,089		11,437
Accruals for Artwork Storage		138,545		-
Payroll payables		3,032		297
Other payables		7,842		98,795
Total accrued expenses and other payables	$	534,141	$	1,891,525

6. INCOME TAXES

The income tax expense was $343,512 and $480,414 for the three and nine months ended September 30, 2015, and $68,214 and $205,116 for the three and nine months ended September 30, 2014, respectively.

Our effective tax rate was 23.1% and 21.9% for the three and nine months ended September 30, 2015 respectively, and 17.6% and 17.6% for the three and nine months ended September 30, 2014 respectively.

Capital Commitments

The Company purchased property, plant and equipment which the payment was due within one year. As of September 30, 2015 and December 31, 2014, the Company has capital commitments of $348,329 and $499,929, respectively.

Operation Commitments

The total future minimum lease payments under the non-cancellable operating lease with respect to the office and the dormitory, as well as hardware trading platform as of September 30, 2015 are payable as follows:

Remaining 2015	$	132,148

Year ending December 31, 2016		349,083

Year ending December 31, 2017		249,088

Year ending December 31, 2018		84,541
Total	$	814,860

Rental expense of the Company was $103,144 and $308,400 for the three and nine months ended September 30, 2015. Rental expense of the Company was $61,268 and $170,844 for the three and nine months ended September 30, 2014.

7. STOCKHOLDERS’ EQUITY

On July 7, 2015, the Board granted 300,000 shares of fully vested common stock to a third party for consulting services. The shares were subsequently issued on August 26, 2015 and the Company fair valued the shares at grant date and recorded $186,000 as share-based compensation expense during the three months ended September 30, 2015.

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q or Form 10-Q and other reports filed by us from time to time with the Securities and Exchange Commission (collectively the “Filings”) contain 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 filings 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. The following discussion should be read in conjunction with our pro forma financial statements and the related notes that will be filed herein.

OVERVIEW

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

Pursuant to the Stock Purchase Agreement dated as of July 31, 2014, Yong Li, an individual purchased a total of 22,185,230 restricted shares of common stock of the Company from a group of three former shareholders of the Company. In consideration for the shares, Mr. Li paid the sellers $399,344 in cash which came from his own capital. The sellers were Jerett A. Creed, the Company’s former Chief Executive Officer, Chief Financial Officer, director and formerly a controlling shareholder of the Company, the Creed Family Limited Partnership and Ralph Sinibaldi. The shares represented approximately 95% of the Company’s then issued and outstanding common stock. The sale was consummated on August 28, 2014. As a result of the transaction, there was a change in control of the Company.

On August 27, 2014, we entered into a Contribution Agreement with Cardigant Neurovascular. Pursuant to the Contribution Agreement, we assigned all our assets, properties, rights, title and interest used or held for use by our business, (except for certain excluded assets set forth therein) which was the treatment of atherosclerosis and plaque stabilization in both the coronary and peripheral vasculature using systemic and local delivery of large molecule therapeutics and peptide mimetics based on high density lipoprotein targets (“Business”). In consideration for such contribution of capital, Cardigant Neurovascular agreed to assume all our liabilities raising from the Business prior to the date of the Contribution Agreement and thereafter with regard to certain contributed contacts. We granted Cardigant Neurovascular an exclusive option for a period of 6 months to purchase the excluded assets for $1. Cardigant Neurovascular exercised this option October 20, 2014 and the excluded assets were assigned to Cardigant Neurovascular on October 20, 2014.

Also on October 20, 2014, we acquired the business of Hong Kong Takung Assets and Equity of Artworks Exchange Co., Ltd (“Takung”) through the acquisition of all the share capital of Takung under a Share Exchange Agreement dated September 23, 2014 in exchange for 209,976,000 newly-issued restricted shares of our common stock to the shareholders of Takung.

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

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

Takung operates an electronic online platform located at www.takungae.com for artists, art dealers and art investors to offer and trade in valuable artwork.

