Taoping Inc 6-K, filed Sep 7, 2022
Taoping Inc. (TAOP)
About this 6-K
Taoping Inc filed this 6-K on September 7, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the month of, September 2022
Commission
File Number
(Translation of registrant’s name into English)
18
Whitefield Road,
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
EXPLANATORY NOTE
Taoping Inc. (the “Company”) is furnishing this Form 6-K to provide the unaudited consolidated financial statements for the six months ended June 30, 2022 and 2021 and incorporate such financial statements into the Company’s registration statements referenced below.
This Form 6-K is hereby incorporated by reference into the registration statements of the Company on Form S-8 (Registration Numbers 333-256600 and 333-211363) and on Form F-3 (Registration Numbers 333-262181 and 333-229323) to the extent not superseded by documents or reports subsequently filed or furnished by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
FORWARD-LOOKING INFORMATION
This Report on Form 6-K contains forward-looking statements and information relating to us that are based on the current beliefs, expectations, assumptions, estimates and projections of our management regarding our company and industry. When used in this report, the words “may”, “will”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. These statements reflect management’s current view of us concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: our potential inability to achieve or sustain profitability or reasonably predict our future results due to our limited operating history of providing blockchain technology and smart cloud services, our independent registered auditors’ substantial doubt about our ability to continue as a going concern, unfavorable economic conditions that may affect the level of technology and Out-of-Home advertising spending by our customers, the emergence of additional competing technologies, changes in domestic and foreign laws, regulations and taxes, uncertainties related to China’s legal system and economic, political and social events in China, the volatility of the securities markets, and other risks and uncertainties which are generally set forth under the heading, “Key information - Risk Factors” and elsewhere in our Annual Report on Form 20-F filed on May 2, 2022 (the “Annual Report”). Should any of these risks or uncertainties materialize, or should the underlying assumptions about our business and the commercial markets in which we operate prove incorrect, actual results may vary materially from those described as anticipated, estimated or expected in the Annual Report.
All forward-looking statements included herein attributable to us or other parties or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: September 7, 2022 | TAOPING INC. | |
| By: | /s/ Jianghuai Lin | |
| Jianghuai Lin | ||
| Chief Executive Officer | ||
EXHIBIT INDEX
| Exhibit Number | Description | |
| 99.1 | Unaudited Interim Consolidated Financial Statements as of June 30, 2022 and for the six months ended June 30, 2022 and 2021 | |
| 99.2 | Operating and Financial Review and Prospects in Connection with the Interim Consolidated Financial Statements for the six months ended June 30, 2022 | |
| 99.3 | Press Release dated September 7, 2022 | |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
Exhibit 99.1
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
INDEX
| F-1 |
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2022 AND DECEMBER 31, 2021
| NOTES | June 30, 2022 | December 31, 2021 | ||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
| CURRENT ASSETS | ||||||||||
| Cash and cash equivalents | $ | $ | ||||||||
| Accounts receivable, net | 2(e) | |||||||||
| Accounts receivable-related parties, net | 2(e) | |||||||||
| Advances to suppliers | ||||||||||
| Prepaid expenses | ||||||||||
| Inventories, net | 8 | |||||||||
| Cryptocurrencies, net | 10 | |||||||||
| Other current assets | 13 | |||||||||
| TOTAL CURRENT ASSETS | ||||||||||
| Property, plant and equipment, net | 9 | |||||||||
| Right-of-use assets | 2(n) | |||||||||
| Long-term investments | 15 | |||||||||
| Goodwill | 3 | |||||||||
| Other assets, non-current | 13 | |||||||||
| TOTAL ASSETS | $ | $ | ||||||||
| LIABILITIES AND EQUITY | ||||||||||
| CURRENT LIABILITIES | ||||||||||
| Short-term bank loans | 11 | $ | $ | |||||||
| Accounts payable | ||||||||||
| Advances from customers | ||||||||||
| Advances from customers-related parties | ||||||||||
| Amounts due to related parties | 7(c) | |||||||||
| Accrued payroll and benefits | ||||||||||
| Other payables and accrued expenses | 17 | |||||||||
| Other taxes payable | ||||||||||
| Lease liability-current | 14 | |||||||||
| Other current liability | ||||||||||
| TOTAL CURRENT LIABILITIES | ||||||||||
| Lease liability | 14 | |||||||||
| TOTAL LIABILITIES | ||||||||||
| EQUITY | ||||||||||
| Ordinary shares, 2022 and
2021: par $ | 19 | |||||||||
| Additional paid-in capital | 19 | |||||||||
| Reserve | 18 | |||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive income | ||||||||||
| Total equity (deficit) of the Company | ||||||||||
| Non-controlling interest | ( | ) | ||||||||
| Total Equity | ||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-2 |
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
| Six Months Ended | Six Months Ended | |||||||||
| NOTES | June 30, 2022 | June 30, 2021 | ||||||||
| (Unaudited) | (Unaudited) | |||||||||
| Revenue – Products | $ | $ | ||||||||
| Revenue – Products-related parties | 7(a) | |||||||||
| Revenue – Software | ||||||||||
| Revenue – Advertising | ||||||||||
| Revenue – Advertising-related parties | 7(a) | |||||||||
| Revenue – Cryptocurrency mining | ||||||||||
| Revenue – Other | ||||||||||
| Revenue – Other-related parties | 7(b) | |||||||||
| TOTAL REVENUE | ||||||||||
| Cost – Products | ||||||||||
| Cost – Software | ||||||||||
| Cost – Advertising | 2(p) | |||||||||
| Cost – Cryptocurrency mining | 2(p) | |||||||||
| Cost – Other | ||||||||||
| TOTAL COST | ||||||||||
| GROSS PROFIT | ||||||||||
| Administrative expenses | ||||||||||
| Research and development expenses | ||||||||||
| Selling expenses | ||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||||
| Subsidy income | ||||||||||
| (Loss) from equity method investment | ( | ) | ( | ) | ||||||
| Other income (loss), net | ||||||||||
| Interest expense and debt discounts, net of interest income | ( | ) | ( | ) | ||||||
| Loss before income taxes | ( | ) | ( | ) | ||||||
| Income tax (expense) benefit | 12 | ( | ) | ( | ) | |||||
| NET LOSS | ( | ) | ( | ) | ||||||
| Less: Net loss attributable to the non- controlling interest | 4 | |||||||||
| NET LOSS ATTRIBUTABLE TO THE COMPANY | $ | ( | ) | $ | ( | ) | ||||
| Loss per share - Basic and Diluted | ||||||||||
| Basic | 6 | $ | ( | ) | $ | ( | ) | |||
| Diluted | 6 | $ | ( | ) | $ | ( | ) | |||
| NET LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY | ||||||||||
| Basic | 6 | $ | ( | ) | $ | ( | ) | |||
| Diluted | 6 | $ | ( | ) | $ | ( | ) | |||
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-3 |
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive loss: | ||||||||
| Foreign currency translation gain (loss) | ( | ) | ||||||
| Comprehensive loss | ( | ) | ( | ) | ||||
| Comprehensive loss attributable to the non- controlling interest | ||||||||
| Comprehensive loss attributable to the Company | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-4 |
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
| Ordinary shares | Additional Paid-in | Statutory | Accumulated | Accumulated other comprehensive | Non- controlling | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Reserve | deficit | income | interest | Total | |||||||||||||||||||||||||
BALANCE AS AT JANUARY 1, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based payment for consulting fee (Note 18) | ||||||||||||||||||||||||||||||||
| Disposal of iASPEC | - | |||||||||||||||||||||||||||||||
| Net loss for the year | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation gain | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Common stock issued for business acquisition | ||||||||||||||||||||||||||||||||
| Disposal of a consolidated entity | - | |||||||||||||||||||||||||||||||
BALANCE AS AT JUNE 30, 2022(unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Ordinary shares | Additional Paid-in | Statutory | Accumulated | Accumulated other comprehensive | Non controlling | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Reserve | deficit | income | interest | Total | |||||||||||||||||||||||||
BALANCE AS AT JANUARY 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
Beginning balance, value | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Stock-based payment for consulting fee (Note 18) | ||||||||||||||||||||||||||||||||
| Conversion of convertible notes (Note 15) | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of common stock for financing (Note 18) | ||||||||||||||||||||||||||||||||
| Employee stock incentive (Note 18) | ||||||||||||||||||||||||||||||||
| Net loss for the year | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation gain | - | ( | ) | |||||||||||||||||||||||||||||
| Common stock issued for business acquisition | ||||||||||||||||||||||||||||||||
| Minority shareholders’ contribution | - | |||||||||||||||||||||||||||||||
BALANCE AS AT JUNE 30, 2021 (unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
Ending balance, value | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-5 |
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Provision for credit losses on accounts receivable and other current assets | ( | ) | ||||||
| Provision (reversal) for obsolete inventories | ||||||||
| Depreciation and amortization | ||||||||
| (Gain) on sales of cryptocurrencies | ( | ) | ( | ) | ||||
| Impairment on cryptocurrencies | ||||||||
| (Gain) on business acquisition | ( | ) | ||||||
| Loss on equity method investment | ||||||||
| Loss on disposal of equipment and inventories | ||||||||
| Stock-based compensation for consulting services | ||||||||
| Amortization of convertible note discount | ||||||||
| Stock-based compensation to employees | ||||||||
| Write-off of long aged payables | ( | ) | ||||||
| Loss (gain) on sale of property and equipment | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Accounts receivable - related parties | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Cryptocurrencies – mining | ( | ) | ( | ) | ||||
| Other non-current assets | ( | ) | ||||||
| Other current assets | ( | ) | ( | ) | ||||
| Advances to suppliers | ( | ) | ||||||
| Other payables and accrued expenses | ( | ) | ( | ) | ||||
| Advances from customers | ||||||||
| Advances from customers - related parties | ( | ) | ||||||
| Amounts due to related parties | ( | ) | ( | ) | ||||
| Accounts payable to related party | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Lease liability | ( | ) | ||||||
| Income tax payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Proceeds from sales of property and equipment | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Acquired cash in connection with a business acquisition | ||||||||
| Proceeds from sales of cryptocurrencies | ||||||||
| Repayment of loan receivable-related party | ||||||||
| Net cash provided by investing activities | ||||||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from short-term bank loans | ||||||||
| Borrowings from related party | ||||||||
| Repayment of short-term bank loans | ( | ) | ( | ) | ||||
| Capital injected by minority shareholders in joint venture | ||||||||
| Proceeds from issuance of common stock, net of issuance cost | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ( | ) | ||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the year | ||||||||
| Income taxes | $ | - | $ | - | ||||
| Interest | $ | $ | ||||||
| Six Months Ended | Six Months Ended | |||||||
| June 30,2022 | June 30, 2021 | |||||||
| Reconciliation to amounts on consolidated balance sheets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
Supplemental disclosure of significant non-cash transactions:
In
January 2021, the Company issued non-restricted shares with a fair value of $
In
February and April 2021, the Company issued warrants to three strategy consultants to purchase a total of
In
March 2021, the Company issued restricted ordinary shares under its 2016 Equity Incentive Plan to certain employees with the
fair value of approximately $
In
April 2021, the Company issued warrants to an investment relationship consultant to purchase
In
April 2021, the Company obtained right-of-use assets of approximately $
In
June 2021, the Company issued restricted ordinary shares for the acquisition of Taoping New Media Co., Ltd. The fair value
of the restricted ordinary shares was approximately $
During
the six months ended June 30, 2021, purchase of software and equipment in an amount of approximately $
In
February 2022, the Company issued the first phase of restricted ordinary shares with a fair value of approximately $
In
March 2022, the Company issued ordinary shares with a fair value of $
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-6 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, PRINCIPAL ACTIVITIES AND MANAGEMENT’S PLANS
Taoping Inc. (f/k/a China Information Technology, Inc.), together with its subsidiaries (the “Company” or “TAOP”), is a blockchain technology and smart cloud services provider. The Company provides cloud-based display terminal and service of digital advertising distribution network and new media resource sharing platform in the Out-of-Home advertising market in China. It’s integrated end-to-end digital advertising solutions enables customers to distribute and manage ads on the ads display terminals. With multiple cloud data centers deployed, the Company also provides computing power and creates value for the encrypted digital currency industry.
