Filed Pursuant to Rule 424(b)(3)
Registration No. 333-274153
Prospectus Supplement No. 1 to Prospectus dated
August 30, 2023
TAOPING INC.
Up to 20,043,394 Ordinary Shares
This Prospectus Supplement No. 1 (“Prospectus
Supplement No. 1”) amends and supplements the prospectus dated August 30, 2023 as supplemented or amended from time to time (the
“Prospectus”), which forms a part of our Registration Statement on Form F-1 (Registration Statement No. 333-274153). This
Prospectus Supplement No. 1 is being filed to update and supplement the information included or incorporated by reference in the Prospectus
with the information contained in our Report on Form 6-K, which was furnished to the Securities and Exchange Commission on September 1,
2023 (the “Form 6-K”). Accordingly, we have attached the Form 6-K to this Prospectus Supplement No. 1.
This Prospectus Supplement No. 1 updates and supplements
the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus,
including any amendments or supplements thereto. This Prospectus Supplement No. 1 should be read in conjunction with the Prospectus and
if there is any inconsistency between the information in the Prospectus and this Prospectus Supplement No. 1, you should rely on the information
in this Prospectus Supplement No. 1.
Our Ordinary Shares are traded under the symbol “TAOP”
on the Nasdaq Capital Market. On September 25, 2023, the closing price of our Ordinary Shares on the Nasdaq Capital Market was $2.36.
We are a “foreign private issuer” under
applicable federal securities laws and, as such, we have elected to comply with certain reduced public company reporting requirements
for the Prospectus and future filings.
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE
OF RISK. YOU SHOULD CAREFULLY READ AND CONSIDER THE “RISK FACTORS” BEGINNING ON PAGE 8 OF THE PROSPECTUS.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The date of this Prospectus Supplement No. 1 is
September 26, 2023.
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
6-K
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 2023
Commission
File Number 001-35722
TAOPING INC.
(Translation
of registrant’s name into English)
21st
Floor, Everbright Bank Building
Zhuzilin,
Futian District
Shenzhen,
Guangdong, 518040
People’s
Republic of China
(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, 2023 and 2022 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), Form F-3 (Registration Numbers 333-262181 and 333-229323) and Form F-1 (Registration Number 333-274153) 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 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 April 25, 2023 (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 1, 2023 |
TAOPING
INC. |
| |
|
|
| |
By: |
/s/
Jianghuai Lin |
| |
|
Jianghuai
Lin |
| |
|
Chief
Executive Officer |
EXHIBIT
INDEX
Exhibit
99.1
TAOPING
INC.
(F/K/A
CHINA INFORMATION TECHNOLOGY, INC.)
UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022
INDEX
TAOPING
INC.
(F/K/A
CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED
BALANCE SHEETS
JUNE
30, 2023 AND DECEMBER 31, 2022
| | |
NOTES | | |
June
30, 2023 | | |
December
31, 2022 | |
| | |
| | |
| (Unaudited) | | |
| | |
| ASSETS | |
| | |
| | | |
| | |
| | |
| | |
| | | |
| | |
| CURRENT ASSETS | |
| | |
| | | |
| | |
| Cash and cash equivalents | |
| | |
$ | 460,147 | | |
$ | 1,014,591 | |
| Accounts receivable, net | |
2(e) | | |
| 6,260,433 | | |
| 9,201,245 | |
| Accounts receivable-related parties, net | |
2(e) | | |
| 51,449 | | |
| 91,371 | |
| Advances to suppliers | |
| | |
| 5,220,446 | | |
| 5,851,381 | |
| Prepaid expenses | |
| | |
| 307,397 | | |
| - | |
| Inventories, net | |
8 | | |
| 5,781,338 | | |
| 356,358 | |
| Other current assets | |
13(a) | | |
| 1,565,835 | | |
| 1,554,488 | |
| Current assets from
discontinued operations | |
10 | | |
| 568,367 | | |
| 1,326,265 | |
| TOTAL CURRENT ASSETS | |
| | |
| 20,215,412 | | |
| 19,395,699 | |
| | |
| | |
| | | |
| | |
| Property, equipment and software, net | |
9 | | |
| 6,762,448 | | |
| 7,833,902 | |
| Right-of-use assets | |
2(n) | | |
| 32,467 | | |
| 48,786 | |
| Long-term investments | |
15 | | |
| 68,717 | | |
| 95,966 | |
| Goodwill | |
3 | | |
| 58,922 | | |
| 58,922 | |
| Other assets, non-current,
net | |
13(b) | | |
| 1,240,191 | | |
| 1,775,540 | |
| TOTAL
ASSETS | |
| | |
$ | 28,378,157 | | |
$ | 29,208,815 | |
| | |
| | |
| | | |
| | |
| LIABILITIES AND EQUITY | |
| | |
| | | |
| | |
| | |
| | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | |
| | | |
| | |
| Short-term bank loans | |
11 | | |
$ | 6,765,931 | | |
$ | 7,203,762 | |
| Accounts payable | |
| | |
| 2,139,275 | | |
| 2,287,244 | |
| Accounts payable-related parties | |
| | |
| 889 | | |
| - | |
| Advances from customers | |
| | |
| 727,121 | | |
| 622,581 | |
| Advances from customers-related parties | |
| | |
| 88,290 | | |
| 94,832 | |
| Amounts due to related parties | |
7(c) | | |
| 3,587,733 | | |
| 3,338,882 | |
| Accrued payroll and benefits | |
| | |
| 653,783 | | |
| 411,995 | |
| Other payables and accrued expenses | |
16 | | |
| 4,694,607 | | |
| 4,996,344 | |
| Income tax payable | |
| | |
| 84,679 | | |
| 60,054 | |
| Lease liability-current | |
14 | | |
| 28,595 | | |
| 29,373 | |
| Other current liability | |
| | |
| 74,574 | | |
| 149,148 | |
| Current liabilities
from discontinued operations | |
10 | | |
| 64,575 | | |
| 377,539 | |
| TOTAL CURRENT LIABILITIES | |
| | |
| 18,910,052 | | |
| 19,571,754 | |
| | |
| | |
| | | |
| | |
| Lease liability | |
14 | | |
| 4,899 | | |
| 20,369 | |
| TOTAL LIABILITIES | |
| | |
| 18,914,951 | | |
| 19,592,123 | |
| | |
| | |
| | | |
| | |
| EQUITY | |
| | |
| | | |
| | |
| Ordinary shares, 2023 and 2022: par $0;
authorized capital 100,000,000 shares;
shares issued and outstanding, June 30, 2023: 1,844,089
shares; December 31, 2022: 1,587,371
shares*;* | |
18 | | |
| 163,154,015 | | |
| 161,404,797 | |
| Additional paid-in capital | |
18 | | |
| 22,447,083 | | |
| 22,447,083 | |
| Reserve | |
17 | | |
| 10,209,086 | | |
| 10,209,086 | |
| Accumulated deficit | |
| | |
| (209,863,637 | ) | |
| (208,054,607 | ) |
| Accumulated other comprehensive
income | |
| | |
| 23,516,659 | | |
| 23,610,333 | |
| Total equity of the Company | |
| | |
| 9,463,206 | | |
| 9,616,692 | |
| Non-controlling
interest | |
| | |
| - | | |
| - | |
| Total
Equity | |
| | |
| 9,463,206 | | |
| 9,616,692 | |
| | |
| | |
| | | |
| | |
| TOTAL
LIABILITIES AND EQUITY | |
| | |
$ | 28,378,157 | | |
$ | 29,208,815 | |
| * |
On
August 1, 2023, the Company implemented a one-for-ten reverse stock split of the Company’s issued and outstanding ordinary
shares. Except shares authorized, all references to number of shares, and to per share information in the consolidated financial
statements have been retroactively adjusted. |
The
accompanying notes are an integral part of the unaudited consolidated financial statements
TAOPING
INC.
(F/K/A
CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022
| | |
| | |
Six Months
Ended | | |
Six Months
Ended | |
| | |
NOTES | | |
June
30, 2023 | | |
June
30, 2022 | |
| | |
| | |
(Unaudited) | | |
(Unaudited) | |
| Revenue – Products | |
| | |
$ | 8,074,534 | | |
$ | 2,882,990 | |
| Revenue – Products-related parties | |
7(a) | | |
| 71,420 | | |
| - | |
| Revenue – Software | |
| | |
| 3,777,209 | | |
| 1,785,891 | |
| Revenue – Advertising | |
| | |
| 1,316,932 | | |
| 1,184,761 | |
| Revenue – Advertising-related parties | |
7(a) | | |
| - | | |
| 12,379 | |
| Revenue – Other | |
| | |
| 835,555 | | |
| 1,416,423 | |
| Revenue – Other-related
parties | |
7(b) | | |
| 2,359 | | |
| 19,078 | |
| TOTAL REVENUE | |
| | |
| 14,078,009 | | |
| 7,301,522 | |
| | |
| | |
| | | |
| | |
| Cost – Products | |
| | |
| 7,386,299 | | |
| 2,724,655 | |
| Cost – Software | |
| | |
| 1,711,442 | | |
| 828,310 | |
| Cost – Advertising | |
2(p) | | |
| 1,090,137 | | |
| 676,382 | |
| Cost – Other | |
| | |
| 15,231 | | |
| 486,047 | |
| TOTAL
COST | |
| | |
| 10,203,109 | | |
| 4,715,394 | |
| | |
| | |
| | | |
| | |
| GROSS PROFIT | |
| | |
| 3,874,900 | | |
| 2,586,128 | |
| | |
| | |
| | | |
| | |
| Administrative expenses | |
| | |
| 3,750,087 | | |
| 3,002,768 | |
| Research and development expenses | |
| | |
| 1,585,894 | | |
| 2,050,609 | |
| Selling expenses | |
| | |
| 215,152 | | |
| 343,211 | |
| LOSS FROM OPERATIONS | |
| | |
| (1,676,233 | ) | |
| (2,810,460 | ) |
| | |
| | |
| | | |
| | |
| Subsidy income | |
| | |
| 142,324 | | |
| 89,596 | |
| (Loss) from equity method investment | |
| | |
| (836 | ) | |
| (307,403 | ) |
| Other income (loss), net | |
| | |
| 40,767 | | |
| 1,511,572 | |
| Interest expense and
debt discounts, net of interest income | |
| | |
| (261,812 | ) | |
| (287,697 | ) |
| | |
| | |
| | | |
| | |
| Loss before income taxes | |
| | |
| (1,755,790 | ) | |
| (1,804,392 | ) |
| | |
| | |
| | | |
| | |
| Income tax expense | |
12 | | |
| (34,513 | ) | |
| (4,283 | ) |
| | |
| | |
| | | |
| | |
| Net loss from continuing
operations | |
| | |
| (1,790,303 | ) | |
| (1,808,675 | ) |
| Net
loss from discontinued operations | |
| | |
| (18,727 | ) | |
| (191,880 | ) |
| NET LOSS | |
| | |
| (1,809,030 | ) | |
| (2,000,555 | ) |
| Less:
Net loss attributable to the non- controlling interest | |
4 | | |
| - | | |
| - | |
| NET
LOSS ATTRIBUTABLE TO THE COMPANY | |
| | |
$ | (1,809,030 | ) | |
$ | (2,000,555 | ) |
| | |
| | |
| | | |
| | |
| Loss per share – Basic and
Diluted* | |
| | |
| | | |
| | |
| CONTINUING OPERATIONS | |
| | |
| | | |
| | |
| Basic | * |
6 | | |
$ | (1.09 | ) | |
$ | (1.14 | ) |
| Diluted | * |
6 | | |
$ | (1.09 | ) | |
$ | (1.14 | ) |
| | |
| | |
| | | |
| | |
| DISCONTINUED OPERATIONS | |
| | |
| | | |
| | |
| Basic | * |
6 | | |
$ | (0.01 | ) | |
$ | (0.12 | ) |
| Diluted | * |
6 | | |
$ | (0.01 | ) | |
$ | (0.12 | ) |
| | |
| | |
| | | |
| | |
| NET LOSS PER SHARE
ATTRIBUTABLE TO THE COMPANY* | |
| | |
| | | |
| | |
| Basic | * |
6 | | |
$ | (1.10 | ) | |
$ | (1.26 | ) |
| Diluted | * |
6 | | |
$ | (1.10 | ) | |
$ | (1.26 | ) |
| * |
On
August 1, 2023, the Company implemented a one-for-ten reverse stock split of the Company’s issued and outstanding ordinary
shares. The computation of basic and diluted EPS was retroactively adjusted for all periods presented. |
The
accompanying notes are an integral part of the unaudited consolidated financial statements
TAOPING
INC.
(F/K/A
CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
FOR
THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022
| | |
Six
Months Ended June
30, 2023 | | |
Six
Months Ended June
30, 2022 | |
| | |
(Unaudited) | | |
(Unaudited) | |
| Net loss | |
$ | (1,809,030 | ) | |
$ | (2,000,555 | ) |
| Other comprehensive loss: | |
| | | |
| | |
| Foreign currency
translation loss | |
| (93,674 | ) | |
| (1,767,671 | ) |
| Comprehensive loss | |
| (1,902,704 | ) | |
| (3,768,226 | ) |
| Comprehensive loss attributable
to the non- controlling interest | |
| - | | |
| - | |
| Comprehensive
loss attributable to the Company | |
$ | (1,902,704 | ) | |
$ | (3,768,226 | ) |
The
accompanying notes are an integral part of the unaudited consolidated financial statements
TAOPING
INC.
