Exhibit 99.1
TAOPING INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2026 AND 2025
INDEX
| F-1 |
TAOPING INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2026 AND DECEMBER 31, 2025
| NOTES | June 30, 2026 | December 31, 2025 | ||||||||
| (Unaudited) | ||||||||||
| ASSETS | ||||||||||
| CURRENT ASSETS | ||||||||||
| Cash and cash equivalents | $ | $ | ||||||||
| Restricted cash | 2(e) | |||||||||
| Accounts receivable, net | 2(f) | |||||||||
| Accounts receivable-related parties, net | 2(f) | |||||||||
| Advances to suppliers, net | 2(g) | |||||||||
| Contract assets | 2(h) | |||||||||
| Prepaid expenses | ||||||||||
| Inventories, net | 7 | |||||||||
| Other current assets | 11 | |||||||||
| TOTAL CURRENT ASSETS | ||||||||||
| Property, equipment and software, net | 8 | |||||||||
| Right-of-use assets | ||||||||||
| Goodwill | 3 | |||||||||
| TOTAL ASSETS | $ | $ | ||||||||
| LIABILITIES AND EQUITY | ||||||||||
| CURRENT LIABILITIES | ||||||||||
| Short-term bank loans | 9(a) | $ | $ | |||||||
| Accounts payable | ||||||||||
| Advances from customers | 2(i) | |||||||||
| Advances from customers-related parties | 2(i) | |||||||||
| Contract liabilities | 2(h) | |||||||||
| Amounts due to related parties, net | 6(c) | |||||||||
| Accrued payroll and benefits | ||||||||||
| Other payables and accrued expenses | 15 | |||||||||
| Income tax payable | ||||||||||
| Lease liability-current | 12 | |||||||||
| TOTAL CURRENT LIABILITIES | ||||||||||
| Lease liability | 12 | |||||||||
| Long-term bank loans | 9(b) | |||||||||
| TOTAL LIABILITIES | $ | $ | ||||||||
| EQUITY | ||||||||||
| Ordinary shares, 2026 and 2025: par $; authorized capital shares; shares issued and outstanding, June 30, 2026: shares; December 31, 2025: shares; | 17 | |||||||||
| Class A shares, 2026 and 2025: par $ | 17 | |||||||||
| Preferred shares, 2026 and 2025: par $ | 17 | |||||||||
| Additional paid-in capital | 17 | |||||||||
| Reserve | 16 | |||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive income | ||||||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||||
| * |
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-2 |
TAOPING INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2026 AND 2025
| Six Months Ended | Six Months Ended | |||||||||
| NOTES | June 30, 2026 | June 30, 2025 | ||||||||
| (Unaudited) | (Unaudited) | |||||||||
| Revenue – Products | $ | $ | ||||||||
| Revenue – Products-related parties | 6(a) | |||||||||
| Revenue – Software | ||||||||||
| Revenue – Advertising | ||||||||||
| Revenue – Project | ||||||||||
| Revenue – MRO | ||||||||||
| Revenue – Service | ||||||||||
| Revenue – Other | ||||||||||
| Revenue – Other-related parties | 6(b) | |||||||||
| TOTAL REVENUE | ||||||||||
| Cost – Products | ||||||||||
| Cost – Software | ||||||||||
| Cost – Advertising | 2(u) | |||||||||
| Cost – Project | ||||||||||
| Cost – MRO | ||||||||||
| Cost – Service | ||||||||||
| Cost – Other | ||||||||||
| TOTAL COST | ||||||||||
| GROSS PROFIT | ||||||||||
| Administrative expenses | ||||||||||
| Research and development expenses | ||||||||||
| Selling expenses | ||||||||||
| (LOSS) FROM OPERATIONS | ( | ) | ( | ) | ||||||
| Subsidy income | ||||||||||
| Income from long-term investments | ||||||||||
| Other (loss), net | ( | ) | ( | ) | ||||||
| Interest expense and debt discounts, net of interest income | ( | ) | ( | ) | ||||||
| (Loss) income before income taxes | ( | ) | ( | ) | ||||||
| Income tax (expense) | 10 | ( | ) | ( | ) | |||||
| NET (LOSS) | $ | ( | ) | $ | ( | ) | ||||
| NET (LOSS) PER SHARE – Basic and Diluted* | ||||||||||
| Basic | 5 | $ | ( | ) | $ | ( | ) | |||
| Diluted | 5 | $ | ( | ) | $ | ( | ) | |||
| * |
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-3 |
TAOPING INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE SIX MONTHS ENDED JUNE 30, 2026 AND 2025
| Six Months Ended | Six Months Ended | |||||||
| June 30, 2026 | June 30, 2025 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation gain | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-4 |
TAOPING INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2026 AND 2025
(Unaudited)
| Ordinary shares* | Class A Shares | Additional Paid-in | Accumulated | Accumulated other comprehensive | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Reserve | deficit | income | Total | ||||||||||||||||||||||||||||
| BALANCE AS AT JANUARY 1, 2026 | ( | ) | ||||||||||||||||||||||||||||||||||
| Net loss for the period | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation gain | - | - | ||||||||||||||||||||||||||||||||||
BALANCE AS AT JUNE 30, 2026
(unaudited) | ( | ) | ||||||||||||||||||||||||||||||||||
| Ordinary shares* | Additional Paid-in | Accumulated | Accumulated other comprehensive | |||||||||||||||||||||||||