In May 2018, we changed our corporate name from “China Information Technology Inc.” to “Taoping Inc.”, to reflect our current business operations in the new media and IoT industries. In 2021, Information Security Tech. International Co. Ltd. (“IST HK”), one of the Company’s Hong Kong subsidiaries, changed its corporate name to Taoping Group (China) Ltd. to reflect the Company’s current corporate structure to be in line with the new business strategies. As listed in the table below, these services are provided through the Company’s operating subsidiaries, primarily in Hong Kong, mainland China and Kazakhstan.
On
June 9, 2021, the Company consummated an acquisition of
In 2021, the Company launched blockchain related new business in cryptocurrency mining operations and newly established subsidiaries in Hong Kong to supplement its diminished Traditional Information Technology (TIT) business segment as a part of new business transformation.
In September 2021, the Company and the Company’s wholly owned subsidiary, Information Security Technology (China) Co., Ltd. (“IST”) entered into an equity transfer agreement with Mr. Jianghuai Lin, the sole shareholder of iASPEC Technology Group Co., Ltd. (“iASPEC”). Upon closing of the equity transfer, the Company’s variable interest entity structure was dissolved and iASPEC became a wholly owned indirect subsidiary of the Company.
In September 2021, the Company also strategically relocated its global corporate headquarters to Hong Kong to better implement cryptocurrency mining operations and blockchain related new businesses and streamline its international business development, client communication, and service delivery. The office located in Shenzhen, China becomes the TAOP’s regional headquarters in Mainland China.
As
a result of the Company’s business transformation and its exit from the TIT business, the Company disposed of
Upon the disposition, iASPEC, excluding its subsidiaries, was no longer part of TAOP. As such, the Company’s consolidated financial statements for the six months ended June 30, 2022 only included the financial results of iASPEC for the period from January 1 through June 7, 2022.
In addition, the Company’s subsidiaries, Alpha Digital Group Ltd., Taoping Digital Tech. (Dongguan) Co., Ltd., Wuhu Taoping Education Technology Co., Ltd., and Shenzhen Taoping Education Technology Co., Ltd., were dissolved on January 28, May 17, May 31 and June 14, 2022, respectively, as a result of the business realignment of the Company.
| F-7 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table lists our subsidiaries as of the respective date as indicated below.
SCHEDULE OF SUBSIDIARIES AND VARIABLE INTEREST ENTITY
| Entities | Subsidiaries | June 30, 2022 % owned | December 31, 2021 % owned | December 31, 2020 % owned | Location | |||||||||||
| % | % | % | ||||||||||||||
| % | % | % | ||||||||||||||
| % | % | - | ||||||||||||||
| % | % | - | ||||||||||||||
| % | % | - | ||||||||||||||
| - | % | - | ||||||||||||||
| % | % | - | ||||||||||||||
| % | % | - | ||||||||||||||
| % | % | % | ||||||||||||||
| % | % | % | ||||||||||||||
| `% | % | % | ||||||||||||||
| - | % | VIE | ||||||||||||||
| % | % | VIE subsidiary | ||||||||||||||
| % | % | VIE subsidiary | ||||||||||||||
| % | % | - | ||||||||||||||
| - | % | - | ||||||||||||||
| - | % | - | ||||||||||||||
| - | % | - | ||||||||||||||
| % | % | - | ||||||||||||||
| % | % | - | ||||||||||||||
| % | - | - | ||||||||||||||
| F-8 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Dissolution of the Variable Interest Entity Structure
iASPEC was a VIE of the Company. To comply with PRC laws and regulations that restrict foreign ownership of companies that provide public security information technology and Geographic Information Systems software operating services to certain government and other customers, the Company used to operate the restricted aspect of its business through iASPEC.
In
September 2021, we dissolved the variable interest entity structure by exercising the purchase option under certain Option Agreement
among IST, iASPEC and its shareholders, to purchase all of the equity interests in iASPEC at an aggregate exercise price of $
Upon the closing of the equity transfer, the Company’s variable interest entity structure was dissolved and iASPEC became a wholly owned indirect subsidiary of the Company. The amended and restated MSA was automatically terminated.
Going Concern and Management’s Plans
Although
the COVID-19 pandemic has largely been contained in China, regional outbreaks of infections persist in various localities. The negative
impact from the pandemic to macro economy and the out-of-home advertising business continued in the first half of 2022. However, our
revenue achieved
In
June 2021, the Company completed an acquisition of
If
the Company’s execution of business strategies is not successful in addressing its current financial concerns, additional capital
raise from issuing equity security or debt instrument or additional loan facility may occur to support required cash flows. However,
the Company can make no assurances that financing will be available for the amounts we need, or on terms commercially acceptable to us,
if at all. If one or all of these events do not occur or subsequent capital raise was insufficient to bridge financial and liquidity
shortfall, substantial doubt exists about the Company’s ability to continue as a going concern. The consolidated financial statements
have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might
result from the outcome of this uncertainty. To overcome the going concern issue, the Company will actively seek opportunities to achieve
revenue growth through strategic acquisitions on digital advertising, new revenue streams development, and significant expansion of computing
power for cryptocurrency mining operations. In addition to cash generating from business, the Company has secured at least $
| F-9 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Principles of Consolidation
The consolidated financial statements as of June 30, 2022 and for the six-month periods ended June 30, 2022 and 2021 are unaudited. The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. In the opinion of management, all adjustments (consisting of normal recurring adjustments) have been made that are necessary to present fairly the financial position, the results of its operations and cash flows. Operating results as presented are not necessarily indicative of the results to be expected for a full year. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 20-F for the year ended December 31, 2021 filed on May 2, 2022 with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company, and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
(b) Use of Estimates
The preparation of 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 financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company’s significant estimates include its accounts receivable, assessment of credit losses, fair value of stock options and warrants, valuation allowance of deferred tax assets, useful lives of property and equipment, the recoverability of long-lived assets, revenue recognition, valuation of prepayments, goodwill, and other intangible assets, inventories, cryptocurrencies, purchase price allocation of business combination, right-of-use assets, and lease liabilities. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates.
| F-10 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(c) Economic, Pandemic, Political, and Currency Exchange Risks
All the Company’s revenue-generating operations are conducted in Hong Kong and mainland China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic, public health, and legal environments in the PRC, and by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks that are not typically pertaining to the companies in North America and Western Europe. These include risks associated with, among others, the political, economic, public health concerns with persistent outbreaks of COVID-19 infections in various regional localities, and legal environments, geopolitical influences, and foreign currency exchange, notably in recent events, where the government’s sudden interventions or modifications of the laws and regulations currently in effective could negatively impact the Company’s operations and financial results.
In September 2021, ten Chinese regulatory authorities collectively promulgated a guidance to further control and monitor cryptocurrency related trading, exchanges, transaction, banking and financial service, initial coin offering, and other intermediary and derivatives transactions, which are considered illegal in accordance with effectuated laws and regulations and may be subject to penalty criminally. The new guidance also bars foreign cryptocurrency trading platforms and related businesses to provide services to China domestic individuals and business entities, and expands the application of laws and regulations to Chinese employees or contractors of foreign operatives that provide related services to individuals or business entities domiciled in China. The legality of cryptocurrency mining activity may be subject to challenge by Chinese authorities. As a result, the Company has relocated its global headquarters to Hong Kong where cryptocurrency mining, trading, exchange, transaction, and related business activities are lawful.
The functional currency of the Company is primarily Chinese Renminbi Yuan (“RMB”), which is not freely convertible into foreign currencies. The Company cannot guarantee that the current exchange rate will remain steady. Therefore, there is a possibility that the Company could post the same amount of profit for two comparable periods and yet, because of fluctuating exchange rates, record higher or lower profit depending on exchange rate of RMB. RMB converted to U.S. dollars on the relevant dates. The exchange rate could fluctuate depending on changes in the political and economic environment without notice.
(d) Cash and Cash Equivalents
The
Company considers all highly liquid investments purchased and cash deposits with financial institutions with original maturities of three
months or less to be cash equivalents. The Company had
The
Company maintains its cash accounts at credit worthy financial institutions and closely monitors the movements of its cash positions.
As of June 30, 2022, and December 31, 2021, approximately $
(e) Accounts Receivable, Accounts Receivable – related parties, and Concentration of Risk
Accounts receivable are recognized and carried at carrying amount less an allowance for credit loss, if any. The Company maintains an allowance for credit losses resulting from the inability of its customers to make required payments based on contractual terms. The Company reviews the collectability of its receivables on a regular and ongoing basis according to historical trend, and estimates its provision for expected credit losses on receivables aging analysis.
The
Company estimates allowance for credit losses for the anticipation of future economic condition and credit risk indicators of customers,
including the potential impact of the COVID-19 pandemic on its customers’ businesses. After all attempts to collect a receivable
have failed, the receivable is written off against the allowance. In the event the Company recovers amounts previously reserved for,
the Company will reduce the specific allowance for credit losses. The balance of allowance for credit losses for the six-month ended
June 30, 2022 has decreased approximately $
| F-11 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accounts receivable as of June 30, 2022 and December 31, 2021 are as follows:
SCHEDULE OF ACCOUNTS RECEIVABLE
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Accounts Receivable | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts Receivable, net | $ | $ | ||||||
| Accounts Receivable - related parties | $ | $ | ||||||
| Allowance for credit losses - related parties | ( | ) | ( | ) | ||||
| Accounts Receivable - related parties, net | $ | $ | ||||||
The normal credit term is ranging from 1 month to 3 months after the customers’ acceptance of high-end data storage servers or software, and completion of advertising and other services, and ranging from 1 month to 6 months after the customers’ acceptance of ads display terminals. However, because of various factors of business cycle, the actual collection of outstanding accounts receivable may be beyond the normal credit terms.
In accordance with ASC 210-10-45, the non-current accounts receivable and non-current accounts receivable-related parties represent the amounts that the Company does not reasonably expect to be realized during the normal operating cycle of the Company. The Company uses one-year time period as the basis for the separation of current and non-current assets.
The
allowance for credit losses at June 30, 2022 and December 31, 2021, totaled approximately $
SCHEDULE OF ALLOWANCE FOR CREDIT LOSSES
| Balance at January 1, 2021 | $ | |||
| Addition from acquisition of subsidiaries under common control | ||||
| Increase in allowance for credit losses | ||||
| Foreign exchange difference | ||||
| Balance at December 31, 2021 | $ | |||
| Decrease in allowance for credit losses | ( | ) | ||
| Decrease for balance recovered due to transfer of a company | ( | ) | ||
| Foreign exchange difference | ( | ) | ||
| Balance at June 30, 2022 (Unaudited) | $ |
| F-12 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(f) Fair Value Accounting
Financial Accounting Standards Board (FASB) Accounting Standards Codifications (ASC) 820-10 “Fair Value Measurements and Disclosures”, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques 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 unobservable inputs (Level 3 measurements). As required by FASB ASC 820-10, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy under FASB ASC 820-10 are described below:
| Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
| Level 2 | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and |
| Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
(g) Inventories, net
Inventories are valued at the lower of cost (weighted average basis) and net realizable value. Net realizable value is the expected selling price in the ordinary course of business minus any costs of completion, disposal, and transportation to make the sale.
The Company performs an analysis of slow-moving or obsolete inventory periodically and any necessary valuation reserves, which could potentially be significant, are included in the period in which the evaluations are completed. Any inventory impairment results in a new cost basis for accounting purposes.
| F-13 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(h) Property, equipment and software, net
Property, equipment and software are stated at cost less accumulated amortization and depreciation. Amortization and depreciation are provided over the assets’ estimated useful lives, using the straight-line method. Estimated useful lives of property, equipment and software are as follows:
SCHEDULE OF ESTIMATED USEFUL LIVES
| Office buildings | ||
| Lease improvement | ||
| Electronics equipment, furniture and fixtures | ||
| Motor vehicles | ||
| Purchased software | ||
| Media display equipment | ||
| Cryptocurrency mining machine |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss are included in the Company’s results of operations.