(F/K/A
CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
FOR
THE SIX MONTHS ENDED JUNE 30, 2023 AND 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, 2023 | |
| 1,587,371 | | |
$ | 161,404,797 | | |
$ | 22,447,083 | | |
$ | 10,209,086 | | |
$ | (208,054,607 | ) | |
$ | 23,610,333 | | |
$ | - | | |
$ | 9,616,692 | |
| Stock-based payment for consulting fee (Note
18) | |
| 50,000 | | |
| 340,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 340,000 | |
| Issued common stock for Equity Incentive Plan
(Note 18) | |
| 200,000 | | |
| 1,360,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,360,000 | |
| Net loss for the year | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,809,030 | ) | |
| - | | |
| - | | |
| (1,809,030 | ) |
| Foreign currency translation gain | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (93,674 | ) | |
| - | | |
| (93,674 | ) |
| Common stock issued
for business acquisition | |
| 6,718 | | |
| 49,218 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 49,218 | |
| BALANCE AS AT JUNE
30, 2023(unaudited) | |
| 1,844,089 | | |
$ | 163,154,015 | | |
$ | 22,447,083 | | |
$ | 10,209,086 | | |
$ | (209,863,637 | ) | |
$ | 23,516,659 | | |
$ | - | | |
$ | 9,463,206 | |
| | |
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 | |
| 1,578,653 | | |
$ | 161,098,010 | | |
$ | 22,447,083 | | |
$ | 14,044,269 | | |
$ | (202,137,403 | ) | |
$ | 23,800,299 | | |
$ | (1,759 | ) | |
$ | 19,250,499 | |
| Beginning balance, value | |
| 1,578,653 | | |
$ | 161,098,010 | | |
$ | 22,447,083 | | |
$ | 14,044,269 | | |
$ | (202,137,403 | ) | |
$ | 23,800,299 | | |
$ | (1,759 | ) | |
$ | 19,250,499 | |
| Stock-based payment for consulting fee (Note
18) | |
| 1,000 | | |
| 180,050 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 180,050 | |
| Disposal of iASPEC | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,138,915 | | |
| - | | |
| 1,138,915 | |
| Net loss for the year | |
| - | | |
| - | | |
| - | | |
| - | | |
| (2,000,555 | ) | |
| - | | |
| - | | |
| (2,000,555 | ) |
| Foreign currency translation gain | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,767,671 | ) | |
| - | | |
| (1,767,671 | ) |
| Common stock issued for business acquisition | |
| 6,718 | | |
| 118,244 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 118,244 | |
| Disposal of a consolidated
entity | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,759 | | |
| 1,759 | |
| BALANCE AS AT JUNE
30, 2022(unaudited) | |
| 1,586,371 | | |
$ | 161,396,304 | | |
$ | 22,447,083 | | |
$ | 14,044,269 | | |
$ | (204,137,958 | ) | |
$ | 23,171,543 | | |
$ | - | | |
$ | 16,921,241 | |
| Ending balance, value | |
| 1,586,371 | | |
$ | 161,396,304 | | |
$ | 22,447,083 | | |
$ | 14,044,269 | | |
$ | (204,137,958 | ) | |
$ | 23,171,543 | | |
$ | - | | |
$ | 16,921,241 | |
| * |
On
August 1, 2023, the Company implemented a one-for-ten reverse stock split of the Company’s issued and outstanding ordinary
shares. Except shares authorized, all references to number of shares, and to per share information in the consolidated financial
statements have been retroactively adjusted. |
The
accompanying notes are an integral part of the unaudited consolidated financial statements
TAOPING
INC.
(F/K/A
CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022
| | |
Six
Months Ended June 30, 2023 | | |
Six
Months Ended June 30, 2022 | |
| | |
(Unaudited) | | |
(Unaudited) | |
| OPERATING ACTIVITIES | |
| | | |
| | |
| Net loss | |
$ | (1,809,030 | ) | |
$ | (2,000,555 | ) |
| Adjustments to reconcile
net loss to net cash used in operating activities: | |
| | | |
| | |
| Provision for credit losses on accounts receivable
and other current assets | |
| 973,909 | | |
| (399,735 | ) |
| Provision for obsolete inventories | |
| 8,458 | | |
| 678,369 | |
| Depreciation and amortization | |
| 1,510,586 | | |
| 4,020,115 | |
| (Gain) on sales of cryptocurrencies | |
| - | | |
| (527,005 | ) |
| Impairment on cryptocurrencies | |
| - | | |
| 1,179,078 | |
| Loss on equity method investment | |
| 23,597 | | |
| 284,162 | |
| Stock-based payments for consulting services | |
| 32,603 | | |
| 14,500 | |
| Stock-based compensation | |
| 1,360,000 | | |
| - | |
| Loss on sale of property and equipment | |
| 46,716 | | |
| 94,268 | |
| Changes in operating assets
and liabilities: | |
| | | |
| | |
| Decrease (increase) in accounts receivable | |
| 2,167,863 | | |
| (1,194,885 | ) |
| Decrease (increase) in accounts receivable
- related parties | |
| 35,420 | | |
| (607,803 | ) |
| Decrease in prepaid expenses | |
| - | | |
| 296,519 | |
| Increase in inventories | |
| (5,662,408 | ) | |
| (2,266,246 | ) |
| Cryptocurrencies – mining | |
| - | | |
| (3,235,134 | ) |
| Decrease (increase) in other non-current assets | |
| 469,271 | | |
| (149,794 | ) |
| Increase in other current assets | |
| (52,530 | ) | |
| (480,677 | ) |
| Decrease in advances to suppliers | |
| 75,810 | | |
| 2,803,900 | |
| Decrease in other payables and accrued expenses | |
| (69,239 | ) | |
| (568,455 | ) |
| Increase in advances from customers | |
| 141,601 | | |
| 901,006 | |
| Decrease in advances from customers - related
parties | |
| (1,869 | ) | |
| - | |
| Increase in amounts due to related parties | |
| - | | |
| (158,105 | ) |
| Decrease in accounts payable | |
| (200,632 | ) | |
| (3,659,036 | ) |
| Increase in payroll payable and benefits | |
| 253,721 | | |
| - | |
| (Decrease) increase in lease liability | |
| (3,022 | ) | |
| 215,162 | |
| Increase (decrease)
in income tax payable | |
| 28,904 | | |
| (374,013 | ) |
| Net
cash used in operating activities | |
| (670,271 | ) | |
| (5,134,364 | ) |
| | |
| | | |
| | |
| INVESTING ACTIVITIES | |
| | | |
| | |
| Proceeds from sales of property and equipment | |
| 237,635 | | |
| - | |
| Purchases of property and equipment | |
| (564,311 | ) | |
| (2,098,954 | ) |
| Acquired cash in connection with a business
acquisition | |
| - | | |
| 4,113 | |
| Consideration paid for acquisition | |
| (21,394 | ) | |
| - | |
| Proceeds from sales
of cryptocurrencies | |
| - | | |
| 4,093,524 | |
| Net
cash (used in) provided by investing activities | |
| (348,070 | ) | |
| 1,998,683 | |
| | |
| | | |
| | |
| FINANCING ACTIVITIES | |
| | | |
| | |
| Borrowings from related parties | |
| 433,173 | | |
| - | |
| Repayment of short-term
bank loans | |
| (86,779 | ) | |
| (139,082 | ) |
| Net
cash provided by (used in) financing activities | |
| 346,394 | | |
| (139,082 | ) |
| | |
| | | |
| | |
| Effect of exchange rate changes on cash and
cash equivalents | |
| 110,570 | | |
| (502,786 | ) |
| | |
| | | |
| | |
| NET DECREASE IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH | |
| (561,377 | ) | |
| (3,777,549 | ) |
| CASH,
CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING | |
| 1,023,240 | | |
| 4,531,266 | |
| CASH,
CASH EQUIVALENTS AND RESTRICTED CASH, ENDING | |
$ | 461,863 | | |
$ | 753,717 | |
| | |
| | | |
| | |
| Supplemental disclosure
of cash flow information: | |
| | | |
| | |
| Cash paid during the year | |
| | | |
| | |
| Income taxes | |
$ | 34,513 | | |
$ | - | |
| Interest | |
$ | - | | |
$ | 288,707 | |
| | |
Six Months
Ended | | |
Six Months
Ended | |
| | |
June
30, 2023 | | |
June
30, 2022 | |
| Reconciliation to amounts
on consolidated balance sheets | |
| | | |
| | |
| Cash and cash equivalents from
continuing operations | |
$ | 460,147 | | |
$ | 746,161 | |
| Cash and cash equivalents from discontinued
operations | |
| 1,716 | | |
| 7,556 | |
| Total cash, cash equivalents, and restricted
cash | |
$ | 461,863 | | |
$ | 753,717 | |
Supplemental
disclosure of significant non-cash transactions*:
| * |
On
August 1, 2023, the Company implemented a one-for-ten reverse stock split of the Company’s issued and outstanding ordinary
shares. Except shares authorized, all references to number of shares, and to per share information in the consolidated financial
statements have been retroactively adjusted. |
In
February 2022, the Company issued the first phase of approximately 6,718 restricted ordinary shares with a fair value of approximately
$118,000, for the acquisition of Zhenjiang Taoping IoT Tech. Co., Ltd (“ZJIOT”). The Company agreed to issue to the shareholders
of ZJIOT a total of approximately 20,154 restricted ordinary shares in three phases, conditioned upon the satisfaction of certain performance
targets.
In
March 2022 and July 2022, the Company issued 2,000 ordinary shares with a fair value of $23,100 to a consultant as a compensation for
his service.
In
April 2023, the Company issued the second phase of approximately 6,718 restricted ordinary shares with a fair value of approximately
$49,000, for the acquisition of ZJIOT, upon the satisfaction of certain performance targets.
In
May 2023, the Company issued 50,000 restricted shares to a consultant as its service compensation for the service period from May 26,
2023 to May 25, 2024. The fair value of the 50,000 ordinary shares was $340,000, which is amortized over the service period.
In
May 2023, the Company issued 200,000 ordinary shares with fair value of approximately $1,360,000 to certain directors, executive officers,
and employees as compensations for their services.
The
accompanying notes are an integral part of the unaudited consolidated financial statements
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”), 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.
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 then, 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, and mainland China.
In
June 2021, the Company consummated an acquisition of 100% of the equity interest of Taoping New Media Co., Ltd (“TNM”), a
leading media operator in China’s out-of-home digital advertising industry. Mr. Jianghuai Lin, the Chairman and CEO of the Company,
who then owned approximately 24.6% of total shares outstanding of the Company, owned approximately 51% of TNM. TNM focuses on digital
life scenes and mainly engaged in selling out-of-home advertising time slots on its networked smart digital advertising display terminals
with artificial intelligence and big data technologies. The acquisition of TNM is expected to enhance the Company’s presence in
the new media and advertising sectors.
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.
However, due to the decreased output and the highly volatile cryptocurrency market, the Company had ceased the operation of cryptocurrency
mining business by December 2022, and continues to focus the efforts on its digital adverting, smart display and the newly added smart
community and related businesses.
As
the cessation of the operation of cryptocurrency mining business represent a strategic shift in the Company’s strategy that will
have a major effect on the Company’s operations and financial results, the operations of cryptocurrency mining business have been
presented as “discontinued operations” in the Company’s consolidated financial statements. See Note 10.
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
January 2022, the Company completed the acquisition of 100% equity interest of ZJIOT, aiming to accelerate the Company’s smart
charging pile and digital new media businesses in East China.
As
a result of the Company’s business transformation and its exit from the TIT business, the Company disposed of 100% equity interests
of iASPEC (excluding iASPEC’s subsidiaries) which mainly conducted the Company’s TIT business to an unrelated third party
for nil consideration on June 7, 2022. The disposition resulted in a total recorded income of approximately $3.0 million for the Company
for the year ended December 31, 2022.
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, 2023 % owned | | |
December
31, 2022 % owned | | |
December
31, 2021 % owned | | |
Location |
| | |
| | |
| | |
| | |
| | |
|
| Taoping Inc. | |
| | | |
| | | |
| | | |
| | | |
British Virgin Islands |
| Taoping Holdings Limited (THL) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
British Virgin Islands |
| Taoping Group (China) Ltd. (IST HK) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Hong Kong, China |
| Taoping Digital Assets (Asia) Limited (TDAL) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Hong Kong, China |
| Taoping Digital Assets (Hong Kong) Limited
(TDL) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Hong Kong, China |
| Taoping Capital Limited (TCL) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Hong Kong, China |
| Alpha Digital Group Ltd. (ADG) | |
| Subsidiary | | |
| - | | |
| - | | |
| 100 | % | |
Cayman, Island |
| Kazakh Taoping Operation Management Co. Ltd.
(KTO) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Kazakhstan |
| Kazakh Taoping Data Center Co. Ltd. (KTD) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Kazakhstan |
| Information Security Tech. (China) Co., Ltd.
(IST) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Shenzhen, China |
| TopCloud Software (China) Co., Ltd. (TopCloud) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Shenzhen, China |
| Information Security IoT Tech. Co., Ltd. (ISIOT) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Shenzhen, China |
| iASPEC Technology Group Co., Ltd. (iASPEC) | |
| Subsidiary | | |
| - | | |
| - | | |
| 100 | % | |
Shenzhen, China |
| Biznest Internet Tech. Co., Ltd. (Biznest) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Shenzhen, China |
| iASPEC Bocom IoT Tech. Co., Ltd. (Bocom) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Shenzhen, China |
| Taoping New Media Co., Ltd. (TNM) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Shenzhen, China |
| Shenzhen Taoping Education Technology Co.,
Ltd. (SZTET) | |
| Subsidiary | | |
| - | | |
| - | | |
| 51 | % | |
Shenzhen, China |
| Wuhu Taoping Education Technology Co., Ltd.
(WHTET) | |
| Subsidiary | | |
| - | | |
| - | | |
| 51 | % | |
Wuhu, China |
| Taoping Digital Tech. (Dongguan) Co., Ltd.
(TDTDG) | |
| Subsidiary | | |
| - | | |
| - | | |
| 100 | % | |
Dongguan, China |
| TopCloud Tech. (Chenzhou) Co., Ltd. (TCTCZ) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Chenzhou, China |
| Taoping Digital Tech. (Jiangsu) Co., Ltd. (TDTJS) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| 100 | % | |
Jiangsu, China |
| Zhenjiang Taoping IoT Tech. Co., Ltd. (ZJIOT) | |
| Subsidiary | | |
| 100 | % | |
| 100 | % | |
| - | | |
Zhenjiang, China |
| Taoping EP Holdings (Shenzhen) Co., Ltd. (TEPH) | |
| Subsidiary | | |
| 51 | % | |
| - | | |
| - | | |
Shenzhen, China |
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 $1,800,000.