| Shares | Amount | Capital | Reserve | deficit | income | Total | ||||||||||||||||||||||
| BALANCE AS AT JANUARY 1, 2025 | ( | ) | ||||||||||||||||||||||||||
| Issuance of ordinary shares for financing (Note 17) | ||||||||||||||||||||||||||||
| Conversion of convertible note (Note 14) | ||||||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation gain | - | |||||||||||||||||||||||||||
| BALANCE AS AT JUNE 30, 2025 (unaudited) | ( | ) | ||||||||||||||||||||||||||
| * |
The accompanying notes are an integral part of the unaudited consolidated financial statements
| F-5 |
TAOPING INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2026 AND 2025
| Six Months Ended | Six Months Ended | |||||||
| June 30, 2026 | June 30, 2025 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net 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: | ||||||||
| (Reversal of) provision for obsolete inventories | ( | ) | ||||||
| Depreciation | ||||||||
| Amortization of intangible assets and other asset | ||||||||
| Amortization of convertible note discount | ||||||||
| Loss (gain) on disposals/dissolutions of subsidiaries | ||||||||
| (Income) loss on long-term investment | ( | ) | ||||||
| Exchange difference | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Accounts receivable from related parties | ||||||||
| Inventories | ( | ) | ||||||
| Contract assets | ||||||||
| Other receivables and prepaid expenses | ( | ) | ( | ) | ||||
| Advances to suppliers | ( | ) | ||||||
| Other payables and accrued expenses | ( | ) | ( | ) | ||||
| Contract liabilities | ||||||||
| Advances from customers | ( | ) | ||||||
| Advances from related parties | ( | ) | ||||||
| Amounts due to related parties | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Payroll payable and benefits | ( | ) | ||||||
| Lease liabilities | ( | ) | ||||||
| Income tax payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Proceeds from sales of long-term investment | ||||||||
| Purchases of property, equipment and software | ( | ) | ( | ) | ||||
| Cash paid for equity investment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from borrowings under short-term loans | ||||||||
| Repayment of short-term bank loans | ( | ) | ( | ) | ||||
| Repayment of long-term bank loans | ( | ) | ( | ) | ||||
| Proceeds from issuance of ordinary shares | ||||||||
| Proceeds from issuance of convertible note | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | ||||||||
| NET INCREASE (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 period | ||||||||
| Income taxes | $ | $ | ||||||
| Interest | $ | $ | ||||||
Supplemental disclosure of significant non-cash transactions*:
| * | On
May 29, 2025, the Company implemented a |
In
January 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $
In
February 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $
In
March 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $
In
April 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $
In
May 2025, the holder of the Company’s convertible promissory note issued in January 2025 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., together with its subsidiaries (the “Company”), is a provider of cloud-based technologies for Smart City IoT platforms, elevator products and related services, digital advertising delivery, and other internet-based information systems in China. The Company has built a far-reaching city partner ecosystem and comprehensive portfolio for its products and services, which are aligned together with its smart cloud platform, cloud services and solutions.
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 advertising, smart display and the newly added smart community and related businesses.
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. (“TEPH”) 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. (“TPGXT”) to expand its waste water treatment business in Guangxi Province.
In April 2024, the Company established a subsidiary Taoping Industrial (Yunnan) Co., Ltd. (“TIYN”) to explore smart agricultural related businesses in Yunnan Province.
In June 2024, ZJIOT was dissolved as a result of the Company’s business realignment.
In January 2025, TDTJS was dissolved as a result of the Company’s business realignment.
In April 2025, TEPH was dissolved as a result of the Company’s business realignment.
In June 2025, TPGXT was dissolved as a result of the Company’s business realignment.
In
September 2025, through its wholly owned subsidiary Taoping Holdings Limited, the Company entered into a share purchase agreement with
Skyladder Holding Limited, as amended by a supplemental agreement dated November 25, 2025, to acquire
On
March 13, 2026, the Company disposed of its
| 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.
