Business context and reporting period
Taoping Inc.’s Form 20-F reports the fiscal year ended December 31, 2021; it is an annual report, not a standalone 2021 fourth-quarter filing. The company is a British Virgin Islands holding company operating mainly through subsidiaries in mainland China and Hong Kong. It reports three segments: Cloud-based Technology (CBT), Blockchain Technology (BT), and Traditional Information Technology (TIT), which is being phased out.
In 2021, Taoping acquired out-of-home advertising operator Taoping New Media (TNM), launched cryptocurrency mining, and completed the purchase of iASPEC, dissolving its VIE structure. The audited statements are prepared under U.S. GAAP.
Key financial metrics
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Revenue | $24.85 million | $11.06 million |
| Gross profit / margin | $9.34 million / 37.6% | $3.94 million / 35.7% |
| Operating loss | $8.71 million | $17.37 million |
| Net loss | $9.92 million | $18.33 million |
| Net loss attributable to Taoping | $9.92 million | $17.69 million |
| Operating cash flow | $(16.15) million | $(1.78) million |
| Investing cash flow | $(14.00) million | $(1.73) million |
| Financing cash flow | $33.03 million | $3.07 million |
| Cash and cash equivalents at year-end | $4.53 million | $0.88 million |
| Total assets / total liabilities | $47.16 million / $27.90 million | $30.78 million / $29.80 million |
Revenue grew 124.6%, reflecting product and software sales, TNM advertising revenue, and the new mining business. CBT generated $18.75 million (75.5% of revenue), BT $5.46 million (22.0%), and TIT $0.64 million (2.6%). Cryptocurrency mining produced approximately $2.7 million gross profit on $5.5 million revenue. The filing’s segment tables contain differing BT cost and margin figures; the company-wide gross profit and margin above are from the consolidated statements.
Liquidity remained strained: working capital was in deficit by approximately $6.3 million at year-end, improved from a $17.4 million deficit in 2020. Short-term bank loans were $7.79 million, generally bearing 4.95%–5.40% interest and maturing from July through December 2022. The company also owed approximately $3.15 million to a related company owned by its CEO, at 5.85% interest and due May 2022. No long-term bank debt was reported. The filing says an at-least-$8 million revolving bank facility was secured.
Receivables remain a significant concern: the allowance for credit losses was $27.3 million at year-end, up from $21.2 million. Net current receivables were approximately $7.1 million. Capital expenditures were $11.3 million, primarily for long-lived assets and acquisitions.
Material changes versus prior period
- Revenue more than doubled, while the net loss attributable to Taoping narrowed from $17.69 million to $9.92 million. The improvement reflected higher revenue and lower administrative expenses, including a smaller credit-loss provision; losses continued.
- Gross margin rose to 37.6% from 35.7%. Administrative expenses fell to $12.88 million from $16.71 million, while R&D expense rose to $4.48 million from $3.89 million.
- Operating cash use worsened substantially to $16.15 million, including cash absorbed by supplier advances and reduced payables. Financing inflows, mainly equity issuance, supported the increase in year-end cash.
- Share count increased to 15,513,605 at year-end from 8,486,956. The company issued shares in financings and acquisitions and recorded approximately $3.14 million of stock-based compensation.
Outlook, risks, contingencies and unusual items
- Management expected 2022 gross margin to increase slightly, administrative expenses to decline, and R&D and selling expenses to increase in dollars; these are expectations, not formal numerical guidance.
- Management planned to expand digital advertising and mining capacity, pursue acquisitions, and explore smart-community, charging-pile, NFT, cloud desktop, and cloud-rendering opportunities. It also emphasized receivables collection, customer selection, inventory management, and payables management.
- The auditor’s report highlights substantial doubt about the company’s ability to continue as a going concern, citing operating losses, the working-capital deficit, and uncertainty about obtaining financing. Management’s plans include growth initiatives, financing, and the revolving facility; the filing gives no assurance those plans will resolve the uncertainty.
- China-related regulatory uncertainty is material, particularly for overseas listings, data and cybersecurity rules, fund transfers, and cryptocurrency-related activity. Taoping said mining operations were conducted outside mainland China, but disclosed that Chinese authorities’ evolving policies could still affect the business.
- Cryptocurrency revenue and asset values are exposed to price volatility, mining difficulty, energy costs, equipment supply, cybersecurity, banking access, and changing regulation. Digital assets are recorded as indefinite-lived intangible assets; impairment losses are not reversed. The company recorded $0.49 million of crypto impairment in 2021.
- Internal control over financial reporting was assessed as ineffective at year-end because of material weaknesses involving going-concern assessment, impairment procedures, and identification of related parties and transactions. Management described remediation efforts; the auditor did not attest to internal control effectiveness.
- TNM was acquired from a company approximately 51% owned by CEO Jianghuai Lin, for consideration valued at about $5.4 million in shares. iASPEC was acquired from Lin for $1.8 million in shares. The filing also discloses a pending appeal in a bankruptcy-related case; an $89,000 probable-loss accrual had been recorded.
- The filing reports that the current auditor, PKF Littlejohn LLP, is subject to PCAOB inspection and was not identified in the PCAOB’s December 2021 determination. UHY LLP resigned in December 2021 and PKF was appointed for the 2021 audit.
Most important facts for investors to verify
- Reconcile the filing’s narrative references to 2021 net loss, which vary, with the audited net loss of $9.92 million and the attributable loss of $9.92 million.
- Review the detailed financial statements and segment notes for the inconsistent BT cost-of-revenue and gross-margin presentations.
- Assess the quality and collectability of receivables, including related-party balances, the $27.3 million credit-loss allowance, and subsequent collections.
- Confirm the availability, terms, covenants, and renewal status of the stated revolving facility, and repayment or refinancing of 2022 bank and related-party maturities.
- Evaluate the cash requirements and returns of mining operations, including the carrying value of mining machines, digital assets, and exposure to crypto prices and regulation.
- Track dilution from equity financing, acquisition consideration, stock awards, warrants, and any additional capital needs.
- Monitor remediation of the disclosed internal-control weaknesses, related-party governance, and the outcome of the bankruptcy-related appeal.