Exhibit 99.1
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
INDEX
| F-1 |
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2024 AND DECEMBER 31, 2023
| NOTES | June 30, 2024 | December 31, 2023 | ||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
| CURRENT ASSETS | ||||||||||
| Cash and cash equivalents | 2(d) | $ | $ | |||||||
| Accounts receivable, net | 2(e) | |||||||||
| Accounts receivable-related parties, net | 2(e) | |||||||||
| Advances to suppliers | ||||||||||
| Prepaid expenses | ||||||||||
| Inventories, net | 7 | |||||||||
| Other current assets | 12(a) | |||||||||
| TOTAL CURRENT ASSETS | ||||||||||
| Property, equipment and software, net | 8 | |||||||||
| Long-term investments | 14 | |||||||||
| Other assets, non-current, net | 12(b) | |||||||||
| TOTAL ASSETS | $ | $ | ||||||||
| LIABILITIES AND EQUITY | ||||||||||
| CURRENT LIABILITIES | ||||||||||
| Short-term bank loans | 10 | $ | $ | |||||||
| Accounts payable | ||||||||||
| Advances from customers | ||||||||||
| Advances from customers-related parties | ||||||||||
| Amounts due to related parties | 6(c) | |||||||||
| Accrued payroll and benefits | ||||||||||
| Other payables and accrued expenses | 16 | |||||||||
| Income tax payable | ||||||||||
| Convertible note payable | 15 | |||||||||
| TOTAL CURRENT LIABILITIES | ||||||||||
| TOTAL LIABILITIES | ||||||||||
| EQUITY | ||||||||||
| Ordinary shares, 2024 and 2023: par $ | 18 | |||||||||
| Additional paid-in capital | 18 | |||||||||
| Reserve | 17 | |||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive income | ||||||||||
| Total equity of the Company | ||||||||||
| Non-controlling interest | ||||||||||
| Total Equity | ||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||||
| * |
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-2 |
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
| Six Months Ended | Six Months Ended | |||||||||
| NOTES | June 30, 2024 | June 30, 2023 | ||||||||
| (Unaudited) | (Unaudited) | |||||||||
| Revenue – Products | $ | $ | ||||||||
| Revenue – Products-related parties | 6(a) | |||||||||
| Revenue – Software | ||||||||||
| Revenue – Advertising | ||||||||||
| Revenue – Other | ||||||||||
| Revenue – Other-related parties | 6(b) | |||||||||
| TOTAL REVENUE | ||||||||||
| Cost – Products | ||||||||||
| Cost – Software | ||||||||||
| Cost – Advertising | 2(o) | |||||||||
| Cost – Other | ||||||||||
| TOTAL COST | ||||||||||
| GROSS PROFIT | ||||||||||
| Administrative expenses | ||||||||||
| Research and development expenses | ||||||||||
| Selling expenses | ||||||||||
| (LOSS) FROM OPERATIONS | ( | ) | ( | ) | ||||||
| Subsidy income | ||||||||||
| Income (loss) from long-term investments | ( | ) | ||||||||
| Other income (loss), net | ||||||||||
| Interest expense and debt discounts, net of interest income | ( | ) | ( | ) | ||||||
| Income (loss) before income taxes | ( | ) | ||||||||
| Income tax expense | 11 | ( | ) | ( | ) | |||||
| Net income (loss) from continuing operations | ( | ) | ||||||||
| Net income (loss) from discontinued operations | 9 | ( | ) | |||||||
| NET INCOME (LOSS) | ( | ) | ||||||||
| Less: Net income (loss) attributable to the non-controlling interest | ||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY | $ | $ | ( | ) | ||||||
| Income (loss) per share – Basic and Diluted* | ||||||||||
| CONTINUING OPERATIONS | ||||||||||
| Basic | 5 | $ | $ | ( | ) | |||||
| Diluted | 5 | $ | $ | ( | ) | |||||
| DISCONTINUED OPERATIONS | ||||||||||
| Basic | 5 | $ | $ | ( | ) | |||||
| Diluted | 5 | $ | $ | ( | ) | |||||
| NET INCOME (LOSS) PER SHARE ATTRIBUTABLE TO THE COMPANY* | ||||||||||
| Basic | 5 | $ | $ | ( | ) | |||||
| Diluted | 5 | $ | $ | ( | ) | |||||
| * |
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-3 |
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Other comprehensive loss: | ||||||||
| Foreign currency translation loss | ( | ) | ( | ) | ||||
| Comprehensive income (loss) | ( | ) | ( | ) | ||||
| Comprehensive loss attributable to the non- controlling interest | ||||||||
| Comprehensive income (loss) attributable to the Company | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-4 |
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
(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, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||
| Issuance of ordinary shares for financing (Note 18) | ||||||||||||||||||||||||||||||||
| Conversion of convertible note (Note 15) | ( | ) | ||||||||||||||||||||||||||||||
| Net income for the year | - | |||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| BALANCE AS AT JUNE 30, 2024(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 | $ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
| Stock-based payment for consulting fee (Note 18) | ||||||||||||||||||||||||||||||||
| Issued common stock for Equity Incentive Plan (Note 18) | ||||||||||||||||||||||||||||||||
| Net loss for the year | - | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Foreign currency translation gain | - | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Common stock issued for business acquisition | ||||||||||||||||||||||||||||||||
| BALANCE AS AT JUNE 30, 2023(unaudited) | $ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
| * |
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-5 |
TAOPING INC.
