~~[X] ANNUAL REPORT PURSUANT TO SECTION 13~~ OR ~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~[ ] TRANSITION REPORT PURSUANT TO SECTION 13~~ OR ~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13~~ OR ~~15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

~~Shenzhen, Guangdong 518040~~
18 Whitefield Road, Hong Kong~~People’s Republic of China~~

Mr. Jianghuai Lin, Chief Executive Officer
~~21st Floor, Everbright Bank Building~~

~~People’s Republic of China~~
Tel: ~~+86-755-88319888~~
+852-36117837
Fax: + ~~86-755-83709333~~
852-36166449

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report (December 31, ~~2017)~~2021): ~~40,231,159~~15,513,605 ordinary shares, no par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ~~[ ]~~ ☐ No ~~[X]~~ ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ~~[ ]~~ ☐ No ~~[X]~~ ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ~~[X]~~ ☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).
Yes ~~[X]~~ ☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated ~~filer.~~filer, or an emerging growth company. See definition of “large accelerated filer, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting ~~standards†~~standards provided pursuant to Section 13(a) of the Exchange Act. ~~[ ]~~☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
~~[ ]~~ ☐ Item 17 ~~[ ]~~☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ~~[ ]~~ ☐ No ~~[X]~~ ☒

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to:

On July 30, 2020, we completed a share combination of the Company’s ordinary shares at a ratio of one-for-six, which decreased the Company’s outstanding ordinary shares to approximately 7,332,434 shares. This share combination did not change the Company’s authorized amount of shares or the par value of the Company’s ordinary shares. Accordingly, except as otherwise indicated, all share and per share information contained in this annual report has been restated to retroactively show the effect of the share combination.

In addition to historical information, this annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We use words such as “believe,” “expect,” “anticipate,” “project,” “target,” “plan,” “optimistic,” “intend,” “aim,” “will” or similar expressions which are intended to identify forward-looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; and any statements regarding future economic conditions or performance, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of the Company to differ materially from those expressed or implied by such forward-looking statements. Potential risks and uncertainties include, among other things, the possibility that third parties hold proprietary rights that preclude us from marketing our products, the emergence of additional competing technologies, changes in domestic and foreign laws, regulations and taxes, changes in economic conditions, uncertainties related to legal system and economic, political and social events in China, a general economic downturn, a downturn in the securities markets, and other risks and uncertainties which are generally set forth under Item 3 “Key information—D. Risk Factors” and elsewhere in this annual report.

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

Taoping is not an operating company but rather a holding company incorporated in the British Virgin Islands. Because Taoping has no business operations of its own, we conduct our business through Taoping’s operating subsidiaries, primarily in Hong Kong, mainland China and Kazakhstan. This structure involves unique risks to investors and you may never directly hold equity interests in Taoping’s operating entities. You are specifically cautioned that there are significant legal and operational risks associated with being based in or having the majority of operations in China, including that changes in the legal, political and economic policies of the Chinese government, the relations between China and the United States, or Chinese or United States regulations may materially and adversely affect our business, financial condition, results of operations and the market price of the Company’s securities. Moreover, the Chinese government may exercise significant oversight and discretion over the conduct of our business and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of the securities we are registering for sale or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. For a detailed description of risks related to the holding corporate structure, • see Item 3 “Key Information—D. Risk Factors—Risks Related to Doing Business in China”.

Taoping was incorporated in the British Virgin Islands under the BVI Act on June 18, 2012. Taoping is not an operating company but rather a holding company conducting its operations through Taoping’s operating subsidiaries, primarily in Hong Kong, mainland China and Kazakhstan. This structure involves unique risks to investors and you may never directly hold equity interests in Taoping’s operating entities. You are specifically cautioned that there are significant legal and operational risks associated with being based in or having the majority of operations in China. Specifically, the PRC government recently initiated a series of regulatory actions and made a number of public statements on the regulation of business operations in China, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using a variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. We do not believe that our subsidiaries in Hong Kong or mainland China are directly subject to these regulatory actions or statements, as we have not carried out any monopolistic behavior and our business does not involve the collection of personal information or implicate national security. We also have dissolved the variable interest entity structure in 2021 as our business does not involve any type of restricted industry. However, since these statements and regulatory actions by the PRC government are newly published and detailed official guidance and related implementation rules have not been issued or taken effect, uncertainties exist as to how soon the regulatory bodies in China will finalize implementation measures, and the impacts the modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list the Company’s securities on an U.S. or other foreign exchange. For a detailed description of various risks related to doing business in China, see Item 3 “Key Information—D. Risk Factors—Risks Related to Doing Business in China”.

In addition, pursuant to the Holding Foreign Companies Accountable Act (the “HFCA Act”) enacted in 2020, if the auditor of a U.S. listed company’s financial statements is not subject to Public Company Accounting Oversight Board (the “PCAOB”) inspections for three consecutive “non-inspection” years, the Securities and Exchange Commission (the “SEC”) is required to prohibit the securities of such issuer from being traded on a U.S. national securities exchange, such as NYSE and Nasdaq, or in U.S. over-the-counter markets. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which if enacted into law would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive “non-inspection” years instead of three. The PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong because of a position taken by one or more authorities in such jurisdictions. In addition, the PCAOB’s report identified specific registered public accounting firms which are subject to these determinations. Our current registered public accounting firm, PKF Littlejohn LLP (“PKF”), or our former registered public accounting firm, UHY LLP, is not headquartered in mainland China or Hong Kong and was not identified in this report as a firm subject to the PCAOB’s determination. They both are subject to full inspection by the PCAOB and the PCAOB is able to inspect the audit workpapers of our China subsidiaries, as such workpapers are electronic files possessed by our registered public accounting firms. However, if the PCAOB determines in the future that it cannot inspect or fully investigate our auditor at such future time, trading in the Company’s securities would be prohibited under the HFCA Act. See “Risk Factor—Risks Related to Doing Business in China— The increased regulatory scrutiny focusing on U.S.-listed companies with significant operations in China in the U.S. could add uncertainties to our business operations, share price and reputation. Although our former auditor, UHY LLP, and current auditor, PKF, are both subject to inspection by the PCAOB, trading in the Company’s securities may be prohibited under the Holding Foreign Companies Accountable Act if the PCAOB subsequently determines our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as the Nasdaq, may determine to delist the Company’s securities. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to the PCAOB inspections for two consecutive years instead of three.”

There are a number of risks that you should consider and understand before making an investment decision regarding ~~our business. It~~the Company’s securities. You should ~~be read in conjunction with our consolidated financial statements and related notes contained elsewhere~~carefully consider all of the information set forth in this ~~annual~~ report and, in particular, the information under Item 5 “Operating and Financial Review and Prospects.” The selected consolidated statement of income (loss) data for the fiscal years ended December 31, 2017, 2016, and 2015, and the selected consolidated balance sheet data as of December 31, 2017 and 2016 have been derived from our audited consolidated financial statements that are included in this annual report beginning on page F-1. The selected consolidated statement of income (loss) data for the fiscal years ended December 31, 2014 and 2013, and the selected consolidated balance sheet data as of December 31, 2015, 2014 and 2013 have been derived from our audited consolidated financial statements that are not included in this annual report.

Our consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The selected financial data information is only a summary and should be read in conjunction with the historical consolidated financial statements and related notes contained elsewhere herein. The financial statements contained elsewhere fully represent our financial condition and operations; however, they are not indicative of our future performance.

~~Our business is primarily conducted in China and almost all of our revenues are denominated in RMB. This annual report contains translations of RMB amounts into U.S. dollars at~~ specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this annual report were made at a rate of RMB6.5063 to US$1.00, the exchange ratefactors set forth in the H.10 statistical release of the Board of Governors of the Federal Reserve System on December 30, 2017. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On March 23, 2018, the certified exchange rate was RMB6.3110 to US$1.00.

~~The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated.~~section titled “Risk Factors” below. These ~~rates are provided solely for your convenience and~~risks include, but are not necessarily the exchange rates that we used in this annual report or will use in the preparation of any other periodic reports or any other information to be provided to you. The source of these rates is the Federal Reserve Statistical Release.limited to:

An investment in ~~our capital stock~~the Company’s securities involves a high degree of risk. INVESTORS PURCHASING OUR SECURITIES ARE PURCHASING SECURITIES OF TAOPING INC., THE BRITISH VIRGIN ISLANDS HOLDING COMPANY RATHER THAN SECURITIES OF TAOPING INC.’S SUBSIDIARIES THAT HAVE SUBSTANTIVE BUSINESS OPERATIONS IN CHINA AND OTHER COUNTRIES. You should carefully consider the risks described below, together with all of the other information included in this annual report, before making an investment decision. If any of the following risks actually occurs, our business, financialcondition or results of operations could suffer. In that case, the ~~trading price~~value of ~~our ordinary shares~~the Company’s securities could significantly decline or be worthless and you may lose all or part of your investment.

If the COVID-19 pandemic is not effectively controlled in a short period of time, our business operation and financial condition in the long-term may be materially and adversely affected as a result of any slowdown in economic growth, operation disruptions or other factors that we cannot predict.