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

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

On November 5, 2014, we filed a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware to change our name from “Cardigant Medical Inc.” to “Takung Art Co., Ltd.”

We conduct our business primarily in Hong Kong, Special Administrative Region, People’s Republic of China. Our principal executive offices are located at Flat/RM 03-04, 20/F, Hutchison House, 10 Harcourt Road, Central Hong Kong.

On July 28, 2015, our Hong Kong subsidiary, Takung incorporated a wholly owned subsidiary, Takung (Shanghai) Co., Ltd., in Shanghai Free-Trade Zone (SFTZ) in Shanghai, China, with a registered capital of $1 million. Through this newly-formed subsidiary, the Company intends to provide a facility for one-to-one art transaction sales that will allow a seller to use the platform to list artwork for sale at a fixed price. The value of each art work listed is expected to be below US$20,000 with Takung handling the complete sale and settlement on the platform using the current settlement method.

RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the unaudited condensed consolidated Financial Statements of the Company for the three-month period ended March 31, 2015 and 2014 and related notes thereto.

THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2015 COMPARED TO THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2014

Revenue

Our revenue mainly consists of listing, commission and management fees. Listing fee revenue was $439,811 and $309,637; commission revenue was $2,239,526 and $569,482; gross management fee revenue was $26,889 and $42,741, annual fee revenue was $162 and $0 for the three months ended September 30, 2015 and 2014 respectively.

During the three months period ended September 30, 2015, we successfully listed seven pieces of precious stones and three pieces of amber onto our system. The total listing values were $180,620(HK$1,400,000) for all the precious stones and $812,792(HK$6,300,000) for the ambers, of which 32% and 47% were charged as listing fee revenue, respectively. Compared to the corresponding period ended September 30, 2014 when there was only one artwork listed, valuing$1,290,154 (HK$10,000,000) with 24% of the value of the artwork charged as listing fee revenue.

During the three months ended September 30, 2015, commission revenue increased significantly, due to the commencement of operations of Takung Shanghai in July 2015 that allowed transactions to be settled in Renminbi. This benefit expanded our trading population base in mainland China.

Also, because more artworks were listed in the current quarter, we experienced higher transaction volumes and amounts. The total trading amount and trading volume increased by 423% and 95% respectively during the three months ended September 30, 2015 compared with the corresponding period in 2014. Takung Shanghai contributed 69% of the total trading volume, and 46% of the total trading amount. All these factors contributed to the significant increase of commission revenue by $1,670,044 in the current period compared to the corresponding period in 2014.

During the three months period ended September 30, 2015, management fee revenue decreased by $15,582, from $42,741 to $26,889 for the three months ended September 30, 2014 and September 30, 2015, due to the discount rewarded to VIP traders as described above.

During the three months period ended September 30, 2015, annual fee revenue was $162 and $0 for the three months ended September 30, 2015 and 2014, respectively, as a premium services were only introduced to traders in 2015.

Cost of Revenue

Cost of revenue for the three months ended September 30, 2015 and 2014 was $214,530 and $119,156, respectively. Our cost of revenue primarily includes the leasing of equipment, depreciation and amortization of hardware and software for our trading platform. Since the second half of 2014, we have acquired additional hardware and equipment, developed new and upgraded the existing functionality of our trading, banking integration and social media platforms.

In the third quarter of 2014, we entered into an agreement with Qianrong to provide software development services with a total contract amount of $902,592 (HK$6,995,000). The services contracted for are divided into different modules, according to different upgrades and new functionalities. As of September 30, 2015, eight out of the ten modules have been completed and are operational. We have started to capitalize (with a total cost of $554,201 (HK$4,295,000)) and amortized these costs once the modules were completed. All of these additional costs from gradual completion of our platform system modules and addition of equipment contributed to an increase in our cost of revenue through 2015.