(F/K/A CHINA INFORMATION TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023
Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Provision for credit losses on accounts receivable, other current assets, and advances to suppliers: | ||||||||
| Provision for obsolete inventories | ||||||||
| Depreciation | ||||||||
| Amortization of intangible assets and other asset | ||||||||
| Amortization of convertible note discount | ||||||||
| Stock-based payments for consulting services | ||||||||
| Stock-based compensation to employees | ||||||||
| Loss on sale of property and equipment | ||||||||
| Loss on dissolution of a subsidiary | ||||||||
| (Income) loss on long-term investments | ( | ) | ||||||
| Exchange difference | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | ( | ) | ||||||
| Decrease in accounts receivable - related parties | ||||||||
| Increase in inventories | ( | ) | ( | ) | ||||
| Decrease in other non-current assets | ||||||||
| Decrease (increase) in other current assets and prepaid expenses | ( | ) | ||||||
| (Increase) decrease in advances to suppliers | ( | ) | ||||||
| Decrease in other payables and accrued expenses | ( | ) | ( | ) | ||||
| Increase in advances from customers | ||||||||
| Decrease in advances from customers - related parties | ( | ) | ( | ) | ||||
| Decrease in amounts due to related parties | ( | ) | ||||||
| Increase (decrease) in accounts payable | ( | ) | ||||||
| Increase in payroll payable and benefits | ||||||||
| Decrease in lease liability | ( | ) | ||||||
| Increase in income tax payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Proceeds from sales of property and equipment | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Consideration paid for acquisition | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Borrowings from related parties | ||||||||
| Repayment of short-term bank loans | ( | ) | ( | ) | ||||
| Issued common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ( | ) | ||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid during the year | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
| Six Months Ended | Six Months Ended | |||||||
| June 30, 2024 | June 30, 2023 | |||||||
| Reconciliation to amounts on consolidated balance sheets | ||||||||
| Cash and cash equivalents from continuing operations | $ | $ | ||||||
| Cash and cash equivalents from discontinued operations | ||||||||
| Total cash, cash equivalents, and restricted cash | $ | $ | ||||||
Supplemental disclosure of significant non-cash transactions*:
| * | On
August 1, 2023, the Company implemented a |
In
April 2023, the Company issued the second phase of approximately restricted ordinary shares with a fair value of approximately
$
In
May 2023, the Company issued 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 ordinary shares was $
In
May 2023, the Company issued ordinary shares with fair value of approximately $
In
March 2024, the holder of the Company’s convertible promissory note issued in September 2023 converted an amount of $
In
April 2024, the holder of the Company’s convertible promissory note issued in September 2023 converted an amount of $
In
May 2024, the holder of the Company’s convertible promissory note issued September 2023 converted an amount of $
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-6 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, PRINCIPAL ACTIVITIES AND MANAGEMENT’S PLANS
Taoping Inc. (f/k/a China Information Technology, Inc.), together with its subsidiaries (the “Company”), is a provider of cloud-based technologies for Smart City IoT platforms, digital advertising delivery, and other internet-based information distribution systems in China. Its Internet ecosystem enables all participants of the new media community to efficiently promote branding, disseminate information, and exchange resources. In addition, the Company provides a broad portfolio of software and hardware with fully integrated solutions, including information technology infrastructure, Internet-enabled display technologies, and IoT platforms to customers in government, education, residential community management, media, transportation, and other private sectors.
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
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
As
a result of the Company’s business transformation and its exit from the TIT business, the Company disposed of
The
Company disposed of
In
May 2023, the Company established a subsidiary Taoping EP Holdings (Shenzhen) Co., Ltd. with a majority stake of
In
September 2023, the Company acquired
In November 2023, the Company established a subsidiary Taoping (Guangxi) EP Tech Co., Ltd. to expand its wastewater treatment business in Guangxi Province.
In April 2024, the Company established a subsidiary Taoping Industrial (Yunnan) Co., Ltd. to explore business of cross-border trades and services in Yunnan Province.
In June 2024, ZJIOT was dissolved as a result of the Company’s business realignment.
| F-7 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table lists our subsidiaries as of the respective date as indicated below.
| Entities | Subsidiaries | June 30, 2024 % owned | December 31, 2023 % owned | December 31, 2022 % owned | Location | |||||||||||
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| F-8 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Dissolution of the Variable Interest Entity Structure
iASPEC was a VIE of the Company. To comply with PRC laws and regulations that restrict foreign ownership of companies that provide public security information technology and Geographic Information Systems software operating services to certain government and other customers, the Company used to operate the restricted aspect of its business through iASPEC.
In
September 2021, we dissolved the variable interest entity structure by exercising the purchase option under certain Option Agreement
among IST, iASPEC and its shareholders, to purchase all of the equity interests in iASPEC at an aggregate exercise price of $
Upon the closing of the equity transfer, the Company’s variable interest entity structure was dissolved and iASPEC became a wholly owned indirect subsidiary of the Company. The amended and restated MSA was automatically terminated.