(i) Goodwill
ASC 350-30-50, “Goodwill and Other Intangible Assets”, requires the testing of goodwill and indefinite-lived intangible assets for impairment at least annually. The Company tests goodwill for impairment in the fourth quarter each year or earlier if an indicator of impairment exists.
Under applicable accounting guidance, the goodwill impairment analysis is a two-step test. The first step of the goodwill impairment test involves comparing the fair value of each reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, the second step must be performed to measure potential impairment.
The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated possible impairment. If the implied fair value of goodwill exceeds the goodwill assigned to the reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of goodwill, an impairment charges recorded for the excess.
(j) Cryptocurrencies
Cryptocurrencies held, including Bitcoin, Ethereum, and USDT, are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
Cryptocurrencies awarded to the Company through its mining activities are included within operating activities in the consolidated statements of cash flows. The sales of cryptocurrencies are included within investing activities in the consolidated statements of cash flows and any realized gains or losses from such sales are included in other income (expense) in the consolidated statements of operations. The Company accounts for its gains or losses in accordance with the first in first out (FIFO) method of accounting.
(k) Business combination
In accordance with ASC 805, the Company applies acquisition method to account for business combination. The acquisition method requires that the fair value of the underlying exchange transaction is used to establish a new accounting basis of the acquired entity upon the acquirer taking control over the acquiree. Furthermore, because of obtaining control the acquirer is responsible and accountable for all of the acquiree’s assets, liabilities and operations, the acquirer recognizes and measures the assets acquired and liabilities assumed at their full fair values as of the date control is obtained, which may result in goodwill, when purchase consideration exceeds the net of fair value of the assets acquired and liabilities assumed, or a bargain purchase gain, when the net of fair value of the assets acquired and liabilities assumed exceeds the purchase consideration, regardless of the percentage ownership in the acquiree or how the acquisition was achieved.
(l) Disposal of subsidiary
The Company deconsolidates a subsidiary upon the loss of control, the related subsidiary’s assets (including goodwill), liabilities, non-controlling interest and other components of equity are de-recognized. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.
Any consideration received is recognized at fair value. Any resultant gain or loss is recognized in the Statement of Operations.
(m) Long-term investment
The Company’s long-term investment consists of investments accounted for under the equity method and equity investments without readily determinable fair value. Pursuant to ASC 321, equity investments, except for those accounted for under the equity method, those that result in consolidation of the investee and certain other investments, are measured at fair value, and any changes in fair value are recognized in earnings. For equity securities without readily determinable fair value and do not qualify for the existing practical expedient in ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) to estimate fair value using the net asset value per share (or its equivalent) of the investment, the Company elected to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any.
For equity investments that the Company elects to measure at cost, less any impairment, plus or minus changes resulting from observable price changes, the Company makes a qualitative assessment considering impairment indicators to evaluate whether investments are impaired at each reporting date. Impairment indicators considered include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee, including factors that raise significant concerns about the investee’s ability to continue as a going concern, a significant adverse change in the regulatory, economic, or technologic environment of the investee and a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates. If a qualitative assessment indicates that the investment is impaired, the entity has to estimate the investment’s fair value in accordance with the principles of ASC 820. For equity investments without readily determinable fair value, the Company uses Level 3 inputs of fair value accounting in accordance with ASC 820-10 and recognizes impairment loss other than temporary in the statement of operations equal to the difference between its initial investment and its proportional share of the net book value of the investee’s net assets which approximates its fair value.
For impairment on equity investments without readily determinable fair value, the Company uses Level 3 inputs of fair value accounting in accordance with ASC 820-10 and recognizes impairment loss in the statement of operations equal to the difference between its initial investment and its proportional share of the net book value of investee’s net assets which approximates its fair value if those are determined to be other than temporary.
| F-14 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(n) Convertible promissory note
The Company determines the appropriate accounting treatment of its convertible debts in accordance with the terms in relation to conversion features. After considering the impact of such features, the Company may account for such instrument as a liability in its entirety, or separate the instrument into debt and equity components following the guidance described under ASC 815 Derivatives and Hedging and ASC 470 Debt. The debt discount, if any, together with related issuance cost are subsequently amortized as interest expense over the period from the issuance date to the earliest conversion date or stated redemption date. The Company presented the issuance cost of debt in the balance sheet as a direct deduction from the related debt.
(o) Operating leases - Right-of-use assets and lease liabilities
The Company accounts for lease under ASC 842 “Leases”, and also elects practical expedient not to separate non-lease component from lease components in accordance with ASC 842-10-15-37 and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component. The Company also elects the practical expedient not to recognize lease assets and lease liabilities for leases with a term of 12 months or less.
The Company recognized a lease liability and corresponding right-to-use asset based on the present value of minimum lease payments discounted at the Company’s incremental borrowing rate. The Company records amortization and interest expense on a straight-line basis based on lease terms and reduces lease liabilities upon making lease payments.
(p) Revenue Recognition
In accordance with the ASC 606, the Company recognizes revenues net of applicable taxes, when goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods or services.
The Company generates its revenues primarily from five sources: (1) product sales, (2) software sales, (3) advertising, (4) crypto-currency mining, and (5) other sales. Revenue is recognized when obligations under the terms of a contract with our customers are satisfied, generally, upon delivery of the goods and services and receipts of cryptocurrencies from cryptocurrency mining pools.
Revenue - Products
Product revenues are generated primarily from the sale of Cloud-Application-Terminal based digital ads display terminals with integrated software essential to the functionality of the hardware to our customers (inclusive of related parties) and high-end data storage servers. Although manufacturing of the products has been outsourced to the Company’s Original Equipment Manufacturer (OEM) suppliers, the Company has acted as the principal of the contract. The Company recognized the product sales at the point of delivery. The Company has indicated that it may from time to time provide future unspecified software upgrades to the hardware products’ essential software, which is expected to be infrequent and, free of charge. Non-software service is mainly the one-time training session provided to the customer to familiarize them with the software operation upon the customer’s initial introduction to the software platform. The costs of providing infrequent software upgrade and training are de minimis. As a result, the Company does not allocate transaction price to software upgrade and customer training. Product sales are classified as “Revenue-Products” on the Company’s consolidated statements of operations.
| F-15 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Revenue - Software
Customers in the private sector contract the Company to design and develop software products specifically customized for their needs for a fixed price. Software development projects usually include developing software, integrating various isolated software systems into one, and testing the system. The design and build services, together with the integration of the various elements, are generally determined to be essential to the functionality of the delivered software. The contracted price is usually paid in installments based on progression of the project or at the delivery of the software. The Company usually provides non-software services including after-sale support, technical training. The technical training only occurs at the introduction of the software. The software is highly specialized and stable, after-sale support and subsequent upgrade or enhancement are infrequent. The Company has estimated the costs associated with the non-software performance obligations and concludes that these obligations are de minimis to the overall contract. Therefore, the Company does not further allocate transaction price.
The Company usually completes the customized software contracts less than 12 months and recognizes the revenue at the point of delivery because the Company does not have an enforceable right to payment for performance completed to date. Revenues from software development contracts are classified as “Revenue-Software” on the Company’s consolidated statements of operations.
Revenue - Advertising
The
Company generates revenues primarily from providing advertising slots to customers to promote their businesses by broadcasting advertisements
on identifiable digital ads display terminals and vehicular ads display terminals in different geographic regions and locations through
a cloud- based new media sharing platform. The Company also contracts individuals to promote special events or for various occasions.
The Company is only obligated to broadcast the advertisements to the contracted digital ads display terminals, and therefore allocates
The Company recognizes the revenues, net of applicable taxes, from advertisement broadcasting contracts with customers over the contracted advertising duration.
| F-16 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Revenue - Cryptocurrency mining
The Company has entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts are terminable under certain circumstances. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency awards the mining pool operator receives (less digital asset transaction fees to the mining pool operator, if any.) for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.
Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contract with mining pool operator.
The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value using the quoted price of the related cryptocurrency on the date received, which is not materially different than the fair value at the contract inception or at the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur (ASC 606-10-32-11), the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm), and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no financing component, nor allocation of transaction price in these transactions.
Revenue - Other
The Company also reports other revenue which comprises revenue generates from System upgrade and technical support services, platform service fee, and rental income.
System upgrade and technical support revenue is recognized when performance obligations are satisfied upon completion of the services. Platform service fee is charged based on number of the display terminals used by the customers or a percentage of advertising revenue generated by the display terminals. Platform service revenue is recognized on a monthly basis over the contract period.
The
Company follows ASC 842 – Leases that requires lessor to identify the underlying assets and allocate rental income among considerations
in lease and non-lease components. The Company owns two units of office space renting out to a third party and TNM under non-cancelable
operating lease agreements with lease terms of six years starting from May 1, 2016 and three years starting from July 1, 2019, respectively.
The lease agreements have fixed monthly rental payments, and no non-lease component or option for lessees to purchase the underlying
assets. The Company collects monthly rental payments from the lessees, and has generated approximately $
After completion of the business acquisition of TNM on June 9, 2021, TNM became a subsidiary of the VIE of the Company. The rental income from TNM has become an intercompany revenue and been eliminated since June 9, 2021.
SCHEDULE OF FUTURE MINIMUM PAYMENTS FOR OPERATING LEASES
| Annual minimum rental income to be received in the next 5 years: | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total |
Contract balances
The
Company records advances from customers when cash payments are received or due in advance of our performance. For the six months ended
June 30, 2022 and 2021, the Company recognized revenue of $
Practical expedients and exemptions
The Company generally expenses sales commissions and other incremental costs of obtaining a contract, if any incurred, because the duration of the service contracts and the amortization periods would have been one year or less. In many cases, the Company is approached by customers for customizing software products for their specific needs without incurring significant selling expenses.
The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.
(q) Cost of advertising and cost of cryptocurrencies
The cost of advertising mainly comprises of direct costs of generating advertising revenue including lease expense for the wall space, to where the ads display terminal to be installed, installation costs of ads display terminals, depreciation of display termination, labor, and other related expenses. The cost of cryptocurrencies consists primarily of direct costs of earning Bitcoin and Ethereum related to mining operations, including mining platform fees, mining pool fees, mining facility rental fees, electric power costs, other utilities, depreciation of mining machines, labor, insurance, and among other ancillary costs.
| F-17 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(r) Segment reporting
Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. Transfers and sales between reportable segments, if any, are recorded at cost.
The
Company reports financial and operating information in the following
| (1) | Cloud-based Technology (CBT) segment — It includes the Company’s cloud-based products, high-end data storage servers. and related services sold to private sectors including new media, healthcare, education, and residential community management, and among other industries and applications. In this segment, the Company generates revenues from the sales of hardware and software total solutions with proprietary software and content as well as from designing and developing software products specifically customized for private sector customers’ needs for a fixed price. The Company includes the revenue and cost of revenue of high-end data storage servers in the CBT segment. Advertising services is included in the CBT segment, after the Company consummated the acquisition of TNM. Advertisements are delivered to the ads display terminals and vehicular ads display terminals through the Company’s cloud-based new media sharing platform. Incorporation of advertising services complements the Company’s out-of-home advertising business strategy. |
| (2) | Blockchain Technology (BT) segment — The BT segment is the Company’s newly formed business sector. Cryptocurrency mining is the first initiative implemented in the BT segment. |
| (3) | Traditional Information Technology (TIT) segment —The TIT segment includes the Company’s project-based technology products and services sold to the public sector. The solutions the Company has sold primarily include Geographic Information Systems (GIS), Digital Public Security Technology (DPST), and Digital Hospital Information Systems (DHIS). In this segment, the Company generates revenues from sales of hardware and system integration services. As a result of the business transformation, the TIT segment was being phased out in 2021. |
(s) Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 is effective for public business entities fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The adoption of ASU 2020-06 does not have material impact on the group’s consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The guidance provides clarification of the interaction of rules for equity securities, the equity method of accounting and forward contracts and purchase options on certain types of securities. ASU 2020-01 is effective for the Company in the first quarter of 2021. The adoption did not have any significant impact on the Company’s consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combination (Topic 805) “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The ASU 2021-08 requires that an entity (acquirer) recognizes and measures contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The A December 31SU 2021-08 also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The ASU 2021-08 also applies to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply, such as contract liabilities from the sale of nonfinancial assets within the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets. For public business entities, the ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The ASU 2021-08 should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. Adoption of ASU 2021-08 is not expected to have material impact on the consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), “Disclosures by Business Entities about Government Assistance”. The ASU 2021-10 requires the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: 1. Information about the nature of the transactions and the related accounting policy used to account for the transactions 2. The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item 3. Significant terms and conditions of the transactions, including commitments and contingencies. The amendments in this Update are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early application of the amendments is permitted. An entity should apply the amendments in this Update either (1) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or (2) retrospectively to those transactions. Adoption of ASU 2021-10 is not expected to have material impact on the consolidated financial statements.