Gross Profit

Gross profit was $2,491,858 for the three months ended September 30, 2015, compared to $802,704 for the three months ended September 30, 2014. The increase was due to the higher transaction volume and larger trading amount with more artworks trading on our platform.

The gross profit margin during the three months ended September 30, 2015 was 92.1% compared to 87.1% in the corresponding period in 2014. The increase in profitability was due to significant revenue increase from an increase in trading volume and trading amount, which exceeded the growth rate of cost of revenue. This led to a 5% increase in gross profit margin during the three months ended September 30, 2015.

Operating Expenses

Operating expenses for the three months ended September 30, 2015 were $999,072 compared to $415,437 for the three months ended September 30, 2014. The substantial increase was primarily due to an increase in consultancy fees by $40,729 due to more consultants being engaged, an increase in legal and professional fees amounting to $114,436 because of more filing and compliance activities; an increase in office and rental expense by $61,358 because of the newly rented office for Takung in Hong Kong; an increase in marketing expenses by $99,385, and an increase in travelling expenses amounting to $4,241 because of more promotional activities to expand our operations, and an increase of stock-based compensation amounting to $186,000 due to the issuance of 300,000 shares for consulting services.

The following table sets forth the main components of the Company’s operating expenses for the three months ended September 30, 2015 and 2014.

	Three months ended September 30, 2015					Three months ended September 30, 2014
	Amount($)		% of Total			Amount($)		% of Total
Consultancy fee		132,692		13.3	%		91,963		22.1	%
Legal and professional fees		238,784		23.9	%		124,348		29.9	%
Salary and welfare		52,044		5.2	%		79,112		19.0	%
Office expenses and rental		104,856		10.5	%		43,498		10.5	%
Marketing expenses		116,090		11.6	%		16,705		4.0	%
Traveling and accommodation fees		34,036		3.4	%		29,795		7.2	%
Stock-based compensation		186,000		18.6	%		-		-
Others		134,570		13.5	%		30,016		7.3	%
Total G&A	$	999,072		100.0	%	$	415,437		100.0	%

Net Income

We had a net income for the three months ended September 30, 2015 of $1,144,073 compared to net income of $319,112 for the three months ended September 30, 2014.

The increase in net income during this current period was due to an increase in artworks listed and higher trading volume due to more artworks being listed on our platform and larger trader population base following the inception of Takung Shanghai, as discussed in previous paragraphs.

NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2015 COMPARED TO NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2014

Revenue

Our revenue comprises mainly listing, commission and management fees. Listing fee revenue was $1,549,587 and $915,632; commission revenue was $3,267,516 and $1,442,443; gross management fee revenue was $98,674 and $77,373; annual fee revenue was $1,591 and $0 for the nine months ended September 30, 2015 and 2014, respectively.

During the nine months ended September 30, 2015, there were four pieces of jewelry, twelve pieces of precious stones, and three pieces of amber successfully listed on our system. The total listing values were $1,625,827 (HK$12,600,000) for the four pieces of jewelry, $1,470,987 (HK$11,400,000) for the twelve pieces of precious stones, and $812,914 (HK$6,300,000) for three pieces of amber, of which 31%, 47% (for the five piece of precious stones listed in the first half year) and 32% (for the other seven pieces of precious stones listed in the third quarter of 2015),and 47% (for the amber pieces) of the listed values were charged as listing fee revenue, respectively.

Compared to the corresponding period ended September 30, 2014, only three paintings with a total listing value of $3,868,871 (HK$30,000,000) were listed, of which 23.5% of the value of two paintings, and 24% of the value of one painting of the listed value were charged as listing fee revenue.

The increase in number of pieces listed, listing values and corresponding listing fees charged during the nine months ended September 30, 2015 compared to nine months ended September 30, 2014 resulted in an increase in listing fee revenue in the current period.

During the nine months period ended September 30, 2015, commission revenue increased significantly mainly due to more artworks being listed and commencement of operations of Takung Shanghai in July 2015 that allowed transactions to be settled in Renminbi. This increased the number of traders from mainland China .