June 30, 2026 | December 31, 2025 | December 31, 2024 | |||||||||||
| Entities | Subsidiaries | % owned | % owned | % owned | Location | ||||||||
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| F-8 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Going Concern and Management’s Plans
As
a result of business transformation, the Company’s revenue was decreased period-over-period in the first half of 2026. The Company
incurred a net loss of approximately $
The Company will continue to invest efforts on diversifying its existing cloud-based product and service lines through strategic collaborations and acquisitions. In November 2025, the Company completed the acquisition of Skyladder Group, a provider of elevator products and related physical and cloud-based services. Based on the government policies which advocate the modification and replacement of old elevators, more confirmed orders/contracts have been obtained by Skyladder Group in 2026. From the confirmed orders/contracts on hand, Skyladder Group is expected to achieve significant revenue growth in 2026, which is expected to improve the Company’s operating cash flow by year-end 2026.
The
Company considers the legacy market in China is competitive, in particular the escalated tariff environment and geopolitical disorders
would raise significant uncertainty to the Company’s businesses. If the Company cannot effectively execute the confirmed orders/contracts
for achieving more positive operating cash flows, additional capital raise from issuing equity security or debt instrument or additional
loan facility may have to be considered to support required cash flows. The Company’s existing $
On
July 15, 2026, the Company entered into a Securities Purchase Agreement with Streeterville Capital, LLC (the “Investor”),
pursuant to which the Company issued an unsecured convertible promissory note with a 12-month maturity (the “Convertible Note”)
to the Investor. The Convertible Note has the original principal amount of $
From above, the Company believes that it has the ability to raise needed capital to maintain its operations, repay short term loans and fund business growth, and is able to operate as a going concern.
However, the Company considered the recent fluctuation in Nasdaq market and can make no assurances that financing will be always available for the amounts we need, or on terms commercially acceptable to us, if at all. If one or all of these businesses and/or strategies do not go well 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 of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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. 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 one-for-thirty reverse stock split of the Company’s issued and outstanding ordinary shares was effective on May 29, 2025 (the “Reverse Stock Split”). Except shares authorized, all share and per share information has been retroactively adjusted to give effect to the Reverse Stock Split for all periods presented, unless otherwise indicated.
(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 estimates used in business acquisition, goodwill assessment, going concern assessment and assessment of credit losses. 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 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, 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, 2026, and December 31, 2025, approximately $
(e) Restricted Cash
Restricted
cash represents the bank deposit frozen by the court as a result of legal proceedings. As of June 30, 2026 and December 31, 2025, the
Company had restricted cash balance of $
(f) 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.
In
addition, 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, 2026 has increased by approximately $
| F-11 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Accounts receivable as of June 30, 2026 and December 31, 2025 are as follows:
June 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Accounts Receivable | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts Receivable, net | $ | $ | ||||||
| Accounts Receivable - related parties | $ | $ | ||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| 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. The normal credit term for elevator project, maintenance, repair and operations supply and services is ranging from 3 months to 6 months. 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, 2026 and December 31, 2025, totaled approximately $
| Balance at January 1, 2025 | $ | |||
| Increase in allowance for credit losses | ||||
| Amounts recovered during the year | ( | ) | ||
| Decrease from dissolution of a subsidiary | ( | ) | ||
| Amounts written off as uncollectible | ( | ) | ||
| Foreign exchange difference | ||||
| Balance at December 31, 2025 | $ | |||
| Increase in allowance for credit losses | ||||
| Impairment losses reversed | ( | ) | ||
| Foreign exchange difference | ||||
| Balance at June 30, 2026 (Unaudited) | $ |
| F-12 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(g) Advances to Suppliers, net
Advances
to suppliers include but are not limited to cash deposits for the purchase of inventory items and super-computing server machines from
suppliers. For the six months ended June 30, 2026 and 2025, the increase in allowance for credit losses for advances to suppliers was
approximately $
(h) Contract Assets and Contract Liabilities
Projects with performance obligations recognized over time that have revenue recognized to date in excess of cumulative billings are reported on our consolidated balance sheets as “contract assets”. Provisions for estimated losses of contract assets on uncompleted contracts are made in the period in which such losses are determined.
As
of June 30, 2026 and December 31, 2025, the Company had contract assets of $
Contract liabilities on uncompleted contracts represent the amounts of cash collected from clients, billings to clients on contracts in advance of work performed and revenue recognized. Contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.
As
of June 30, 2026 and December 31, 2025, the Company had contract liabilities of $
(i) Advances from Customers and Related Parties
Advances from customers and related parties represent cash received from customers and related parties as advance payments for the purchases of the Company’s products and services.
| F-13 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(j) Fair Value and Fair Value Measurement of Financial Instruments
Management has estimated that carrying amounts reported in the consolidated balance sheets for cash, accounts receivable, accounts receivable – related parties, advances to suppliers, contract assets, other current assets, short-term bank loans, long-term bank loans, accounts payable, advances from customers, advances from customers - related parties, accrued payroll and benefits, other payables and accrued expenses, income taxes payable, and due to related parties approximate their fair market value based on the short-term maturity of these instruments.
(k) 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). |
(l) 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.