On September 18, 2021, Taoping Inc. and IST entered into an equity transfer agreement with iASPEC and iASPEC’s then sole shareholder,
Mr. Lin, under which Mr. Lin sold and transferred to IST all of the equity interests in and any and all rights and benefits relating
thereto of iASPEC in exchange for 61,225 unregistered ordinary shares of Taoping Inc., as determined by dividing $1,800,000 by the volume-weighted
average closing price of ordinary shares for the consecutive five (5) trading days immediately prior to September 18, 2021. The parties
thereafter completed the equity transfer through applicable PRC governmental registration(s).
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
In
the second half of 2022, COVID-19 pandemic was largely contained in China. As a result of the continued recovery of the market conditions
and customer demands, the Company’s revenue of continuing operations achieved 92.8% period-over-period increase in the first half
of 2023. The Company incurred a net loss of approximately $1.8 million for the six months ended June 30, 2023, improved from a net loss
of $2.0 million for the same period of 2022. The Company reported negative cash flows from operations of approximately $0.7 million for
the six months ended June 30, 2023, improved from negative cash flows of $5.1 million from operations for the same period of 2022. As
of June 30, 2023, the Company had a working capital of approximately $1.3 million, compared to a working capital deficit of $0.2 million
as of December 31, 2022.
The
Company will continue to focus the efforts on the digital advertising and other cloud-based products and applications. Furthermore, its
two core competencies, the Taoping national sales network and the highly scalable and compatible cloud platform, and its strong software
development capability, make it a valued partner by many other smart-community customers and solution providers. In addition to seeking
strategic acquisition to expand its digital advertising business, the Company continues to explore business opportunity in the smart
community and new energy sectors. Starting from April 2023, the Company has entered into a series of long-term strategic cooperation
agreements with various customers to provide Taoping’s cloud-based intelligent product solutions, including smart large screen,
IoT smart rest station and off-grid wastewater treatment solution, which are expected to generate significant revenue growth and operating
cashflow for the Company for year 2023 and beyond.
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. The Company’s
existing $6.8 million revolving bank loan, which was collateralized with the Company’s office property, provides important capital
support for its operation. In addition, the Company has renewed the bank facility line with a value of approximately $2.6 million in
July 2023, and is in the process of renewing the other bank facility line. In addition, on July 17, 2023, the Company entered into a
Public Standby Equity Purchase Agreement and a Private Standby Equity Purchase Agreement with certain investor. Pursuant to the agreements,
the Company shall have the right, but not the obligation, to sell to the Investor up to $1,000,000 and $10,000,000, respectively, of
its ordinary shares, by the 24-month anniversary and 36-month anniversary, respectively, of the date of the agreements. In conclusion,
the Company believes that it has the ability to raise needed capital to fund its operations and business growth, and is able to operate
as a going concern.
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.
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, 2023 and for the six-month periods ended June 30, 2023 and 2022 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, 2022 filed on April 25, 2023 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.
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.
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 no cash equivalents as of June 30, 2023 or December 31, 2022.
The
Company maintains its cash accounts at credit worthy financial institutions and closely monitors the movements of its cash positions.
As of June 30, 2023, and December 31, 2022, approximately $0.5 million and $1.0 million of cash, respectively, was held in bank accounts
in Hong Kong and mainland China.
(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, 2023 has decreased approximately $0.9 million from the year ended December 31, 2022.
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accounts
receivable as of June 30, 2023 and December 31, 2022 are as follows:
SCHEDULE
OF ACCOUNTS RECEIVABLE
| | |
June
30, 2023 | | |
December
31, 2022 | |
| | |
(Unaudited) | | |
| |
| Accounts Receivable | |
$ | 17,051,559 | | |
$ | 20,159,165 | |
| Allowance for credit
losses | |
| (10,791,126 | ) | |
| (10,957,920 | ) |
| Accounts Receivable,
net | |
$ | 6,260,433 | | |
$ | 9,201,245 | |
| Accounts Receivable - related parties | |
$ | 13,908,789 | | |
$ | 14,617,746 | |
| Accounts Receivable | |
$ | 13,908,789 | | |
$ | 14,617,746 | |
| Allowance for credit
losses - related parties | |
| (13,857,340 | ) | |
| (14,526,375 | ) |
| Allowance for credit
losses | |
| (13,857,340 | ) | |
| (14,526,375 | ) |
| Accounts Receivable
- related parties, net | |
$ | 51,449 | | |
$ | 91,371 | |
| Accounts Receivable, net | |
$ | 51,449 | | |
$ | 91,371 | |
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.
The
allowance for credit losses at June 30, 2023 and December 31, 2022, totaled approximately $24.6 million and $25.5 million, respectively,
representing management’s best estimate. The following table describes the movements for allowance for credit losses during the
six-month period ended June 30, 2023 and the year ended December 31, 2022:
SCHEDULE
OF ALLOWANCE FOR CREDIT LOSSES
| Balance at January 1, 2022 | |
$ | 27,262,848 | |
| Decrease for balance due to transfer of a company | |
| (771,189 | ) |
| Increase in allowance for credit losses | |
| 674,664 | |
| Foreign exchange difference | |
| (1,682,028 | ) |
| Balance at December 31, 2022 | |
$ | 25,484,295 | |
| Increase in allowance for credit losses | |
| 973,909 | |
| Foreign exchange difference | |
| (1,809,738 | ) |
| Balance at June 30, 2023 (Unaudited) | |
$ | 24,648,466 | |
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.
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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 | |
20-50 years |
| Lease improvement | |
Shorter of lease term or assets lives |
| Electronics equipment, furniture and fixtures | |
3-5 years |
| Motor vehicles | |
5 years |
| Purchased software | |
5 years |
| Media display equipment | |
5 years |
| Cryptocurrency mining machine | |
3 years |
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 and Ethereum, 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.
If the carrying amount of the cryptocurrency exceeds its fair value, the Company recognizes an impairment loss in an amount equal to
that excess. Subsequent reversal of impairment losses is not permitted.
There
are no cash flows from cryptocurrencies included in net cash used in operating activities since the revenue recognized from mining is
a noncash activity. 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.
Upon
disposal of cryptocurrencies, the Company will evaluate whether the control of the cryptocurrencies is transferred in accordance with
ASC 610-20. The control over the cryptocurrencies disposed will transfer at the same time of the disposal, hence the cryptocurrencies
transferred will be derecognized at the same time of the disposal. The gain or loss on disposal is calculated as the difference between
the consideration allocated to each distinct cryptocurrency and its carrying amount.
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TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(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.
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TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(n)
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.
(o)
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.
Although
our performance obligation in our contracts with the mining pool operator is the provision of computing power, we are not entitled to
any compensation for computing power provided when the pool operator is unsuccessful in placing a block to the blockchain.
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 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.
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Revenue
- Software
The
Company designs and develops software products. 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
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 software support service in one-off and recognizes the revenue at the point of delivery of service 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
100% of the transaction price to advertisement broadcasting. The transaction price for advertisement broadcasting is fixed based on the
numbers of advertisement delivery and duration of the contract, and has no variable consideration, or significant financing component,
or subsequent price change, and is not refundable.
The
Company recognizes the revenues, net of applicable taxes, from advertisement broadcasting contracts with customers over the contracted
advertising duration.
TAOPING
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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. Both the Company and the mining pool operator have the
right to terminate the contract at any time, with or without clause, and without compensation. 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. The contract first exists upon the successful placement
of a block on the blockchain by the pool operator because that is the point when the parties have performed their contract obligation
and neither party can unilaterally terminate the contract without compensating the other party.
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 from principal market 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 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 a unit of office space renting out to a third party with lease terms of two years
starting from May 1, 2022. 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 $128,360
and $150,000 rental income for the periods ended June 30, 2023, and 2022, respectively.
SCHEDULE
OF ANNUAL MINIMUM RENTAL INCOME RECEIVED
| Annual minimum rental income to be received
in the next 5 years: | |
| | |
| 2023 | |
| 128,360 | |
| 2024 | |
| 85,573 | |
| Total | |
| 213,933 | |
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, 2023 and 2022, the Company recognized revenue of $463,455 and $9,000, respectively, that was included in the advances from customers
balance at the beginning of each reporting period.
Practical
expedients and exemptions
The
Company generally expenses sales commissions if any incurred because the amortization period 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 length of one year
or less.
(p)
Cost of Sales - advertising and cost of cryptocurrencies
The
cost of sales for advertising revenue 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 sales for cryptocurrencies revenue 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.
TAOPING
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TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(q)
Discontinued Operations
The
Company follows “ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting
Discontinued Operations and Disclosures of Disposals of Components of an Entity” for reporting discontinued operations. Under the
revised standard, a discontinued operation must represent a strategic shift that has or will have a major effect on an entity’s
operations and financial results. Examples could include a disposal of a major line of business, a major geographical area, a major equity
method investment, or other major parts of an entity. The revised standard also allows an entity to have certain continuing cash flows
or involvement with the component after the disposal. Additionally, the standard requires expanded disclosures about discontinued operations
that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued
operations.
(r)
Segment reporting
Segment
information is consistent with how the Chief Operating Decision Maker, i.e., the Directors of the Company, review the businesses, make
investing and resource allocation decisions and assess operating performance. Transfers and sales between reportable segments, if any,
are recorded at cost.
The
Company reports financial and operating information in the following three segments:
| (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 in 2021. Cryptocurrency mining
is the first initiative implemented in the BT segment. However, due to the decreased output and the highly volatile cryptocurrency
market, the Company had ceased the operation of the BT segment by December 2022. |
| |
|
| (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 is gradually 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 did not have material impact on the group’s consolidated financial statements.
TAOPING
INC.
NOTES
TO THE UNAUDITED 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 ASU 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.
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 100% of the equity interests of TNM
and its subsidiary. Mr. Jianghuai Lin, the Chairman and CEO of the Company, who then owned approximately 24.6% of total shares outstanding
of the Company, owned approximately 51% of TNM. TNM is a new media operator focusing on digital life scenes and mainly engages in selling
out-of-home advertising time slots on its networked smart digital advertising display terminals with artificial intelligence and big
data technologies. Acquiring TNM and synergizing its new media network will enhance the Company’s presence in the new media and
advertising sectors. After completion of the acquisition, TNM becomes a wholly owned subsidiary of Biznest.
Pursuant
to the share purchase agreement, as a consideration of the purchase, the Company issued to the shareholders of TNM a total of 121,363
ordinary shares equivalent to the value of approximately $5.4 million.
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 | |
$ | 7,644 | |
| Accounts receivable, net | |
| 1,252,601 | |
| Advances to suppliers | |
| 75,971 | |
| Other receivables and other current assets,
net | |
| 2,345,332 | |
| Long-term investments | |
| 1,386,191 | |
| Property and equipment | |
| 1,550,113 | |
| Right of use assets | |
| 74,812 | |
| Accounts payable | |
| (339,198 | ) |
| Advances from customers | |
| (10,943 | ) |
| Accrued payroll and benefits | |
| (32,840 | ) |
| Amounts due to related parties | |
| (619,571 | ) |
| Other payables and accrued expenses | |
| (87,373 | ) |
| Lease liabilities | |
| (153,938 | ) |
| Total net assets acquired | |
| 5,448,801 | |
| Bargain purchase gain | |
| (12,345 | ) |
| Total purchase price | |
$ | 5,436,456 | |
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 $12,000 on the acquisition date.
The
Company’s consolidated statement of operations for the year ended December 31, 2021 included revenue of $1.78 million and net loss
of $0.55 million attributable to TNM since June 9, 2021, the acquisition date.
The
Company’s consolidated statement of operations for the six months ended June 30, 2022 included revenue of $1.13 million and net
loss of $0.31 million attributable to TNM.
The
Company’s consolidated statement of operations for the six months ended June 30, 2023 included revenue of $0.71 million and net
profit of $0.25 million attributable to TNM.
On
January 13, 2022, the Company entered into a share purchase agreement to acquire 95.56% equity interest in ZJIOT, aiming to accelerate
the Company’s smart charging pile and digital new media businesses in East China. Pursuant to the share purchase agreement, as
consideration the Company agreed to issue to the shareholders of ZJIOT a total of approximately 20,154 restricted ordinary shares of
the Company. The shares are expected to be issued in three phases. The first phase will issue approximately 6,718 shares within 20 days
after closing of the transaction; the second phase will issue approximately 6,718 shares before May 31, 2023; the third phase will issue
approximately 6,718 shares before May 31, 2024. Issuance of shares during the second and third phases will be conditioned upon the satisfaction
of certain performance targets of ZJIOT as set forth in the share purchase agreement. Specifically, the second phase issuance requires
from the closing date to December 31, 2022, ZJIOT have at least 2.5 million RMB of audited revenue and 0.5 million RMB of audited net
income; and to be eligible for the third phase issuance, ZJIOT shall have at least 2.6 million RMB of revenue and 0.55 million RMB of
net income during the fiscal year 2023. Upon the completion of the acquisition, the Company currently owns 100% equity interest in ZJIOT.
The
total fair value of the contingent consideration presented as other current liability is in accordance with ASC 820-10 “Fair Value
Measurements and Disclosures”. The approximately 20,154
ordinary shares issued under the share purchase
agreement were deemed as the consideration transferred for the acquisition. The fair value of the shares issued was measured based on
the average share price of the Company during year 2022, which therefore is categorized as Level 3 measurement of fair value.
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 |
|
$ |
4,116 |
|
| Accounts
receivable, net |
|
|
260,189 |
|
| Advances
to suppliers |
|
|
4,252 |
|
| Other
receivables, net |
|
|
2,532 |
|
| Property,
plant and equipment, net |
|
|
215,689 |
|
| Accounts
payable |
|
|
(250,706 |
) |
| Advances
from customers |
|
|
(8,046 |
) |
| Accrued
payroll and benefits |
|
|
(10,633 |
) |
| Other
payables and accrued expenses |
|
|
(8,923 |
) |
| Total
net assets acquired |
|
|
208,470 |
|
| Goodwill |
|
|
58,922 |
|
| Total
purchase price |
|
$ |
267,392 |
|
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.