The Company has considered all other recently issued accounting pronouncements and does not believe that the adoption of such pronouncements will have a material impact on the consolidated financial statements.
| F-18 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. BUSINESS ACQUISITION
On
June 9, 2021, the Company and Biznest, a subsidiary of the Company consummated an acquisition of
Pursuant
to the share purchase agreement, as a consideration of the purchase, the Company issued to the shareholders of TNM a total of
ordinary shares equivalent to the value of approximately $
The Company uses Level 3 inputs of fair value accounting for the identifiable assets and liabilities of TNM. The allocation of the purchase consideration is final, which was determined after the completion of a detailed analysis of the fair value for all assets acquired.
The following table summarizes the purchase price allocation for TNM, and the amounts of the assets acquired, and liabilities assumed which were based on their estimated fair values at the acquisition date:
SCHEDULE OF BUSINESS ACQUISITION ASSETS ACQUIRED, AND LIABILITIES ASSUMED
| Cash | $ | |||
| Accounts receivable, net | ||||
| Advances to suppliers | ||||
| Other receivables and other current assets, net | ||||
| Long-term investments | ||||
| Property and equipment | ||||
| Right of use assets | ||||
| Accounts payable | ( | ) | ||
| Advances from customers | ( | ) | ||
| Accrued payroll and benefits | ( | ) | ||
| Amount due to related parties | ( | ) | ||
| Other payables and accrued expenses | ( | ) | ||
| Lease liabilities | ( | ) | ||
| Total net assets acquired | ||||
| Bargain purchase gain | ( | ) | ||
| Goodwill | ||||
| Total purchase price | $ |
Due
to the negative impact from COVID-19 pandemic and slowdown of the out-of-home advertising industry in China, the total consideration
paid by the Company was less than the net amount of identifiable assets acquired and liabilities assumed of TNM, which resulted in a
bargain purchase gain of approximately $
The
Company’s consolidated statement of operations for the year ended December 31, 2021 included revenue of $
The
Company’s consolidated statement of operations for the six months ended June 30, 2022 included revenue of $
On
January 13, 2022, the Company entered into a share purchase agreement to acquire equity interest in Zhenjiang Taoping IoT Tech.
Co., Ltd. (“ZJIOT”), aiming to accelerate the Company’s smart charging pile and digital new media businesses in East
China. Pursuant to the share purchase agreement, the Company has agreed to issue to the shareholders of ZJIOT a total of restricted
ordinary shares. Upon the completion of the acquisition, the Company currently owns
The following table summarizes the purchase price allocation for ZJIOT, and the amounts of the assets acquired, and liabilities assumed which were based on their estimated fair values at the acquisition date:
SCHEDULE OF BUSINESS ACQUISITION ASSETS ACQUIRED, AND LIABILITIES ASSUMED
| Cash | $ | |||
| Accounts receivable, net | ||||
| Advances to suppliers | ||||
| Other receivables, net | ||||
| Property, plant and equipment, net | ||||
| Accounts payable | ( | ) | ||
| Advances from customers | ( | ) | ||
| Accrued payroll and benefits | ( | ) | ||
| Other payables and accrued expenses | ( | ) | ||
| Total net assets acquired | ||||
| Goodwill | ||||
| Total purchase price | $ |
The
Company’s consolidated statement of operations for the six months ended June 30, 2022 included revenue of $
| F-19 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. VARIABLE INTEREST ENTITY
Prior to the dissolution of the Company’s VIE structure in September 2021, iASPEC was a variable interest entity of the Company and the Company was the primary beneficiary of iASPEC. iASPEC’s financial results were consolidated into the Company’s financial statements. From September 2021 to June 7, 2022, iASPEC was a wholly-owned subsidiary of the Company. Accordingly, the assets and liabilities and revenues and expenses of iASPEC have been included in the accompanying consolidated financial statements up to June 7, 2022.
In
June 2021, iASPEC, through its subsidiary Biznest, acquired TNM. In addition, iASPEC’s subsidiary Biznest formed Shenzhen Taoping
Education Technology Co., Ltd. and Wuhu Taoping Education Technology Co., Ltd. in 2021 where iASPEC indirectly owned
For
the six months ended June 30, 2022 and 2021, net loss of $, and $
Prior to the dissolution of the VIE structure, government licenses, permits and certificates represented substantially all of the unrecognized revenue-producing assets held by iASPEC, the VIE, and its subsidiaries; recognized revenue-producing assets held by the iASPEC and its subsidiaries consisted of property, equipment and software.
On September 18, 2021, the Company and the Company’s wholly owned subsidiary, IST entered into an equity transfer agreement with Mr. Jianghuai Lin, the sole shareholder of iASPEC. Upon closing of the equity transfer, the Company’s then existing variable interest entity structure was dissolved and iASPEC became a wholly owned indirect subsidiary of the Company. As a result, all assets and liabilities of iASPEC were incorporated into the Company’s balance sheet since December 31, 2021.
On
June 7, 2022, the Company transferred % equity interests of iASPEC, excluding its subsidiaries, to an unrelated third party for nil
consideration. The disposition resulted in a total recorded income of approximately $
| F-20 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. DISPOSALS OF CONSOLIDATED ENTITIES
ADG, SZTET, WHTET, and TDTDG were dissolved on January 28, June 14, May 31, and May 17, 2022, respectively. The dissolution of these companies did not result in any gain or loss for the six months ended June 30, 2022.
None of the above-referenced dispositions in 2022 qualified as discontinued operations as they do not individually or in the aggregate represent a strategic shift that has had a major impact on the Company’s operations or financial results.
Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of ordinary shares outstanding during the period. Diluted loss per share reflects the potential dilution that could occur, if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares, or resulted in the issuance of ordinary shares that shared in the earnings of the entity.
SCHEDULE OF COMPONENTS OF BASIC AND DILUTED EARNINGS PER SHARE
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Numerator: | ||||||||
| Net loss attributable to the Company | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average outstanding ordinary shares-Basic | ||||||||
| Weighted average outstanding ordinary shares- Diluted | ||||||||
| Loss per share attributable to the Company | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
For the six-month period ended June 30, 2022 and 2021, no shares were included in the diluted earnings per shares calculation. These incremental shares were added to denominator for the period that stock options were outstanding due to the average market price of the Company’s stock in the period exceeded the exercise prices of the stock options granted to the Company’s employees and various consultants. The incremental shares were computed under the treasury stock method. There were stock options for employees, and stock options and million warrants for nonemployees outstanding that were not included in the computation of dilutive weighted- average shares outstanding for the six months ended June 30, 2021, because the effect would be anti-dilutive.
There were stock options for employees, options for nonemployees outstanding that were not included in the computation of dilutive weighted- average shares outstanding for the six months ended June 30, 2022, because the effect would be anti-dilutive, as well. The EPS calculation excluded the if-converted shares from the convertible promissory note or exercised shares from detachable warrant associated with the convertible promissory note for the period ended June 30, 2022, based on the Company’s stock prices, which were significantly below the stated convertible price and among other conversion prices of alternative conversions or exercise price of the warrant.
| F-21 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7. RELATED PARTY TRANSACTIONS
| (a) | Revenue – related parties |
For
the six months ended June 30, 2022 and 2021, approximately $
| (b) | Other revenue – related party |
For
the six months ended June 30, 2021, the Company had a rental income of approximately $
| (c) | Amount due to related parties |
As
of June 30, 2022 and December 31, 2021, the amount due to related parties was approximately $
8. INVENTORIES
As of June 30, 2022 and December 31, 2021, inventories consist of:
SCHEDULE OF INVENTORIES
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Cost of projects | ||||||||
| Inventories, gross | $ | $ | ||||||
| Allowance for slow-moving or obsolete inventories | ( | ) | ( | ) | ||||
| Inventories, net | $ | $ | ||||||
For
the six months ended June 30, 2022 and 2021, impairments for obsolete inventories were approximately $
Included in the balance as of June 30, 2022, there was inventory of high-end storage server and computer hardware.
| F-22 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9. PROPERTY, EQUIPMENT AND SOFTWARE
As of June 30, 2022 and December 31, 2021, property, equipment and software consist of:
SCHEDULE OF PROPERTY, EQUIPMENT AND SOFTWARE
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Office buildings | $ | $ | ||||||
| Electronic equipment, furniture and fixtures | ||||||||
| Motor vehicles | ||||||||
| Cryptocurrency mining machine | ||||||||
| Media display equipment | ||||||||
| Leasehold improvement | ||||||||
| Purchased software | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, equipment and software, net | $ | $ | ||||||
Depreciation
expenses for the six months ended June 30, 2022 and 2021 were approximately $
Management regularly evaluates property, equipment and software for impairment, if an event occurs or circumstances change that would potentially indicate that the carrying amount of the property, equipment and software exceeded its fair value. Management utilizes the discounted cash flow method to estimate the fair value of the property, equipment and software.
Company’s
office buildings, with net carrying value of approximately $
10. CRYPTOCURRENCIES
As of June 30, 2022 and December 31, 2021, cryptocurrencies mainly included Bitcoin and Ethereum the Company held which were received from mining activities. Cryptocurrencies is classified as current asset as it is expected to be realized in cash by the Company within one year.
| F-23 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the movements of cryptocurrencies for the six months ended June 30, 2022 and 2021, respectively:
SCHEDULE OF MOVEMENTS OF CRYPTOCURRENCIES
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Beginning balance | $ | $ | ||||||
| Receipt of cryptocurrencies from mining activities | ||||||||
| Purchases of cryptocurrencies | ||||||||
| Sales of cryptocurrencies | ( | ) | ( | ) | ||||
| Payment of cryptocurrencies for other expenses | ( | ) | ||||||
| Realized gain on sale of cryptocurrencies | ||||||||
| Impairment loss on cryptocurrencies | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
11. BANK LOANS
(a) Short-term bank loans
SCHEDULE OF SHORT-TERM BANK DEBT
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Secured short-term loans (1) | $ | $ | ||||||
| (1) |
SCHEDULE OF SECURED SHORT-TERM BANK DEBT
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Guaranteed by IST and Mr. Lin and Collateralized by the real property of ISIOT and equity investment of IST HK | $ | $ | ||||||
| Total | $ | $ | ||||||
As
of June 30, 2022, the Company had short-term bank loans of approximately $
| F-24 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES
Pre-tax (loss) income from continuing operations for the six months ended June 30, 2022 and 2021 were taxable in the following jurisdictions:
SCHEDULE OF INCOME BEFORE INCOME TAXES
Six Months Ended | Six Months Ended | |||||||
| June 30, 2022 | June 30, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| PRC | $ | $ | ( | ) | ||||
| HK | ( | ) | ( | ) | ||||
| BVI | ( | ) | ||||||
| Total loss before income taxes | $ | ( | ) | $ | ( | ) | ||
United States
The Company from time to time evaluates the tax effect of global intangible low-taxed income (“GILTI”), and determined that there was no impact of GILTI tax to the Company’s consolidated financial statements as of June 30, 2022.
| F-25 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BVI
Under the current laws of the BVI, dividends and capital gains arising from the Company’s investments in the BVI and ordinary income, if any, are not subject to income taxes.