(m) Property, equipment and software
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 | ||
| Electronic equipment, furniture and fixtures | ||
| Motor vehicles | ||
| Purchased software | ||
| Media display equipment |
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
(n) 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.
The Company evaluates goodwill for impairment on an annual basis or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company conducts a quantitative goodwill impairment test, which involves comparing the estimated fair value of the reporting unit with its carrying value, including goodwill. The Company estimates the fair value of a reporting unit using the income approach. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment loss is recorded for the difference.
(o) 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.
(p) 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 (if applicable plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer).
For equity investments that the Company elects to measure at cost, less any impairment, 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
(q) 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 liability 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.
(r) Impairment of Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Recoverability of assets to be held and used is determined by comparing their carrying amount with their expected future net undiscounted future cash flows from the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by how much the carrying amount exceeds the fair value of the assets. There were impairment charges for the six months ended June 30, 2026 and 2025. Assets held for disposal, if any, are reported at the lower of the carrying amount or fair value less costs to sell.
(s) 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.
(t) 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 six sources: (1) product sales, (2) software sales, (3) advertising, (4) elevator project, and (5) elevator Maintenance, Repair and Operations (“MRO”) and (6) elevator services. 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), high-end data storage servers, super-computing servers and graphic cards. Although manufacturing of the products has been outsourced to the Company’s Original Equipment Manufacturer (OEM) suppliers or directly sourced from the 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.
Revenue - Software
Revenue – software represents software upgrade and maintenance services provided for customers by the Company. The Company recognized the software revenue for software upgrade and maintenance service on a straight-line basis over the contracted service period.
| F-16 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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.
The Company also generates its advertising revenue through facilitating internet promotion advertising service and recognizes the revenue over the contracted advertising duration. The Company provides advertising services to customers for promotion of their brands and products through internet. For the network promotion advertising contracts, the Company generally recognizes revenue over time, because the customer simultaneously receives and consumes the benefits as the Company performs throughout a fixed contract term.
Revenue - Project
Project represents two types of revenue, i.e. sales of elevators and elevator installation services.
Product revenues are generated from the sale of elevators. The transfer of control is initiated when ordered equipment is delivered to a customer site as then the customer has the ability to direct the use of and obtain substantially all the remaining benefits from. The Company has acted as the principal of the contract. The Company recognized the product sales at the point of delivery.
Installation services provide mobility solutions with elevators for all applications and needs. The control is transferred continuously to the customer from the start of the installation of the unit, as the work performed enhances an asset controlled by the customer. Revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress. Incurred costs represent work performed, which corresponds with and best depicts transfer of control or the enhancement of the customer’s assets. Contract costs included in the calculation are comprised of materials, subcontractors’ costs or other direct costs. In developing the total cost estimates, the Company utilizes a combination of its historical cost experience and expected costs considering current circumstances.
| F-17 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Revenue - MRO
MRO represents two types of revenue, i.e. revenues from elevator maintenance services and repairs services.
Maintenance services are rendered by the Company for the installations carried out by us and other service providers. Control is transferred to the customer over the contract period based on the time elapsed. Maintenance revenue is recognized over the contract period as the service is provided, according to the agreed contractual terms and conditions.
Wide range of repair services are rendered by the Company to the installations carried out by us and other service providers. For repairs, the customer benefits from the service once the repair is completed, revenue is therefore recognized at the point of service completion.
Revenue - Service
Elevator service represents two types of revenue, i.e. revenues from platform service and consultation services.
The Company owns a software which serves a platform providing elevator operational data to the customers through intelligent sensors installed in the elevators and connected to the platform. The customers purchase platform service will be granted periodic access rights to access the platform for the review of operational data of elevators. Given the continuous nature of this service, the Company recognizes revenue from platform service on a straight-line basis which aligns with the cost and benefit profile of this service. Platform revenue is recognized over the contract period as the service is provided.
Consultation services include the provision of solutions on technical issues relating to elevators. The revenue is recognized when the service is completed and accepted by the customer.
Revenue - Other
The Company also reports other revenue, which comprises: (i) revenue from system upgrade and technical support services; (ii) platform service fee; and (iii) rental income.
System upgrade and technical support revenue is recognized when performance obligations are satisfied upon completion of the services. Platform service fee is charged based on number of the display terminals used by the customers or a percentage of advertising revenue generated by the display terminals. Platform service revenue is recognized on a monthly basis over the contract period.
The
Company follows ASC 842 – Leases that requires lessor to identify the underlying assets and allocate rental income among
considerations in lease and non-lease components. The Company owns two units of office space. The first unit is leased to a third
party with an initial lease term of two years commencing on May 1, 2024 and expiring on April 30, 2026. It was subsequently renewed
for an additional three years with the maturity date extended to April 30, 2029. The second unit was leased to another third party
with lease term of three years starting from January 1, 2024 to December 31, 2026, but was early terminated on June 30, 2025. 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 $
| Annual minimum rental income to be received in the next 5 years: | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 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, 2026 and 2025, 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.