Going Concern and Management’s Plans
As
a result of the recovery of the market conditions and customer demands, as well as the Company’s continued efforts in diversifying
applications of its innovative Taoping smart cloud, the Company’s revenue achieved
The Company will continue to focus its efforts on the digital advertising and other cloud-based and AI-related 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 opportunities 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, and the newly-launch Al-powered smart display terminal, which are expected to generate revenue and operating cashflow for the Company for years going forward.
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 $
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.
| F-9 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation and Principles of Consolidation
The consolidated financial statements as of June 30, 2024 and for the six-month periods ended June 30, 2024 and 2023 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, 2023 filed on April 25, 2024 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.
Reverse
Stock Split: A
(b) Use of 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 assessment of credit losses and useful lives of property and equipment. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates.
| F-10 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(c) Economic, Pandemic, Political, and Currency Exchange Risks
All the Company’s revenue-generating operations are conducted in Hong Kong and mainland China. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic, public health, and legal environments in the PRC, and by the general state of the PRC economy. The Company’s operations in the PRC are subject to special considerations and significant risks that are not typically pertaining to the companies in North America and Western Europe. These include risks associated with, among others, the political, economic, public health concerns with persistent outbreaks of COVID-19 infections in various regional localities, and legal environments, geopolitical influences, and foreign currency exchange, notably in recent events, where the government’s sudden interventions or modifications of the laws and regulations currently in effective could negatively impact the Company’s operations and financial results.
The functional currency of the Company is primarily Chinese Renminbi Yuan (“RMB”), which is not freely convertible into foreign currencies. The Company cannot guarantee that the current exchange rate will remain steady. Therefore, there is a possibility that the Company could post the same amount of profit for two comparable periods and yet, because of fluctuating exchange rates, record higher or lower profit depending on exchange rate of RMB. RMB converted to U.S. dollars on the relevant dates. The exchange rate could fluctuate depending on changes in the political and economic environment without notice.
(d) Cash and Cash Equivalents
The
Company considers all highly liquid investments purchased and cash deposits with financial institutions with original maturities of three
months or less to be cash equivalents. The Company had
The
Company maintains its bank accounts at credit worthy financial institutions and closely monitors the movements of its cash positions.
As of June 30, 2024, and December 31, 2023, approximately $
(e) Accounts Receivable, Accounts Receivable – related parties, and Concentration of Risk
Accounts receivable are recognized and carried at carrying amount less an allowance for credit loss, if any. The Company maintains an allowance for credit losses resulting from the inability of its customers to make required payments based on contractual terms. The Company reviews the collectability of its receivables on a regular and ongoing basis according to historical trend, and estimates its provision for expected credit losses on receivables aging analysis.
The
Company estimates allowance for credit losses for the anticipation of future economic condition and credit risk indicators of customers.
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, 2024 has decreased approximately $
| F-11 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accounts receivable as of June 30, 2024 and December 31, 2023 are as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Accounts Receivable | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts Receivable, net | $ | $ | ||||||
| Accounts Receivable - related parties | $ | $ | ||||||
| Allowance for credit losses - related parties | ( | ) | ( | ) | ||||
| Accounts Receivable - related parties, net | $ | $ | ||||||
The normal credit term is ranging from 1 month to 3 months after the customers’ acceptance of 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 related to the business cycle, the actual collection of outstanding accounts receivable may be beyond the normal credit terms.
The
allowance for credit losses at June 30, 2024 and December 31, 2023, totaled approximately $
| Balance at January 1, 2023 | $ | |||
| Increase in allowance for credit losses | ||||
| Foreign exchange difference | ( | ) | ||
| Balance at December 31, 2023 | $ | |||
| Increase in allowance for credit losses | ||||
| Decrease from dissolution of a subsidiary | ( | ) | ||
| Amounts written off as uncollectible | ( | ) | ||
| Foreign exchange difference | ( | ) | ||
| Balance at June 30, 2024 (Unaudited) | $ |
| F-12 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(f) Fair Value Accounting
Financial Accounting Standards Board (FASB) Accounting Standards Codifications (ASC) 820-10 “Fair Value Measurements and Disclosures”, establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). As required by FASB ASC 820-10, assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy under FASB ASC 820-10 are described below:
| Level 1 | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
| Level 2 | Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and |
| Level 3 | Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). |
(g) Inventories, net
Inventories are valued at the lower of cost (weighted average basis) and net realizable value. Net realizable value is the expected selling price in the ordinary course of business minus any costs of completion, disposal, and transportation to make the sale.
The Company performs an analysis of slow-moving or obsolete inventory periodically and any necessary valuation reserves, which could potentially be significant, are included in the period in which the evaluations are completed. Any inventory impairment results in a new cost basis for accounting purposes.
| F-13 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(h) Property, equipment and software, net
Property, equipment and software are stated at cost less accumulated amortization and depreciation. Amortization and depreciation are provided over the assets’ estimated useful lives, using the straight-line method. Estimated useful lives of property, equipment and software are as follows:
| Office buildings | ||
| Lease improvement | ||
| Electronics equipment, furniture and fixtures | ||
| Motor vehicles | ||
| Purchased software | ||
| Media display equipment | ||
| Cryptocurrency mining machine |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss are included in the Company’s results of operations.
| F-14 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(i) 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.