With operations in China and other countries worldwide, we are subject to numerous risks outside of our control, including risks arising from natural disasters, such as fires, earthquakes, hurricanes, floods, tornadoes, unusual weather conditions, pandemic outbreaks and other global health emergencies, terrorist acts or disruptive global political events, or similar disruptions that could materially adversely affect business and financial performance. The spread of the novel coronavirus (“COVID-19”), which was declared a pandemic by the World Health Organization in March 2020, has spread across many countries and is impacting worldwide economic activity. While we have seen gradual recovery of our overall business as well as the supply chain, project execution and cash collection resulting from improving health statistics in China since March 2020, the spread of COVID-19 may be prolonged and worsened, and we may be forced to scale back or even suspend our operations. As this outbreak persists, commercial activities throughout the world have been curtailed with decreased consumer spending, business operation disruptions, interrupted supply chain, difficulties in travel and reduced workforces. The duration and intensity of disruptions resulting from the COVID-19 outbreak is uncertain. It is unclear as to when the outbreak will be eventually contained, and we also cannot predict if the impact will be short-lived or long-lasting. The extent to which outbreak impacts our long-term financial results will depend on many factors beyond our control. Major factors include the extent of resurgences of the disease and its variants, vaccine distribution and other actions taken to contain the impact of COVID-19. The measures taken by the governments of countries affected could disrupt the demand from our customers, our sales efforts, the delivery of our products and services, reduce our customers’ ability to pay and adversely impact our business, financial condition and results, or results of operations. If the COVID-19 pandemic is not effectively controlled in a short period of time, our long-term business operation and financial condition may be materially and adversely affected as a result of any slowdown in economic growth, operation disruptions or other factors that we cannot predict.

The cryptocurrency mining market is highly competitive and fragmented with low barriers to entry. We face uncertainties and challenges as we enter into the new blockchain technology business.

As part of our strategic business transformation, we established a blockchain technology business segment in 2021, which is dedicated to the research and application of blockchain technology and digital assets. We launched cryptocurrency mining operations, a blockchain related new business, as the first initiative of this new business segment in the first quarter of 2021. With multiple cloud data centers deployed outside of China mainland, the Company continues to improve computing power and create value for the encrypted digital currency industry. Due to our limited experience with cryptocurrency and the mining activities, we face challenges and uncertainties relating to the possibility of success of our new business. We cannot assure you that the introduction and development of this new line of business would not encounter significant difficulties or would achieve the profitability as we expect. Failure to successfully manage those risks in the development and implementation of any new lines of business or new products or services could have a material adverse effect on our business, results of operations and prospects. For example, with respect to our plan to develop our cryptocurrency mining business, we may not be able to acquire cryptocurrency mining machines at a reasonable cost, or at all. In addition, although the market for the cryptocurrency mining operations is new and evolving, the barriers to entry are quite low. Therefore, if cryptocurrency mining remains profitable, we expect additional competitors to enter the market, some of whom may have greater resources than we do. If we fail to establish our strengths or maintain our competitiveness in this industry, our business prospects, results of operations and financial condition may be materially and adversely affected.

The price of cryptocurrency has historically been volatile. Sharp declines in the price of cryptocurrencies could adversely impact our results of operations and subject us to impairment charges.

Our cryptocurrency mining revenue is determined by the fair value of the cryptocurrency awards we receive, as is based upon the quoted price of the related cryptocurrency at the time of receipt. The demand for, and pricing of, the cryptocurrencies that we receive from our mining activities are subject to various factors and significant fluctuations. For example, the prevalence of such assets is a relatively recent trend, and their long-term adoption by investors, consumers and businesses is unpredictable. Moreover, their lack of a physical form, their reliance on technology for their creation, existence and transactional validation and their decentralization may subject their integrity to the threat of malicious attacks and technological obsolescence. Finally, the extent to which securities laws or other regulations apply or may apply in the future to such assets is unclear and may change in the future. We expect our results of operations to be affected by the prices of the cryptocurrencies as we generate an increasing amount of revenue from our mining activities. Our results of operations could be harmed if the prices of cryptocurrencies decrease significantly.

In addition, as we may hold part of the cryptocurrencies we receive from our mining activities, we may be subject to impairment charges that may be caused by reductions in the price of those cryptocurrencies. Digital assets are currently considered indefinite-lived intangible assets under applicable accounting rules, meaning that any decrease in their fair values below our carrying values for such assets at any time subsequent to their acquisition will require us to recognize impairment charges, whereas we may make no upward revisions for any market price increases until a sale, which may adversely affect our operating results in any period in which such impairment occurs. Moreover, there is no guarantee that future changes in U.S. generally accepted accounting principles, or GAAP, would not require us to change the way we account for digital assets held by us. Various factors, mostly beyond our control, could impact the price of cryptocurrencies. If the price of cryptocurrencies drops, the expected economic return of cryptocurrency mining activities will diminish.

If the market for cryptocurrency ceases to exist or diminishes significantly, our business, results of operations and financial condition would be materially harmed.

If the market for cryptocurrencies ceases to exist or diminishes significantly, our efforts and investment in establishing and developing our cryptocurrency mining business may become futile. Several adverse factors may affect the market for cryptocurrencies. As there is no wide consensus with respect to the value and application of cryptocurrency, any future development may continue to affect the demand and the market for cryptocurrency.

Decentralization, or the lack of control by a central authority, is a key reason that cryptocurrencies like bitcoin have attracted many committed users. However, the decentralized nature of cryptocurrencies is subject to growing discussion and skepticism. Some claim that most of the actual services and businesses built within the cryptocurrency ecosystem are in fact centralized since they are run by specific people, in specific locations, with specific computer systems, and that they are susceptible to specific regulations. Individuals, companies or groups, as well as cryptocurrency exchanges that own vast amounts of cryptocurrencies, can affect their market price. Furthermore, mining equipment production and mining pool locations are becoming centralized. Some argue that the decentralized nature of cryptocurrencies is a fundamental flaw rather than a strength. The skepticism about the decentralized nature of cryptocurrency may cause loss of confidence in the prospect of the cryptocurrency industry, which in turn could adversely affect the market demand for cryptocurrencies and our business.

Substantial increases in the supply of mining machines connected to the cryptocurrency network would lead to an increase in network capacity, which in turn would increase mining difficulty and negatively affect the economic returns of cryptocurrency mining activities.

The difficulty of cryptocurrency mining, or the amount of computational resources required for a set amount of reward for recording a new block, directly affects the expected economic returns for cryptocurrency miners. Cryptocurrency mining difficulty is a measure of how much computing power is required to record a new block and it is affected by the total amount of computing power in the cryptocurrency network. The cryptocurrency algorithm is designed so that one block is generated, on average, every ten minutes, no matter how much computing power is in the network. Thus, as more computing power joins the network, and assuming the rate of block creation does not change (remaining at one block generated every ten minutes), the amount of computing power required to generate each block and hence the mining difficulty increases. In other words, based on the current design of the cryptocurrency network, cryptocurrency mining difficulty would increase with the total computing power available in the cryptocurrency network, which is in turn affected by the number of cryptocurrency mining machines in operation. As a result, a strong growth in the cryptocurrency mining industry can lead to growth in the total computing power in the network, thereby driving up the difficulty of cryptocurrency mining and resulting in downward pressure on the expected economic return of cryptocurrency mining.

Cryptocurrency mining computers and other necessary hardware are subject to malfunctions and normal wear and tear. In addition, we may face difficulty and increased cost in obtaining new hardware due to supply chain strains.

Our cryptocurrency miners are subject to malfunctions and normal wear and tear, and, at any point in time, a certain number of our cryptocurrency miners may be off-line for maintenance or repair. The physical degradation of our miners will require us to replace miners that are no longer functional. Any major cryptocurrency miner malfunction out of the typical range of downtime for normal maintenance and repair could cause significant economic damage to us.

Additionally, as technology evolves, we may need to acquire newer models of miners to remain competitive in the market. New miners can be costly and may be in short supply. Given the relatively long production period to manufacture and assemble cryptocurrency miners and the current global semiconductor chip shortage, there can be no assurance that we can acquire enough cryptocurrency mining computers or replacement parts on a cost-effective basis, if at all, for the maintenance and expansion of our cryptocurrency mining operations. We rely on our subsidiaries to purchase and assemble cryptocurrency miners and shortages of cryptocurrency miners or their component parts, material increases in cryptocurrency miner costs, or delays in delivery of the cryptocurrency miners to our overseas mining data centers, including due to trade restrictions and COVID-19 supply chain disruptions, could significantly interrupt our plans for expanding our cryptocurrency mining capacity in the near term and future.

This upgrading and replacement process requires capital investment and we may face challenges in doing so on a timely and cost-effective basis. Shortages of cryptocurrency mining computers could result in reduced cryptocurrency mining capacity and increased operating costs, which could materially delay the completion of our planned cryptocurrency mining capacity expansion and put us at a competitive disadvantage.

Cryptocurrency exchanges and wallets, and to a lesser extent, the cryptocurrency network itself, are subject to substantial hacking and fraud risks, which may adversely affect the economic return of our cryptocurrency mining business.

Cryptocurrency transactions are entirely digital and, as with any virtual system, are at risk from hackers, malware and operational glitches. Hackers can target cryptocurrency exchanges and cryptocurrency transactions, to gain access to thousands of accounts and digital wallets where cryptocurrency are stored. Cryptocurrency transactions and accounts are not insured by any type of government program and all cryptocurrency transactions are permanent because there is no third party or payment processor. Cryptocurrency like bitcoin has suffered from hacking and cyber-theft as such incidents have been reported by several cryptocurrency exchanges and miners, highlighting concerns about the security of bitcoin and other cryptocurrencies and affecting their demand and price. Also, the price and exchange of cryptocurrency may be affected due to fraud risk. While cryptocurrency uses private key encryption to verify owners and register transactions, fraudsters and scammers may attempt to sell false cryptocurrencies. All of the above may adversely affect our operation and the economic return of our cryptocurrency mining business.

Currently, our cryptocurrencies received from the mining pools are stored in electronic wallets, which can only be exclusively transferred to the Company’s FTX trading account. It requires approval from signatories to transfer any cryptocurrency out of our FTX trading account. Four of our management level employees have been designated as the signatories of such transfer-out transactions, including the sales of cryptocurrency and the payment of related service fee in the form of cryptocurrency. Two cashiers have been assigned to simultaneously execute the sale/payment process. Each cashier holds a part of the electronic private key password. Any transfer out of the trading account would immediately trigger an email notice to each of the above-mentioned management employees. However, despite our efforts and measures to ensure the safety of our cryptocurrencies and the transactions, there can be no assurance that such efforts or measures will protect us from hacking or fraud incidents. We may suffer from cryptocurrency hacking and fraud and the economic return of our cryptocurrency mining business may be materially and adversely harmed if such risk occurs.