The
Company’s consolidated statement of operations for the six months ended June 30, 2023 included revenue of $0.05 million and net
loss of $0.1 million attributable to ZJIOT.
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 assets, liabilities and 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, Biznest formed Shenzhen Taoping Education Technology Co.,
Ltd. and Wuhu Taoping Education Technology Co., Ltd. in 2021 where iASPEC indirectly owned 51% equity interests of each entity. As indirect
wholly owned or majority owned subsidiaries of iASPEC, the financial results of TNM, Shenzhen Taoping Education Technology Co., Ltd.
and Wuhu Taoping Education Technology Co., Ltd. have been consolidated into the Company’s financial statements.
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 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 100% 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 $3.0 million for the Company for the year ended December
31, 2022. Upon the disposition, iASPEC, excluding its subsidiaries, was no longer part of the Company. As such, the Company’s consolidated
financial statements for the year ended December 31, 2022 only included the financial results of iASPEC for the period from January 1
through June 7, 2022.
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
results in minimal gain or loss for the year ended December 31, 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.
6.
LOSS PER SHARE
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.
Components
of basic and diluted earnings per share were as follows for the six months ended June 30, 2023 and 2022:
SCHEDULE
OF COMPONENTS OF BASIC AND DILUTED EARNINGS PER SHARE
| | |
Six
Months Ended June
30, 2023* | | |
Six
Months Ended June
30, 2022 | |
| | |
| (Unaudited) | | |
| (Unaudited) | |
| Numerator: | |
| | | |
| | |
| Net loss
attributable to the Company | |
$ | (1,809,030 | ) | |
$ | (2,000,555 | ) |
| Denominator: | |
| | | |
| | |
| Weighted average outstanding
ordinary shares-Basic* | |
| 1,638,052 | | |
| 1,583,843 | |
| Weighted average outstanding ordinary shares- Diluted* | |
| 1,638,052 | | |
| 1,583,843 | |
| Loss per share attributable
to the Company* | |
| | | |
| | |
| Basic | |
$ | (1.10 | ) | |
$ | (1.26 | ) |
| Diluted | |
$ | (1.10 | ) | |
$ | (1.26 | ) |
| | |
| | | |
| | |
| CONTINUING OPERATIONS | |
| | |
| |
| Net loss
attributable to the Company | |
$ | (1,790,303 | ) | |
$ | (1,808,675 | ) |
| Denominator: | |
| | | |
| | |
| Weighted average outstanding
ordinary shares-Basic* | |
| 1,638,052 | | |
| 1,583,843 | |
| Weighted average outstanding ordinary shares- Diluted* | |
| 1,638,052 | | |
| 1,583,843 | |
| Loss per share attributable
to the Company* | |
| | | |
| | |
| Basic | |
$ | (1.09 | ) | |
$ | (1.14 | ) |
| Diluted | |
$ | (1.09 | ) | |
$ | (1.14 | ) |
| | |
| | | |
| | |
| DISCONTINUED OPERATIONS | |
| | | |
| | |
| Net loss attributable to the Company | |
$ | (18,727 | ) | |
$ | (191,880 | ) |
| Denominator: | |
| | | |
| | |
| Weighted average outstanding ordinary
shares-Basic* | |
| 1,638,052 | | |
| 1,583,843 | |
| Weighted average outstanding ordinary shares- Diluted* | |
| 1,638,052 | | |
| 1,583,843 | |
| Loss per share attributable to the Company* | |
| | | |
| | |
| Basic | |
$ | (0.01 | ) | |
$ | (0.12 | ) |
| Diluted | |
$ | (0.01 | ) | |
$ | (0.12 | ) |
| * |
On
August 1, 2023, the Company implemented a one-for-ten reverse stock split of the Company’s issued and outstanding ordinary
shares. The computation of basic and diluted EPS was retroactively adjusted for all periods presented. |
For
the six-month period ended June 30, 2023 and 2022, there was no share included in the diluted earnings per shares calculation. These
incremental shares were not added to denominator for the period that stock options were outstanding due to the fact that the average
market price of the Company’s ordinary shares in the period was lower than 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
28,850 stock options for employees, 5,737 options and 48,167 warrants 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.
There
were 27,850 stock options for employees, 5,737 options and 36,000 warrants for nonemployees outstanding that were not included in the
computation of dilutive weighted- average shares outstanding for the six months ended June 30, 2023, 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, 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.
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
7.
RELATED PARTY TRANSACTIONS
| (a) |
Revenue
– related parties |
For
the six months ended June 30, 2023 and 2022, approximately $71,000 and $12,000, respectively, for sales of products and advertising revenue
were from Taoping alliance companies of which TNM has equity investment of over 5% ownership.
| (b) |
Other
revenue – related parties |
Other
revenue generated from related parties includes system maintenance service provided to Taoping affiliate customers, which was approximately
$2,000 and $19,000, for the six months ended June 30, 2023 and 2022, respectively.
| (c) |
Amounts
due to related parties |
As
of June 30, 2023 and December 31, 2022, the amounts due to related parties was approximately $3,588,000 and $3,339,000, respectively,
which included a loan of RMB20 million) from a related company 100% owned by Mr. Lin for 12-month at the interest of 5.85% per annum,
which matures on May 17, 2024.
8.
INVENTORIES
As
of June 30, 2023 and December 31, 2022, inventories consist of:
SCHEDULE
OF INVENTORIES
| | |
June
30, 2023 | | |
December
31, 2022 | |
| | |
| (Unaudited) | | |
| | |
| Raw materials | |
$ | 3,301 | | |
$ | 3,472 | |
| Finished goods | |
| 5,698,476 | | |
| 469,918 | |
| Cost of projects | |
| 235,358 | | |
| 40,815 | |
| Inventories, gross | |
$ | 5,937,135 | | |
$ | 514,205 | |
| Allowance for slow-moving
or obsolete inventories | |
| (155,797 | ) | |
| (157,847 | ) |
| Inventories, net | |
$ | 5,781,338 | | |
$ | 356,358 | |
For
the six months ended June 30, 2023 and 2022, impairments for obsolete inventories were approximately $8,400 and $104,000, respectively.
Impairment charges on inventories are included with administrative expenses.
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9.
PROPERTY, EQUIPMENT AND SOFTWARE
As
of June 30, 2023 and December 31, 2022, property, equipment and software consist of:
SCHEDULE
OF PROPERTY, EQUIPMENT AND SOFTWARE
| | |
June
30, 2023 | | |
December
31, 2022 | |
| | |
| (Unaudited) | | |
| | |
| Office buildings | |
$ | 3,854,036 | | |
$ | 4,053,815 | |
| Electronic equipment, furniture and fixtures | |
| 2,609,556 | | |
| 2,222,712 | |
| Media display equipment | |
| 1,056,675 | | |
| 1,111,450 | |
| Leasehold improvement | |
| 37,780 | | |
| 39,738 | |
| Purchased software | |
| 5,643,399 | | |
| 5,935,931 | |
| Total | |
| 13,201,446 | | |
| 13,363,646 | |
| Less: accumulated depreciation | |
| (6,438,998 | ) | |
| (5,529,744 | ) |
| Property, equipment
and software, net | |
$ | 6,762,448 | | |
$ | 7,833,902 | |
Depreciation
expenses for the six months ended June 30, 2023 and 2022 were approximately $1.3 million and $2.2 million for continuing operations,
and $0.2 million and $2.0 million for discontinued operations, respectively.
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 $2.4 million, are used as collateral for its short-term bank loan.
10.
DISCONTINUED OPERATIONS
In
December 2022, the Company ceased its cryptocurrency mining business by entering into a series of contracts with certain third parties
to sell its cryptocurrency mining and related equipment, terminating the leases for both the office facility and the storage rooms for
most mining machines, and laying off relevant employees. As a result, the operations of Cryptocurrency mining business are reflected
within “discontinued operations” periods presented.
The
significant items included within discontinued operations are as follows:
SCHEDULE
OF DISPOSAL GROUPS INCLUDING DISCONTINUED OPERATIONS
| | |
Six
Months Ended June
30, 2023 | | |
Six
Months Ended June
30, 2022 | |
| | |
| (Unaudited) | | |
| (Unaudited) | |
| Revenue - Cryptocurrency mining | |
$ | - | | |
$ | 3,235,134 | |
| Cost - Cryptocurrency mining | |
| 276,926 | | |
| 2,121,501 | |
| Administrative expenses | |
| (279,995 | ) | |
| 656,627 | |
| Impairment losses on cryptocurrencies | |
| - | | |
| 1,179,078 | |
| (Gain) on sales of cryptocurrencies | |
| - | | |
| (526,218 | ) |
| Operating income (loss) from discontinued operations | |
| 3,069 | | |
| (195,854 | ) |
| Other (loss) income, net | |
| (21,805 | ) | |
| 3,868 | |
| Interest income | |
| 9 | | |
| 106 | |
| (Loss) from discontinued operations before
income taxes | |
| (18,727 | ) | |
| (191,880 | ) |
| Income tax expense | |
| - | | |
| - | |
| Net (loss) from discontinued
operations | |
$ | (18,727 | ) | |
$ | (191,880 | ) |
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Assets
and liabilities of discontinued operations included within the Consolidated Balance Sheets are comprised of the following:
| | |
June
30, 2023 | | |
December
31, 2022 | |
| | |
| (Unaudited) | | |
| | |
| Cash and cash equivalents | |
$ | 1,716 | | |
$ | 8,649 | |
| Other current assets | |
| - | | |
| 37,015 | |
| Property, equipment and software, net | |
| 566,651 | | |
| 1,155,063 | |
| Right-of-use assets | |
| - | | |
| 125,538 | |
| Current assets from discontinued
operations | |
$ | 568,367 | | |
$ | 1,326,265 | |
| | |
| | | |
| | |
| Accounts payable | |
| - | | |
| 187,206 | |
| Accrued payroll and benefits | |
| 4,509 | | |
| 3,065 | |
| Other payables and accrued expenses | |
| 60,066 | | |
| 58,572 | |
| Lease liability | |
| - | | |
| 128,696 | |
| Current
liabilities from discontinued operations | |
$ | 64,575 | | |
$ | 377,539 | |
| | |
Six Months Ended June 30, 2023 | | |
Six Months Ended June 30, 2022 | |
| | |
(Unaudited) | | |
(Unaudited) | |
| Net cash provided by (used in) operating activities | |
$ | 109,202 | | |
$ | (1,339,952 | ) |
| Net cash provided by investing activities | |
| 237,635 | | |
| 2,835,736 | |
CRYPTOCURRENCIES
Cryptocurrencies
mainly included Bitcoin and Ethereum the Company held which were primarily received from mining activities.
The
following table presents the movements of cryptocurrencies as of June 30, 2023 and December 31, 2022:
SCHEDULE
OF MOVEMENTS OF CRYPTOCURRENCIES
| | |
June
30, 2023 | | |
December
31, 2022 | |
| | |
| (Unaudited) | | |
| | |
| Opening Balance | |
$ | - | | |
$ | 829,165 | |
| Receipt of cryptocurrencies from mining activities | |
| - | | |
| 4,108,372 | |
| Purchases of cryptocurrencies | |
| - | | |
| 1,066,338 | |
| Sales of cryptocurrencies | |
| - | | |
| (5,017,732 | ) |
| Payment of cryptocurrencies for other expenses | |
| - | | |
| (151,869 | ) |
| Realized gain on sale of cryptocurrencies | |
| - | | |
| 679,111 | |
| Impairment loss on cryptocurrencies | |
| - | | |
| (1,517,172 | ) |
| Others | |
| - | | |
| 3,787 | |
| Ending Balance | |
$ | - | | |
$ | - | |
11.
BANK LOANS
(a)
Short-term bank loans
SCHEDULE OF SHORT-TERM BANK DEBT
| | |
June
30, 2023 | | |
December
31, 2022 | |
| | |
(Unaudited) | | |
| |
| Secured
short-term loans | |
$ | 6,765,931 | | |
$ | 7,203,762 | |
| Total short-term bank
loans | |
$ | 6,765,931 | | |
$ | 7,203,762 | |
Detailed
information of secured short-term loan balances as of June 30, 2023 and December 31, 2022 were as follows:
SCHEDULE OF SECURED SHORT-TERM BANK DEBT
| | |
June
30, 2023 | | |
December
31, 2022 | |
| | |
(Unaudited) | | |
| |
| Guaranteed
by IST and Mr. Lin and Collateralized by the real property of ISIOT and equity investment of IST HK | |
$ | 6,765,931 | | |
$ | 7,203,762 | |
| Total | |
$ | 6,765,931 | | |
$ | 7,203,762 | |
As
of June 30, 2023, the Company had short-term bank loans of approximately $6.8 million, which mature on various dates from July 14, 2023
to September 22, 2023. The short-term bank loans may be extended upon maturity for another year by the banks without additional charges
to the Company. 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 fixed interest rates
ranging from 4.65% to 5.00% per annum. The weighted average interest rates on short term debt were approximately 4.76% and 4.86% for
the six months ended June 30, 2023 and 2022, respectively. The interest expenses were approximately $0.2 million and $0.2 million, respectively,
for the six months ended June 30, 2023 and 2022.
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
12.
INCOME TAXES
Pre-tax
(loss) income from continuing operations and discontinued operations for the six months ended June 30, 2023 and 2022 were taxable in
the following jurisdictions:
SCHEDULE OF INCOME BEFORE INCOME TAXES
| | |
Six
Months Ended | | |
Six
Months Ended | |
| | |
June
30, 2023 | | |
June
30, 2022 | |
| | |
(Unaudited) | | |
(Unaudited) | |
| PRC | |
$ | 414,924 | | |
$ | 19,347,915 | |
| HK | |
| (113,406 | ) | |
| (21,344,187 | ) |
| BVI | |
| (2,076,035 | ) | |
| - | |
| Total loss before income
taxes | |
$ | (1,774,517 | ) | |
$ | (1,996,272 | ) |
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, 2023.