Hong Kong
Under
the current laws of Hong Kong, IST HK is subject to a profit tax rate of
PRC
Income tax expense (benefit) from continuing operations consists of the following:
SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)
Six Months Ended | Six Months Ended | |||||||
| June 30, 2022 | June 30, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Current tax expense (benefit) | $ | $ | ||||||
| Income tax expense (benefit) | $ | $ | ||||||
Current income tax expense (benefit) were recorded in 2022 and 2021 and were related to differences between the book and corporate income tax returns.
SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION
Six Months Ended | Six Months Ended | |||||||
| June 30, 2022 | June 30, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| PRC statutory tax rate | % | % | ||||||
| Computed expected income tax (benefit) | $ | ( | ) | $ | ( | ) | ||
| Tax rate differential benefit from tax holiday | ||||||||
| Permanent differences | ( | ) | ||||||
| Tax effect of deductible temporary differences not recognized | ||||||||
| Non-deductible tax loss | ||||||||
| Income tax expense (benefit) | $ | $ | ||||||
| F-26 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The significant components of deferred tax assets and deferred tax liabilities were as follows as of June 30, 2022 and December 31, 2021:
SCHEDULE OF COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES
| June 30, 2022 | December 31, 2021 | |||||||||||||||
| (Unaudited) | ||||||||||||||||
Deferred Tax Assets | Deferred Tax Liabilities | Deferred Tax Assets | Deferred Tax Liabilities | |||||||||||||
| Allowance for credit losses | $ | $ | $ | $ | ||||||||||||
| Loss carry-forwards | ||||||||||||||||
| Fixed assets | ( | ) | ( | ) | ||||||||||||
| Inventory valuation | ||||||||||||||||
| Cryptocurrency valuation | ||||||||||||||||
| Accrued liabilities | ||||||||||||||||
| Long-term investments | ||||||||||||||||
| Intangible assets | ||||||||||||||||
| Gross deferred tax assets and (liabilities) | ( | ) | ( | ) | ||||||||||||
| Valuation allowance | ( | ) | ( | ) | ||||||||||||
| Total deferred tax assets and (liabilities) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
The
Company has net operating loss carry forwards totaling RMB
IST
is approved as being high-technology enterprises and subject to PRC enterprise income tax rate (“EIT”) at
The Company recognizes that virtually all tax positions in the PRC are not free of some degree of uncertainty due to tax law and policy changes by the State. However, the Company cannot reasonably quantify political risk factors and thus must depend on guidance issued by current State officials.
Based on all known facts, circumstances, and current tax law, the Company has recorded nil unrecognized tax benefits as June 30, 2022 and December 31, 2021, respectively. The Company believes that there are no tax positions for which it is reasonably possible, based on current Chinese tax laws and policies, that the unrecognized tax benefits will significantly increase or decrease over the next 12 months, individually or in the aggregate, and have a material effect on the Company’s results of operations, financial condition or cash flows.
The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. Any accrued interest or penalties associated with any unrecognized tax benefits were not significant for the six months ended June 30, 2022 and 2021.
| F-27 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Since the Company intends to reinvest its earnings to further expand its businesses in the PRC, the PRC subsidiaries do not intend to declare dividends to their parent companies in the foreseeable future. The Company’s foreign subsidiaries are in a cumulative deficit position. Accordingly, the Company has not recorded any deferred taxes on the cumulative amount of any undistributed deficit. It is impractical to calculate the tax effect of the deficit at this time.
13. OTHER CURRENT AND NON-CURRENT ASSETS
| (a) | As of June 30, 2022, and December 31, 2021, other current assets consist of: |
SCHEDULE OF OTHER CURRENT ASSETS
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Advances to unrelated parties (i) | $ | $ | ||||||
| Advances to employees | ||||||||
| Other current assets | ||||||||
| Total | $ | $ | ||||||
| (i) |
As
of June 30, 2022, the balance included the amount due from a third-party vendor of approximately $
Based
on the amendment of the contract, the Company agrees to make advances to the vendor specifically for its market development purposes,
and the total commitment of funding was RMB
If the Company’s revenue facilitated by the vendor does not reach certain threshold during specified periods, the contract could be terminated by the Company, and all funding with applicable interest, less any commissions and subcontractor fees payable to the vendor, shall be repaid to the Company within one month after the termination of the contract. If the two parties terminate the cooperation on the condition that the vendor meet the target, all funding without interest, shall be repaid.
The
first period as specified is from January 1, 2021 to December 31, 2021 with a threshold revenue of RMB
| (b) | As of June 30, 2022 and December 31, 2021, Other assets, non-current consist of: |
SCHEDULE OF OTHER NON-CURRENT ASSETS
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Other assets, non-current | $ | $ | ||||||
During
2019 and 2020, the Company advanced RMB
Based
on the amendment of the contract, if the Company’s new media advertising revenue generated from IOV software does not reach certain
threshold during specified period, the contract could be terminated by the Company, and all funding with applicable interest, and less
the revenue generated from the IOV software shall be repaid to the Company within one half year after the termination of the contract.
Before the full repayment of the funding, the Company owns
Starting
in October 2020, IOV software revenue will be divided into eight periods. The first period as specified was from October 1, 2020 to April
30, 2021 with a threshold advertising revenue from IOV software of RMB
The
development of IOV software was completed by September 30, 2020. Since Company has the right to use the IOV software in the contract
term, software was capitalized as “other assets, non-current, net” and started to amortize from October 1, 2020 over the
-year contract term. As of June 30, 2022 and December 31, 2021, the balance of “other assets, non-current, net” was $
| F-28 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
14. OPERATING LEASES
In
addition to the lease with a related party for computing server room in Dongguan City, commenced in April 2021, and terminated in March
2022, a data center in Zhenjiang commenced in April 2022, the Company leased an office space, three server rooms, and a dormitory in
Hong Kong for executing the Blockchain business strategy. The fixed monthly lease payment for the office space is $
The Company has also leased specific and identifiable wall spaces with a certain dimension in commercial and residential building lobbies, inside elevators, elevator waiting areas, and various places to install the new media advertising display terminals without substitution for purpose of broadcasting advertisements paid by the customers to promote their businesses or special events. The lease terms with negotiated payment terms range from one year to three years, and the rental costs vary depending on the number of spots where the display terminals are installed and the duration of the leases.
The
Company incurred rent expenses of approximately $
The
Company has elected to apply the short-term lease exception to all leases with a term of one year or less. The future short-term lease
costs are approximately $
Weighted-average remaining lease term as of June 30, 2022, and discount rate for its operating leases are as follows:
SCHEDULE OF OPERATING LEASE
| Weighted-average remaining lease term | ||||
| Weighted-average discount rate | % |
The following table outlines maturities of operating lease liabilities as of June 30, 2022:
SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES
| Year ending June 30 | Leases for office/ server rooms/ Dormitory | |||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total lease payments | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
| F-29 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
15. LONG-TERM INVESTMENTS
As
of June 30, 2022, the carrying value of the Company’s equity investments were $
(1) Equity method investments:
As of June 30, 2022, the Company’s equity method investments had a carrying value of $14,699 which were as follows:
SCHEDULE OF EQUITY METHOD INVESTMENTS
| Investees | Abbreviation | % of Ownership | Carrying value | |||||||
| Qingdao Taoping IoT Co., Ltd. | QD Taoping, or QD | % | $ | |||||||
| Yunnan Taoping IoT Co., Ltd. | YN Taoping, or YN | % | ||||||||
| Jiangsu Taoping IoT Technology Co.,Ltd. | JS Taoping, or JS | % | ||||||||
| Jiangsu Taoping New Media Co., Ltd | JS New Media, or JN | % | ||||||||
| $ | ||||||||||
The
Company’s initial investments in the above equity method investments were approximately $
(2) Equity investments without readily determinable fair value that is not accounted for under equity method accounting:
In accordance with ASC 321, the Company elected to use the measurement alternative to measure such investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any.
As
of June 30, 2022 and December 31, 2021, the carrying value for the equity investments without readily determinable fair value was $
16. CONVERTIBLE NOTE PAYABLE
In
October 2019, March 2020, and September 2020, the Company issued Convertible Promissory Notes with principal amount of $
In
conjunction with issuance of the Notes, the Company also issued the holders of the Notes warrants to purchase
In
June 2021, the investor of Note-3 converted $
The
Company recognized interest expense of approximately $
| F-30 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
17. OTHER PAYABLES AND ACCRUED EXPENSES
As of June 30, 2022 and December 31, 2021, other payables and accrued expenses consist of:
SCHEDULE OF OTHER PAYABLE AND ACCRUED EXPENSES
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Advances from unrelated third parties (i) | $ | $ | ||||||
| Other taxes payable (ii) | ||||||||
| Accrued professional fees | ||||||||
| Amount due to employees (iii) | ||||||||
| Other current liabilities | ||||||||
| Other Payables and Accrued Expenses | $ | $ | ||||||
| (i) | |
| (ii) | |
| (iii) |
18. STATUTORY RESERVE AND DISTRIBUTION OF PROFIT
In
accordance with relevant PRC regulations and the Articles of Association of our PRC subsidiaries, our PRC subsidiaries are required to
allocate at least
| F-31 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Under the applicable PRC regulations, the Company may pay dividends only out of the accumulated profits, if any, determined in accordance with the PRC accounting standards and regulations. As the statutory reserve funds can only be used for specific purposes under the PRC laws and regulations. The general reserves are not distributable as cash dividends.
Our after-tax profits or losses with respect to the payment of dividends out of accumulated profits and the annual appropriation of after-tax profits as calculated pursuant to the PRC accounting standards and regulations do not result in significant differences as compared to after-tax earnings as presented in our consolidated financial statements. However, there are certain differences between the PRC accounting standards and regulations and the U.S. generally accepted accounting principles, arising from different treatment of items such as amortization of intangible assets and change in fair value of contingent consideration arising from business combinations.
19. EQUITY
(a) Ordinary shares
The Company is authorized to issue ordinary shares.
In
January 2021, the Company issued a total of ordinary shares to certain individual investors at $ per share, which generated
approximately $
In
February 2021, the Company issued a total of ordinary shares to certain individual investors at $ per share, which generated
approximately $
In
January 2021, the Company issued ordinary shares with fair value of approximately $
In
March 2021, the Company issued ordinary shares with fair value of approximately $
In
March 2021, the Company issued ordinary shares in the registered direct offering at the offering price of $ per share resulting
in approximately $
In
June 2021, the Company issued ordinary shares with 6 months restricted period upon the closing of acquisition of TNM, at a
price of $ per share with discounts for lack of marketability as the consideration equivalent to approximately $
In
June 2021, the holder of the convertible note issued in September 2020 converted
In
February 2022, the Company issued the first phase of restricted ordinary shares with a fair value of approximately $
In
March 2022, the Company issued ordinary shares with a fair value of $
(b) Stock-based compensation
SCHEDULE OF SHARE BASED PAYMENTS EXPENSE
| Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Employees and directors share-based payments | $ | $ | (a)(c) | |||||
| Stock options and warrants issued for services | (d) | |||||||
| Shares issued for services | (a) | (a) | ||||||
| Total share based payments expenses | $ | $ | ||||||
| F-32 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(c) Stock options to employees and directors
On May 9, 2016, the Board of Directors of the Company adopted the 2016 Equity Incentive Plan, or the 2016 Plan. Pursuant to the 2016 Plan and its amendment in May 2021, the Company may offer up to five million ordinary shares as equity incentives to its directors, employees and consultants. Such number of shares is subject to adjustment in the event of certain reorganizations, mergers, business combinations, recapitalizations, stock splits, stock dividends, or other change in the corporate structure of the Company affecting the issuable shares under the 2016 Plan. The Company accounts for its stock option awards to employees and directors pursuant to the provisions of ASC 718, Compensation – Stock Compensation. The fair value of each option award is estimated on the date of grant using the Black-Scholes Merton valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line attribution method over the service period, which is generally the vesting period.