The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
(u) 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.
| F-18 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(v) 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.
(w) 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
| (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 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. Nevertheless, due to the difference business nature from the other segments, the Chief Operating Decision Maker considers it is a separate operating segment of which the performance is separately assessed and financial information for this segment is separately disclosed for financial reporting purpose. |
| (3) | Smart Elevator (SE) segment - Following the acquisition of Skyladder Group Limited in November 2025, the Company added the Smart Elevator (SE) segment. As a provider of elevator services, the Company provides services throughout the entire elevator lifecycle, including sales, installation, repair, cloud-based maintenance, renovation, and upgrades. The segment serves a diverse user base, including governments, businesses, and households. In this segment, the Company generates revenues from elevator sales and installation contracts, as well as maintenance, repair, and other service agreements. The SE segment diversifies the Company’s cloud-based product offerings and expands the Company’s presence in the smart building and urban infrastructure market. |
| F-19 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(x) Recent Accounting Pronouncements
(i) Recently adopted accounting pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, (“ASU 2023-09”). The ASU enhances the transparency and decision usefulness of income tax disclosures by requiring additional disaggregation of information related to the effective tax rate reconciliation, income taxes paid, and income tax expense and pretax income by jurisdiction. The Company adopted ASU 2023 09 on a prospective basis effective January 1, 2025. Accordingly, the enhanced income tax disclosures are presented beginning in fiscal year 2025, and prior period disclosures have not been recast. The adoption of this guidance did not have an impact on the Company’s consolidated results of operations, financial position, or cash flows, as the amendments relate solely to disclosure requirements.
In March 2024, the FASB issued ASU 2024-02, “Codification Improvements – Amendments to Remove References to the Concept Statements” (“ASU 2024-02”). ASU 2024-02 contains amendments to the FASB Accounting Standards Codification that remove references to various FASB Concepts Statements. In most instances, the references are extraneous and not required to understand or apply the guidance. In other instances, the references were used in prior statements to provide guidance in certain topical areas. The Company adopted ASU 2024-02 for the annual period ending December 31, 2025. The adoption of this standard did not have a material impact to our results of operations, cash flows or financial condition.
(ii) Recently issued accounting pronouncements not yet adopted
In January 2025, the FASB issued ASU 2025-01, “Income Statement – Comprehensive Income – Expense Disaggregation Disclosure (Subtopic 220-40): Clarifying the Effective Date.” This pronouncement revises the effective date of ASU 2024-03 and clarifies that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Entities within the ASU’s scope are permitted to early adopt the accounting standard update. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This pronouncement introduces new disclosure requirements aimed at enhancing transparency in financial reporting by requiring disaggregation of specific income statement expense captions. Under the new guidance, entities are required to disclose a breakdown of certain expense categories, such as: employee compensation; depreciation; amortization, and other material components. The disaggregated information can be presented either on the face of the income statement or in the notes to the financial
statements, often using a tabular format. The ASU is effective for fiscal years beginning after December 15, 2025, and interim periods within those fiscal years. Early adoption is permitted. In January 2025, the FASB issued ASU 2025-01, which revises the effective date of ASU 2024-03 (on disclosures about disaggregation of income statement expenses) “to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.” Entities within the ASU’s scope are permitted to early adopt the ASU. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.
Other accounting standards issued by FASB do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent standards that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.
| F-20 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3. BUSINESS ACQUISITION
On
September 29, 2025, the Company and Taoping Holdings Limited (“THL”), a wholly owned subsidiary of the Company, entered into
a share purchase agreement with Skyladder Holding Limited to acquire % equity interest in Skyladder Group Limited (“SGL”)
(the “Acquisition”). SGL is a provider of elevator services throughout the entire elevator lifecycle, including sales, installation,
repair, maintenance, renovation, and upgrades. The Acquisition was consummated on November 26, 2025, and as a result, SGL became a wholly
owned subsidiary of THL. Pursuant to the share purchase agreement, as amended (the “Purchase Agreement”), the total maximum
consideration for the Acquisition on the Purchase Agreement date is RMB
The Company completed the valuations necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed, resulting from which the amount of goodwill was determined and recognized as of the acquisition closing date. The following table summarizes the estimated aggregate fair values of the assets acquired, and liabilities assumed as of the completion closing date:
The
total maximum consideration under the Purchase Agreement is RMB
| Fair value of consideration on November 26, 2025 (closing date) | $ | |||
| Assets acquired (liabilities assumed): | ||||
| Cash and cash equivalents | $ | |||
| Accounts receivable | ||||
| Contract assets | ||||
| Advances to suppliers | ||||
| Inventories | ||||
| Other current assets | ||||
| Amounts due from related parties | ||||
| Property, plant and equipment | ||||
| Right of use assets | ||||
| Short-term bank loans | ( | ) | ||
| Accounts payable | ( | ) | ||
| Advances from customers | ( | ) | ||
| Accrued payroll and benefit | ( | ) | ||
| Other payables and accrued expenses | ( | ) | ||
| Income tax payable | ( | ) | ||
| Lease liabilities | ( | ) | ||
| Total net liabilities acquired | ( | ) | ||
| Goodwill | ||||
| Total fair value of Consideration | $ |
The
transaction resulted in allocation of $
| F-21 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
Company’s consolidated statement of operations for the year ended December 31, 2025 included revenue of $
Goodwill
is evaluated for impairment on an annual basis, or more frequently if events or circumstances indicate that it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. The Company performed an assessment of potential triggering
events as of June 30, 2026, and concluded that no events or circumstances had occurred that would more likely than not reduce the fair
value of the reporting unit below its carrying amount. Accordingly,
4. DISPOSALS OF CONSOLIDATED ENTITIES
TDTJS
was dissolved on January 15, 2025. The dissolution resulted in a recorded loss of $
TEPH and TPGXT were dissolved on April 29, 2025 and June 11, 2025, respectively. The dissolution of these companies results in minimal gain or loss for the year ended December 31, 2025.