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, TDAL, TDL and TCL are subject to a profit tax rate of 16.5%.
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, 2023 | | |
June
30, 2022 | |
| | |
(Unaudited) | | |
(Unaudited) | |
| Current
tax expense | |
$ | 34,513 | | |
$ | 4,283 | |
| Income tax expense | |
$ | 34,513 | | |
$ | 4,283 | |
Current
income tax expense (benefit) was recorded in 2023 and 2022 and was 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, 2023 | | |
June
30, 2022 | |
| | |
(Unaudited) | | |
(Unaudited) | |
| PRC statutory tax rate | |
| 25 | % | |
| 25 | % |
| Computed expected income tax (benefit) | |
$ | (443,629 | ) | |
$ | (499,068 | ) |
| Tax rate differential benefit from tax holiday | |
| (37,415 | ) | |
| 196,598 | |
| Permanent differences | |
| (191,646 | ) | |
| (768,715 | ) |
| Tax effect of deductible temporary differences
not recognized | |
| (116,103 | ) | |
| 331,895 | |
| Tax effect of tax losses
unrecognized | |
| 823,306 | | |
| 743,573 | |
| Income tax expense | |
$ | 34,513 | | |
$ | 4,283 | |
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
Company’s tax loss carry forwards totaling RMB166.7 million ($24.1 million) as of June 30, 2023, substantially all of which were
from PRC subsidiaries and will expire on various dates through June 30, 2028. Deferred tax asset was not provided for respective tax
losses.
IST
is approved as being high-technology enterprises and subject to PRC enterprise income tax rate (“EIT”) at 15%. For Biznest,
the income tax starts from the earning year, is tax exempt for the first two years and is subject to 12.5% income tax rate for year 3-5.
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 not recorded tax benefits as of June 30, 2023 and December 31,
2022, 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,
2023 and 2022.
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, 2023, and December 31, 2022, other current assets consist of: |
SCHEDULE OF OTHER CURRENT ASSETS
| | |
June
30, 2023 | | |
December
31, 2022 | |
| | |
(Unaudited) | | |
| |
| Advances to unrelated
parties (i) | |
$ | 1,169,497 | | |
$ | 837,041 | |
| Advances to a related party | |
| 233,953 | | |
| 246,080 | |
| Advances to employees | |
| 45,868 | | |
| 309,911 | |
| Other current assets | |
| 116,517 | | |
| 161,456 | |
| Total | |
$ | 1,565,835 | | |
$ | 1,554,488 | |
| (i) |
The
advances to unrelated parties for business development are non-interest bearing and are due on demand. |
As
of June 30, 2023, the balance included the amount due from a third-party vendor of approximately $496,000. According to the contract
and its subsequent amendment, the vendor is contracted to perform consulting service of market research as subcontractor and to facilitate
the development of the new media advertising market.
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 RMB6 million (approximately USD $827,000). Meanwhile, the Company agrees to pay the vendor a
12% commission fee based on the advertising revenue it has facilitated, and a 50% subcontractor fee based on the consulting services
revenue, tax inclusive.
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 15 million (approximately USD
$2,294,400). The threshold revenue is to increase by 30% in the year 2022. For the year ended December 31, 2021, revenue facilitated
by the vendor has reached RMB15.2 million (approximately USD $2,386,360). In December 2022, both parties agreed a one-year extension
to fulfill the revenue threshold for year 2022. For the year ended December 31, 2022, revenue facilitated by the vendor has reached RMB7.5
million (approximately USD $1,111,000). For the six months ended June 30, 2023, revenue facilitated by the vendor has reached RMB4.8
million (approximately USD $700,000). The Company will continue to monitor the revenue facilitated by the vendor and assess if an event
occurs or circumstance changes that would potentially indicate that the carrying amount of the receivable was impaired.
| (b) |
As
of June 30, 2023 and December 31, 2022, Other assets, non-current consist of: |
SCHEDULE OF OTHER NON-CURRENT ASSETS
| | |
June
30, 2023 | | |
December
31, 2022 | |
| | |
(Unaudited) | | |
| |
| Other assets,
non-current, net | |
$ | 1,240,191 | | |
$ | 1,775,540 | |
| Total | |
$ | 1,240,191 | | |
$ | 1,775,540 | |
During
2019 and 2020, the Company advanced RMB 30 million (USD $4.1 million) to a vendor, whom the Company has contracted to develop a vehicular
IOT smart advertising software (“Internet of Vehicle” or “IOV” software) to interconnect to the Company’s
new media advertising sharing platform expanding its advertising capability to people riding in motor vehicles. According to the contract
and its subsequent amendment, total commitment of the funding was RMB 30 million (USD $4.1 million). The vendor is solely responsible
for hardware and software development and marketing the vehicular terminal. The Company financially supports development cost of IOV
software in exchange for advertising revenue generated from the software for four years of the contract term.
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 100% of the title of the IOV software and related equipment, which will be
transferred to the vendor upon its repayment of the total funding plus applicable interest.
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 3 million (approximately USD $462,000). The revenue is to increase
incrementally by 15% in every six months going forward until the contract expires four years after the commencing date of the operation.
The first period as specified was from October 1, 2020 to April 30, 2021 with advertising revenue from IOV software of RMB 3 million
(approximately USD $462,000). The second period as specified was from May 1, 2021 to November 30, 2021 with advertising revenue from
IOV software of RMB 3.3 million (approximately USD $510,000). The third period as specified was from December 1, 2021 to May 30, 2022
with advertising revenue from IOV software of RMB 3.4 million (approximately USD $531,000). The fourth period as specified was from June
1, 2022 to November 30, 2022 with advertising revenue from IOV software of RMB 14.1 million (approximately USD $2,285,000). The fifth
period as specified was from December 1, 2022 to May 30, 2023 with advertising revenue from IOV software of RMB 3.9 million (approximately
USD $562,000). The Company will continue to monitor advertising revenue generation from the IOV software and evaluate for impairment,
if an event occurs or circumstance changes that would potentially indicate that the carrying amount of the asset exceeded its fair value.
The vendor will own the title of the IOV software upon its fulfillment of the contract obligations after three years.
The
development of IOV software was completed by September 30, 2020. Since the Company has the right to use the IOV software under the contract
term, software was capitalized as “other assets, non-current, net” and started to amortize from October 1, 2020 over the
four-year contract term. As of June 30, 2023 and December 31, 2022, the balance of “other assets, non-current, net” was $1,240,191
and $1,775,540, respectively. The reduction of the amount receivable was approximately $0.5 million for the period ended June 30, 2023.
If
full repayment is achieved within the contract term, the Company might be charged to continue using the software and related equipment,
depending on both parties’ future agreement.
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, the Company leased an office space, three server rooms, and a dormitory in Hong Kong for executing the Blockchain business strategy,
and the Company also leased an office space in Zhenjiang commenced on October 1, 2021. The office space and three server rooms in Hong
Kong were terminated in September 2022, November 2022, and April 2023, respectively. The fixed monthly lease payment for the Zhenjiang
office space is $2,582 (RMB 17,882) with a lease term of three years ending September 30, 2024, with a rental free period from October
1, 2021 to March 31, 2022. The fixed monthly lease payment for the dormitory is $4,338 (HKD 34,000) including rental and management fee
with a lease term of two years ending April 19, 2023. All lease agreements have no variable lease payment nor option to purchase the
underlying assets. There was no initial direct cost associated with the office space lease agreement.
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 $16,000 for continuing operations and approximately $25,000 for discontinued operations
for the period ended June 30, 2023.
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 $ nil for the year subsequent to June 30, 2023.
Weighted-average
remaining lease term as of June 30, 2023, and discount rate for its operating leases are as follows:
SCHEDULE OF OPERATING LEASE
| Weighted-average remaining lease term | |
| 15.3
months | |
| Weighted-average discount rate | |
| 4.75 | % |
The
weighted-average discount rate was based on the three-year interest rate of People’s Bank of China.
The
following table outlines maturities of operating lease liabilities as of June 30, 2023:
SCHEDULE OF MATURITIES OF OPERATING LEASE LIABILITIES
| Year ending
June 30 | |
Leases
for office | |
| 2023 | |
| 14,784 | |
| 2024 | |
| 19,713 | |
| Total lease payments | |
| 34,497 | |
| Less: Imputed interest | |
| (1,003 | ) |
| Present value of lease liabilities | |
$ | 33,494 | |
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
15.
LONG-TERM INVESTMENTS
As
of June 30, 2023, the carrying value of the Company’s equity investments were $68,717, which consisted of the followings:
(1)
Equity method investments:
As
of June 30, 2023, the Company’s equity method investments had a carrying value of $7,029 which were as follows:
SCHEDULE OF EQUITY METHOD INVESTMENTS
| Investees | |
Abbreviation | |
%
of Ownership | | |
Carrying
value | |
| Qingdao Taoping IoT Co., Ltd. | |
QD Taoping, or QD | |
| 47 | % | |
$ | - | |
| Yunnan Taoping IoT Co., Ltd. | |
YN Taoping, or YN | |
| 40 | % | |
| - | |
| Jiangsu Taoping IoT Technology Co., Ltd. | |
JS Taoping, or JS | |
| 25 | % | |
| - | |
| Jiangsu Taoping New
Media Co., Ltd | |
JS New Media, or JN | |
| 21 | % | |
| 7,029 | |
| | |
| |
| | | |
$ | 7,029 | |
The
Company’s initial investments in the above equity method investments were approximately $1.9 million. The Company recognized losses
from equity method investments of approximately $800 and no impairment on equity method investments for the six months ended June 30,
2023. The Company recognized losses from equity method investments of approximately $0.3 million and no impairment on equity method investments
for the six months ended June 30, 2022.
(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, 2023 and December 31, 2022, the carrying value for the equity investments without readily determinable fair value was $61,688
and $87,734, respectively. The total initial investments to the equity investments without readily determinable fair value were approximately
$711,000. Impairment of approximately $0.02 million was recognized for the six months ended June 30, 2023. Impairment of approximately
$0.03 million was recognized for the six months ended June 30, 2022.
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
16.
OTHER PAYABLES AND ACCRUED EXPENSES
As
of June 30, 2023 and December 31, 2022, other payables and accrued expenses consist of:
SCHEDULE OF OTHER PAYABLE AND ACCRUED EXPENSES
| | |
June
30, 2023 | | |
December
31, 2022 | |
| | |
(Unaudited) | | |
| |
| Advances from
unrelated third parties (i) | |
$ | 869,648 | | |
$ | 395,359 | |
| Other taxes payable (ii) | |
| 3,401,184 | | |
| 4,216,786 | |
| Accrued professional fees | |
| 179,595 | | |
| 215,889 | |
| Amount due to employees (iii) | |
| 74,780 | | |
| 41,782 | |
| Others | |
| 169,400 | | |
| 126,528 | |
| Other
Payables and Accrued Expenses | |
$ | 4,694,607 | | |
$ | 4,996,344 | |
| (i) |
The
advances from unrelated parties are non-interest bearing and due on demand. |
| |
|
| (ii) |
The
other taxes payable were the amounts due to the value added tax, business tax, city maintenance and construction tax, and individual
income tax. |
| |
|
| (iii) |
The
amounts due to employees were pertaining to employees’ out-of-pocket expenses for travel and meal allowance, etc. |
17.
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 10% of their annual after-tax profits determined in accordance with PRC statutory financial statements to a statutory
general reserve fund until the amounts in said fund reaches 50% of their registered capital. As of June 30, 2023 and December 31, 2022,
the balance of general reserve was $10.2 million and $10.2 million, respectively.
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. 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.
18.
EQUITY
(a)
Ordinary shares
The
Company is authorized to issue 100,000,000 ordinary shares.
In
February 2022, the Company issued the first phase of approximately 6,718 restricted ordinary shares with a fair value of approximately
$118,000, for the acquisition of ZJIOT. The Company agreed to issue to the shareholders of ZJIOT a total of approximately 20,154 restricted
ordinary shares in three phases, conditioned upon the satisfaction of certain performance targets.
In
March 2022 and July 2022, the Company issued 2,000 ordinary shares with a fair value of $23,100 to a consultant as a compensation for
his service.
In
April 2023, the Company issued the second phase of approximately 6,718 restricted ordinary shares with a fair value of approximately
$49,000, for the acquisition of ZJIOT, upon the satisfaction of certain performance targets.
In
May 2023, the Company issued 50,000 restricted shares to a consultant as its service compensation for the service period from May 26,
2023 to May 25, 2024. The fair value of the 50,000 ordinary shares was $340,000, which is amortized over the service period.
In
May 2023, the Company issued 200,000 ordinary shares with fair value of approximately $1,360,000 to certain directors, executive officers,
and employees as compensations for their services.
(b)
Stock-based compensation
The
following table provides the details of the approximate total share-based payments expense during the six months ended June 30, 2023
and 2022:
SCHEDULE OF SHARE BASED PAYMENTS EXPENSE
| | |
Six
Months Ended June 30, 2023 | | |
Six
Months Ended June 30, 2022 | |
| | |
(Unaudited) | | |
(Unaudited) | |
| Employees and directors share-based
payments | |
$ | 1,360,000 | (a) | |
$ | - | |
| Shares issued for services | |
| 32,603 | (a) | |
| 14,500 | (a) |
| Total
share based payments expenses | |
$ | 1,392,603 | | |
$ | 14,500 | |
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 hundred thousand 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.