(j) 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.
(k) Long-term investment
The Company’s long-term investment consists of investments accounted for under the equity method and equity investments without readily determinable fair value. Pursuant to ASC 321, equity investments, except for those accounted for under the equity method, those that result in consolidation of the investee and certain other investments, are measured at fair value, and any changes in fair value are recognized in earnings. For equity securities without readily determinable fair value and do not qualify for the existing practical expedient in ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) to estimate fair value using the net asset value per share (or its equivalent) of the investment, the Company elected to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any.
For equity investments that the Company elects to measure at cost, less any impairment, plus or minus changes resulting from observable price changes, the Company makes a qualitative assessment considering impairment indicators to evaluate whether investments are impaired at each reporting date. Impairment indicators considered include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee, including factors that raise significant concerns about the investee’s ability to continue as a going concern, a significant adverse change in the regulatory, economic, or technologic environment of the investee and a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates. If a qualitative assessment indicates that the investment is impaired, the entity has to estimate the investment’s fair value in accordance with the principles of ASC 820. For equity investments without readily determinable fair value, the Company uses Level 3 inputs of fair value accounting in accordance with ASC 820-10 and recognizes impairment loss other than temporary in the statement of operations equal to the difference between its initial investment and its proportional share of the net book value of the investee’s net assets which approximates its fair value.
For impairment on equity investments without readily determinable fair value, the Company uses Level 3 inputs of fair value accounting in accordance with ASC 820-10 and recognizes impairment loss in the statement of operations equal to the difference between its initial investment and its proportional share of the net book value of investee’s net assets which approximates its fair value if those are determined to be other than temporary.
| F-15 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(l) Convertible promissory note
The Company determines the appropriate accounting treatment of its convertible debts in accordance with the terms in relation to conversion features. After considering the impact of such features, the Company may account for such instrument as a liability in its entirety, or separate the instrument into debt and equity components following the guidance described under ASC 815 Derivatives and Hedging and ASC 470 Debt. The debt discount, if any, together with related issuance cost are subsequently amortized as interest expense over the period from the issuance date to the earliest conversion date or stated redemption date. The Company presented the issuance cost of debt in the balance sheet as a direct deduction from the related debt.
(m) 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-of-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.
(n) 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 four sources: (1) product sales, (2) software sales, (3) advertising and (4) 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.
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. Product sales are classified as “Revenue-Products” on the Company’s consolidated statements of operations.
| F-16 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Revenue - Software
The Company designs and develops software products. Software development usually includes developing software, integrating various isolated software systems into one, and testing the software. The design and build process, together with the integration of the various elements, are generally determined to be essential to the functionality of the delivered software. The Company recognized the software sales at the point of delivery.
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
The Company recognizes the revenues, net of applicable taxes, from advertisement broadcasting contracts with customers over the contracted advertising duration.
| F-17 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Revenue - Other
The Company also reports other revenue which comprises revenue generated 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.
| Annual minimum rental income to be received in the next 5 years: | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Total | ||||
Contract balances
The
Company records advances from customers when cash payments are received or due in advance of our performance. For the six months ended
June 30, 2024 and 2023, the Company recognized revenue of approximately $
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.
(o) Cost of Sales - advertising
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 Company had ceased the operation of cryptocurrency mining business by December 2022.
| F-18 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(p) 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.
(q) 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) | 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. |
| F-19 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(r) Recent Accounting Pronouncements
In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements” for common control lease arrangements and related leasehold improvements. This ASU was effective for fiscal years beginning after December 15, 2023 and did not have a material impact on the Company’s consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires public entities to disclose expanded information about their reportable segment(s)’ significant expenses and other segment items on an interim and annual basis. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The ASU is required to be applied retrospectively to all prior periods presented in the financial statements once adopted. The Company is evaluating the disclosure requirements related to the new standard.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires public entities to disclose specific tax rate reconciliation categories, as well as income taxes paid disaggregated by jurisdiction, amongst other disclosure enhancements. The ASU is effective for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted. The ASU can be adopted on a prospective or retrospective basis. The Company is evaluating the disclosure requirements related to the new standard.
The Company has considered all other recently issued accounting pronouncements and does not believe that the adoption of such pronouncements will have a material impact on the consolidated financial statements.
| F-20 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. BUSINESS ACQUISITION
On
January 13, 2022, the Company entered into a share purchase agreement to acquire % 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 restricted ordinary shares of
the Company. The shares are expected to be issued in three phases. The first phase will issue approximately shares within 20 days
after closing of the transaction; the second phase will issue approximately shares before May 31, 2023; the third phase will issue
approximately 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
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 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:
| Cash | $ | |||
| Accounts receivable, net | ||||
| Advances to suppliers | ||||
| Other receivables, net | ||||
| Property, plant and equipment, net | ||||
| Accounts payable | ( | ) | ||
| Advances from customers | ( | ) | ||
| Accrued payroll and benefits | ( | ) | ||
| Other payables and accrued expenses | ( | ) | ||
| Total net assets acquired | ||||
| Goodwill | ||||
| Total purchase price | $ |
The
Company’s consolidated statement of operations for the year ended December 31, 2022 included revenue of $
The
Company’s consolidated statement of operations for the year ended December 31, 2023 included revenue of $
The Company did not issue the third phase of restricted ordinary shares before May 31, 2024, due to unsatisfaction of certain performance targets of ZJIOT as set forth in the share purchase agreement.
| F-21 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. DISPOSALS OF CONSOLIDATED ENTITIES
TCTCZ was dissolved on September 20, 2023. The dissolution did not result in any gain or loss for the year ended December 31, 2023.