We may not be able to realize the benefits of forks, and forks in a digital asset network may occur in the future which may affect the value of cryptocurrency held by us.

To the extent that a significant majority of users and miners on a cryptocurrency network install software that changes the cryptocurrency network or properties of a cryptocurrency, including the irreversibility of transactions and limitations on the mining of new cryptocurrency, the cryptocurrency network would be subject to new protocols and software. However, if less than a significant majority of users and miners on the cryptocurrency network consent to the proposed modification, and the modification is not compatible with the software prior to its modification, a “fork” of the network would occur, with one prong of the network running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of the cryptocurrency running in parallel, yet lacking interchangeability and necessitating exchange-type transaction to convert currencies between the two forks. After a fork, it may be unclear which fork represents the original asset and which is the new asset.

If we hold cryptocurrency at the time of a hard fork into two cryptocurrencies, industry standards would dictate that we would be expected to hold an equivalent amount of the old and new assets following the fork. However, we may not be able to secure or realize the economic benefit of the new asset. Our business may be adversely impacted by forks in the cryptocurrency network.

Banks and other financial institutions may decline to provide bank accounts, banking or other financial services to cryptocurrency investors or businesses that engage in cryptocurrency-related activities or that accept cryptocurrency as payment.

A number of companies that engage in cryptocurrency-related activities have been unable to find banks or financial institutions that are willing to provide them with bank accounts and other services. Changing governmental regulations about the legality of transferring or holding cryptocurrency may prompt other banks and financial institutions to close existing bank accounts or discontinue banking or other financial services to such companies in the cryptocurrency industry, or even investors with accounts for transferring, receiving or holding their cryptocurrency. Specifically, China already restricts financial institutions from holding, trading or facilitating transactions in bitcoin, Ethereum, and among other cryptocurrencies. Similarly, other countries have proposed cryptocurrency legislation that could have a significant impact on the ability to utilize banking services in such countries for cryptocurrency.

Should such rules and restrictions continue or proliferate, we may not be able to obtain or maintain these services for our business. The difficulty that many businesses that engage in cryptocurrency-related activities have and may continue to have in finding banks and financial institutions willing to provide them services may diminish the usefulness of cryptocurrency as a payment system and harm public perception of cryptocurrency. If we are unable to obtain or maintain banking services for our business as a result of our cryptocurrency-related activities, our results of operations and financial condition could be materially adversely affected.

We do not maintain insurance for our digital assets, which may expose us to the risk of loss of our digital assets, and legal recourse available to us to recover our losses may be limited.

We do not maintain insurance for the digital assets held by us. Banking institutions do not accept our digital assets. We may suffer loss with respect to our digital assets which are not covered by insurance, and we may not be able to recover any of our carried value in these digital assets if they are lost or stolen or suffer significant and sustained reduction in conversion spot price. If we are not otherwise able to recover damages from a malicious actor in connection with these losses, our business, results of operations and share price may be adversely affected.

There has been limited precedent set for financial accounting of digital assets, and thus, it is unclear how we will be required to account for digital asset transactions.

While we record digital assets as indefinite-lived intangible assets in accordance with Accounting Standards Codification, or ASC, 350, there is currently no authoritative guidance under GAAP which specifically addresses the accounting for digital assets, including digital currencies.

We recognize cryptocurrency related revenue when cryptocurrency is earned. The receipt of cryptocurrency is generally recorded as revenue, using the spot price of a prominent exchange at the time of daily reward and cryptocurrencies are recorded on the balance sheet at their cost basis and are reviewed for impairment frequently.

A change in financial accounting standards or their interpretation could result in changes in accounting treatment applicable to our cryptocurrency business, which may have an adverse effect on our results of operations.

As cryptocurrencies grow in both popularity and market size, governments around the world have reacted differently to them. Ongoing and future regulation and regulatory actions could significantly restrict or eliminate the market for or uses of cryptocurrencies and/or materially and adversely impact our results of operation and financial condition.

As cryptocurrencies generally have grown in both popularity and market size, governments around the world have reacted differently to them. Certain governments have deemed them illegal, while others have allowed their use and trade without restriction. Based on stated efforts to curtail energy usage on mining and to protect investors or to prevent criminal activity, regulations have proliferated recently. In March 2021, a new law was proposed in India to criminalize the mining, transfer or holding of cryptocurrencies, and current rules require extensive disclosure to the government of cryptocurrency holdings. Similarly, China has also limited certain mining and trading, although not possession, of cryptocurrency, to reduce energy usage. On April 16, 2021, Turkey imposed bans on the use of cryptocurrency as payment and now requires transactions of a certain size to be reported to a government agency in the wake of alleged fraud at one of Turkey’s largest exchanges. In addition, in May 2021, Iran announced a temporary ban on cryptocurrency mining as a way to reduce energy consumption amid power blackouts. Many jurisdictions, such as the United States, subject cryptocurrencies to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. Further, in January 2021, Russia adopted legislation to identify cryptocurrency as a digital asset and legitimize its trading, but also prohibit its use as a payment method. Mining operations have also grown significantly in Russia since then. Such varying government regulations and pronouncements are likely to continue for the near future. In the U.S., the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the Commodity Futures Trading Commission, the SEC, the Financial Crimes Enforcement Network of the U.S. Treasury Department (“FinCEN”) and the Federal Bureau of Investigation) have begun to examine the operations of the cryptocurrency network, cryptocurrency users and the cryptocurrency exchange market.

Compliance with increasing regulation and regulatory scrutiny may entail significant expenses, divert our management’s time and attention, and change aspects of our business. Moreover, ongoing and future regulations that ban the mining, use, transfer or possession of cryptocurrencies could significantly restrict or eliminate the market for cryptocurrencies and/or materially and adversely impact our results of operation and financial condition.

Acquisition, possession, ownership, sale or use of cryptocurrencies, participation in the blockchain, or transfer or use of digital assets may be or become illegal in China or the international markets where we plan to operate, which could materially negatively impact our operations.

Our blockchain and cryptocurrency mining business could be significantly affected by the regulatory and policy developments in mainland China, Hong Kong and international markets where we operate, such as Kazakhstan. Governmental authorities are likely to continue to issue new laws, rules and regulations governing the blockchain and cryptocurrency industry and enhance enforcement of existing laws, rules and regulations. For example, the People’s Bank of China (the “PBOC”), Ministry of Industry and Information Technology, State Administration for Industry and Commerce, China Banking Regulatory Commission, CSRC and China Insurance Regulatory Commission issued the Announcement on Preventing Token Fundraising Risks on September 4, 2017, prohibiting all organizations and individuals from engaging in initial coin offering transactions. On May 21, 2021, the Financial Stability and Development Committee of the PRC State Council called for the need to resolutely control financial risks and crack down on bitcoin mining and trading activities. Furthermore, on June 21, 2021, the PBOC was reported to have held interviews with certain financial institutions in China, and stressed that banks and other financial institutions in China shall strictly implement the Guarding Against Bitcoin Risks and the Announcement on Preventing Token Fundraising Risks and other regulatory requirements, diligently fulfill their customer identification obligations, and shall not provide account opening, registration, trading, clearing, settlement and other services related to blockchain and cryptocurrency business.

Also, China restricts various uses of cryptocurrencies, including the use of cryptocurrencies as a medium of exchange and the conversion between cryptocurrencies and fiat currencies or between cryptocurrencies. In light of the regulatory restrictions in mainland China, we currently carry out substantially all of our cryptocurrency mining operations outside of mainland China. At present, we focus on the international markets for our cryptocurrency mining operations. In addition to Hong Kong, we plan to construct additional mining data centers in Kazakhstan to carry out operation and maintenance of cryptocurrency mining machines, and rent out excess operating capacity to third parties. We cannot assure you that the government authorities in the international markets will not adopt new laws and regulations in the future to restrict blockchain and cryptocurrency business.

In addition, cryptocurrencies may be used by market participants for black market transactions to conduct fraud, money laundering and terrorism-funding, tax evasion, economic sanction evasion or other illegal activities. As a result, governments may seek to regulate, restrict, control or ban the mining, use, holding and transferring of cryptocurrencies. We may not be able to eliminate all instances where other parties use cryptocurrencies mined by us to engage in money laundering or other illegal or improper activities. There is no assurance that we will successfully detect and prevent all money laundering or other illegal or improper activities which may adversely affect our reputation, business, financial condition and results of operations. In addition, due to the environmental concerns related to the potential high demand for electricity to support cryptocurrency mining activity, political and other concerns, we may be required to cease mining operations in our locations without much or any prior notice by a national or local government’s formal or informal requirement or because of the anticipation of an impending requirement. Any such government action or anticipated action could have a negative impact not only on the value of existing miners owned by us, but on our ability to purchase new miners and their prices. Such government action or anticipated action could also have a deleterious impact on the price of cryptocurrencies. Such events could result in an increase in the volatility of the price of the cryptocurrencies and value of miners owned by us. Moreover, if we discontinue mining operations in one location in response to such government action or anticipated action, we likely would transfer miners to another location. However, this process would result in costs associated with the transfer to be incurred by us, as well as the transferred miners being off-line and not able to mine cryptocurrencies for some time. Our business, financial condition and results of operations may be materially and adversely affected by these adverse changes in the regulations and policies in the markets where we operate our blockchain and cryptocurrency mining operations.

Any failure to obtain or renew any required approvals, licenses, permits or certifications for our cryptocurrency mining business could materially and adversely affect our business and results of operations.