SUMMARY OF STOCK OPTION ACTIVITY
| Weighted | Weighted Average Remaining | |||||||||||||||
| Options | Average Exercise | Contractual Life | Aggregated Intrinsic | |||||||||||||
| Outstanding | Price | (Years) | Value | |||||||||||||
| Outstanding at January 1, 2022 | $ | $ | ||||||||||||||
| Exercised | ||||||||||||||||
| Canceled | ( | ) | $ | |||||||||||||
| Outstanding at June 30, 2022 (Unaudited) | $ | $ | ||||||||||||||
| Vested and expected to be vested as of June 30, 2022 (Unaudited) | $ | $ | ||||||||||||||
| Options exercisable as of June 30, 2022 (vested) (Unaudited) | $ | $ | ||||||||||||||
| F-33 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
There were stock options granted to employees during the years ended June 30, 2022 and 2021. There was option exercised during the six months ended June 30, 2022 and 2021.
As of June 30, 2022, no unrecognized compensation expense related to non-vested share options is expected to be recognized. The total fair value of options vested during the six months ended June 30, 2022, and 2021 was approximately $ and $ million, respectively. To the extent the actual forfeiture rate is different from what the Company has anticipated, stock-based compensation related to these awards will be different from its expectations.
(d) Stock options and warrants to non-employees
Pursuant
to the 2016 Plan and its amendment, for the six months ended June 30, 2022 and 2021, the Company issued - and
The following table outlines the options and warrants outstanding and exercisable as of June 30, 2022:
SCHEDULE OF WARRANT OUTSTANDING AND EXERCISABLE
| June 30, 2022 Number of Warrants Outstanding | Exercise | Expiration | ||||||||
| and Exercisable | Price | Date | ||||||||
| July 2020 stock options to consultants | $ | |||||||||
| Total | ||||||||||
| F-34 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
20. CONSOLIDATED SEGMENT DATA
Selected information by segment is presented in the following tables for the six months ended June 30, 2022 and 2021
SCHEDULE OF SEGMENT REPORTING
| Six
Months Ended June 30, 2022 (Unaudited) | Six
Months Ended June 30, 2021 (Unaudited) | |||||||
| Revenues (1) | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment | ||||||||
| BT Segment | ||||||||
| $ | $ | |||||||
| (1) |
| Six
Months Ended June 30, 2022 (Unaudited) | Six
Months Ended June 30, 2021 (Unaudited) | |||||||
| (Loss) income from operations | ||||||||
| TIT Segment | $ | $ | ( | ) | ||||
| CBT Segment | ( | ) | ( | ) | ||||
| BT segment | ( | ) | ( | ) | ||||
| Corporate and others (2) | ( | ) | ( | ) | ||||
| (Loss) from operations | ( | ) | ( | ) | ||||
| CBT’s loss from equity method investments | ( | ) | ( | ) | ||||
| BT’s other income | ||||||||
| Corporate other income, net | ||||||||
| Corporate interest income | ||||||||
| Corporate interest expense | ( | ) | ( | ) | ||||
| (Loss) before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
| Less: Loss attributable to the non-controlling interest | ||||||||
| Net loss attributable to the Company | $ | ( | ) | $ | ( | ) | ||
| (2) |
Non-cash compensation by segment for the six months ended June 30, 2022 and 2021 are as follows:
| Six
Months Ended June 30, 2022 (Unaudited) | Six
Months Ended June 30, 2021 (Unaudited) | |||||||
| Non-cash compensation: | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment | ||||||||
| BT segment | ||||||||
| Corporate and others | ||||||||
| Non-cash compensation | $ | $ | ||||||
Depreciation and amortization by segment for six months ended June 30, 2022 and 2021 are as follows:
| Six Months Ended June 30, 2022 (Unaudited) | Six Months Ended June 30, 2021 (Unaudited) | |||||||
| Depreciation and amortization: | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment | ||||||||
| BT Segment | ||||||||
| $ | $ | |||||||
| F-35 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| Six
Months Ended June 30, 2022 (Unaudited) | Six
Months Ended June 30, 2021 (Unaudited) | |||||||
| Provisions for allowance for credit losses on accounts receivable, other receivable and advances to suppliers: | ||||||||
| TIT Segment | $ | ( | ) | $ | ( | ) | ||
| CBT Segment | ( | ) | ||||||
| BT Segment | ( | ) | ||||||
| $ | ( | ) | $ | |||||
| Six
Months Ended June 30, 2022 (Unaudited) | Six
Months Ended June 30, 2021 (Unaudited) | |||||||
| Inventory obsolescence provision: | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment | ||||||||
| $ | $ | |||||||
Total assets by segment as of June 30, 2022 and December 31, 2021 are as follows:
| June
30, 2022 (Unaudited) | December 31, 2021 | |||||||
| Total assets | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment | ||||||||
| BT Segment | ||||||||
| Corporate and others | ||||||||
| $ | $ | |||||||
| F-36 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
21. COMMITMENTS AND CONTINGENCIES
The Company may from time to time be subject to legal proceedings, investigations, and claims incidental to conduct of our business. The Company is currently not subject to any legal proceeding, investigations, and claims.
Although the COVID-19 pandemic has largely been contained in China, ripple effect of negative impact from the pandemic to the out-of-home advertising business sector continued in the first half of 2021. The China government continues asserted efforts to vaccinate general population, social distancing, mandate mask wearing in the public places and public transportation, prohibit large gatherings, control travels to and from high-risk infectious areas, and track the source of infections. The COVID-19 pandemic may continue to adversely affect the Company’s business and results of operations.
In addition to various promulgations in the past few years, ten Chinese regulatory authorities recently collectively promulgated a guidance to further control and monitor cryptocurrency related trading, exchanges, transaction, banking and financial service, initial coin offering, and other intermediary and derivatives transactions, which are considered illegal in accordance with effectuated laws and regulations and may be subject to penalty criminally. The new guidance also bars foreign cryptocurrency trading platforms and related businesses to provide services to China domestic individuals and business entities, and expands the application of laws and regulations to Chinese employees or contractors of foreign operatives, that provide related services to individuals or business entities domiciled in China. Although, the legality of cryptocurrency mining activity was not specifically mentioned in the guidance, notably in recent events, where the government’s sudden interventions or modifications of the laws and regulations currently in effective could negatively impact the Company’s operations and financial results. The legality of cryptocurrency mining activity may be subject to challenge by Chinese authorities.
22. CONCENTRATIONS
For
the six months ended June 30, 2022, the revenue from cryptocurrency mining consisted
The
Company’s top five receivables in aggregate accounted for
For
the six months ended June 30, 2022 and 2021, approximately % and %, respectively, of total purchases were from five unrelated suppliers.
Two suppliers each accounted for
| F-37 |
Exhibit 99.2
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
IN CONNECTION WITH THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED JUNE 30, 2022
In this report, as used herein, and unless the context suggests otherwise, the terms “TAOP,” “Company,” “we,” “us” or “ours” refer to the combined business of Taoping Inc. (F/K/A China Information Technology, Inc.), its subsidiaries and other consolidated entities. References to “dollar” and “$” are to U.S. dollars, the lawful currency of the United States, and references to “Renminbi” and “RMB” are to the legal currency of China. References to “SEC” are to the Securities and Exchange Commission.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited consolidated financial statements and the related notes included elsewhere in this Report on Form 6-K and with the discussion and analysis of our financial condition and results of operations contained in our Annual Report on Form 20-F for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on May 2, 2022 (the “2021 Form 20-F”). This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those identified elsewhere in this report on Form 6-K, and those listed in the 2021 Form 20-F under “Item 3. Key Information-D. Risk Factors” or in other parts of the 2021 Form 20-F.
Overview
We are a provider of integrated cloud-based platform, resource sharing functionality, and big data solutions to the Chinese new media, residential community management, and elevator IoT industries. Our Internet ecosystem enables all participants of the new media community to efficiently promote brands, disseminate information, and share resources. In addition, we provide a broad portfolio of software, hardware and fully integrated solutions, including information technology infrastructure and Internet-enabled display technologies to customers in government, media, residential community, transportation, and other private sectors. We also engage in cryptocurrency mining and blockchain related business operations as a part of business transformation.
Prior to 2014, we generated majority of our revenues through selling our products to public service entities to help improve their operational efficiency and service quality. Our representative customers included China Ministry of Public Security, provincial bureaus of public security, fire departments, traffic bureaus, police stations, human resource departments, urban planning boards, civic administrations, land resource administrations, mapping and surveying bureaus, and the Shenzhen General Station of Exit and Entry Frontier Inspection.
In 2014, we generated revenues from sales of hardware products, software products, system integration services, and related maintenance and supporting services. Starting in 2015, with the introduction of our cloud-based software as a service (SaaS) offering, we generated additional recurring monthly revenues from SaaS fees.
In May 2017, we completed the business transformation and rolled out CAT and IoT technology based digital ads distribution network and new media resource sharing platform in the out-of-home advertising market. In 2017, 2018 and 2019, we generated most revenue from selling fully integrated ads display terminals. In 2020, we had a portion of revenue generated from the sale of cloud severs as part of our CBT business. The revenues generated from SaaS and other software products and services remained small.
As part of our new strategic business transformation, we established a blockchain technology business segment in 2021, which is dedicated to the research and application of blockchain technology and digital assets. We launched cryptocurrency mining operations, a blockchain related new business, as the first initiative of this new business segment in the first quarter of 2021. With multiple cloud data centers deployed outside of China mainland, the Company continues to improve computing power and create value for the encrypted digital currency industry.
The outbreak of COVID-19 has negatively impacted our business. Starting from January 2020, to prevent the spread of COVID-19, the Chinese government has taken strict quarantine measures, such as lockdowns, transportation restrictions, public gathering prohibitions and temporary closures of non-essential businesses, which have put economic activities in affected areas in a suspension mode. Starting from 2021, our business has experienced certain degree of recovery, and we generated additional revenue from block chain related business and advertising revenue from the Internet of Vehicle advertising network and as a result of acquisition of Taoping New Media Co., Ltd. (“TNM”). Revenue in the first half of 2022 was $10.5 million, compared to $6.4 million for the same period of 2021, an increase of $4.1 million, or 64.0%. The Company incurred a net loss of approximately $2.0 million for the six months ended June 30, 2022, compared to a net loss of approximately $14.1 million for the same period of last year.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company’s significant estimates include its accounts receivable, assessment of credit losses, fair value of stock options and warrants, valuation allowance of deferred tax assets, useful lives of property and equipment, the recoverability of long-lived assets, revenue recognition, valuation of prepayments and other assets, and other intangible assets. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates.
Please see Note 2 to our unaudited consolidated financial statements included elsewhere in this report on Form 6-K for a summary of significant accounting policies.
Recently Adopted and Issued Accounting Pronouncements
Please see Note 2 to our unaudited consolidated financial statements included elsewhere in this report on Form 6-K for a summary of recently adopted and issued accounting pronouncements.
| 2 |
Results of Operations
The following table sets forth key components of our results of operations for the first six months ended June 30, 2022 and 2021, both in dollars and as a percentage of our revenue.