The
Company disposed of
ZJIOT
was dissolved on June 25, 2024. The dissolution resulted in a recorded loss of $
The dissolution of TCTCZ and ZJIOT were not 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.
The disposals of TDL, TDAL, and TCL represented a strategic shift in the Company’s strategy and had a major effect on the Company’s operations and financial results. Operations of the three companies have been presented as “discontinued operations” in the Company’s consolidated financial statement (Note 9).
| F-22 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
Six Months Ended June 30, 2024* | Six Months Ended June 30, 2023* | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Numerator: | ||||||||
| Net income (loss) attributable to the Company | $ | $ | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average outstanding ordinary shares-Basic* | ||||||||
| -dilutive effect of convertible note | ||||||||
| Weighted average outstanding ordinary shares- Diluted* | ||||||||
| Earnings (loss) per share attributable to the Company* | ||||||||
| Basic | $ | $ | ( | ) | ||||
| Diluted | $ | $ | ( | ) | ||||
| CONTINUING OPERATIONS | ||||||||
| Net income (loss) attributable to the Company | $ | $ | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average outstanding ordinary shares-Basic* | ||||||||
| -dilutive effect of convertible note | ||||||||
| Weighted average outstanding ordinary shares- Diluted* | ||||||||
| Earnings (loss) per share attributable to the Company* | ||||||||
| Basic | $ | $ | ( | ) | ||||
| Diluted | $ | $ | ( | ) | ||||
| DISCONTINUED OPERATIONS | ||||||||
| Net income (loss) attributable to the Company | $ | $ | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average outstanding ordinary shares-Basic* | ||||||||
| Weighted average outstanding ordinary shares- Diluted* | ||||||||
| Loss per share attributable to the Company* | ||||||||
| Basic | $ | $ | ( | ) | ||||
| Diluted | $ | $ | ( | ) | ||||
| * |
For the six-month period ended June 30, 2024 and 2023, there were and incremental shares, respectively, included in the diluted earnings per shares calculation. These incremental shares were added to denominator for the period that the convertible note (Note 15) were outstanding due to the fact that the average market price of the Company’s ordinary shares in the period exceeded the exercise price of the convertible note. The incremental shares were computed under the treasury stock method. The EPS calculation excluded the if-converted shares from the stock options and warrants, based on the Company’s stock prices, which were significantly below the stated exercise price of the stock options and warrants.
There were stock options for employees, options and 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.
There were -- stock options for employees, -- options and warrants for nonemployees outstanding that were not included in the computation of dilutive weighted-average shares outstanding for the six months ended June 30, 2024, because the effect would be anti-dilutive, as well.
| F-23 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. RELATED PARTY TRANSACTIONS
| (a) | Revenue – related parties |
For
the six months ended June 30, 2024 and 2023, approximately $
| (b) | Other revenue – related parties |
Other
revenue generated from related parties includes system maintenance service provided to Taoping affiliate customers, which was approximately
$
| (c) | Amounts due to related parties |
As
of June 30, 2024 and December 31, 2023, the amounts due to related parties was approximately $
7. INVENTORIES
As of June 30, 2024 and December 31, 2023, inventories consist of:
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Inventories, gross | $ | $ | ||||||
| Allowance for slow-moving or obsolete inventories | ( | ) | ( | ) | ||||
| Inventories, net | $ | $ | ||||||
For
the six months ended June 30, 2024 and 2023, impairments for obsolete inventories were approximately $
| F-24 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. PROPERTY, EQUIPMENT AND SOFTWARE
As of June 30, 2024 and December 31, 2023, property, equipment and software consist of:
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Office buildings | $ | $ | ||||||
| Electronic equipment, furniture and fixtures | ||||||||
| Media display equipment | ||||||||
| Purchased software | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, equipment and software, net | $ | $ | ||||||
Depreciation
expenses for the six months ended June 30, 2024 and 2023 were approximately $
Management regularly evaluates property, equipment and software for impairment, if an event occurs or circumstances change that would potentially indicate that the carrying amount of the property, equipment and software exceeded its fair value. Management utilizes the discounted cash flow method to estimate the fair value of the property, equipment and software.
Company’s
office buildings, with net carrying value of approximately $
| F-25 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9. DISCONTINUED OPERATIONS
In December 2022, the Company ceased its cryptocurrency mining business and 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:
Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue - Cryptocurrency mining | $ | $ | ||||||
| Cost - Cryptocurrency mining | ||||||||
| Administrative expenses | ( | ) | ||||||
| Operating gain from discontinued operations | ||||||||
| Other (loss), net | ( | ) | ||||||
| Interest income | ||||||||
| (Loss) from discontinued operations before income taxes | ( | ) | ||||||
| Income tax expense | ||||||||
| Net (loss) from discontinued operations | $ | $ | ( | ) | ||||
As of June 30, 2024 and December 31, 2023, no assets and liabilities of discontinued operations included within the Consolidated Balance Sheets.
Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Net cash provided by operating activities | $ | $ | ||||||
| Net cash provided by investing activities | ||||||||
CRYPTOCURRENCIES
As of June 30, 2024 and December 31, 2023, no cryptocurrencies held by the Company.
10. BANK LOANS
(a) Short-term bank loans
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Secured short-term loans | $ | $ | ||||||
| Total short-term bank loans | $ | $ | ||||||
Detailed information of secured short-term loan balances as of June 30, 2024 and December 31, 2023 were as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Guaranteed by IST and Mr. Lin and Collateralized by the real property of ISIOT and equity investment of IST HK | $ | $ | ||||||
| Collateralized by office buildings of IST and guaranteed by Mr. Lin | ||||||||
| Guaranteed by Mr. Lin and IST HK | ||||||||
| Guaranteed by Mr. Lin | ||||||||
| Total | $ | $ | ||||||
As
of June 30, 2024, the Company had short-term bank loans of approximately $
| F-26 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES
Pre-tax income (loss) from continuing operations and discontinued operations for the six months ended June 30, 2024 and 2023 were taxable in the following jurisdictions:
Six Months Ended | Six Months Ended | |||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| PRC | $ | $ | ||||||
| HK | ( | ) | ( | ) | ||||
| BVI | ( | ) | ( | ) | ||||
| Total income (loss) before income taxes | $ | $ | ( | ) | ||||
United States
The Company from time to time evaluates the tax effect of global intangible low-taxed income (“GILTI”), and determined that there was no impact of GILTI tax to the Company’s consolidated financial statements as of June 30, 2024.
| F-27 |
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
PRC
Income tax expense (benefit) from continuing operations consists of the following:
Six Months Ended | Six Months Ended | |||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Current tax expense | $ | $ | ||||||
| Income tax expense | $ | $ | ||||||
Current income tax expense (benefit) was recorded in 2024 and 2023 and was related to differences between the book and corporate income tax returns.
Six Months Ended | Six Months Ended | |||||||
| June 30, 2024 | June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| PRC statutory tax rate | % | % | ||||||
| Expected income tax (benefit) | $ | $ | ( | ) | ||||
| Tax rate difference | ( | ) | ( | ) | ||||
| Permanent differences | ( | ) | ( | ) | ||||
| Tax effect of temporary differences not recognized | ( | ) | ||||||
| Tax effect of tax losses unrecognized | ||||||||
| Income tax expense | $ | $ | ||||||
| F-28 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
Company’s tax loss carry forwards totaling RMB
IST
is approved as being high-technology enterprises and subject to PRC enterprise income tax rate (“EIT”) at
The Company recognizes that virtually all tax positions in the PRC are not free of some degree of uncertainty due to tax law and policy changes by the State. However, the Company cannot reasonably quantify political risk factors and thus must depend on guidance issued by current State officials.
Based on all known facts, circumstances, and current tax law, the Company has not recorded tax benefits as of June 30, 2024 and December 31, 2023, 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, 2024 and 2023.
| F-29 |
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.
12. OTHER CURRENT AND NON-CURRENT ASSETS
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Advances to unrelated parties (i) | $ | $ | ||||||
| Advances to a related party | ||||||||
| Advances to employees | ||||||||
| Other current assets | ||||||||
| $ | $ | |||||||
| (i) |
As
of June 30, 2024, the balance included the amount due from a third-party vendor of approximately $
Based
on the amendment of the contract, the Company agrees to make advances to the vendor specifically for its market development purposes,
and the total commitment of funding was RMB
If the Company’s revenue facilitated by the vendor does not reach certain threshold during specified periods, the contract could be terminated by the Company, and all funding with applicable interest, less any commissions and subcontractor fees payable to the vendor, shall be repaid to the Company within one month after the termination of the contract. If the two parties terminate the cooperation on the condition that the vendor meet the target, all funding without interest, shall be repaid.
The
first period as specified is from January 1, 2021 to December 31, 2021 with a threshold revenue of RMB
(b) As of June 30, 2024 and December 31, 2023, Other assets, non-current consist of:
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Other assets, non-current, net | $ | $ | ||||||
| $ | $ | |||||||
During
2019 and 2020, the Company advanced RMB
| F-30 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Based
on the amendment of the contract, if the Company’s new media advertising revenue generated from IOV software does not reach certain
threshold during specified period, the contract could be terminated by the Company, and all funding with applicable interest, and less
the revenue generated from the IOV software shall be repaid to the Company within one half year after the termination of the contract.
Before the full repayment of the funding, the Company owns
Starting
in October 2020, IOV software revenue will be divided into eight periods. The first period as specified was from October 1, 2020 to April
30, 2021 with a threshold advertising revenue from IOV software of RMB
The
development of IOV software was completed by September 30, 2020. Since 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
-year contract term. As of June 30, 2024 and December 31, 2023, the balance of “other assets, non-current, net” was $
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.
| F-31 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
13. OPERATING LEASES
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 in October 2021. The office space and two of the server rooms in Hong
Kong were terminated in September 2022, and November 2022, respectively. The remaining server room and dormitory in Hong Kong were terminated
in April 2023. The fixed monthly lease payment for the Zhenjiang office space is $
The
Company has also leased specific and identifiable wall spaces with a certain dimension in commercial and residential building lobbies,
inside elevators, elevator waiting areas, and various places to install the new media advertising display terminals without substitution
for purpose of broadcasting advertisements paid by the customers to promote their businesses or special events. The lease terms with
negotiated payment terms range from
The Company has elected to apply the short-term lease exception to all leases with a term of one year or less.