We may be required to maintain various approvals, licenses, permits and certifications in order to operate our cryptocurrency mining business. Complying with such laws and regulations may require substantial expense, and any non-compliance may expose us to liability. Presently, substantially all of our cryptocurrency mining operations are carried outside of mainland China, and our operations in mainland China primarily involve the provision of administrative supports to our cryptocurrency mining business out of mainland China, as well as the provision of information technology services to our operating entities and mining pools outside mainland China. However, due to the complex and evolving nature of our industry and the regulatory regimes, we cannot assure you that we have obtained all the permits or licenses required for conducting our blockchain business in China or internationally or will be able to maintain our existing licenses or obtain any new licenses required under any new laws or regulations.

As we plan to establish cryptocurrency mining data centers in Kazakhstan, we will become subject to regulations applicable to operators of cryptocurrency mining business and data processing business in such jurisdiction. We will apply for relevant governmental approval and license required for our proposed data center operations in Kazakhstan. However, we cannot assure you that we will be able to obtain the required government approval, permit, licenses for our proposed operations on commercially reasonable terms and in a timely manner, or at all. Failure to obtain these government approvals, permits or licenses for our international operations will delay the establishment of our data centers and may subject us to regulatory investigations or legal proceedings and fines in such jurisdiction, which could disrupt our international operations and materially and adversely affect our business, financial condition and results of operations.

More broadly, we cannot assure you that we will be able to fulfill all the conditions necessary to obtain the required government approvals in the jurisdictions where we operate, or that the governmental authorities in these jurisdictions will always, if ever, exercise their discretion in our favor, or that we will be able to adapt to any new laws, regulations or policies. There may also be delays on the part of governmental authorities in reviewing our applications and granting approvals, whether due to the lack of administrative resources or the imposition of new rules, regulations, government policies, or for no discernible reason at all. If we are unable to obtain, or experience material delays in obtaining, necessary government approvals, our operations may be substantially disrupted, which could materially and adversely affect our business, financial condition and results of operations.

If cryptocurrencies are determined to be investment securities and we hold a significant portion of our assets in such cryptocurrency, investment securities or non-controlling equity interests of other entities, we may inadvertently violate the Investment Company Act of 1940, as amended, and we could incur substantial expenses to adjust our operations to avoid being registered as an investment company or to register as an investment company or could terminate operations altogether.

We believe that we are not engaged in the business of investing, reinvesting, or trading in securities, and we do not hold ourselves out as being engaged in those activities. However, under the Investment Company Act of 1940, as amended (the “Investment Company Act”), a company may be deemed an investment company under section 3(a)(1)(C) thereof if the value of its investment securities is more than 40% of its total assets (exclusive of government securities and cash items) on an unconsolidated basis. The cryptocurrency we own, acquire or mine may be deemed an investment security by the SEC, although we do not believe any of the cryptocurrencies we own, acquire or mine are securities. However, SEC rules and applicable law are subject to change, especially in the evolving world of cryptocurrency, and further, the Investment Company Act analysis may not be uniform across all forms of cryptocurrency that we might mine or hold.

An inadvertent investment company can avoid being classified as an investment company if it can rely on one of the exclusions under the Investment Company Act. One such exclusion, Rule 3a-2 under the Investment Company Act, allows an inadvertent investment company a grace period of one year from the earlier of (a) the date on which an issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis and (b) the date on which an issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. In that year, the company would be required to take actions to cause the investment securities held by it to be less than 40% of its total assets, which could include acquiring assets with its cash and/or cryptocurrency on hand, liquidating its investment securities or seeking a no-action letter from the SEC if it is unable to acquire sufficient assets or liquidate sufficient investment securities in a timely manner. Such actions could require significant cost, disruption to operations or growth plans and diversion of management time and attention. Further, the Rule 3a-2 exception is available to a company no more than once every three years.

Current and future legislation and the SEC rulemaking and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which cryptocurrencies are treated for classification and clearing purposes. The SEC’s July 25, 2017 Report expressed its view that digital assets may be securities depending on the facts and circumstances. As of the date hereof, we are not aware of any rules that have been proposed to regulate cryptocurrencies as securities. We cannot be certain as to how future regulatory developments will impact the treatment of cryptocurrency under the applicable U.S. laws. Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting our operations.

Classification as an investment company under the Investment Company Act requires registration with the SEC. If an investment company fails to register, it would have to stop doing almost all business, and its contracts would become voidable. Registration is time consuming and restrictive and would require a restructuring of operations, and it would be very constrained in the kind of business it could do as a registered investment company. Furthermore, such company would become subject to substantial regulation concerning management, operations, transactions with affiliated persons and portfolio composition, and would need to file reports under the Investment Company Act regime.

We need to access a large quantity of power at a reasonable cost in order to support our cryptocurrency mining operations, which may be adversely affected by legislative or regulatory changes relating to climate change and other energy consumption requirements.

We need to access a large quantity of power at a reasonable cost in order to support our cryptocurrency mining operations, but we do not have any long-term contract for the provision of power at specified prices. As competition in the area we operate increases, we may not be able to access power at reasonable costs or at all. Any shortage of electricity supply or increase in electricity cost in a jurisdiction may negatively impact the viability and the expected economic return for cryptocurrency mining activities in that jurisdiction.

In addition, a number of governments or governmental bodies have introduced or are contemplating legislative and regulatory changes in response to various climate change interest groups and the potential impact of climate change. Given the very significant amount of electrical power required to operate cryptocurrency miners, as well as the environmental impact of mining for the rare earth metals used in the production of mining servers, the cryptocurrency mining industry may become a target for future environmental and energy regulation. Legislation and increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, and other costs to comply with such regulations. Any future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Given the political significance and uncertainty around the impact of climate change and how it should be addressed, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation. Any of the foregoing could result in a material adverse effect on our business and financial condition.

We are subject to risks and disruptions related to the COVID-19 pandemic, including supply chain issues in semiconductors and other necessary mining components, which could significantly impact our operating performance and financial condition.

The COVID-19 pandemic outbreak has and may continue to adversely affect the economies of many countries, resulting in an economic downturn that may have an adverse effect on financial markets, cryptocurrency prices, the demand for cryptocurrency and other factors that could impact the financial results of our digital assets segment.

Our suppliers and our subsidiaries have experienced disruption to operations caused by quarantines, restrictions on employees’ ability to work, office and factory temporary closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. Depending on the magnitude of such effects on our supply chain, procurement of parts for our existing miners, as well as any new miners we purchase, may be delayed. As our miners require repair or become obsolete and require replacement, our ability to obtain adequate replacements or repair parts from miner manufacturers may therefore be hampered. Supply chain disruptions could therefore negatively impact our operations.

In addition, multiple factors including some related to the COVID-19 pandemic have created a global semiconductor shortage. Since the inception of the pandemic, factory shutdowns and limitations due to employee illness or public health requirements have significantly slowed output, while global demand for products requiring chips increased. These 2020-2021 challenges worsened a pre-existing semiconductor and other supply shortage. Semiconductor supply has not yet rebounded, and manufacturers across all industries are waiting and driving up demand and costs. While we believe we will have sufficient cryptocurrency miners for our 2022 plans, any delay or disruption in deploying such miners, or future miners necessary for our success and growth, may have a material and negative impact on our results of operations.

We have a limited operating history of selling ~~our~~ cloud-based products and services and may be unable to achieve or sustain profitability or reasonably predict our future results.

In early 2013, we made a strategic decision to transform our business from servicing the public sector to focusing on the private sector. Leveraging our experience and expertise in handling large-scale IT projects for the public sector, we started investing in research and development to develop software products for the private sector. In 2014, continuing our business transition from the public sector to the private sector, we identified and provided cloud-based ecosystem solutions to four core markets including new media, healthcare, education, and residential community management. Underpinning our ecosystems are our industry-specific integrated technology platform, resource exchange, and big data services. In 2014, we predominately sold our cloud-based solutions to the Chinese new media industry. Starting from 2015, we further expanded the customer base of cloud-based solutions to education, government, and residential community management. In 2016, we ~~grew~~expanded our business from the industry-specific integrated technology platform, resource exchange, and big data services tointo the elevator IoT sectors. From May 2017, we have focused our business to provide products and services inon Cloud-App-Terminal (CAT) and IoT technology based digital advertising distribution ~~network~~networks and new media resource sharing ~~platform~~platforms in the ~~Out-of-Home~~out-of-home adverting market in China. As such, we have a limited operating history of selling our cloud-based products and professional services to the private sector, which makes it difficult to evaluate our current business and future prospects and may increase the risk of your investment. In ~~2017,~~2021 and 2020, we generated approximately ~~$17.0~~$18.8 million ofand $10.7 million in revenue inrespectively, from our cloud-based technology (CBT) segment for customers in the education, new media, and ~~Out-of-Home~~out-of-home advertising market sectors. We expect to have significant operating expenses in the future to further support and grow our business, including expanding the scope of our customer base, expanding our direct and indirect selling capabilities, pursuing acquisitions of complementary businesses, investing in our data storage and analysis infrastructure, and research and development, and increasing our international presence. ~~As a result of our new initiatives, although we had net income of $0.9 million in 2017, we cannot assure you that we will sustain profitability in the future.~~

Our independent registered auditors have expressed substantial doubt about our ability to continue as a going concern.

Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with our financial statements included in this report which states that the financial statements were prepared assuming that we would continue as a going concern.