The
Company disposed of
The disposal of BTAT was not qualified as discontinued operations as it does not represent a strategic shift that has had a major impact on the Company’s operations or financial results.
The dissolution of TDTJS, TEPH and TPGXT 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.
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 | Six
Months Ended | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Numerator: | ||||||||
| Net (loss) | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average outstanding ordinary shares-Basic* | ||||||||
| -dilutive effect of convertible note | ||||||||
| Weighted average outstanding ordinary shares- Diluted* | ||||||||
| Earnings (loss) per share* | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| * |
| F-22 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. RELATED PARTY TRANSACTIONS
| (a) | Revenue – related parties |
For
the six months ended June 30, 2026 and 2025, 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, 2026, the net amounts due to related parties were $
7. INVENTORIES
As of June 30, 2026 and December 31, 2025, inventories consist of:
June 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Inventories, gross | $ | $ | ||||||
| Allowance for slow-moving or obsolete inventories | ( | ) | ( | ) | ||||
| Inventories, net | $ | $ | ||||||
For
the six months ended June 30, 2026, impairments expense for obsolete inventories were approximately $
| F-23 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8. PROPERTY, EQUIPMENT AND SOFTWARE
As of June 30, 2026 and December 31, 2025, property, equipment and software consist of:
June 30, 2026 |
December 31, 2025 |
|||||||
| (Unaudited) | ||||||||
| Office buildings | $ | $ | ||||||
| Electronic equipment, furniture and fixtures | ||||||||
| Media display equipment | ||||||||
| Purchased software | ||||||||
| Motor vehicle | ||||||||
| Total | ||||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||||
| Property, equipment and software, net | $ | $ | ||||||
Depreciation
expenses for the six months ended June 30, 2026 and 2025 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.
Company’s
office buildings, with net carrying value of approximately $
9. BANK LOANS
(a) Short-term bank loans
June 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Secured short-term loans (1) | $ | $ | ||||||
| Unsecured short-term loans (2) | ||||||||
| Add: amounts due within one year under long-term loan contracts | ||||||||
| Total short-term bank loans | $ | $ | ||||||
| (1) |
June 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Guaranteed by Mr. Lin and IST HK | $ | $ | ||||||
| Guaranteed by Mr. Lin and Mr. Du Yong | ||||||||
| Total | $ | $ | ||||||
(2)
Unsecured short-term loans are fiduciary bank loans, bearing fixed interest rates, ranging from
| F-24 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(b) Long-term bank loans
June 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Secured long-term loans | $ | $ | ||||||
| Less: amounts due within one year under long-term loan contracts | ( | ) | ( | ) | ||||
| Total long-term bank loans | $ | $ | ||||||
Detailed information of secured long-term loan balances as of June 30, 2026 and December 31, 2025 were as follows:
June 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Guaranteed by ISIOT and Mr. Lin and Collateralized by real property of ISIOT, future rental income of ISIOT, patents of Biznest, and equity investment of IST HK | $ | $ | ||||||
| Collateralized by office buildings of IST and guaranteed by Mr. Lin | ||||||||
| Guaranteed by Biznest, ISIOT, IST, and Mr. Lin and Collateralized by real property of ISIOT, office buildings of IST, patents of TNM, and future rental income of ISIOT | ||||||||
| Total | $ | $ | ||||||
As
of June 30, 2026, the Company had short-term and long-term bank loans in total of approximately $
10. INCOME TAXES
Pre-tax (loss) income for the six months ended June 30, 2026 and 2025 were taxable in the following jurisdictions:
| Six Months Ended | Six Months Ended | |||||||
| June 30, 2026 | June 30, 2025 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| PRC | $ | ( | ) | $ | ( | ) | ||
| HK | ( | ) | ( | ) | ||||
| BVI | ( | ) | ( | ) | ||||
| Total (loss) income 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, 2026.
| F-25 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BVI
Under the current laws of the BVI, dividends and capital gains arising from the Company’s investments in the BVI and ordinary income, if any, are not subject to income taxes.