Stock
option activity for the six months ended June 30, 2023 is summarized as follows:
SUMMARY OF STOCK OPTION ACTIVITY
| | |
| | |
Weighted | | |
Weighted Average
Remaining | | |
| |
| | |
Options | | |
Average
Exercise | | |
Contractual
Life | | |
Aggregated
Intrinsic | |
| | |
Outstanding | | |
Price | | |
(Years) | | |
Value | |
| Outstanding at January 1, 2023 | |
| 28,250 | | |
$ | 24.0 | | |
| 0.6 | | |
$ | - | |
| Exercised | |
| - | | |
| - | | |
| | | |
| | |
| Canceled | |
| (400 | ) | |
$ | 24.0 | | |
| | | |
| | |
| Outstanding at June 30, 2023 (Unaudited) | |
| 27,850 | | |
$ | 24.0 | | |
| 0.1 | | |
$ | - | |
| Vested and expected to be vested as of June
30, 2023 (Unaudited) | |
| 27,850 | | |
$ | 24.0 | | |
| 0.1 | | |
$ | - | |
| Options exercisable as of June 30, 2023 (vested) (Unaudited) | |
| 27,850 | | |
$ | 24.0 | | |
| 0.1 | | |
$ | - | |
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
There
were no stock options granted to employees during the years ended June 30, 2023 and 2022. There was no option exercised during the six
months ended June 30, 2023 and 2022.
As
of June 30, 2023, 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, 2023, and 2022 was approximately $ nil and $ nil, 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, 2023 and 2022, the Company issued nil and nil warrants to consultants,
respectively. The Company expensed to administrative expense approximately $ nil and $ nil for the six months ended June 30, 2023 and
2022, respectively. During the six months ended June 30, 2023, no options or warrants were exercised.
The
following table outlines the options and warrants outstanding and exercisable as of June 30, 2023:
SCHEDULE OF WARRANT OUTSTANDING AND EXERCISABLE
| | |
June 30, 2023
Number of Warrants Outstanding | | |
Exercise | | |
Expiration | |
| | |
and
Exercisable | | |
Price | | |
Date | |
| | |
| | |
| | |
| |
| July 2020
stock options to consultants | |
| 5,737 | | |
$ | 26.4 | | |
| 07/09/2023 | |
| Total | |
| 5,737 | | |
| | | |
| | |
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
19.
CONSOLIDATED SEGMENT DATA
Selected
information by segment is presented in the following tables for the six months ended June 30, 2023 and 2022.
SCHEDULE OF SEGMENT REPORTING
| | |
Six
Months Ended
June 30, 2023
(Unaudited) | | |
Six
Months Ended
June 30, 2022
(Unaudited) | |
| Revenues (1) | |
| | | |
| | |
| TIT Segment | |
$ | 178,401 | | |
$ | 122,085 | |
| CBT
Segment | |
| 13,899,608 | | |
| 7,179,437 | |
| | |
$ | 14,078,009 | | |
$ | 7,301,522 | |
| (1) |
Revenues
by operating segments exclude intercompany transactions. |
| | |
Six
Months Ended
June 30, 2023
(Unaudited) | | |
Six
Months Ended
June 30, 2022
(Unaudited) | |
| (Loss) income from operations | |
| | | |
| | |
| TIT Segment | |
$ | (21,900 | ) | |
$ | (593,851 | ) |
| CBT Segment | |
| 516,473 | | |
| (1,978,538 | ) |
| Corporate
and others (2) | |
| (2,170,806 | ) | |
| (238,071 | ) |
| (Loss) from operations
| |
| (1,676,233 | ) | |
| (2,810,460 | ) |
| Corporate other income,
net | |
| 182,254 | | |
| 1,293,765 | |
| Corporate interest income | |
| 609 | | |
| 1,010 | |
| Corporate
interest expense | |
| (262,420 | ) | |
| (288,707 | ) |
| (Loss) before income taxes | |
| (1,755,790 | ) | |
| (1,804,392 | ) |
| Income tax expense | |
| (34,513 | ) | |
| (4,283 | ) |
| Income from continuing operations | |
| (1,790,303 | ) | |
| (1,808,675 | ) |
| Income from discontinued
operations | |
| (18,727 | ) | |
| (191,880 | ) |
| Net loss | |
| (1,809,030 | ) | |
| (2,000,555 | ) |
| Less: Loss attributable
to the non-controlling interest | |
| - | | |
| - | |
| Net
loss attributable to the Company | |
$ | (1,809,030 | ) | |
$ | (2,000,555 | ) |
| (2) |
Includes
non-cash compensation, professional fees and consultancy fees for the Company. |
Non-cash
employee compensation by segment for the six months ended June 30, 2023 and 2022 are as follows:
| | |
| | |
| |
| | |
Six
Months Ended
June 30, 2023
(Unaudited) | | |
Six
Months Ended
June 30, 2022
(Unaudited) | |
| |
|
|
|
|
|
|
|
|
| Non-cash employee compensation: | |
| | | |
| | |
| Corporate
and others | |
$ | 1,360,000 | | |
$ | - | |
| Non-cash
compensation | |
$ | 1,360,000 | | |
$ | - | |
Depreciation
and amortization by segment for six months ended June 30, 2023 and 2022 are as follows:
| | |
Six
Months Ended June 30, 2023 (Unaudited) | | |
Six
Months Ended June 30, 2022 (Unaudited) | |
| Depreciation and amortization: | |
| | | |
| | |
| TIT Segment | |
$ | 22,380 | | |
$ | 23,996 | |
| CBT Segment | |
| 1,259,306 | | |
| 2,165,574 | |
| Corporate
and others | |
| 7,586 | | |
| - | |
| | |
$ | 1,289,272 | | |
$ | 2,189,570 | |
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
| | |
Six
Months Ended
June 30, 2023
(Unaudited) | | |
Six
Months Ended
June 30, 2022
(Unaudited) | |
| Provisions for allowance
for credit losses on accounts receivable, other receivable and advances to suppliers: | |
| | | |
| | |
| TIT Segment | |
$ | (12,331 | ) | |
$ | (39,372 | ) |
| CBT
Segment | |
| 986,240 | | |
| (360,363 | ) |
| | |
$ | 973,909 | | |
$ | (399,735 | ) |
| | |
Six
Months Ended
June 30, 2023
(Unaudited) | | |
Six
Months Ended
June 30, 2022
(Unaudited) | |
| Inventory obsolescence provision: | |
| | | |
| | |
| TIT Segment | |
$ | 2,455 | | |
$ | 60,021 | |
| CBT
Segment | |
| 6,003 | | |
| 103,864 | |
| | |
$ | 8,458 | | |
$ | 163,885 | |
Total
assets by segment as of June 30, 2023 and December 31, 2022 are as follows:
| | |
June
30, 2023
(Unaudited) | | |
December
31, 2022 | |
| Total assets | |
| | | |
| | |
| TIT Segment | |
$ | 406,379 | | |
$ | 254,579 | |
| CBT Segment | |
| 27,026,021 | | |
| 27,200,882 | |
| Assets from discontinued
operations | |
| 568,367 | | |
| 1,326,265 | |
| Corporate
and others | |
| 377,390 | | |
| 427,089 | |
| | |
$ | 28,378,157 | | |
$ | 29,208,815 | |
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
20.
COMMITMENTS AND CONTINGENCIES
The
Company received a notification from Nasdaq Listing Qualifications on September 16, 2022, as announced in a report on Form 6-K filed
with the SEC on September 16, 2022, that the Company was not in compliance with the minimum bid price requirements set forth in Nasdaq
Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. On March 16, 2023, the Company received a letter from The
Nasdaq Stock Market LLC confirming the Company has been granted an additional 180 calendar day period for compliance under its minimum
bid price requirement through September 11, 2023. On August 15, 2023, the Company regained compliance with the NASDAQ listing requirements,
after the one-for-ten reverse stock split effective on August 1, 2023, according to the NASDAQ notice.
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.
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. However, since the Company has ceased the cryptocurrency mining business by December 2022, the risk of potential legal proceedings
may not be applicable going forward.
21.
CONCENTRATIONS
For
the six months ended June 30, 2023 and 2022, no single customer accounted for greater than 10% of the total revenues. The Company’s
top five customers in aggregate accounted for 31% and 34% of the Company’s revenues of continuing operations, for each of the six
months ended June 30, 2023 and 2022, respectively.
The
Company’s top five customers in aggregate accounted for 43% of total accounts receivable as of June 30, 2023, while two customers’
balance accounted for 11% and 10%, respectively. The Company’s top five customers in aggregate accounted for 30% of total accounts
receivable as of December 31, 2022, while one customer accounted for 12% of accounts receivable.
For
the six months ended June 30, 2023 and 2022, approximately 69% and 85%, respectively, of total purchases were from five unrelated suppliers.
Two suppliers each accounted for 23% and 18%, respectively, of total purchases for the six months ended June 30, 2023, and two suppliers
each accounted for 36% and 23%, respectively, of total purchases for the six months ended June 30, 2022.
TAOPING
INC.
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
22.
SUBSEQUENT EVENTS
On
July 17, 2023, the Company entered into a Standby Equity Purchase Agreement (the “Public SEPA”) with SHANJING CAPITAL GROUP
CO., LTD (the “Investor”). Pursuant to the Public SEPA, the Company shall have the right, but not the obligation, to sell
to the Investor up to $1,000,000 of its ordinary shares, no par value (the “Public SEPA Shares”), at the Company’s
request any time during the commitment period commencing on July 17, 2023 and terminating on the earliest of (i) the first day of the
month following the 24-month anniversary of the date of the Public SEPA and (ii) the date on which the Investor shall have made payment
of advances requested pursuant to the Public SEPA for the Company’s Public SEPA Shares equal to the commitment amount of $1,000,000.
The Public SEPA Shares would be purchased at 85.0% of the Market Price (as defined below), provided that in no event shall such purchase
price be less than $0.20 per share (the “Floor Price”), and would be subject to certain limitations, including that the Investor
could not purchase any shares that would result in it owning more than 4.99% of the Company’s outstanding ordinary shares at the
time of an advance (the “Ownership Limitation”) or 19.99% of the Company’s outstanding ordinary shares as of July 17,
2023 (the “Exchange Cap”). The Exchange Cap will not apply if the Company’s shareholders have approved issuances in
excess of the Exchange Cap or if the Company is able to invoke the home country practice exemption in accordance with the rules of the
Nasdaq Stock Market. As defined in the Public SEPA, “Market Price” means the number obtained when the aggregate value of
the Company’s ordinary shares (each trading day closing price times the number of shares traded in such trading day) traded on
the Nasdaq Stock Market during the five (5) trading days immediately preceding the date set forth in any notice requesting an advance,
is divided by the total number of ordinary shares traded during such five (5) trading days’ period.
In
connection with the execution of the Public SEPA, the Company agreed to issue an aggregate of 4,339 ordinary shares of the Company (the
“Public Commitment Fee Shares”) to the Investor as consideration for its irrevocable commitment to purchase the Public SEPA
Shares upon the terms and subject to the satisfaction of the conditions set forth in the Public SEPA.
On
the same date, the Company entered into another Standby Equity Purchase Agreement (the “Private SEPA”) with the same Investor.
Pursuant to the Private SEPA, the Company shall have the right, but not the obligation, to sell to the Investor up to $10,000,000 of
ordinary shares of the Company (the “Private SEPA Shares”), at the Company’s request any time during the commitment
period commencing on July 17, 2023 and terminating on the earliest of (i) the first day of the month following the 36-month anniversary
of the date of the Private SEPA and (ii) the date on which the Investor shall have made payment of advances requested pursuant to the
Private SEPA for the Company’s Private SEPA Shares equal to the commitment amount of $10,000,000. Each advance the Company requests
under the Private SEPA may be for a number of the Company’s ordinary shares with an aggregate value of up to $1,000,000. The Private
SEPA Shares would be purchased at 85.0% of the Market Price which has the same meaning as that term in the Public SEPA. The purchase
price in any advance under the Private SEPA shall not be less than the same Floor Price as under the Public SEPA, or $0.20 per share.
The advances under the Private SEPA are subject to the same Ownership Limitation and Exchange Cap as under the Public SEPA.
In
connection with the execution of the Private SEPA, the Company agreed to issue an aggregate of 43,394 ordinary shares of the Company
(the “Private Commitment Fee Shares”) to the Investor as consideration for its irrevocable commitment to purchase the Private
SEPA Shares upon the terms and subject to the satisfaction of the conditions set forth in the Private SEPA.
On
July 31, 2023, the Company announced that the board of directors of the Company approved a one-for-ten reverse stock split of the Company’s
issued and outstanding ordinary shares. Beginning August 1, 2023, the Company’s ordinary shares started trading on a split-adjusted
basis under the same symbol “TAOP” but with new CUSIP number, G8675V 127.
As
a result of the share consolidation, each ten ordinary shares outstanding automatically combined and converted to one issued and outstanding
ordinary share without any action on the part of shareholders who hold their shares in brokerage accounts or “street name”.
Shareholders holding certificates of ordinary shares are expected to receive instructions from the Company’s transfer agent, Transhare
Corporation, regarding procedures for exchanging share certificates. All outstanding options, warrants and other rights to purchase the
Company’s ordinary shares were adjusted proportionately as a result of the reverse stock split. No fractional shares were issued
as a result of the reverse stock split, and instead, all such fractional shares resulting from the reverse stock split were rounded up
to the nearest whole share.
The
reverse stock split was intended to increase the per share trading price of the ordinary shares to satisfy the $1.00 minimum bid price
requirement for continued listing on the NASDAQ Stock Market. Immediately following the reverse stock split the Company had approximately
1.86 million ordinary shares issued and outstanding, exclusive of shares issuable under outstanding options and warrants. The reverse
stock split had affect the number of total authorized ordinary shares of the Company.
On
August 2, 2023, the Company issued 80,000 ordinary shares to the Investor at a price of approximately $4.626 per share, pursuant to
the previously announced Public SEPA. The total purchase price and proceeds the Company received from the sale of the shares is $370,080.
These shares were issued as part of the commitment by Investor to purchase from time to time, at our option, up the Company’s $1,000,000
of our ordinary shares pursuant to the Public SEPA, as described in the Form 6-K dated July 19, 2023.
Exhibit
99.2
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
IN
CONNECTION WITH THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX
MONTHS
ENDED JUNE 30, 2023
In
this report, as used herein, and unless the context suggests otherwise, the terms “TAOP,” “Company,” “we,”
“us” or “ours” refer to the combined business of Taoping Inc. (F/K/A China Information Technology, Inc.), its
subsidiaries and other consolidated entities. References to “dollar” and “$” 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,
2022 filed with the SEC on April 25, 2023 (the “2022 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 2022 Form 20-F under “Item 3. Key Information-D. Risk Factors” or in other parts of the 2022 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.