The
Company incurred rent expenses of approximately $
| F-32 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
14. LONG-TERM INVESTMENTS
As
of June 30, 2024, the carrying value of the Company’s equity investments were $
(1) Equity method investments:
As of June 30, 2024, the Company’s equity method investments had a carrying value of $nil which were as follows:
| Investees | Abbreviation | % of Ownership | Carrying value | ||||||
| Qingdao Taoping IoT Co., Ltd. | QD Taoping, or QD | % | $ | ||||||
| Yunnan Taoping IoT Co., Ltd. | YN Taoping, or YN | % | |||||||
| Jiangsu Taoping IoT Technology Co., Ltd. | JS Taoping, or JS | % | |||||||
| Jiangsu Taoping New Media Co., Ltd | JS New Media, or JN | % | |||||||
| $ | |||||||||
The
Company’s initial investments in the above equity method investments were approximately $
(2) Equity investments without readily determinable fair value that is not accounted for under equity method accounting:
In accordance with ASC 321, the Company elected to use the measurement alternative to measure such investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any.
As
of June 30, 2024 and December 31, 2023, the carrying value for the equity investments without readily determinable fair value was $
| F-33 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
15. CONVERTIBLE NOTE PAYABLE
On
September 27, 2023, the Company issued a Convertible Promissory Note (“Note”) in a private placement in aggregate principal
amount of $
For
the holder of the Note, conversion price results in beneficial conversion feature (BCF) that is separated as an equity component and
assigned a value of $
The
Note is recognized initially at fair value, net of debt discounts including original issue discount, Transaction Expense Amount, and
allocation of proceeds to beneficial conversion feature, in the amount of $
The
Company recognized interest expense of approximately $
16. OTHER PAYABLES AND ACCRUED EXPENSES
As of June 30, 2024 and December 31, 2023, other payables and accrued expenses consist of:
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | ||||||||
| Advances from unrelated third parties (i) | $ | $ | ||||||
| Other taxes payable (ii) | ||||||||
| Accrued professional fees | ||||||||
| Amount due to employees (iii) | ||||||||
| Others | ||||||||
| $ | $ | |||||||
| (i) | |
| (ii) | |
| (iii) |
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
| F-34 |
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 ordinary shares.
In
February 2022, the Company issued the first phase of approximately restricted ordinary shares with a fair value of approximately
$
In
March 2022 and July 2022, the Company issued ordinary shares with a fair value of $
In
April 2023, the Company issued the second phase of approximately restricted ordinary shares with a fair value of approximately
$
In
May 2023, the Company issued 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 ordinary shares was $
In
May 2023, the Company issued ordinary shares with fair value of approximately $
In
July 2023, the Company issued and ordinary shares, as commitment fee shares to an investor, with fair value of approximately
$
In
August 2023, the Company issued ordinary shares to a certain investor at $ per share, which generated net proceeds of $
In
October 2023, the Company issued a total of ordinary shares to a certain investor at $ and $ per share, which generated
net proceeds of $
In
November 2023, the Company issued ordinary shares to a certain investor at $ per share, which generated net proceeds of $
In
December 2023, the Company issued a total of ordinary shares to a certain investor at $ and $ per share, respectively,
which generated net proceeds of $
| F-35 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In
January 2024, the Company issued a total of ordinary shares to an investor at $ and $ per share, respectively, which
generated net proceeds of $
In
February 2024, the Company issued a total of ordinary shares to an investor at $ and $ per share, respectively, which
generated net proceeds of $
In
March 2024, the Company issued a total of ordinary shares to an investor at $, $, and $ per share, respectively,
which generated net proceeds of $
In
March 2024, the holder of the Company’s convertible promissory note issued in September 2023 converted an amount of $
In
April 2024, the holder of the Company’s convertible promissory note issued in September 2023 converted an amount of $
In
May 2024, the Company issued a total of ordinary shares to an investor at $, $, and $ per share, respectively,
which generated net proceeds of $
In
May 2024, the holder of the Company’s convertible promissory note issued September 2023 converted an amount of $
In
June 2024, the Company issued ordinary shares to an investor at $ per share, which generated net proceeds of $
(b) Stock-based compensation
Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Employees and directors share-based payments | $ | $ | (a) | |||||
| Shares issued for services | (a) | (a) | ||||||
| $ | $ | |||||||
| F-36 |
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.