HK
Under
the current laws of Hong Kong, IST HK is subject to a profit tax rate of
PRC
Income tax expense consists of the following:
| Six Months Ended | Six Months Ended | |||||||
| June 30, 2026 | June 30, 2025 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Current tax expense | $ | $ | ||||||
| Income tax expense | $ | $ | ||||||
Current income tax expense was recorded in the six-month period ended 2026 and 2025 and was related to differences between the book and corporate income tax returns.
| Six Months Ended | Six Months Ended | |||||||
| June 30, 2026 | June 30, 2025 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| PRC statutory tax rate | % | % | ||||||
| Expected income tax (benefit) expense | $ | ( | ) | $ | ( | ) | ||
| Tax rate difference | ||||||||
| Permanent differences | ( | ) | ||||||
| Tax effect of tax losses unrecognized | ||||||||
| Income tax expense | $ | $ | ||||||
| F-26 |
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, 2026 and December 31, 2025, 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, 2026 and 2025.
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.
11. OTHER CURRENT ASSETS
As of June 30, 2026, and December 31, 2025, other current assets consist of:
June 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Advances to unrelated parties (i) | $ | $ | ||||||
| Advances to a related party | ||||||||
| Advances to employees | ||||||||
| Other current assets | ||||||||
| $ | $ | |||||||
| (i) |
| F-27 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
12. OPERATING LEASES
The Company leases an office space, a warehouse, and seven dormitories in Tianjin. The office space lease commenced in May 2025 and expires in December 2027; the warehouse lease commenced in November 2024 and expires in July 2026; and the seven dormitories have varying lease terms, with the earliest commencement date in June 2025 and the latest expiration date in July 2027.
The
fixed monthly lease payment for the long-term lease of office space is RMB
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
The
Company incurred rent expenses for short-term lease of approximately $
The Company has elected to apply the short-term lease exception to all leases with a term of one year or less.
Weighted-average remaining lease term as of June 30, 2026, and discount rate for its operating leases are as follows:
| Weighted-average remaining lease term | ||
| Weighted-average discount rate |
The weighted-average discount rate was based on the five-year interest rate of People’s Bank of China.
The following table outlines maturities of operating lease liabilities as of June 30, 2026:
| Year ending June 30 | Lease for office | |||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | ||||
| Less: Imputed interest | ( |
) | ||
| Present value of lease liabilities | ||||
| F-28 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
13. LONG-TERM INVESTMENTS
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 (if applicable plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer).
As
of June 30, 2026 and December 31, 2025, the carrying value for the equity investments without readily determinable fair value was $.
The total initial investments to the equity investments without readily determinable fair value were approximately $
14. CONVERTIBLE NOTE PAYABLE
On
September 27, 2023, the Company issued a Convertible Promissory Note (“Note”) in a private placement in aggregate principal
amount of $
The Note is recognized initially at fair value, net of debt discounts including original issue discount and Transaction Expense Amount. Amortizations of issuance costs and other Discounts accretion are recorded as interest expenses in the consolidated statement of operations.
The
Company recognized interest expense of approximately $
On
January 13, 2025, the Company issued another Convertible Promissory Note (“Note-2”) in a private placement in aggregate principal
amount of $
Note-2
is recognized initially at fair value, net of debt discounts including original issue discount, and Note-2 Transaction Expense Amount,
in the amount of $
The
Company recognized interest expense of approximately $
15. OTHER PAYABLES AND ACCRUED EXPENSES
As of June 30, 2026 and December 31, 2025, other payables and accrued expenses consist of:
| June 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Advances from unrelated third parties (i) | $ | $ | ||||||
| Other taxes payable (ii) | ||||||||
| Accrued professional fees | ||||||||
| Amount due to employees (iii) | ||||||||
| Others | ||||||||
| $ | $ | |||||||
| (i) | |
| (ii) | |
| (iii) |
16. 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
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.
| F-29 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
17. EQUITY
(a) Ordinary shares
The
maximum number of shares that the Company authorized to issue was changed from Ordinary Shares of one class each with
In
January 2025, the Company issued ordinary shares to an investor at $ per share, which generated a total of net proceeds of
$
In
January 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $
In
February 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $
In
February 2025, the Company issued ordinary shares to an investor at $ per share, which generated a total of net proceeds of
$
In
March 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $
In
April 2025, the Company issued a total of ordinary shares to certain individual investors at $ per share, which generated
$
In
April 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $
In
May 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $
In
June 2025, the Company issued ordinary shares to an investor at $ per share, which generated net proceeds of $
In
July 2025, the Company issued ordinary shares to an investor at $ per share, which generated a total of net proceeds of $
In
July 2025, the Company issued ordinary shares with fair value of approximately $
In
July 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $
In
August 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $
In
September 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of $100,000,
$
In
September 2025, the Company issued ordinary shares to an investor at $ per share, which generated a total of net proceeds
of $
In
October 2025, the holder of the Company’s convertible promissory note issued in January 2025 converted an amount of approximately
$
In
November 2025, the Company issued ordinary shares for the acquisition of Skyladder Group Limited. The fair value of consideration
as of the completion date was approximately $
| F-30 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(b) 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.