As discussed ~~in Note 1 to the consolidated financial statements included~~elsewhere in this report, we ~~have~~ reported net income as well as positive cash flows from operating activities in 2018 and 2017. ~~We have also significantly reduced working capital deficit from~~However, due to the ~~prior years.~~unfavorable macro-economic environment and the slowdown of the out-of-home advertising market in China, we incurred net loss of approximately $3.6 million in 2019, $18.3 million in 2020 and $9.6 million in 2021. As disclosed under Item 5, “Operating and Financial Review and Prospects” and ~~Note 1~~notes to the consolidated financial statements, we ~~have developed our 2015 business plan, which would~~will continue to ~~be implemented for years going forward. As a result, our 2016~~execute the existing business strategies with focuses on selection of quality customers, collection of accounts receivable, maintaining proper inventory level, and ~~2017 profitability and~~managing accounts payable to enhance operating cash ~~flows had improved from~~flows. In addition, the ~~prior periods. However, there~~Company will aggressively develop domestic and international markets to develop new customers. There can be no assurance that we will be successful in achieving the goals set forth in our new business strategy and business ~~model~~model.

Unfavorable economic conditions may affect the level of ~~technology~~the out-of-home advertising and ~~Out-of-Home advertising~~information technology spending by our customers which could cause the demand for our products and services to decline.

The revenue growth and profitability of our business rely on the overall demand by our customers for ~~Out-of-Home~~out-of-home digital advertising, display technology products, and internet related services. Our business ~~depends on~~is sensitive to the overall economy in China and the economic and business conditions within our respective product and service sectors. If there is an economic ~~conditions become unstable,~~downturn, our existing and prospective customers may reassess their decisions to purchase our products and services. ~~Fragile Chinese~~China’s economic ~~conditions~~slowdown or a reduction in ~~Out-of-Home~~out-of-home advertising and information technology spending by our customers could harm our business in many ways, including longer sales cycles and lower prices for our products and services. These events could have a material effect on our future revenues and earnings.

Our periodic operating results are difficult to predict and could fall below investors’ expectations or estimates by securities research analysts, which may cause the trading price of our ordinary shares to decline.

Our revenues and operating results can vary significantly from a filing period to the next due to a number of factors, many of which are ~~outside of~~beyond our control, such as public health pandemic, fluctuations in the volume of ~~business from~~purchase by our customers as a result of changes in their operations, their decisions to purchase our products and services, ~~and~~as well as currency ~~fluctuations.~~fluctuations, in addition to the risks associated with our cryptocurrency mining operations. Our revenues and operating results could also be affected by delays or difficulties in expanding our ~~operational regions~~geographical presence and infrastructure, changes to our pricing strategies due to a competitive business environment and ~~improper estimates~~underestimates of resources and time required to complete ongoing projects. Our ~~first quarter~~first-quarter revenues may be relatively low compared to that of the other quarters due to the Chinese New Year holiday. Moreover, our operating and financial results may ~~vary~~fluctuate as a result of our dependency on our customers’ budgets and spending patterns. Therefore, we may not be able to ~~reasonably~~accurately forecast the demand for our products and services beyond the current calendar year, which could adversely affect our business, ~~operations,~~operating results, and financial condition. In addition, ~~business~~sales volumes ~~for~~from specific customers are likely to vary from year to ~~year. Thus,~~year, and a major customer in one year may not remain as a major customer in the subsequent years.

These fluctuations are likely to continue in the future and operating results for any period may not be indicative of our performance in any future period. If our operating results for any filing period fall below investors’ expectations or estimates by securities research analysts, the trading price of our ordinary shares may decline.

We face risks ~~once~~associated with new businesses ~~are~~or assets acquired through mergers or acquisitions, and the acquired companies may not perform to our expectations, which may adversely affect our results of operations.

Acquired companies may not perform to our expectations for various reasons, including ~~loss~~the departure of key personnel ~~resulting changes in key customers,~~ and ~~our strategic focuses.~~loss of customers. Therefore, we may not realize the benefits we have previously anticipated. If we fail to integrate acquired businesses or realize expected benefits, we may ~~lose~~not gain anticipated economic returns on investments in these mergers and acquisitions and incur substantial transaction costs, causing our operating results to be materially and adversely affected.

If we are unable to secure additional financing or identify suitable merger or acquisition targets, we may be unable to implement our long-term business plan, develop or enhance our products and services, take advantage of future opportunities, or respond to competitive pressures on a timely manner.

Our long-term business plan includes the identification of suitable targets for horizontal or vertical mergers or acquisitions, so as to enhance overall productivity and to benefit from economies of scale. Due to the recent uncertainties in the global economic outlook and financial market stability, we may not be able to secure an adequate level of additional financing, whether through equity financing, debt financing or other sources. To raise additional capital, we may need to issue new securities, which could result in further dilution to our shareholders and significant dilution to our earnings per share. Issuance of new securities with registration rights or covenants through additional financings may be superior to the current ones that would restrict our operations and strategies. If we are unable to raise additional financing, we may be unable to implement our long-term business plan, develop or enhance our products and services, take advantage of future opportunities, or respond to competitive pressures on a timely basis, if at all. In addition, lack of additional capital could force us to substantially curtail or even cease operations.

We also may not be able to identify merger or acquisition targets. We may not be able to successfully integrate the targeted business or operations with ours after a merger or ~~acquisition,~~acquisition. Such failure to execute our long-term business plan likely will negatively impact results of our operations.

We generally do not have exclusive agreements with our customers and we may lose their contracts if they are not satisfied with our products and services or for other reasons.

We generally do not have exclusive agreements with our customers. As a result, we must rely on the quality of our products and services, our reputation in the industry, and favorable pricing terms to attract and retain customers. There is no assurance that we will be able to maintain and retain our relationships with current and or future customers. Our customers may choose to terminate their relationships with us if they are not satisfied with our ~~services.~~services or the prices of our competitors’ offerings are lower. If a substantial number of our customers choose not to continue to purchase products and services from us, it would materially and adversely affect on our business and results of operations.

If we are unable to develop and offer competitive new products and services, our future operations could be adversely affected.

Our future revenue stream, to a large degree, depends on our ability to capitalize on our technology strength and capabilities to offer new software applications and services to a broader client base. We ~~are required to~~must make investments in research and development to continue developing and offering new software applications and internet related products and services, and to enhance our existing software applications and internet related services to ~~achieve~~maintain market acceptance of our products and services. We may encounter ~~potential~~ challenges in innovation and introduction of new products and services. Our ~~development-stage~~ software applications under development may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we are unable to successfully define, develop, introduce competitive new software applications, and enhance the existing ones, our future operating results would be adversely affected. ~~Timing~~The timeline for software developments is difficult to predict. Timely launch of new applications and their acceptance by customers are important to our future success. A delay in the development or introduction of new applications could have a significantly adverse impact on our results of operations.

If we are unable to keep abreast with the rapid ~~technical~~technological changes in our industry, demand for our products and services could decline and adversely affect our revenue and growth.

Our industry is known for rapid changes in technology, frequent introductions of new applications, quick evolution of industry standards, and changes in customer demands. These conditions require continuous investments in product research and development to enhance existing products, innovate new products, and keep up with the ~~leading edge~~leading-edge technologies. We believe that the timely development of new products and continuous enhancements to the existing products are essential to maintain our competitive position in the marketplace. Our future success depends in part upon customer and market acceptance of our products and innovations. Failure to achieve market acceptance of our existing products and services ~~and~~or to launch of new products could materially and adversely affect our business and results of operations.

Our software applications may contain defects or errors, which could decrease sales, damage our reputation, or delay deliveries of our products.

Our software products are complex and must meet the stringent technical requirements requested by our customers. In order to keep pace with the current technologies and the rapid changes in the industry standards, we must accelerate new product developments and enhancements for our existing products. Because of the complex designs and the expeditious development cycles, we cannot assure that our software products are free of errors, especially for the newly released software applications and the updates for the existing software products. If our software is not free of errors, this could potentially result in litigation, declining sales, increasing product returns, ~~and~~ product warranty costs, and ~~further~~ damage to our reputation, which would adversely affect our business.

Our technology may become obsolete, which could materially adversely affect our ability to sell our products and services.

If our technology, products and services become obsolete, our business operations would be materially and adversely affected. The market in which we compete is known for rapid changes in technologies, quick evolution of industry standards, fast introductions of new products, and changes in customer demands. These market characteristics can cause the existing products to be obsolete and unmarketable. Our future success depends upon our ability to timely address the increasingly sophisticated requests from our customers to support the existing and new hardware, software, database, and networking platforms. We have to invest in research and development in order to succeed in this competitive industry and timely satisfy market demands. ~~Research~~Our research and development expenses from continuing operations were approximately ~~$4.0, $3.0~~$4.5 million, $3.9 million and ~~$3.4~~$3.6 million for the years ended December 31, ~~2017, 2016,~~2021, 2020, and ~~2015,~~2019, respectively.

We face the risk of systems interruptions and capacity constraints, possibly resulting in adverse publicity, revenue loss and erosion of customer trust.

The satisfactory performance, reliability, and availability of our network infrastructure are critical to our reputation and our ability to attract and retain customers and to maintain adequate customer service levels. We may experience temporary service interruptions for a variety of reasons, including telecommunications or power failures, fire, water damage, vandalism, computer bugs, or viruses or hardware failures. We may not be able to correct a problem in a timely manner. Any service interruption that results in the unavailability of our system or reduces its capacity could result in real or perceived public safety issues that may affect customer confidence in our services and afflict negative publicity that could cause us to lose customer accounts or fail to obtain new accounts. Any inability to scale our systems may cause unanticipated system disruptions, slower response times, degradation in ~~levels~~quality of customer service, or impaired ~~quality~~performance and speed of transaction processing. We are not certain that we will be able to project the rate or timing of increases, if any, in the use of our services to permit us to upgrade and expand our systems effectively or to efficiently integrate any newly developed or purchased modules with our existing systems.

We have a limited history with our pricing models for our CBT products and services and, as a result, we may be forced to change the prices we charge for our applications or the pricing models upon which they are based.