On
July 24, 2020, the Company granted options to employees and directors to purchase an aggregate of ordinary shares under the 2016
Plan. The fair value of these options was approximately $
| Weighted | Weighted Average Remaining | |||||||||||||||
| Options | Average Exercise | Contractual Life | Aggregated Intrinsic | |||||||||||||
| Outstanding* | Price* | (Years) | Value | |||||||||||||
| Outstanding at January 1, 2023 | $ | | $ | |||||||||||||
| Exercised | ||||||||||||||||
| Canceled | ( | ) | $ | |||||||||||||
| Outstanding at June 30, 2023 (Unaudited) | $ | $ | ||||||||||||||
| Vested and expected to be vested as of June 30, 2023 (Unaudited) | $ | $ | ||||||||||||||
| Options exercisable as of June 30, 2023 (vested) (Unaudited) | $ | $ | ||||||||||||||
| F-37 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
There were stock options granted to employees during the six months ended June 30, 2024 and 2023. There was option exercised during the six months ended June 30, 2024 and 2023.
As of June 30, 2024, unrecognized compensation expense related to non-vested share options is expected to be recognized.
| * |
(d) Stock options and warrants to non-employees
Pursuant
to the 2016 Plan and its amendment, for the six months ended June 30, 2024 and 2023, the Company issued and warrants to consultants,
respectively. The Company expensed to administrative expense approximately $ and $ for the six months ended June 30, 2024 and
2023, respectively. During the six months ended June 30, 2024,
As of June 30, 2024, there was no stock options and warrants outstanding and exercisable.
| F-38 |
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, 2024 and 2023.
Six Months Ended June 30, 2024 (Unaudited) | Six Months Ended June 30, 2023 (Unaudited) | |||||||
| Revenues (1) | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment | ||||||||
| $ | $ | |||||||
| (1) |
| Six Months Ended June 30, 2024 (Unaudited) | Six Months Ended June 30, 2023 (Unaudited) | |||||||
| Income (loss) from operations | ||||||||
| TIT Segment | $ | ( | ) | $ | ( | ) | ||
| CBT Segment | ||||||||
| Corporate and others (2) | ( | ) | ( | ) | ||||
| (Loss) from operations | ( | ) | ( | ) | ||||
| Corporate other income, net | ||||||||
| Corporate interest income | ||||||||
| Corporate interest expense | ( | ) | ( | ) | ||||
| Income (loss) before income taxes | ( | ) | ||||||
| Income tax expense | ( | ) | ( | ) | ||||
| Income from continuing operations | ( | ) | ||||||
| Income from discontinued operations | ( | ) | ||||||
| Net income (loss) | ( | ) | ||||||
| Less: Loss attributable to the non-controlling interest | ||||||||
| Net income (loss) attributable to the Company | $ | $ | ( | ) | ||||
| (2) |
Non-cash compensation by segment for the six months ended June 30, 2024 and 2023 are as follows:
| Six Months Ended June 30, 2024 (Unaudited) | Six Months Ended June 30, 2023 (Unaudited) | |||||||
| Non-cash compensation: | ||||||||
| Corporate and others | $ | $ | ||||||
| $ | $ | |||||||
Depreciation and amortization by segment for six months ended June 30, 2024 and 2023 are as follows:
| Six Months Ended June 30, 2024 (Unaudited) | Six Months Ended June 30, 2023 (Unaudited) | |||||||
| Depreciation and amortization: | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment | ||||||||
| Corporate and others | ||||||||
| $ | $ | |||||||
| F-39 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2024 (Unaudited) | Six Months Ended June 30, 2023 (Unaudited) | |||||||
| Provisions for allowance for credit losses on accounts receivable, other receivable and advances to suppliers: | ||||||||
| TIT Segment | $ | $ | ( | ) | ||||
| CBT Segment | ||||||||
| $ | $ | |||||||
Six Months Ended June 30, 2024 (Unaudited) | Six Months Ended June 30, 2023 (Unaudited) | |||||||
| Inventory obsolescence provision: | ||||||||
| TIT Segment | $ | ( | ) | $ | ||||
| CBT Segment | ||||||||
| $ | $ | |||||||
Total assets by segment as of June 30, 2024 and December 31, 2023 are as follows:
June 30, 2024 (Unaudited) | December 31, 2023 | |||||||
| Total assets | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment | ||||||||
| Corporate and others | ||||||||
| $ | $ | |||||||
| F-40 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
20. COMMITMENTS AND CONTINGENCIES
The Company may from time to time be subject to legal proceedings, investigations, and claims incidental to conduct of our business.
In
September 2023, Guangdong Zexun Advertising Co., Ltd. filed a lawsuit against the Company which claimed a payment of RMB
21. CONCENTRATIONS
For
the six months ended June 30, 2024, one customer accounted for
The
Company’s top five customers in aggregate accounted for
For
the six months ended June 30, 2024 and 2023, approximately % and %, respectively, of total purchases were from five unrelated suppliers.
Two suppliers each accounted for
| F-41 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
22. SUBSEQUENT EVENTS
On
June 24, 2024, the Company received a letter from The Nasdaq Stock Market LLC (“Nasdaq”), notifying the Company that it is
currently not in compliance with the minimum bid price requirement set forth under Nasdaq Listing Rule 5550(a)(2), which requires listed
securities to maintain a minimum bid price of US$
On
July 15, 2024, the Company issued ordinary shares, to SHANJING CAPITAL GROUP CO.,
LTD (the “Investor”) at a price of approximately $per share, pursuant to a Standby Equity Purchase
Agreement (the “Private SEPA”). The total proceeds the Company received from the above sales of the shares are $
| F-42 |