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | |||||||||||||
| Revenue | $ | 10,536,656 | 100.00 | % | $ | 6,425,577 | 100.00 | % | ||||||||
| Costs of revenue | 6,836,895 | 64.89 | % | 4,287,336 | 66.72 | % | ||||||||||
| Gross profit | 3,699,761 | 35.11 | % | 2,138,241 | 33.28 | % | ||||||||||
| Administrative expenses | (4,838,472 | ) | (45.92 | )% | (13,606,688 | ) | (211.76 | )% | ||||||||
| Research and development expenses | (2,050,609 | ) | (19.46 | )% | (2,260,274 | ) | (35.18 | )% | ||||||||
| Selling expenses | (343,211 | ) | (3.26 | )% | (193,484 | ) | (3.01 | )% | ||||||||
| Loss from operations | (3,532,531 | ) | (33.53 | )% | (13,922,205 | ) | (216.67 | )% | ||||||||
| Subsidy income | 89,596 | 0.85 | % | 136,393 | 2.12 | % | ||||||||||
| Loss from equity method investment | (307,403 | ) | (2.92 | )% | (578,619 | ) | (9.00 | )% | ||||||||
| Other income (loss), net | 2,041,658 | 19.38 | % | 378,831 | 5.90 | % | ||||||||||
| Interest expense and debt discounts, net of interest income | (287,592 | ) | (2.73 | )% | (478,439 | ) | (7.45 | )% | ||||||||
| Loss before income taxes | (1,996,272 | ) | (18.95 | )% | (14,464,039 | ) | (225.10 | )% | ||||||||
| Income tax (expense) benefit | (4,283 | ) | (0.04 | )% | (871 | ) | (0.01 | )% | ||||||||
| Net loss | (2,000,555 | ) | (18.99 | )% | (14,464,910 | ) | (225.11 | )% | ||||||||
| Less: net loss attributable to non- controlling Interest | - | - | % | 366,570 | 5.70 | % | ||||||||||
| Net loss attributable to the Company | $ | (2,000,555 | ) | (18.99 | )% | $ | (14,098,340 | ) | (219.41 | )% | ||||||
Revenue
Revenue was $10.5 million for the first six months of 2022, compared to $6.4 million for the same period of last year, an increase of $4.1 million, or 64.0%. The increase was primarily due to an increase of $2.4 million revenue from cryptocurrency mining, an increase of $0.6 million of advertising revenue, and an increase of $1.1 million of other revenue. The Company expects that revenue for the second half of 2022 would increase moderately as a result of the growth of cryptocurrency mining and advertising businesses, as well as product sales of its cloud-based screens and terminals.
Cost of Revenue and Gross Profit
Cost of revenue was $6.8 million for the six months ended June 30, 2022, compared to $4.3 million for the same period of 2021. As a percentage of revenue, our cost of revenue decreased to 64.9% for the first six months of 2022, from 66.7% for the first six months of 2021. As a result, gross profit as a percentage of revenue was 35.1% for the first six months ended June 30, 2022 compared with 33.3% for the same period of 2021. The increase in the overall gross profits was primarily contributed by the increase of advertising revenue and cryptocurrency mining revenue. The increase in the overall gross margin was primarily resulted from higher margin of advertising and cryptocurrency mining segments. The Company expects that the gross margin for the remaining of 2022 would be expected to be consistent with the first half of the year.
| 3 |
Administrative, R&D and Selling expenses
Administrative expenses decreased by $8.8 million, or 64.4%, to $4.8 million for the first six months of 2022, from $13.6 million for the same period of 2021. Such decrease was mainly caused by a decrease of $7.1 million in allowance for credit losses and decrease in various share-based compensation expenses. As a percentage of revenue, administrative expenses decreased to 46% for the first six months of 2022, from 212% for the same period of 2021. The Company expects that the administrative expenses for the remaining of 2022 are expected to be consistent with the first half of the year.
Research and development (“R&D”) expenses decreased by $0.2 million, or 9.3%, to $2.1 million for the first six months of 2022, from $2.3 million for the first six months of 2021. Such decrease was primarily due to the decrease in depreciation expenses of purchased software. As a percentage of revenue, R&D expenses decreased to 19.5% for the first six months of 2022, from 35.2% for the same period of last year. R&D expenses for the remaining of 2022 are expected to be consistent with the first half of the year.
Selling expenses increased by approximately $0.15 million, or 77.4%, to $0.34 million for the first six months of 2022, from $0.19 million for the first six months of 2021. This increase was primarily due to the increased commission and payroll expenses of sales department which was in line with the increase in revenues. Selling expenses for the remaining of 2022 is expected to slightly increase in line with revenue increase.
Net loss attributable to Company
For the first six months of 2022, net loss attributable to the Company was $2.0 million, compared to a net loss attributable to the Company of $14.1 million for the same period of last year. The decrease of net loss was the result of the cumulative effect of the foregoing factors, especially the decrease in administrative expenses as discussed above.
Business Acquisition
On June 9, 2021, the Company, through its then consolidated affiliated entity, Biznest Internet Technology Co., Ltd. (“Biznest”), consummated an acquisition of 100% of the equity interests of TNM. After completion of the acquisition, TNM becomes a wholly owned subsidiary of Biznest.
On January 13, 2022, the Company entered into a share purchase agreement to acquire 95.56% equity interest in Zhenjiang Taoping IoT Technology Limited (“ZJIOT”), aiming to accelerate the Company’s smart charging pile and digital new media businesses in East China. Pursuant to the share purchase agreement, the Company has agreed to issue to the shareholders of ZJIOT a total of 201,552 restricted ordinary shares, calculated as $391,011 being divided by the average closing price of the Company’s ordinary shares over the 20 trading days prior to the execution of the share purchase agreement, which was $1.94 per share. Mr. Huan Li, the Chief Marketing Officer of the Company, was one of the shareholders of ZJIOT and agreed to transfer all of his 46% equity interest in ZJIOT to the Company. Upon the completion of the acquisition, the Company currently owns 100% equity interest in ZJIOT.
The Company’s consolidated statement of operations for the six months ended June 30, 2021 included revenue of $0.08 million and net loss of $1 million attributable to TNM since June 9, 2021, the acquisition date, to the end of June 30, 2021.
The Company’s consolidated statement of operations for the six months ended June 30, 2022 included revenue of $0.56 million and net loss of $0.02 million attributable to TNM.
The Company’s consolidated statement of operations for the six months ended June 30, 2022 included revenue of $0.1 million and net loss of $0.07 million attributable to ZJIOT since January 13, 2022, the acquisition date, to the end of June 30, 2022.
Liquidity and Capital Resources
As of June 30, 2022, we had cash and cash equivalents of $0.8 million.
As of June 30, 2022, the Company had short-term bank loans of approximately $7.3 million, which mature on various dates from July 9, 2022 to December 17, 2022. The short-term bank loans can be extended for another year by the banks upon request of the Company without additional charges to the Company upon maturity. The bank borrowings are in the form of credit facilities. Amounts available to the Company from the banks are based on the amount of collateral pledged or the amount guaranteed by the Company’s subsidiaries. These borrowings bear interest rates ranging from 4.50% to 5.40% per annum. The weighted average interest rates on short term debt were approximately 4.86% and 5.84% for the six months ended June 30, 2022 and 2021, respectively. The interest expenses were approximately $0.3 million each, for the six months ended June 30, 2022 and 2021.
As of June 30, 2022, the secured and un-used bank credit line of the Company was approximately $2.2 million.
We evaluate the creditworthiness of all of our customers individually before accepting them, and continuously monitor the recoverability of accounts receivable individually or in aggregate through aging analysis and past credit loss history, current financial conditions of our customers, and reasonable and supportable forecasts for future economic condition taking into consideration of the COVID-19 pandemic. If there are any indicators that a customer may not make payment, the Company may consider making provision for non-collectability for that particular customer. At the same time, the Company may cease further sales or services to such customer. We have established an accounting policy to account for allowance for credit loss described in Note 2(e) to our unaudited consolidated financial statements.
| 4 |
The normal credit term is ranging from 1 month to 3 months after the customers’ acceptance of hardware or software, and completion of services. However, because of various factors of business cycle, the actual collection of outstanding accounts receivable may be beyond the normal credit terms.
The allowance for credit losses at June 30, 2022 and December 31, 2021, totaled approximately $24.7 million and $27.3 million, respectively, representing management’s best estimate. The following table describes the movement in the allowance for credit losses for the six-month period ended June 30, 2022.
| Balance at December 31, 2021 | $ | 27,262,848 | ||
| Decrease in allowance for credit losses | (359,724 | ) | ||
| Decrease for balance recovered due to transfer of a company | (794,239 | ) | ||
| Foreign exchange difference | (1,384,960 | ) | ||
| Balance at June 30, 2022 (Unaudited) | $ | 24,723,925 |
With the increasing scale of the Taoping national network, the Company expects to gradually increase its revenue stream of cloud-based screen and terminal sales and platform service in 2022. With its well established “Taoping” brand, technology platform and industry reputation along with strategic expansion into the blockchain business sector, the Company believes that it has the ability to raise needed capital to support the Company’s operations and business expansions.
If the Company’s execution of business strategies is not successful in addressing its current financial concerns, the Company plans to raise additional capital from issuing equity security or debt instrument, or secure additional loan facility to support required cash flows.
The following table summarizes the key cash flow components from our consolidated statements of cash flows for the periods indicated.
Cash and Financial Position
As of June 30, 2022, the Company had cash and cash equivalents of $0.8 million, compared to cash and cash equivalents of $4.5 million of December 31, 2021. Working capital deficit was $2.7 million as of June 30, 2022, compared to working capital deficit of $17.4 million as of December 31, 2021.
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Net cash used in operating activities | $ | (5,134,364 | ) | $ | (16,328,103 | ) | ||
| Net cash provided by investing activities | $ | 1,998,683 | $ | 85,959 | ||||
| Net cash (used in) provided by financing activities | $ | (139,082 | ) | $ | 15,826,661 | |||
Operating Activities
Net cash used in operating activities was approximately $5.1 million for the first six months of 2022, compared to net cash used in operating activities of approximately $16.3 million for the first six months of 2021. For the first six months of 2022, negative operating cash flow was mainly attributable to the increase in accounts receivable, increase in inventories, and decrease in accounts payable.
Investing Activities
Net cash provided by investing activities was approximately $2.0 million for the first six months of 2022, and net cash used in investing activities was approximately $0.086 million for the first six months of 2021. The change was primarily due to the increase of approximately $4.1 million proceeds from sales of cryptocurrencies, offset by the increase of approximately $2.1 million purchases of property and equipment during the first six months of 2022.
Financing Activities
Net cash used in financing activities was approximately $0.14 million for the first six months of 2022, mainly attributable to approximately $0.14 million in net repayment of short-term bank loans. Net cash provided by financing activities was approximately $15.8 million for the first six months of 2021, mainly attributable to receipts of the borrowings from related party of $3.1 million, net proceeds of $13.1 million from issuance of ordinary shares, offset by $0.3 million in net repayment of short-term bank loans.
| 5 |
Exhibit 99.3
Taoping Reports First Half 2022 Financial Results
● 64% Increase in Revenue
● 180 Basis Point Improvement in Gross Margin
● 86% Improvement in Net Loss
Hong Kong, September 7, 2022 – Taoping Inc. (NASDAQ: TAOP, the “Company” or “TAOP”) today reported financial results for the first six months of its fiscal year ending December 31, 2022.
Mr. Lin Jianghuai, Chairman and CEO of Taoping, said: “In a challenging market we achieved 64% revenue growth, a 180 basis point improvement in gross margin and an 86% improvement in net loss. We have seen a significant uptick in demand as offices reopen and workers return. We expect this to add positive momentum to our site-based digital advertising business and other smart community related businesses that are driven by our proprietary Taoping Cloud eco-system. We are very excited about these greenfield opportunities, which build on Taoping’s two core competencies, the Taoping national sales network, and its compatible, highly scalable cloud platform, making it a valued partner by many other smart-community customers and solution providers.”
Mr. Lin continued: “We are optimistic as we enter the second half of 2022, with a further expansion planned for our core business as we leverage the scalable platform we have built. We also remain excited about the truly global long-term opportunities in cryptocurrency mining. This was a meaningful growth driver for us in the first six months of 2022 despite the broader market volatility. Longer term we expect to see a further mainstream adoption of cryptocurrency, which will serve as a catalyst for our growth. We remain focused on accelerating our profitable revenue growth, while at the same time driving an increase in shareholder value more inline the Company’s impressive results, strong fundamentals and compelling business prospects.”