Our trading volume and transaction amounts increased significant, especially during August and September 2015. Trading amount and trading volume increased by 251% and 152% respectively during the nine months ended September 30, 2015 compared to corresponding period in 2014. Takung Shanghai contributed 21% of the total trading volume, and 28% of the total trading amount and this resulted in the significant increase of our commission revenue by $1,825,073.

During the nine-month ended September 30, 2015, management fee revenue increased by $21,301, from $77,373 for the nine months ended September 30, 2014 to $98,674 , due to the aforementioned increase in trading amount and volume.

During the nine-month period ended September 30, 2015, annual fee revenue increased from $0 to $1,591, as a premium services were only introduced to our traders in 2015.

Cost of Revenue

Cost of revenue for the nine months ended September 30, 2015 and 2014 was $592,342 and $296,029, respectively. Our cost of revenue primarily includes the leasing of equipment, depreciation and amortization of hardware and software for our trading platform. Since the second half of 2014, we have acquired additional hardware and equipment, developed new and upgraded the existing functionality of our trading, banking integration and social media platforms.

In the third quarter of 2014, we entered into an agreement with Qianrong to provide software development services with a total contract amount of $902,592 (HK$6,995,000). The services contracted for are divided into different modules, according to different upgrades and new functionalities. As of September 30, 2015, eight out of the ten modules have been completed and are operational. We have started to capitalize (with a total cost of $554,201(HK$4,295,000)) and amortized these costs once the modules were completed. All of these additional costs from gradual completion of our platform system modules and addition of equipment contributed to an increase in our cost of revenue through 2015.

Gross Profit

Gross profit was $4,325,026 for the nine months ended September 30, 2015, compared to $2,139,419 for the nine months ended September 30, 2014. The increase was primarily due to increased revenue from higher transaction volume with more artworks trading on our platform.

The gross profit margin during the nine months ended September 30, 2015 was comparable to the corresponding period in 2014.

Listing fees contributed 31.5% of the total revenue compared to 37.6% in the corresponding period in 2014, while commission revenue contributed 66.4% compared to 59.2% in the corresponding period in 2014. Although there was an increase in listing fee and commission revenue in the current period, the positive factors were offset by the increase in the cost during the same period due to larger depreciation expense from the addition of platform system modules and equipment. Depreciation under the cost of revenue was increased by 79% in the current period compared to the same period in 2014. Consequently, we posted a comparable gross profit margin of 88% and 87.8% for the nine months ended September 30, 2015 and 2014 respectively.

Operating Expenses

Operating expenses for the nine months ended September 30, 2015 were $2,124,550 compared to $970,951 for the nine months ended September 30, 2014. The substantial increase was primarily due to an increase in consultancy fees amounting to $111,174 because of more consultants being engaged; an increase in legal and professional fees amounting to $249,019 because of more filing and compliance activities; an increase in salaries amounting to $134,555 because of an increase in employee headcount; an increase in office and rental expenses by $103,194 because of the new rented office for Takung in Hong Kong; an increase of marketing expenses by $136,681, an increase in travelling expenses amounting to $59,260 because of more promotional activities to expand our operations and an increase of stock-based compensation amounting to $186,000 due to the issuance of 300,000 shares for consulting services.

The following table sets forth the main components of the Company’s operating expenses for the nine months ended September 30, 2015 and 2014.

	Nine months ended September 30, 2015					Nine months ended September 30, 2014
	Amount($)		% of Total			Amount($)		% of Total
Consultancy fee		352,326		16.6	%		241,152		24.8	%
Legal and professional fees		504,703		23.8	%		255,684		26.3	%
Salary and welfare		312,146		14.7	%		177,591		18.3	%
Office expenses and rental		231,745		10.9	%		128,551		13.2	%
Marketing expenses		173,888		8.2	%		37,207		3.8	%
Traveling and accommodation fees		130,598		6.1	%		71,338		7.3	%
Stock-based compensation		186,000		8.7	%		-		-	%
Others		233,144		11.0	%		59,428		6.3	%
Total G&A	$	2,124,550		100.0	%	$	970,951		100.0	%

Net Income

We had a net income for the nine months ended September 30, 2015 of $1,715,344 compared to net income of $963,474 for the nine months ended September 30, 2014.