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. Starting from 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.
In
June, 2021, the Company consummated an acquisition of 100% of the equity interest of Taoping New Media Co., Ltd (“TNM”),
a leading media operator in China’s out-of-home digital advertising industry. TNM focuses on digital life scenes and mainly engaged
in selling out-of-home advertising time slots on its networked smart digital advertising display terminals with artificial intelligence
and big data technologies.
In
2021, the Company ventured into blockchain related business through the launch of cryptocurrency mining operations and established new
subsidiaries in Hong Kong to diversity revenue streams, following a decline in its Traditional Information Technology (TIT) business
segment.
In
September 2021, the Company and the Company’s wholly owned subsidiary, Information Security Technology (China) Co., Ltd. entered
into an equity transfer agreement with Mr. Jianghuai Lin, the sole shareholder of iASPEC. Upon closing of the equity transfer, the Company’s
existing variable interest entity structure was dissolved and iASPEC became a wholly owned indirect subsidiary of the Company.
In
January 2022, the Company completed the acquisition of 100% equity interest of Zhenjiang Taoping IoT Tech. Co., Ltd. (“ZJIOT”),
aiming to accelerate the Company’s smart charging pile and digital new media businesses in East China.
In
December 2022, the Company entered into a series of contracts with certain third parties to sell its cryptocurrency mining and related
equipment. The Company also terminated the leases for both the office facility and the storage rooms, which were previously used to house
most of its mining machines for its cryptocurrency mining operations, and laid off relevant employees. As a result, the Company had ceased
its cryptocurrency mining business by December 31, 2022.
The
Company’s business was negatively impacted by COVID-19 pandemic from fiscal year 2020 to 2022. Since the pandemic was largely contained
in China in late 2022, and as a result of the recovery of market conditions and customer demands, the Company’s revenue of continuing
operations continued to grow in the first half of 2023. Revenue
in the first half of 2023 was $14.1 million, compared to $7.3 million for the same period of 2022, an increase of $6.8 million, or 92.8%.
The Company incurred a net loss of approximately $1.8 million for the six months ended June 30, 2023, an improvement from the net loss
of approximately $2.0 million for the same period of last year.
Effective
at the market opening on August 1, 2023, the Company implemented a one-for-ten share combination of its issued and outstanding ordinary
shares where every ten ordinary shares outstanding were automatically combined and converted into one issued and outstanding ordinary
share. Any fractional shares resulting from the share combination were rounded up to the nearest whole share. The share combination was
intended to increase the per share trading price of the Company’s ordinary shares to satisfy the $1.00 minimum bid price requirement
for continued listing on the NASDAQ Stock Market. The Company regained compliance with the Nasdaq minimum bid price rule on August 15,
2023. This share combination did not change the number of shares the Company is authorized to issue or the par value of the ordinary
shares. Accordingly, except as otherwise indicated, all share and per share information contained in this report on Form 6-K has been
restated to retroactively show the effect of the share combination.
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.
Results
of Operations
The
following table sets forth key components of our results of operations for the first six months ended June 30, 2023 and 2022, both in
dollars and as a percentage of our revenue.
| | |
Six Months Ended June 30, 2023 | | |
Six Months Ended June 30, 2022 | |
| | |
(Unaudited) | | |
| | |
(Unaudited) | | |
| |
| | |
Amount | | |
% of Revenue | | |
Amount | | |
% of Revenue | |
| Revenue | |
$ | 14,078,009 | | |
| 100.00 | % | |
$ | 7,301,522 | | |
| 100.00 | % |
| Costs of revenue | |
| 10,203,109 | | |
| 72.48 | % | |
| 4,715,394 | | |
| 64.58 | % |
| Gross profit | |
| 3,874,900 | | |
| 27.52 | % | |
| 2,586,128 | | |
| 35.42 | % |
| Administrative expenses | |
| (3,750,087 | ) | |
| (26.64 | )% | |
| (3,002,768 | ) | |
| (41.13 | )% |
| Research and development expenses | |
| (1,585,894 | ) | |
| (11.27 | )% | |
| (2,050,609 | ) | |
| (28.08 | )% |
| Selling expenses | |
| (215,152 | ) | |
| (1.53 | )% | |
| (343,211 | ) | |
| (4.70 | )% |
| Loss from operations | |
| (1,676,233 | ) | |
| (11.91 | )% | |
| (2,810,460 | ) | |
| (38.49 | )% |
| Subsidy income | |
| 142,324 | | |
| 1.01 | % | |
| 89,596 | | |
| 1.23 | % |
| Loss from equity method investment | |
| (836 | ) | |
| (0.01 | )% | |
| (307,403 | ) | |
| (4.21 | )% |
| Other income (loss), net | |
| 40,767 | | |
| 0.29 | % | |
| 1,511,572 | | |
| 20.70 | % |
| Interest expense and debt discounts, net of interest income | |
| (261,812 | ) | |
| (1.86 | )% | |
| (287,697 | ) | |
| (3.94 | )% |
| Loss before income taxes | |
| (1,755,790 | ) | |
| (12.47 | )% | |
| (1,804,392 | ) | |
| (24.71 | )% |
| Income tax expense | |
| (34,513 | ) | |
| (0.25 | )% | |
| (4,283 | ) | |
| (0.06 | )% |
| Net loss from continuing operations | |
| (1,790,303 | ) | |
| (12.72 | )% | |
| (1,808,675 | ) | |
| (24.77 | )% |
| Net loss from discontinued operations | |
| (18,727 | ) | |
| (0.13 | )% | |
| (191,880 | ) | |
| (2.63 | )% |
| Net loss | |
| (1,809,030 | ) | |
| (12.85 | )% | |
| (2,000,555 | ) | |
| (27.40 | )% |
| Less: net loss attributable to non- controlling Interest | |
| - | | |
| - | % | |
| - | | |
| - | % |
| Net loss attributable to the Company | |
$ | (1,809,030 | ) | |
| (12.85 | )% | |
$ | (2,000,555 | ) | |
| (27.40 | )% |
Revenue
Revenue
was $14.1 million for the first six months of 2023, compared to $7.3 million for the same period of last year, an increase of $6.8 million,
or 92.8%. The increase was primarily due to an increase of $5.2 million revenue from products, and an increase of $2.0 million of software
revenue. The Company expects that revenue for the second half of 2023 would increase as a result of the growth of advertising businesses,
as well as product sales of its cloud-based screens, terminals, and other new applications.
Cost
of Revenue and Gross Profit
Cost
of revenue was $10.2 million for the six months ended June 30, 2023, compared to $4.7 million for the same period of 2022. As a percentage
of revenue, our cost of revenue increased to 72.5% for the first six months of 2023, from 64.6% for the same period of 2022. As a result,
gross profit as a percentage of revenue was 27.5% for the first six months ended June 30, 2023 compared with 35.4% for the same period
of 2022. The increase in the overall gross profits was in line with the increase of total revenue. The decrease in the overall gross
margin was primarily resulted from the decreased margin of advertising business. The Company expects that the gross margin for the remaining
of 2023 would be consistent with the first half of the year.
Administrative,
R&D and Selling expenses
Administrative
expenses increased by $0.8 million, or 24.9%, to $3.8 million for the first six months of 2023, from $3.0 million for the same period
of 2022. Such increase was mainly caused by the increase in share-based compensation of $1.2 million to certain directors, executive
officers, employees, and certain consultants, offset by the decrease of $0.5 million of professional service fee. As a percentage of
revenue, administrative expenses decreased to 26.6% for the first six months of 2023, from 41.1% for the same period of 2022. The Company
expects that the administrative expenses for the remaining of 2023 would decrease as a result of the decrease of share-based compensation.
Research
and development (“R&D”) expenses decreased by $0.5 million, or 22.7%, to $1.6 million for the first six months of 2023,
from $2.1 million for the same period of 2022. Such decrease was primarily due to the decrease in depreciation expenses of purchased
software, and the decrease in payroll and benefits to R&D staff. As a percentage of revenue, R&D expenses decreased to 11.3%
for the first six months of 2023, from 28.1% for the same period of last year. R&D expenses for the remaining of 2023 are expected
to be consistent with revenue growth.
Selling
expenses decreased by $0.1 million, or 37.3%, to $0.2 million for the first six months of 2023, from $0.3 million for the same period
of 2022. The decrease was primarily due to the decrease of selling activities related costs. Selling expenses for the remaining of 2023
are expected to be consistent with revenue growth.
Other
income (loss), net
Other
income for the first six months of 2023 was approximately $0.04 million, compared to other income of approximately $1.5 million for the
first six months of 2022. Other income in the first half of 2022 was mainly the income generated from the disposition of a subsidiary.
Net
loss attributable to Company
As
a result of the cumulative effect of the foregoing factors, we had a net loss attributable to the Company of $1.8 million for the first
six months of 2023, improved from to a net loss of $2.0 million for the same period of last year.
Business
Acquisition
On
June 9, 2021, the Company, through its then consolidated affiliated entity, Biznest Internet Technology Co., Ltd., 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 ZJIOT, aiming to accelerate
the Company’s smart charging pile and digital new media businesses in East China. Pursuant to the share purchase agreement, as
a consideration, the Company agreed to issue to the shareholders of ZJIOT a total of approximately 20,154 restricted ordinary
shares. The shares are expected to be issued in three phases. The first one-third of the shares were issued within 20 days after closing
of the transaction; the second one-third of the shares were issued before May 31, 2023 and the remaining shares are to be issued before
May 31, 2024. Issuance of shares during the second and third phases are conditioned upon the satisfaction of certain performance targets
of ZJIOT as set forth in the share purchase agreement. 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, 2022 included revenue of $1.13 million and net
loss of $0.31 million attributable to TNM.
The
Company’s consolidated statement of operations for the six months ended June 30, 2023 included revenue of $0.71 million and net
profit of $0.25 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.
The
Company’s consolidated statement of operations for the six months ended June 30, 2023 included revenue of $0.05 million and net
loss of $0.1 million attributable to ZJIOT.
Liquidity
and Capital Resources
As
of June 30, 2023, we had cash and cash equivalents of $0.5 million.
As
of June 30, 2023, the Company had short-term bank loans of approximately $6.8 million, maturing on various dates from July 14, 2023 to
September 22, 2023. These loans may be extended for another year by the banks upon maturity without additional charges to the Company.
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 fixed interest rates ranging from
4.65% to 5.00% per annum. The weighted average interest rates on short term debt were approximately 4.76% and 4.86% for the six months
ended June 30, 2023 and 2022, respectively. Correspondingly, interest expenses were approximately $0.2 million and $0.2 million, respectively,
for the six months ended June 30, 2023 and 2022.
The
Company has renewed the bank facility line with a value of approximately $2.6 million in July 2023.
In
addition, on July 17, 2023, the Company entered into a public standby equity purchase agreement and a private standby equity purchase
agreement with an investor. Pursuant to the agreements, the Company has the right, but not the obligation, to sell to the investor up
to $1,000,000 and $10,000,000, respectively, of its ordinary shares, within 24 months and 36 months, respectively, from the date of the
agreements.
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 negative impact
of 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.
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.
The
allowance for credit losses at June 30, 2023 and December 31, 2022, totaled approximately $24.6 million and $25.5 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, 2023.
| Balance at December 31, 2022 | |
$ | 25,484,295 | |
| Increase in allowance for credit losses | |
| 973,909 | |
| Foreign exchange difference | |
| (1,809,738 | ) |
| Balance at June 30, 2023 (Unaudited) | |
$ | 24,648,466 | |
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, 2023, the Company had cash and cash equivalents of $0.5 million, compared to cash and cash equivalents of $1.0 million of
December 31, 2022. Working capital surplus was $1.3 million as of June 30, 2023, compared to a working capital deficit of $0.2 million
as of December 31, 2022.
| | |
Six Months Ended June 30, 2023 | | |
Six Months Ended June 30, 2022 | |
| | |
| (Unaudited) | | |
| (Unaudited) | |
| Net cash used in operating activities | |
$ | (670,271 | ) | |
$ | (5,134,364 | ) |
| Net cash (used in) provided by investing activities | |
$ | (348,070 | ) | |
$ | 1,998,683 | |
| Net cash provided by (used in) financing activities | |
$ | 346,394 | | |
$ | (139,082 | ) |
Operating
Activities
Net
cash used in operating activities was approximately $0.7 million for the first six months of 2023, a significant improvement from the
net cash used in operating activities of approximately $5.1 million for the same period of 2022. For the first six months of 2023, the
slight operating cash outflow was primarily attributable to the increase in inventories and the decrease in accounts payable.
Investing
Activities
Net
cash used in investing activities was approximately $0.4 million for the first six months of 2023, and net cash provided by investing
activities was approximately $2.0 million for the same period of 2022. Net cash outflow in investing activities was primarily due to
the increase of approximately $0.6 million in property and equipment purchases, partially offset by the increase of approximately $0.2
million proceeds from sales of property and equipment during the first six months of 2023. Net cash inflow in investing activities of
$2.0 million for the first six months of 2022 was mainly contributed by the Company’s discontinued cryptocurrency mining business
of approximately $4.1 million, partially offset by the increase of approximately $2.1 million purchases of property and equipment.
Financing
Activities
Net
cash provided by financing activities was approximately $0.3 million for the first six months of 2023, mainly attributable to receipts
of the borrowings from related parties of $0.4 million, partially offset by $0.1 million in net repayment of short-term bank loans. Net
cash used in financing activities was approximately $0.1 million for the first six months of 2022, mainly attributable to approximately
$0.1 million in net repayment of short-term bank loans.
Exhibit
99.3
Taoping
Reports First Half 2023 Financial Results
●
93% Increase in Revenue Compared to First Half of 2022
●
10% Improvement in Net Loss Compared to First Half of 2022
●
Company Expects Continued Growth in Second Half of 2023
SHENZHEN,
China, September 1, 2023 – Taoping Inc. (NASDAQ: TAOP, the “Company”) today reported financial results for the
first six months of its fiscal year ending December 31, 2023.