Financial Results for the First Six Months of Fiscal Year 2022
Revenue increased 64% to $10.5 million for the first 6 months of fiscal year 2022, compared to $6.4 million for the first 6 months of fiscal year 2021. The revenue growth reflects the Company’s continued execution on its two core competencies, the Taoping national sales network, and its compatible, highly scalable cloud platform. The revenue mix was 27% from products, 17% from software, 11% from advertising, 31% from cryptocurrency mining and 14% from other.
For the six months ended June 30, 2022, no single customer accounted for greater than 10% of the total revenues. The Company’s top five customers in aggregate accounted for 22% and 44% of the Company’s revenues for the six months ended June 30, 2022 and 2021, respectively.
Gross profit increased 73% to $3.7 million for the six months ended June 30, 2022, compared to $2.1 million for the six months ended June 30, 2021. Gross margin expanded 180 basis points to 35.1% for the six months ended June 30, 2022 from 33.3% for the six months ended June 30, 2021. The increase in the overall gross margin primarily resulted from the higher revenue level and the Company’s focus on higher margin revenue segments.
Administrative expenses declined 64% to $4.8 million for the six months ended June 30, 2022, compared to $13.6 million for the six months ended June 30, 2021. Research and development expenses declined 9% to $2.1 million for the six months ended June 30, 2022, compared to $2.3 million for the six months ended June 30, 2021. Selling expenses increased 77% to $343,211 for the six months ended June 30, 2022, compared to $193,484 for the six months ended June 30, 2021.
The Company reduced its net loss by 86% to $2.0 million or $0.13 per basic and diluted share for the six months ended June 30, 2022, compared to a net loss of $14.5 million or $1.31 per basic and diluted share for the same period of 2021, reflecting the higher revenue level, expanded gross margin, reduced provision of allowance of credit losses and reduced stock-based compensation expenses.
Excluding share-based compensation expenses and loss from equity method investment of Taoping New Media Co., Ltd. (“TNM”), a company acquired on June 9, 2021, adjusted net loss was $1.7 million or $0.11 per basic and diluted share for the six months ended June 30, 2022, compared to a net loss of $8.4 million or $0.78 per basic and diluted share for the same period of 2021.
About Taoping Inc.
Taoping Inc. (NASDAQ: TAOP) is a blockchain technology and smart cloud services provider. The Company is dedicated to the research and application of blockchain technology and digital assets, and continues to improve computing power and create value for the encrypted digital currency industry. Relying on its self-developed smart cloud platform, TAOP also provides solutions and cloud services to industries such as smart community, new media and artificial intelligence. To learn more, please visit www.taop.com.
Safe Harbor Statement
This press release contains “forward-looking statements” that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this press release, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Our actual results may differ materially or perhaps significantly from those discussed herein, or implied by, these forward-looking statements. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: our potential inability to achieve or sustain profitability or reasonably predict our future results due to our limited operating history of providing blockchain technology and smart cloud services, the effects of the global Covid-19 pandemic, the emergence of additional competing technologies, changes in domestic and foreign laws, regulations and taxes, uncertainties related to China’s legal system and economic, political and social events in China, the volatility of the securities markets; and other risks including, but not limited to, those that we discussed or referred to in the Company’s disclosure documents filed with the U.S. Securities and Exchange Commission (the “SEC”) available on the SEC’s website at www.sec.gov, including the Company’s most recent Annual Report on Form 20-F as well as in our other reports filed or furnished from time to time with the SEC. The forward-looking statements included in this press release are made as of the date of this press release and TAOP undertakes no obligation to publicly update or revise any forward-looking statements, other than as required by applicable law.
About Non-GAAP Financial Measures
To supplement the Company’s financial results presented in accordance with U.S. GAAP, the Company uses non-GAAP financial measures, which are adjusted from results based on U.S. GAAP to exclude share-based compensation expenses and loss from equity method investment of TNM, a company acquired on June 9, 2021. Reconciliations of non-GAAP financial measures to U.S. GAAP financial measures are set forth in table at the end of this release, which provide more details on the non-GAAP financial measures.
Non-GAAP financial information is provided as additional information to help investors compare business trends among different reporting periods on a consistent basis and to enhance investors’ overall understanding of the historical and current financial performance of the Company’s continuing operations and prospects for the future. Non-GAAP financial information should not be considered a substitute for or superior to U.S. GAAP results. In addition, calculations of this non-GAAP financial information may be different from calculations used by other companies, and therefore comparability may be limited.
For further information, please contact:
| Taoping Inc. | Global IR Partners |
| Xue Jiang | David Pasquale |
| IR@taop.com | TAOP@globalirpartners.com |
| www.taop.com | New York Office: +1-914-337-8801 |
TAOPING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
| Six Months Ended | ||||||||
| June 30, 2022 | June 30, 2021 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue – Products | $ | 2,882,990 | $ | 3,039,511 | ||||
| Revenue – Software | 1,785,891 | 1,621,534 | ||||||
| Revenue – Advertising | 1,197,140 | 576,310 | ||||||
| Revenue – Cryptocurrency mining | 3,235,134 | 814,772 | ||||||
| Revenue – Other | 1,435,501 | 373,450 | ||||||
| TOTAL REVENUE | 10,536,656 | 6,425,577 | ||||||
| Cost – Products | 2,724,655 | 2,696,207 | ||||||
| Cost – Software | 828,310 | 237,986 | ||||||
| Cost – Advertising | 676,382 | 683,835 | ||||||
| Cost – Cryptocurrency mining | 2,121,501 | 661,753 | ||||||
| Cost – Other | 486,047 | 7,555 | ||||||
| TOTAL COST | 6,836,895 | 4,287,336 | ||||||
| GROSS PROFIT | 3,699,761 | 2,138,241 | ||||||
| Administrative expenses | 4,838,472 | 13,606,688 | ||||||
| Research and development expenses | 2,050,609 | 2,260,274 | ||||||
| Selling expenses | 343,211 | 193,484 | ||||||
| LOSS FROM OPERATIONS | (3,532,531 | ) | (13,922,205 | ) | ||||
| Subsidy income | 89,596 | 136,393 | ||||||
| (Loss) from equity method investment | (307,403 | ) | (578,619 | ) | ||||
| Other income (loss), net | 2,041,658 | 378,831 | ||||||
| Interest expense and debt discounts, net of interest income | (287,592 | ) | (478,439 | ) | ||||
| Loss before income taxes | (1,996,272 | ) | (14,464,039 | ) | ||||
| Income tax (expense) benefit | (4,283 | ) | (871 | ) | ||||
| NET LOSS | (2,000,555 | ) | (14,464,910 | ) | ||||
| Less: Net loss attributable to the non- controlling interest | - | 366,570 | ||||||
| NET LOSS ATTRIBUTABLE TO THE COMPANY | $ | (2,000,555 | ) | $ | (14,098,340 | ) | ||
| Loss per share - Basic and Diluted | ||||||||
| Basic | $ | (0.13 | ) | $ | (1.34 | ) | ||
| Diluted | $ | (0.13 | ) | $ | (1.34 | ) | ||
| NET LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY | ||||||||
| Basic | $ | (0.13 | ) | $ | (1.31 | ) | ||
| Diluted | $ | (0.13 | ) | $ | (1.31 | ) | ||
| Net loss | $ | (2,000,555 | ) | $ | (14,464,910 | ) | ||
| Other comprehensive loss: | ||||||||
| Foreign currency translation gain (loss) | (1,767,671 | ) | 44,523 | |||||
| Comprehensive loss | (3,768,226 | ) | (14,420,387 | ) | ||||
| Comprehensive loss attributable to the non- controlling interest | - | 385,520 | ||||||
| Comprehensive loss attributable to the Company | $ | (3,768,226 | ) | $ | (14,034,867 | ) | ||
TAOPING INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2022 AND DECEMBER 31, 2021
| June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 753,717 | $ | 4,531,266 | ||||
| Accounts receivable, net | 7,887,069 | 6,758,162 | ||||||
| Accounts receivable-related parties, net | 959,275 | 351,472 | ||||||
| Advances to suppliers | 3,444,286 | 6,541,323 | ||||||
| Prepaid expenses | - | 296,494 | ||||||
| Inventories, net | 1,746,323 | 542,384 | ||||||
| Cryptocurrencies, net | 268,983 | 829,165 | ||||||
| Other current assets | 1,778,511 | 1,218,148 | ||||||
| TOTAL CURRENT ASSETS | 16,838,164 | 21,068,414 | ||||||
| Property, plant and equipment, net | 18,488,573 | 21,562,084 | ||||||
| Right-of-use assets | 807,354 | 896,505 | ||||||
| Long-term investments | 374,959 | 679,807 | ||||||
| Goodwill | 179,795 | - | ||||||
| Other assets, non-current | 2,798,887 | 2,948,681 | ||||||
| TOTAL ASSETS | $ | 39,487,732 | $ | 47,155,491 | ||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Short-term bank loans | $ | 7,262,180 | $ | 7,792,125 | ||||
| Accounts payable | 4,788,316 | 9,872,924 | ||||||
| Advances from customers | 734,131 | 458,158 | ||||||
| Advances from customers-related parties | 646,559 | 121,059 | ||||||
| Amounts due to related parties | 2,985,480 | 3,145,260 | ||||||
| Accrued payroll and benefits | 199,562 | 252,827 | ||||||
| Other payables and accrued expenses | 4,794,842 | 4,893,499 | ||||||
| Other taxes payable | - | 379,925 | ||||||
| Lease liability-current | 439,976 | 427,372 | ||||||
| Other current liability | 276,460 | - | ||||||
| TOTAL CURRENT LIABILITIES | 22,127,506 | 27,343,149 | ||||||
| Lease liability | 438,985 | 561,843 | ||||||
| TOTAL LIABILITIES | 22,566,491 | 27,904,992 | ||||||
| EQUITY | ||||||||
| Ordinary shares, 2022 and 2021: par $0; authorized capital 100,000,000 shares; shares issued and outstanding, June 30, 2022: 15,590,789 shares; December 31, 2021: 15,513,605 shares; | 161,396,304 | 161,098,010 | ||||||
| Additional paid-in capital | 22,447,083 | 22,447,083 | ||||||
| Reserve | 14,044,269 | 14,044,269 | ||||||
| Accumulated deficit | (204,137,958 | ) | (202,137,403 | ) | ||||
| Accumulated other comprehensive income | 23,171,543 | 23,800,299 | ||||||
| Total equity (deficit) of the Company | 16,921,241 | 19,252,258 | ||||||
| Non-controlling interest | - | (1,759 | ) | |||||
| Total Equity | 16,921,241 | 19,250,499 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 39,487,732 | $ | 47,155,491 | ||||
TAOPING INC.
Reconciliation of Non-GAAP Adjusted Net (Loss) Attributable to the Company and EPS
| Six Months Ended | ||||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Net (loss) attributable to the Company | $ | (2,000,555 | ) | $ | (14,098,340 | ) | ||
| Share-based compensation for consulting services | 14,500 | 2,142,892 | ||||||
| Share-based compensation to employees | - | 2,950,070 | ||||||
| Loss from equity method investment | 307,403 | 578,620 | ||||||
| Adjusted net (loss) attributable to the Company | $ | (1,678,652 | ) | $ | (8,426,758 | ) | ||
| Weighted average number of shares outstanding | ||||||||
| Basic | 15,320,468 | 10,761,008 | ||||||
| Diluted | 15,320,468 | 10,761,008 | ||||||
| (Loss) per share | ||||||||
| Basic | $ | (0.13 | ) | $ | (1.31 | ) | ||
| Diluted | $ | (0.13 | ) | $ | (1.31 | ) | ||
| Adjusted (loss) per share | ||||||||
| Basic | $ | (0.11 | ) | $ | (0.78 | ) | ||
| Diluted | $ | (0.11 | ) | $ | (0.78 | ) | ||