We have limited experience with respect to determining the optimal prices and pricing models for certain of our CBT products and services and certain geographic markets. As the markets for our applications mature, or as competitors introduce products or services that compete with ours, including bundling competing offerings with additional products or services, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically. As a result, in the future we may be required to reduce our prices, which could adversely affect our financial performance. In addition, we may offer volume price discounts based on the number of products or services purchased by a customer or the number of our applications purchased by a customer, which would effectively reduce the prices we charge for our products and services. Also, we may be unable to renew existing customer agreements or enter into new customer agreements at the same prices or upon the same terms that we have historically, which could have a material and adverse effect on our financial position.

Our cloud-based applications involve the storage and transmission of our customers’ proprietary and confidential ~~information, including personal or identification information regarding their employees and customers.~~information. Any security breaches, unauthorized access, unauthorized usage, virus or similar breach or disruption could result in loss of confidential information, damage to our reputation, early termination of our contracts, litigation, regulatory investigations, indemnity obligations, or other liabilities. If our security measures are breached as a result of third-party action, employee error, malfeasance or otherwise and, as a result, someone obtains unauthorized access to customer data, our reputation will be damaged, our business may suffer and we could incur significant liability. Because the techniques used to obtain unauthorized access or sabotage computer systems change frequently, and generally are not identified until they are launched against a target, we may be unable to anticipate these hacking techniques or implement adequate preventative measures. Any or all of these concerns could negatively affect our ability to attract new customers and cause existing customers to elect not to renew or upgrade their subscriptions, ~~that result in reputational damage~~ or subject us to third-party lawsuits, regulatory fines, or other action or liability, which could adversely affect our operating results.

If we are not able to adequately secure and protect our ~~patent, trademark~~patents, trademarks and other proprietary rights, our business may be materially affected.

Under our Amended and Restated Management Services Agreement, or the MSA, among our subsidiary IST, our variable interest entity, iASPEC, and Mr. Jianghuai Lin, our Chairman and Chief Executive Officer, we have licensed 71 copyrighted software applications from iASPEC on an exclusive basis.

To protect ~~the~~our intellectual ~~property underlying these applications and our other intellectual property,~~properties, we rely on a combination of copyright, trademark, and trade secret laws. We also rely on non-disclosure agreements and other confidentiality procedures and contractual provisions to protect our intellectual property rights. Some of these technologies ~~other than the iASPEC copyrighted software applications,~~ are ~~very important~~critical to our business ~~and~~but are not protected by copyrights or patents. It may be possible for unauthorized third parties to copy or reverse engineer our products, or otherwise obtain and use information that we regard as proprietary. Further, third parties could challenge the scope or enforceability of our copyrights. In certain ~~foreign countries,~~other jurisdictions, including China where we operate, the laws do not protect our proprietary rights to the same extent as the laws of the United States. Any misappropriation of our intellectual property could have a material and adverse effect on our business and results of operations. We cannot assure you that the measures we take to protect our proprietary rights are adequate.

Claims that we infringe the proprietary rights of third parties could result in significant expenses or restrictions on ourability to sell our products and services.

Third parties may claim that our products or services infringe their proprietary rights. Any infringement claim, with or without merit, would be time-consuming and expensive to litigate or settle and could divert our management’s attention from our core business. In the event of a successful infringement claim against us, we may have to pay significant damages, incur substantial legal fees, develop costly non-infringing technology, or enter into license agreements that require us to pay substantial royalties that may not be available on terms acceptable to us, if at all.

A significant portion of our sales are derived from a limited number of customers or related parties, and results from operations could be adversely affected and shareholder value harmed if we lose any of these customers.

Historically, a significant portion of our revenues have been derived from a limited number of customers or related ~~parties, whom we have identified Shenzhen Taooping New Media Co., Ltd. and its affiliates. Shenzhen Taoping New Media Co., Ltd. is controlled by Mr. Lin, our Chairman and Chief Executive Officer.~~parties. For the year ended December 31, ~~2017,~~2021, we generated about ~~50%~~$0.15 million of revenue from related parties. For ~~each of~~ the years ended December 31, ~~2017, 2016~~2021, 2020 and ~~2015,~~2019, approximately ~~47%~~19%, ~~72%~~25% and ~~21%~~24%, respectively, of our revenues of continuing operations were derived from our five largest customers, orincluding related parties. The loss of any of these significant customers and related parties would adversely affect our revenues and shareholder value.

The markets for ~~Out-of-Home~~out-of-home digital advertising and digital security systems in China are highly competitive. We may fail to compete successfully, thereby resulting in loss of customers and decline in our revenues.

The markets for ~~Out-of-Home~~out-of-home digital advertising and digital security information systems in China are intensely competitive and are characterized by frequent technological changes, evolving industry standards, and changing in customer demands. We ~~have~~face competition from multiple domestic competitors in each segment. Increased competition may result in price reductions, reduced margins, and inability to gain or hold market share.

The insurance industry in China is still in anthe early stage of development. Insurance companies in China offer limited insurance products. We have determined that the risks of disruption or liability from our business, the loss or damage to our property, including our facilities, equipment and office furniture, the cost of insuring these risks, and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we do not have any business liability, disruption, litigation or property insurance coverage for our operations in China, except for insurance on some company owned vehicles. Any ~~uninsured~~ occurrence of uninsured loss or damage to property, or litigation, or business disruption may result in substantial costs and diversion of resources, which could have an adverse effect on our operating results.

We do not have insurance coverage against damages or losses of our products. Defects in our products could result in a loss of customers and decrease in revenue, unexpected expenses and a loss of market share.

We have not purchased product liability insurance to provide against any claims against us based on our product quality. As a result, defects in our products could result in a loss of customers and decrease in revenue, unexpected expenses and a loss of market share, and any of our products are found to have reliability, quality or compatibility problems, we will be required to accept returns, provide replacements, provide refunds, or pay damages. We may be required to incur substantial amounts to indemnify our customers in respect of their product quality claims against us, which would materially and adversely affect the results of our operations and severely damage our reputation.

We depend heavily on key personnel, and turnover of key employees and senior management could harm our business.

Our future business and results of operations significantly depend upon continuous contributions by key technical and senior management personnel, including Jianghuai Lin, Chairman and Chief Executive Officer, Zhiqiang Zhao, President and ~~Interim~~Director, Liqiong (Iris) Yan, the Chief Financial Officer, Zhixiong Huang, Chief Operating Officer and Guangzeng Chen, Chief Technology Officer. ~~They~~The success of our business also ~~depend~~depends in significant part upon our ability to attract and retain additional qualified management, technical, marketing, sales, and support personnel for our operations. If we lose a key employee, ~~or if a key employee fails to perform in his or her current position,~~ or if we are not able to attract and retain skilled employees as needed, our business could suffer. Significant turnover in our senior management could largely deplete our institutional knowledge held by our existing senior management team. We depend on the skills and abilities of these key employees in managing technical, marketing, and sales aspects of our business, any part of which could be harmed by ~~further turnover..~~future turnover.

We may be exposed to potential risks relating to our internal controls over financial reporting.

Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over financial reporting, and annual reports on Form 10-K or Form 20-F filed under the Exchange Act ~~that~~ are required to contain a report ~~from~~by management assessing the effectiveness of a company’s internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies that are large accelerated or accelerated filers, other than emerging growth companies or smaller reporting companies, must include in their annual reports on Form 10-K or Form 20-F an attestation report of their auditors’ attesting to and reporting on the management’s assessment of internal control over financial reporting. Non-accelerated filers and ~~smaller reporting~~emerging growth companies are not required to include an attestation report of their auditors in the annual reports.

A report of our management is included under Item 15 “Controls and Procedures” of this report. We are a non-accelerated filer and not required to include an attestation report of our auditor in this annual report. Management believes that our internal control over financial reporting has ~~significantly improved~~continued to improve in ~~2017~~2021 to minimize material weaknesses identified ~~as discussed~~ in Item 15 of this report. Although we have made improvements to overcome ~~the~~such concern, we can provide no assurance that these material weaknesses will be entirely remediated in a timely manner. As a result, investors and others may lose confidence in the reliability of our financial statements.

We face risks associated with maintaining and expanding our international operations, including unfavorable and uncertain regulatory, political, economic, tax and labor conditions.

We are subject to legal and regulatory requirements, political uncertainty and social, environmental and economic conditions in multiple jurisdictions, over which we have little control and which are inherently unpredictable. Our ~~holding~~operations in such jurisdictions, particularly as a company ~~structure may limit~~based in the ~~payment of dividends.~~

~~We have no direct~~PRC, create risks relating to, among others, compliance; organizing local operating entities; establishing, staffing and managing foreign business ~~operations, other than our ownership~~locations; navigating foreign government taxes, regulations and permit requirements; enforceability of our ~~subsidiaries. While we have no current intention of paying dividends, should we decide in the future to do so, as a holding company,~~contractual rights; trade restrictions or exchange controls. Such conditions may increase our ability to pay dividends and meet other obligations depend upon the receipts of dividends or other payments from our operating subsidiaries, other holdings, and investments. In addition, our operating subsidiaries, from time to time, may be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency, and other regulatory restrictions as discussed below. If future dividends are paid in RMB, fluctuations in the exchange rate for conversion of RMB into U.S. dollars may reduce the amount received by the U.S. stockholders upon conversion of dividend payments into U.S. dollars.

Chinese regulations currently permit the payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations. Our subsidiaries in China are also required to set aside a portion of their after tax profits to fund certain reserve funds according to the Chinese accounting standards and regulations. Currently, our subsidiaries in China are the only sources of revenues or investment holdings for the payment of dividends. If they do not accumulate sufficient profits under Chinese accounting standards and regulations to satisfy certain reserve funds as required by the Chinese accounting standards, we will be unable to pay any dividends.