There were stock options granted to employees during the six months ended June 30, 2026 and 2025. There was option exercised during the six months ended June 30, 2026 and 2025. The Company did not receive any proceeds related to the cashless exercise of stock options from employees for the six months ended June 30, 2026 and 2025.
As of June 30, 2026 and December 31, 2025, unrecognized compensation expense related to non-vested share options expected to be recognized.
(c) Stock options and warrants to non-employees
Pursuant to the 2016 Plan and its amendment, for the six months ended June 30, 2026 and 2025, the Company issued and warrants to consultants, respectively. The Company expensed to administrative expense approximately $ and $ for the six months ended June 30, 2026 and 2025, respectively. During the six months ended June 30, 2026, no options or warrants were exercised.
As of June 30, 2026 and December 31, 2025, there was no stock options and warrants outstanding and exercisable.
| F-31 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
18. CONSOLIDATED SEGMENT DATA
Selected information by segment is presented in the following tables for the six months ended June 30, 2026 and 2025.
Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenues (1) | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment (1) | ||||||||
| SE Segment (1) | ||||||||
| (1) | $ | $ | ||||||
| (1) |
Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Income (loss) from operations | ||||||||
| TIT Segment | $ | ( | ) | $ | ( | ) | ||
| CBT Segment | ( | ) | ( | ) | ||||
| SE Segment | ||||||||
| Corporate and others | ( | ) | ( | ) | ||||
| (Loss) from operations | ( | ) | ( | ) | ||||
| Corporate other income, net | ( | ) | ( | ) | ||||
| Corporate interest income | ||||||||
| Corporate interest expense | ( | ) | ( | ) | ||||
| (Loss) income before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ( | ) | ||||
| Net (Loss) | $ | ( | ) | $ | ( | ) | ||
Depreciation and amortization by segment for six months ended June 30, 2026 and 2025 are as follows:
Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Depreciation: | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment | ||||||||
| SE Segment | ||||||||
| $ | $ | |||||||
| F-32 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Provisions for allowance for credit losses on accounts receivable, other receivable and advances to suppliers: | ||||||||
| TIT Segment | $ | ( | ) | $ | ( | ) | ||
| CBT Segment | ||||||||
| SE Segment | ( | ) | ||||||
| $ | $ | |||||||
Six Months Ended June 30, 2026 | Six Months Ended June 30, 2025 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Inventory obsolescence (reversal) provision: | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment | ( | ) | ||||||
| SE Segment | ||||||||
| $ | $ | ( | ) | |||||
Total assets by segment as of June 30, 2026 and December 31, 2025 are as follows:
June 30, 2026 | December 31, 2025 | |||||||
| (Unaudited) | ||||||||
| Total assets | ||||||||
| TIT Segment | $ | $ | ||||||
| CBT Segment | ||||||||
| SE Segment | ||||||||
| Corporate and others | ||||||||
| $ | $ | |||||||
| F-33 |
TAOPING INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
19. 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 2025, a passenger riding an elevator maintained by our company, Tianjin Weida Elevator Co., Ltd., experienced an abnormal descent
after a brake communication malfunction triggered the safety protection mechanism. The plaintiff alleges that our company failed to fulfill
its safety obligations and is seeking damages of $
20. CONCENTRATIONS
For
the six months ended June 30, 2026 and 2025, no single customer accounted for greater than
The
Company’s top five customers in aggregate accounted for
For
the six months ended June 30, 2026 and 2025, approximately % and %, respectively, of total purchases were from five unrelated suppliers.
No single supplier accounted for greater than
21. SUBSEQUENT EVENTS
On
July 15, 2026, the Company entered into a Securities Purchase Agreement with Streeterville Capital, LLC (“Investor”),
pursuant to which the Company issued an unsecured convertible promissory note with a 12-month maturity (the “Convertible
Note”) to the Investor. The Convertible Note has the original principal amount of $
On August 31, 2026, the Company dismissed its independent registered public accounting firm, PKF Littlejohn LLP. On August 31, 2026, upon the audit committee’s approval, the Company engaged Li CPA LLC (“Li CPA”) as its new independent registered public accounting firm to audit the Company’s financial statements for the fiscal year ending December 31, 2026.
| F-34 |