The increase in net income during this current period was due to an increase in artworks listed and higher trading volume due to more artworks being listed on our platform, and larger trader population base following the inception of Takung Shanghai, as discussed in previous paragraphs.

Liquidity and Capital Resources

Sources of Liquidity

During the nine months ended September 30, 2015, net cash provided by operating activities totaled $811,630. Net cash used by investing activities totaled $507,032. Net cash provided by financing activities was $1,928,191. The resulting change in cash for the period was an increase of $2,235,842. The cash balance at the beginning of the period was $2,355,839. The cash balance on September 30, 2015 was $4,591,681.

During the nine months ended September 30, 2014, net cash generated from operating activities totaled $1,314,477. Net cash used by investing activities totaled $185,209. No cash was generated from financing activities during the period. The resulting change in cash for the period was an increase of $1,127,414. The cash balance at the beginning of the period was $260,187. The cash balance on September 30, 2014 was $1,387,601.

As of September 30, 2015, the Company had $16,013,848 in total current liabilities, which comprised $14,987 in accounts payable, $534,141 in accrued expense and other payables, $14,719,845 in customer deposits, and $744,875 in tax payables. As of December 31, 2014, the Company had $9,009,168 in total current liabilities, which comprised $1,891,525 in accrued expenses and other payables, $6,865,821 in customer deposits, $2,730 due to our director, and $249,092 in tax payables.

The Company had deferred tax liabilities as long-term liability of $51,261 as of September 30, 2015, and $66,555 as of December 31, 2014, respectively. The Company’s total liabilities as of September 30, 2015 and December 31, 2014 amounted to $16,065,109 and $9,075,723, respectively.

The Company is not aware of any known trends, events or uncertainties which may affect its future liquidity. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Future Financings

Our business is sufficiently funded by cash generated from our operating activities. In order to further expand our business operations at a higher growth rate, we may need to obtain financing through equity sales of our common shares. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to expand our operations and other activities or if we are able, 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.

Reverse stock split

On August 10, 2015, the Company’s board of directors and a majority of the Company’s shareholders approved a reverse stock split of its issued and outstanding shares of common stock at a ratio of 1-for-25.

Upon filing of the Certificate of Amendment, every twenty-five shares of the Company’s issued and outstanding common stock were automatically converted into one issued and outstanding share of common stock, without any change in par value per share. All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the 1-for-25 reverse stock split. See Notes 8 for additional information about the reverse stock split.

Use of Estimates

Fair Value Measurements

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

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 September 30, 2015 and December 31, 2014, respectively.

Cash and Cash Equivalents

Restricted Cash

Property and Equipment

Classification		Estimated useful life

Furniture, fixtures and equipment		5 years

Leasehold improvements		3 years

Computer trading and clearing system		5 years

Long-lived Assets

No impairments were recorded during the period ended September 30, 2015 and December 31, 2014, respectively.

Revenue Recognition

The Company generates revenue from its services in connection with the offering and trading of artwork on our system, primarily consisting of listing fees, trading commissions, and management fees.

We recognize revenue once all of the following criteria have been met:

persuasive evidence of an arrangement exists;

delivery of our obligations to our customer has occurred;

the price is fixed or determinable; and

collectability of the related receivable is reasonably assured

Listing fee – The Company collects a listing fee once the ownership shares of the artwork are listed and successfully traded on our system, based on the agreed percentage of the total offering price. This amount is collected from the money raised from the issuance of such shares accounted as the listing fee revenue accordingly. When the ownership shares of the artwork is listed and starts trading on our system, the Original Owner and/or the Offering Agent shall pay us a one-time offering fee and a listing deposit. The offering fee is determined based on many factors, such as the type of artwork and the offering size. We generally charge approximately 22.5-47% of the total offering price for calligraphies, paintings and jewelry, which are the major types of artwork listed and traded on our system as of September 30, 2015. Listing fee revenue was $439,811 and $1,549,587 for the three and nine months ended September 30, 2015, respectively, and $309,637 and $915,632 for the three and nine months ended September 30, 2014.