After-tax profits/losses with respect to the payment of dividends from accumulated profits and the annual appropriation of after-tax profits as calculated pursuant to the Chinese accounting standards and regulations do not result in significant differences as compared to after-tax earnings as presented in our financial statements. However, there are certain differences between PRC accounting standards and regulations and U.S. GAAP, arising from different treatment of items such as amortization of intangible assets and change in fair value of contingent consideration rising from business combinations.

~~Mr. Lin’s association with iASPEC could pose a conflict of interest which may result in iASPEC decisions that are adverse to our business.~~

Mr. Jianghuai Lin, our Chairman and Chief Executive Officer and the beneficial owner of 41.6% of our outstanding ordinary shares, owns 100% of the equity interests in iASPEC, from which we derived 78.9%, 38.4% and 68.2% of our revenues in the fiscal years ended December 31, 2017, 2016 and 2015, respectively, pursuant to the existing commercial arrangements. As a result, conflicts of interest may arise from time to time and may result in management decisions that could negatively affectcosts, impact our operations and ~~potentially result in the loss of opportunities.~~

~~PRC laws~~business plans and ~~regulations governing our businesses~~require significant management attention, and ~~the validity of certain of our contractual relationships with iASPEC are uncertain. If we are found to be in violation of such PRC laws and regulations,~~may harm our business ~~may be negatively affected and we may be forced to relinquish our interests in those operations.~~

PRC laws and regulations prohibit or restrict foreign ownership of companies that operate Internet information and content. Consequently, we conduct certain of our operations and businesses in the PRC through our variable interest entity, iASPEC and its subsidiaries. The contractual relationships with iASPEC give us effective control over iASPEC, and its wholly owned subsidiaries and enable us to obtain substantially all of the economic benefits arising from it as well as consolidate their financial results in our results of operations. Although the structure we have adopted is consistent with longstanding industry practice, and is commonly adopted by comparable companies in China, the PRC government may not agree that these arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future.

The Ministry of Commerce in China (“MOFCOM”) published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the major existing laws and regulations governing foreign investment in China. Among other things, the draft Foreign Investment Law purports to introduce the principle of “actual control” in determining whether a company is considered a foreign invested enterprise, or an FIE. The draft Foreign Investment Law specifically provides that entities established in China but “controlled” by foreign investors will be treated as FIEs, whereas an entity organized in a foreign jurisdiction, but cleared by the MOFCOM as “controlled” by PRC entities and/or citizens, would nonetheless be treated as a PRC domestic entity for investment in the “restriction category” on the “negative list.” While the MOFCOM solicited comments on this draft, substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. It is not clear when the Foreign Investment Law will become effective, what approach it will adopt and how it will impact the contractual arrangements through which we hold the licenses and conduct our operations in China.

In the opinion of Guangdong Jin Di Law Firm Sichuan Office, our local PRC counsel, the ownership structures of our wholly-foreign owned enterprise and our variable interest entities in China do not violate any applicable PRC law, regulation or rule currently in effect; and the contractual arrangements between IST, iASPEC and iASPEC’s shareholder governed by PRC law are valid, binding and enforceable in accordance with their terms and applicable PRC laws and regulations currently in effect. However, our PRC counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities and PRC courts may in the future take a view that is contrary to the opinion of our PRC legal counsel.

The PRC government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance. In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies. We cannot predict the effect of the interpretation of existing or new PRC laws or regulations on our businesses. We cannot assure you that our current ownership and operating structure would not be found in violation of any current or future PRC laws or regulations. As a result, we may be subject to sanctions, including fines, and could be required to restructure our operations or cease to provide certain services. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention. If the imposition of any of these government actions causes us to lose our right to direct the activities of any of our variable interest entities or otherwise separate from them and if we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of our variable interest entities in our consolidated financial statements. Any of these or similar actions could significantly disrupt our business operations or restrict us from conducting a substantial portion of our business operations, which could materially and adversely affect our business, financial condition and results of operations.

If iASPEC or its shareholders violate our contractual arrangements with it, our business could be disrupted and we may have to resort to litigation to enforce our rights which may be time consuming and expensive.

Our operations are currently dependent upon our commercial relationship with iASPEC. During the fiscal years ended December 31, 2017, 2016, and 2015, we derived 78.9%, 38.4% and 68.2% of our revenues, respectively, from the provision of services to iASPEC customers. A significant portion of these revenues has not yet been collected. Amounts owed by iASPEC under the amended Management Services Agreement (MSA) for each quarter will be due and payable no later than the last day of the month following the end of each such quarter. Our contractual arrangements may not be as effective as direct ownership. If iASPEC or its shareholders are unwilling or unable to perform their obligations under our commercial arrangements, including payment of revenues under the MSA as they become due each quarter, we will not be able to conduct our operations in the manner currently planned. In addition, iASPEC may seek to renew these agreements on terms that are disadvantageous to us. Although we have entered into a series of agreements that provide us with substantial ability to control iASPEC, we may not succeed in enforcing our legal rights. If we are unable to renew these agreements on favorable terms, or to enter into similar agreements with other parties, our business may not be able to operate or expand, and our operating expenses may significantly increase.manage them effectively.

Uncertainties in the PRC legal system may impede our ability to enforce the commercial agreements that we have entered into with iASPEC or any arbitral award thereunder and any inability to enforce these agreements could materially and adversely affect our business and operation.

While disputes under the amended MSA and the option agreement with iASPEC are subject to binding arbitration before the Shenzhen Branch of the China International Economic and Trade Arbitration Commission, or CIETAC, in accordance with CIETAC Arbitration Rules, the agreements are governed by PRC laws and an arbitration award may be challenged in accordance with PRC laws. For example, a claim that the enforcement of an award in our favor will be detrimental to the public interest, or that an issue does not fall within the scope of the arbitration would require us to engage in administrative and judicial proceedings to defend an award. China’s legal system is a civil law system based on written statutes, in which decided legal cases have little value as precedent, and unlike common law systems. As a result, China’s administrative and judicial authorities have significant discretion in interpreting and implementing statutory and contractual terms, and may be more difficult to evaluate the outcome of administrative and judicial proceedings and the level of legal protection available than in more developed legal systems. These uncertainties may impede our ability to enforce the terms of the MSA, the option agreement, and the other contracts that we may enter into with iASPEC. Any inability to enforce the MSA and option agreement or an award thereunder could materially and adversely affect our business and operation.

If iASPEC fails to comply with the confidentiality requirements of certain of its customer contracts, then iASPEC could be subject to sanctions and could lose its business license which in turn would significantly disrupt or shut down our operations.

The business and operations of iASPEC, the owner and licensor to us of the copyrighted software applications and other intellectual property that are essential to the operation of our business, are subject to Chinese contractual obligations and laws and regulations that restrict its use of confidential information and other information that it obtains from its customers in the public security sector. For some of its contracts with governmental agencies, iASPEC has agreed to keep all technical and commercial proprietary and classified information in confident that were obtained during the performance of services under the contract. iASPEC or its shareholders could violate these contractual obligations and laws and regulations by inadvertently or intentionally disclosing confidential information or by otherwise failing to operate its business in a manner that complies with these contractual and legal obligations. A violation of these agreements could result in significant disruption, or shut down of our business, or adversely affect our reputation in the market. If iASPEC or its shareholders violate these contractual and legal obligations, we may have to resort to litigation to enforce our rights under our contractual obligations with iASPEC. This litigation could result in disruption of our business, diversion of our resources from our operations, and incurrence of substantial costs.

~~All of the share capital of iASPEC is held by our major shareholder, who may cause these agreements to be amended in a manner that is adverse to us.~~

Our major shareholder, Mr. Jianghuai Lin, owns and controls iASPEC. As a result, Mr. Lin may be able to cause our commercial arrangements with iASPEC to be amended in a manner that will be adverse to our company, or may be able to cause these agreements not to be renewed, even if their renewal would be beneficial for us. Although we have entered into an agreement that prevents the amendment of these agreements without the approval of the members of our Board other than Mr. Lin, we can provide no assurances that these agreements will not be amended in the future to contain terms that might differ from the terms that are currently in place. These differences may be adverse to our interests.

Our arrangements with iASPEC and its shareholders may be subject to scrutiny by the PRC tax authorities. Any adjustment of related party transaction pricing could lead to additional taxes, and therefore which could have an adverse effect on our income and expenses.

The tax regime in China is rapidly evolving and there is significant uncertainty for taxpayers in China as PRC tax laws may be interpreted in significantly different ways. The PRC tax authorities may assert that we or our subsidiaries or variable interest entities or their equity holders owe and/or are required to pay additional taxes on previous or future revenue or income. In particular, under applicable PRC laws, rules and regulations, arrangements and transactions among related parties, such as the contractual arrangements with our variable interest entities, may be subject to audit or challenge by the PRC tax authorities. We could face material and adverse tax consequences if the PRC tax authorities determine that our agreements with the variable interest entities and their shareholders were not entered into based on arm’s length negotiations. As a result, they may adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. Such an adjustment may require that we pay additional PRC taxes plus applicable penalties and interest, if any.

The exercise of our option to purchase part or all of the equity interests in or assets of iASPEC under the option agreement might be subject to approval by the PRC government. Our failure to obtain this approval may impair our ability to substantially control iASPEC and could result in actions by iASPEC that conflict with our interests.

Our option agreement with iASPEC gives our Chinese subsidiary, IST, the option to purchase all or part of the equity interests in or assets of iASPEC. However, the option may not be exercised by IST, if exercise of the option would violate any applicable laws and regulations in China or cause any license or permit held by IST that is necessary for the operation of iASPEC to be cancelled or invalidated. Under Chinese laws, if a foreign entity, in which a foreign investment company has invested, acquires a domestic company that are under common control, Chinese regulations governing mergers and acquisitions would technically apply to the transaction. Application of these regulations requires an examination and approval of the transaction by the Chinese Ministry of Commerce, or MOFCOM, or its local counterparts. Also, an appraisal of the equity or assets to be acquired is mandatory. However, Guangdong Jin Di Law Firm Sichuan Office, our local PRC counsel, has advised us that Shenzhen and other local counterparts of MOFCOM advised us that such a transaction would not require their approval.

