Taoping Inc. — FY2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP and were audited; the auditor’s opinion includes a substantial-doubt-about-going-concern paragraph.
Business context
Taoping provides cloud and IoT technology, digital advertising display products and services, software, and related solutions, primarily in China. Its Cloud-based Technology (CBT) segment generated 96.6% of 2020 revenue; Traditional Information Technology (TIT) generated the balance. The company reported approximately 58 employees at year-end. Its VIE structure, including iASPEC, is central to operations in regulated Chinese businesses.
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $11.06 million | $13.79 million |
| Gross profit / margin | $3.94 million / 35.7% | $6.60 million / 47.9% |
| Operating loss | $17.37 million | $4.17 million |
| Net loss attributable to Taoping | $17.69 million | $3.58 million |
| Research and development expense | $3.89 million | $3.59 million |
| Operating cash flow | $(1.78) million | $(1.68) million |
| Investing cash flow | $(1.73) million | $0.15 million |
| Financing cash flow | $3.07 million | $1.59 million |
| Cash and cash equivalents at year-end | $0.88 million | $1.52 million |
| Total cash, including restricted cash | $1.10 million | $1.52 million |
| Short-term bank loans | $6.21 million | $6.58 million |
| Working capital | $(17.37) million | $(6.98) million |
| Total assets / liabilities | $30.78 million / $29.80 million | $40.62 million / $26.01 million |
Product revenue, including related-party product sales, was approximately $6.97 million; software revenue was $3.08 million. CBT revenue was $10.69 million, with a 36.4% gross margin; TIT revenue was $0.38 million. The company recorded a $13.53 million increase in its credit-loss allowance during 2020; the year-end allowance was approximately $21.22 million. Related-party receivables, net, totaled $2.92 million current and $1.32 million non-current.
Material changes versus 2019
- Revenue declined 20%, which management attributed to COVID-19 disruption, a weak macroeconomic environment, and slower Chinese out-of-home advertising activity.
- Gross margin fell to 35.7% from 47.9%, principally because of a higher contribution from lower-margin cloud-server sales.
- Administrative expense rose to $16.71 million from $6.66 million, mainly due to the increased allowance for credit losses. Operating loss widened to $17.37 million.
- Net loss attributable to Taoping increased to $17.69 million from $3.58 million. Consolidated net loss, including non-controlling interests, was $18.33 million.
- Cash and cash equivalents declined, while working-capital deficit widened. Shareholders’ equity fell to $0.98 million from $14.61 million.
- Related-party revenue fell to approximately $0.5 million from $7.5 million. The CEO controls Taoping New Media, a major related party and customer in prior years.
Liquidity, outlook, risks and unusual items
- Liquidity and going concern: The auditor cited substantial doubt about the company’s ability to continue as a going concern. Management reported a $17.37 million working-capital deficit, $18.33 million consolidated net loss, and $1.78 million operating cash outflow for 2020. It said first-quarter 2021 share sales generated approximately $13.1 million before offering expenses and expected available resources to support operations for the next 12 months; future financing may still be needed, with no assurance it will be available on acceptable terms.
- Debt and funding: Year-end short-term bank loans of $6.21 million were secured or guaranteed and generally matured from April to September 2021. The company also had a convertible note payable, net of discounts, of $1.18 million. 2020 financing cash flow included borrowing, note proceeds and share issuance, offset by loan repayments.
- Management outlook: Management expected gross margin to improve in 2021 as education and blockchain-related business expanded, administrative expenses to decline as credit-loss provisions eased, and R&D and selling expenses to increase in support of expansion. It described 2021 as potentially robust, but these statements are forward-looking and not quantified guidance.
- Strategic changes after year-end: The company announced education partnerships and acquisitions, including an agreed share-based acquisition of Taoping New Media, and plans to enter cloud computing, digital assets and cryptocurrency mining. It also announced a $10 million cloud-computing-services commitment over three years and an approximately $24 million Antminer purchase funded by a credit line. These were subsequent events and were not 2020 operating results; execution, financing, delivery and profitability remain uncertain.
- Other notable items: 2020 other losses included arbitration and legal-proceeding accruals, returned government funding and inventory write-offs. A $89,000 contingent liability was accrued in connection with a bankruptcy receiver’s claim. The company completed a one-for-six reverse share split in July 2020 and regained Nasdaq minimum-bid-price compliance in August.
- Controls and structural risks: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to material weaknesses, including insufficient U.S. GAAP expertise and documentation and oversight deficiencies. Other key risks include COVID-19 effects, customer collection and concentration, related-party conflicts, dependence on the iASPEC VIE contracts, uncertainty in PRC regulation and foreign-currency controls, and potential dilution from convertible securities and warrants.
Investor verification priorities
- Review the collectability and aging of receivables, especially related-party balances, and the assumptions behind the $21.22 million credit-loss allowance.
- Confirm the company’s post-year-end cash position, use of the approximately $13.1 million share-sale proceeds, upcoming debt maturities and access to further financing.
- Track remediation of the disclosed material weaknesses and assess whether the financial-reporting controls improve.
- Verify completion, consideration, related-party safeguards and purchase accounting for announced acquisitions, and the funding and delivery terms for mining and cloud-computing plans.
- Reconcile reported product revenue: the MD&A category table shows $6.97 million for 2020, while the financial-statement product line shows $6.59 million plus $0.38 million related-party product revenue. Also distinguish the $17.69 million loss attributable to Taoping from the $18.33 million consolidated net loss.