As part of the referral incentive program, the Company would rebate 5% of the commission earned from the transaction to the related referrer. A discount program is offered to VIP traders — when their trading volumes of the certain artworks reach an agreed level of each month, a contractually determined flat rate of trading commission is applied to the transactions of these certain artworks. Any trading commission charges incurred by the VIP traders over the flat rate will be waived. The discounted rate varies between the selected artworks. Besides, a separate discount program is offered to the buyers by waiving their trading commissions during certain promotion periods. The rebates and discounts are recognized as a reduction of revenue in the same period the related revenue is recognized.

Gross management fee revenue was $26,889 and $98,674 for the three and nine months ended September 30, 2015, respectively, and $42,741 and $77,373 for the three and nine months ended September 30, 2014, respectively.

Income Taxes

Earnings per share

Intangible Assets

Recent Accounting Pronouncements

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, who is also our Chief Financial Officer, Chief Accounting Officer and sole director. Because of these multiple roles, it is impossible to fully segregate duties to ensure that all information required to be disclosed by us in the reports that we file or submit is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer concluded that (i) there continue to be material weaknesses in the Company’s internal controls over financial reporting, that the weaknesses constitute a “deficiency” which could result in misstatements of the foregoing accounts and disclosures that could result in a material misstatement to the financial statements for the period covered by this report that would not be detected, and (ii) accordingly, our disclosure controls and procedures were not effective as of September 30, 2015.

Inherent Limitations

Because of its inherent limitations, our disclosure controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Changes in Internal Controls over Financial Reporting

Subject to the foregoing disclosure, there were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2015, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors

Not applicable.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

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

Exhibit No.		Description

3.1		Certificate of Incorporation (1)
3.2		By-laws of the Company (2)
3.3		Certificate of Amendment of the Certificate of Incorporation (1)
3.4		Certificate of Amendment of the Certificate of Incorporation (1)
3.5		Certificate of Amendment (2)
3.6		Certificate of Amendment of the Certificate of Incorporation (4)
3.7		Certificate of Incorporation of Hong Kong Takung Assets and Equity Artworks Exchange Co., Ltd.(3)
3.8		Articles of Association of Hong Kong Takung Assets and Equity Artworks Exchange Co., Ltd.(3)
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Certification of the Principal Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2		Certification of the Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS		XBRL Instance Document*
101.SCH		XBRL Taxonomy Extension Schema Document*
101.CAL		XBRL Taxonomy Calculation Linkbase Document*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB		XBRL Taxonomy Label Linkbase Document*
101.PRE		XBRL Taxonomy Presentation Linkbase Document*

(1)

Incorporated by reference to the exhibit to our registration statement on Form S-1 filed with the SEC on August 16, 2011.

(2)

Incorporated by reference to the exhibit to our current report on Form 8-K filed with the SEC on March 7, 2013.

(3)

Incorporated by reference to the exhibit to our current report on Form 8-K filed with the SEC on October 22, 2014.

(4)

Incorporated by reference to the exhibit to our current report on Form 8-K filed with the SEC on November 6, 2014.

Filed herewith.

Furnished herewith.

SIGNATURES

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

	TAKUNG ART CO., LTD

Date: November 12, 2015	By:	/s/ Di Xiao
		Di Xiao
		Chief Executive Officer
		(Principal Executive Officer)/ Chief Financial Officer (Principal Financial Officer) and Director

Attached files

Takung Art Co., Ltd Reports

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