Mr.
Lin Jianghuai, Chairman and CEO of the Company, said: “We started off 2023 at a record pace, with stability coming back following
the numerous challenges, closures and tragedies of the COVID pandemic worldwide. Our Team remained focused and continued to execute on
our two core business competencies, the Taoping national sales network, and its compatible, highly scalable Smart Cloud platform, which
helped drive a Company record 93% increase in revenue for the first six months of 2023, compared to the same period of last year.”
Mr.
Lin Jianghuai, continued, “We are on track for further growth in the second half of 2023, led by the rebound in demand from our
city partner ecosystem and comprehensive portfolio of core high-value, high-traffic area software development and advertising business
solutions, which leverage the Company’s powerful Cloud Nest AI system and intelligent Cloud platform. In addition to our intelligent
software and Cloud platform, we have been investing in and expanding our AI-driven portfolio, including AI-related products and servers,
to provide customers with fully integrated seamless solutions, as we target opportunities in this fast-growing segment. We are also benefitting
from increased business momentum as we capture new business opportunities in the Smart City and new energy sectors. Our impressive progress
in 2023 has already resulted in us entering into a series of long-term strategic cooperation agreements with various customers to provide
Taoping’s Cloud-based intelligent product solutions, including smart large screen, IoT Smart rest station and off-grid wastewater
treatment solutions. We have built an advantageous competitive position and distinctive portfolio of products, which we expect will combine
to help us generate significant revenue growth and operating cashflow for the Company and shareholders for year 2023 and beyond.”
Financial
Results for the First Six Months of Fiscal Year 2023
Revenue
increased 93% to $14.1 million for the first six months of 2023, compared to $7.3 million for the same period of last year. The increase
was primarily due to increased revenue from both products and software revenue, as the Company continues to execute on its two core business
competencies, the Taoping national sales network, and its compatible, highly scalable cloud platform. The Company expects that revenue
for the second half of 2023 will increase as a result of the growth of advertising businesses, as well as product sales of its cloud-based
screens, terminals, and other new applications led by the advancement of its cutting-edge Smart City solutions, which seamlessly integrate
with the Company’s AI-driven intelligent Cloud platform.
Cost
of revenue was $10.2 million for the six months ended June 30, 2023, compared to $4.7 million for the same period of 2022. Gross margin
was 27.5% for the first six months ended June 30, 2023 compared with 35.4% for the same period of 2022 reflecting higher costs as the
Company focuses on growth and new revenue opportunities. The Company expects that the gross margin for the second half of 2023 will be
consistent with the first half of the year.
Administrative
expenses increased by $0.8 million, or 24.9%, to $3.8 million for the first six months of 2023, from $3.0 million for the same period
of 2022, primarily due to an increase in share-based compensation expense, which was partially offset by a decrease in professional service
fees. As a percentage of revenue, administrative expenses decreased to 26.6% for the first six months of 2023, from 41.1% for the same
period of 2022. The Company expects that the administrative expenses for the second half of 2023 will decrease as a result of the decrease
of share-based compensation.
Research
and development (“R&D”) expenses decreased by $0.5 million, or 22.7%, to $1.6 million for the first six months of 2023,
from $2.1 million for the same period of 2022, primarily due to the decrease in depreciation expenses of purchased software, and the
decrease in payroll and benefits to R&D staff. As a percentage of revenue, R&D expenses decreased to 11.3% for the first six
months of 2023, from 28.1% for the same period of last year. R&D expenses for the second half of 2023 are expected to be consistent
with revenue growth.
Selling
expenses decreased by $0.1 million, or 37.3%, to $0.2 million for the first six months of 2023, from $0.3 million for the same period
of 2022. The decrease was primarily due to the decrease of sales related costs. Selling expenses for the second half of 2023 are expected
to be consistent with revenue growth.
The
Company reduced its net loss by 10% to $1.8 million or $1.10 per basic and diluted share for the six months ended June 30, 2023, compared
to a net loss of $2.0 million or $1.26 per basic and diluted share for the same period of 2022, reflecting the higher revenue level and
cost containment efforts. On August 1, 2023, the Company implemented a one-for-ten reverse stock split of the Company’s issued
and outstanding ordinary shares. Except shares authorized, all references to number of shares, and to per share information in the consolidated
financial statements have been retroactively adjusted.
About
Taoping Inc.
Taoping
Inc. (Nasdaq: TAOP) has a long history of successfully leveraging technology in the development of innovative solutions to help customers
in both the private and public sectors to more effectively communicate and market to their desired targets. The Company has built a far-reaching
city partner ecosystem and comprehensive portfolio of high-value, high-traffic areas for its products, which are aligned together with
Taoping’s smart cloud platform, cloud services and solutions, new media and artificial intelligence. For more information about
Taoping, please visit www.taop.com. You can also follow us via LinkedIn, Twitter or YouTube.
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, such as statements regarding our estimated future results of operations
and financial position, our strategy and plans, and our objectives or goals, 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 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 the Company undertakes no obligation to publicly update or revise any forward-looking
statements, other than as required by applicable law.
For
further information, please contact:
Taoping
Inc.
Xue
Jiang
IR@taop.com
www.taop.com
Global
IR Partners
David
Pasquale
TAOP@globalirpartners.com
New
York Office: +1-914-337-8801
TAOPING
INC.
(F/K/A
CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED
BALANCE SHEETS
JUNE
30, 2023 AND DECEMBER 31, 2022
| | |
June 30, 2023 | | |
December 31, 2022 | |
| | |
(Unaudited) | | |
| |
| ASSETS | |
| | | |
| | |
| | |
| | | |
| | |
| CURRENT ASSETS | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 460,147 | | |
$ | 1,014,591 | |
| Accounts receivable, net | |
| 6,260,433 | | |
| 9,201,245 | |
| Accounts receivable-related parties, net | |
| 51,449 | | |
| 91,371 | |
| Advances to suppliers | |
| 5,220,446 | | |
| 5,851,381 | |
| Prepaid expenses | |
| 307,397 | | |
| - | |
| Inventories, net | |
| 5,781,338 | | |
| 356,358 | |
| Other current assets | |
| 1,565,835 | | |
| 1,554,488 | |
| Current assets from discontinued operations | |
| 568,367 | | |
| 1,326,265 | |
| TOTAL CURRENT ASSETS | |
| 20,215,412 | | |
| 19,395,699 | |
| | |
| | | |
| | |
| Property, equipment and software, net | |
| 6,762,448 | | |
| 7,833,902 | |
| Right-of-use assets | |
| 32,467 | | |
| 48,786 | |
| Long-term investments | |
| 68,717 | | |
| 95,966 | |
| Goodwill | |
| 58,922 | | |
| 58,922 | |
| Other assets, non-current, net | |
| 1,240,191 | | |
| 1,775,540 | |
| TOTAL ASSETS | |
$ | 28,378,157 | | |
$ | 29,208,815 | |
| | |
| | | |
| | |
| LIABILITIES AND EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| CURRENT LIABILITIES | |
| | | |
| | |
| Short-term bank loans | |
$ | 6,765,931 | | |
$ | 7,203,762 | |
| Accounts payable | |
| 2,139,275 | | |
| 2,287,244 | |
| Accounts payable-related parties | |
| 889 | | |
| - | |
| Advances from customers | |
| 727,121 | | |
| 622,581 | |
| Advances from customers-related parties | |
| 88,290 | | |
| 94,832 | |
| Amounts due to related parties | |
| 3,587,733 | | |
| 3,338,882 | |
| Accrued payroll and benefits | |
| 653,783 | | |
| 411,995 | |
| Other payables and accrued expenses | |
| 4,694,607 | | |
| 4,996,344 | |
| Income tax payable | |
| 84,679 | | |
| 60,054 | |
| Lease liability-current | |
| 28,595 | | |
| 29,373 | |
| Other current liability | |
| 74,574 | | |
| 149,148 | |
| Current liabilities from discontinued operations | |
| 64,575 | | |
| 377,539 | |
| TOTAL CURRENT LIABILITIES | |
| 18,910,052 | | |
| 19,571,754 | |
| | |
| | | |
| | |
| Lease liability | |
| 4,899 | | |
| 20,369 | |
| TOTAL LIABILITIES | |
| 18,914,951 | | |
| 19,592,123 | |
| | |
| | | |
| | |
| EQUITY | |
| | | |
| | |
| Ordinary shares, 2023 and 2022: par $0; authorized capital 100,000,000 shares; shares issued and outstanding, June 30, 2023: 1,844,089 shares; December 31, 2022: 1,587,371 shares*; | |
| 163,154,015 | | |
| 161,404,797 | |
| Additional paid-in capital | |
| 22,447,083 | | |
| 22,447,083 | |
| Reserve | |
| 10,209,086 | | |
| 10,209,086 | |
| Accumulated deficit | |
| (209,863,637 | ) | |
| (208,054,607 | ) |
| Accumulated other comprehensive income | |
| 23,516,659 | | |
| 23,610,333 | |
| Total equity of the Company | |
| 9,463,206 | | |
| 9,616,692 | |
| Non-controlling interest | |
| - | | |
| - | |
| Total Equity | |
| 9,463,206 | | |
| 9,616,692 | |
| | |
| | | |
| | |
| TOTAL LIABILITIES AND EQUITY | |
$ | 28,378,157 | | |
$ | 29,208,815 | |
| * |
On
August 1, 2023, the Company implemented a one-for-ten reverse stock split of the Company’s issued and outstanding ordinary
shares. Except shares authorized, all references to number of shares, and to per share information in the consolidated financial
statements have been retroactively adjusted.
Accompanying
notes are provided in the Company’s 6-K filing with the U.S. Securities and Exchange Commission, which are an integral part
of the unaudited consolidated financial statements included in such 6-K. |
TAOPING
INC.
(F/K/A
CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022
| | |
Six Months Ended | |
| | |
June 30, 2023 | | |
June 30, 2022 | |
| | |
(Unaudited) | | |
(Unaudited) | |
| Revenue – Products | |
$ | 8,074,534 | | |
$ | 2,882,990 | |
| Revenue – Products-related parties | |
| 71,420 | | |
| - | |
| Revenue – Software | |
| 3,777,209 | | |
| 1,785,891 | |
| Revenue – Advertising | |
| 1,316,932 | | |
| 1,184,761 | |
| Revenue – Advertising-related parties | |
| - | | |
| 12,379 | |
| Revenue – Other | |
| 835,555 | | |
| 1,416,423 | |
| Revenue – Other-related parties | |
| 2,359 | | |
| 19,078 | |
| TOTAL REVENUE | |
| 14,078,009 | | |
| 7,301,522 | |
| | |
| | | |
| | |
| Cost – Products | |
| 7,386,299 | | |
| 2,724,655 | |
| Cost – Software | |
| 1,711,442 | | |
| 828,310 | |
| Cost – Advertising | |
| 1,090,137 | | |
| 676,382 | |
| Cost – Other | |
| 15,231 | | |
| 486,047 | |
| TOTAL COST | |
| 10,203,109 | | |
| 4,715,394 | |
| | |
| | | |
| | |
| GROSS PROFIT | |
| 3,874,900 | | |
| 2,586,128 | |
| | |
| | | |
| | |
| Administrative expenses | |
| 3,750,087 | | |
| 3,002,768 | |
| Research and development expenses | |
| 1,585,894 | | |
| 2,050,609 | |
| Selling expenses | |
| 215,152 | | |
| 343,211 | |
| LOSS FROM OPERATIONS | |
| (1,676,233 | ) | |
| (2,810,460 | ) |
| Subsidy income | |
| 142,324 | | |
| 89,596 | |
| (Loss) from equity method investment | |
| (836 | ) | |
| (307,403 | ) |
| Other income (loss), net | |
| 40,767 | | |
| 1,511,572 | |
| Interest expense and debt discounts, net of interest income | |
| (261,812 | ) | |
| (287,697 | ) |
| Loss before income taxes | |
| (1,755,790 | ) | |
| (1,804,392 | ) |
| | |
| | | |
| | |
| Income tax expense | |
| (34,513 | ) | |
| (4,283 | ) |
| | |
| | | |
| | |
| Net loss from continuing operations | |
| (1,790,303 | ) | |
| (1,808,675 | ) |
| Net loss from discontinued operations | |
| (18,727 | ) | |
| (191,880 | ) |
| NET LOSS | |
| (1,809,030 | ) | |
| (2,000,555 | ) |
| Less: Net loss attributable to the non- controlling interest | |
| - | | |
| - | |
| NET LOSS ATTRIBUTABLE TO THE COMPANY | |
$ | (1,809,030 | ) | |
$ | (2,000,555 | ) |
| | |
| | | |
| | |
| Loss per share – Basic and Diluted* | |
| | | |
| | |
| CONTINUING OPERATIONS | |
| | | |
| | |
| Basic | |
$ | (1.09 | ) | |
$ | (1.14 | ) |
| Diluted | |
$ | (1.09 | ) | |
$ | (1.14 | ) |
| | |
| | | |
| | |
| DISCONTINUED OPERATIONS | |
| | | |
| | |
| Basic | |
$ | (0.01 | ) | |
$ | (0.12 | ) |
| Diluted | |
$ | (0.01 | ) | |
$ | (0.12 | ) |
| | |
| | | |
| | |
| NET LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY* | |
| | | |
| | |
| Basic | |
$ | (1.10 | ) | |
$ | (1.26 | ) |
| Diluted | |
$ | (1.10 | ) | |
$ | (1.26 | ) |
| * |
On
August 1, 2023, the Company implemented a one-for-ten reverse stock split of the Company’s issued and outstanding ordinary
shares. Except shares authorized, all references to number of shares, and to per share information in the consolidated financial
statements have been retroactively adjusted.
Accompanying
notes are provided in the Company’s 6-K filing with the U.S. Securities and Exchange Commission, which are an integral part
of the unaudited consolidated financial statements included in such 6-K. |
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