Therefore, we do not believe at this time that an approval and an appraisal are required for IST to exercise its option to acquire iASPEC in Shenzhen. In light of the different views on this issue, however, it is possible that the central MOFCOM office in Beijing will issue a standardized opinion imposing the requirements for approval and appraisal. If we are not able to purchase the equity or assets of iASPEC, then we will lose a substantial portion of our ability to control iASPEC and our ability to ensure that iASPEC will act in our interests.

Our right to elect a majority of the members on iASPEC’s Board of Directors and other provisions of the MSA may be viewed by iASPEC’s customers as a change in control of iASPEC, which could subject iASPEC to sanctions and loss of its business license, which in turn would significantly disrupt or possibly terminate our operations.

Our commercial arrangement with iASPEC gives us the right to designate two Chinese citizens to serve as senior managers of iASPEC, serve as directors on iASPEC’s Board of Directors, and assist in managing business and operations of iASPEC. In addition, iASPEC will require the affirmative vote from the majority of the our Board of Directors, as well as at least one non-insider director, to conclude certain material actions, including but not limited to: (a) the nomination, appointment, election, or replacement of any board members; (b) the distribution of any dividend or profits; (c) any merger, division, change of corporate structure, dissolution, or liquidation; (d) any reimbursement of net losses or other payments or transfers of funds from IST to iASPEC; (e) the formation or disposition of a subsidiary or the acquisition or disposition of any interest in any other entity; and (f) the encumbrance of any assets under any lien not in the ordinary course of business. However, fulfillment of certain Police-use Geographic Information Systems, or PGIS, contracts with customers in PRC Government sector is restricted to entities like iASPEC that possesses the necessary PRC government licenses and approvals. Any change in control may be viewed as creating a new entity under PRC law. If iASPEC’s government customers view these MSA provisions as a change in control of iASPEC or as evidence of iASPEC’s failure to operate its business in a manner that complies with its contractual obligations or with related laws and regulations, such a perception could result in the cancellation or invalidation of iASPEC’s licenses and permits. A loss by iASPEC of its licenses and permits could result in significant disruption or possible termination of our business and adversely affect our reputation in the market.

The Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and in the ~~economic~~value of our securities. Any actions by the Chinese government to exert more oversight and ~~political policies~~control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

A significant portion of our operations are conducted in the ~~PRC government could have a material and adverse effect on our business and operations.~~

~~We conduct substantially all our business operations in China.~~PRC. Accordingly, our financial condition and results of operations ~~financial condition,~~are affected to a significant extent by the economic, political and ~~prospects are significantly dependent on economic and political~~legal developments in ~~China. Chinese~~the PRC. The PRC economy differs from the economies of most developed countries in many ~~aspects,~~respects, including the extent of government involvement, level of development, growth rate, ~~degree~~and control of ~~government control over~~ foreign exchange and allocation of resources. While Chinese economy has experienced significant growth in the past 30 years, the growth has been uneven across different regions and periods and among various economic sectors in China. We cannot assure you that Chinese economy will continue to grow, or that if there is growth, such growth will be steady and uniform, or that if there is a slowdown, such slowdown will not have a negative effect on our business and results of operations.

The PRC government exercises significant controls over China. Accordingly, our results of operations, financial condition, and prospects are significantly dependent on economic and political developments in China. Certain measures adopted by the PRC government may restrict loans to certain industries, such as changes in the statutory deposit reserve ratio and lending guidelines for commercial banks by the People’s Bank of China, or PBOC. These current and future government actions could materially affect our liquidity, access to capital, and ability to operate our business.

The global financial markets experienced significant disruptions in 2008 that caused the United States, Europe, and other economies going into recession. Since 2012, growth of the Chinese economy has slowed down. The PRC government has implemented various measures to encourage economic growth and ~~allocate~~to guide the allocation of resources. Some of these measures may benefit the overall PRC economy but may also have a negative effect on us. Our financial condition and results of ~~operation~~operations could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. ~~In addition, stimulus measures designed~~

The Chinese government recently has published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could require us to ~~boost~~seek permission from Chinese authorities to continue to operate our business, which may adversely affect our business, financial condition and results of operations. Furthermore, recent statements made by the Chinese ~~economy may contribute~~government have indicated an intent to ~~higher inflation, which~~increase the government’s oversight and control over offerings of companies with significant operations in China that are to be conducted in foreign markets, as well as foreign investment in China-based issuers like us. Any such action, once taken by the Chinese government, could significantly limit or completely hinder our ability to offer or continue to offer the securities that we are registering to investors, and could cause the value of such securities to significantly decline or become worthless.

For example, in July 2021, the Chinese government provided new guidance on China-based companies raising capital outside of China, including through arrangements via variable interest entities (“VIEs”). In light of such developments, the SEC has imposed enhanced disclosure requirements on China-based companies seeking to register securities with the SEC. Although we have recently dissolved our VIE structure, as a significant portion of our operations are based in China, any future Chinese, U.S. or other rules and regulations that place restrictions on capital raising or other activities by companies with extensive operations in China could adversely affect our business and results of operations. If the business environment in China deteriorates from the perspective of domestic or international investment, or if relations between China and the United States or other governments deteriorate, the Chinese government may intervene with our operations, and our business in China, as well as the value of the securities that we are registering, may also be adversely affected.

Changes in U.S. and Chinese regulations or in relations between the United States and China may adversely impact our business, our operating results, our ability to raise capital and the value of the securities that we are registering. Any such changes may take place quickly and with very little notice.

The U.S. government, including the SEC, has made statements and taken certain actions that led to changes to United States and international relations, and will impact companies with connections to the United States or China. The SEC has issued statements primarily focused on companies with significant China-based operations, such as us. For example, on July 30, 2021, Gary Gensler, Chairman of the SEC, issued a Statement on Investor Protection Related to Recent Developments in China, pursuant to which Chairman Gensler stated that he has asked the SEC staff to engage in targeted additional reviews of filings for companies with significant China-based operations. The statement also addressed risks inherent in companies with VIE structures. We have dissolved our VIE structure and are not in any industry that is subject to foreign ownership limitations by China. However, it is possible that the Company’s filings with the SEC may be subject to enhanced review by the SEC and this additional scrutiny could affect our ability to effectively raise capital in the United States.

In response to the SEC’s July 30, 2021 statement, the CSRC announced on August 1, 2021, that “[i]t is our belief that Chinese and U.S. regulators shall continue to enhance communication with the principle of mutual respect and cooperation, and properly address the issues related to the supervision of China-based companies listed in the U.S. so as to form stable policy expectations and create benign rules framework for the market.” While the CSRC will continue to collaborate “closely with different stakeholders including investors, companies, and relevant authorities to further promote transparency and certainty of policies and implementing measures,” it emphasized that it “has always been open to companies’ choices to list their securities on international or domestic markets in compliance with relevant laws and regulations.” If any new legislation, executive orders, laws and/or regulations are implemented, if the U.S. or Chinese governments take retaliatory actions due to the recent U.S.-China tension or if the Chinese government exerts more oversight and control over securities offerings that are conducted in the United States, such changes could have an adverse effect on our business, financial condition and results of operations, ~~and financial condition. See “Risks Relating to Doing Business in China - Future inflation in China may inhibit~~ our ability to ~~conduct business~~raise capital and the value of the securities that we are registering.

There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.

~~Uncertainties with respect to~~ the PRC, ~~legal system could limit the legal protections available to you~~ and ~~us.~~

~~We conduct substantially all of our business through our operating subsidiaries in the PRC.~~are governed by PRC laws, rules and regulations. Our ~~operating~~PRC subsidiaries are ~~generally~~ subject to laws, rules and regulations applicable to foreign ~~investments~~investment in ~~China and, in particular, laws applicable to foreign invested entities established in the PRC, or FIEs.~~China. The PRC legal system is a civil law system based on written ~~statutes, and~~statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value. ~~Since~~In 1979, the PRC government began to promulgate a ~~series~~comprehensive system of ~~new PRC~~ laws, rules and regulations ~~have~~governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign ~~investments~~investment in China. However, ~~since the PRC~~China has not developed a fully integrated legal system, ~~continues~~and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to ~~evolve rapidly,~~significant degrees of interpretation by PRC regulatory agencies. In particular, because these laws, rules and regulations, especially those relating to the ~~interpretations~~internet, are relatively new, and because of ~~many~~the limited number of published decisions and the nonbinding nature of such decisions, and because the laws, rules and regulations ~~and rules are not always uniform,~~often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules ~~involve uncertainties, which may limit legal protections available to you~~until after the occurrence of the violation. Any administrative and ~~us. In addition, any litigation~~court proceedings in China may be protracted, ~~and result~~resulting in substantial costs and diversion of resources and management attention.

The PRC government has recently announced its plans to enhance its regulatory oversight of Chinese companies listing overseas. The Opinions on Strictly Cracking Down on Illegal Securities Activities issued on July 6, 2021 called for:

As the Opinions on Strictly Cracking Down on Illegal Securities Activities were recently issued, there are great uncertainties as to how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on companies like us, but among other things, our ability and the ability of our subsidiaries to obtain external financing through the issuance of equity securities overseas could be negatively affected.

Our business is subject to complex and evolving laws and regulations regarding privacy and data protection. Compliance with China’s new Data Security Law, Cybersecurity Review Measures, Personal Information Protection Law, Regulations on Network Data Security (draft for public comments), as well as additional laws, regulations and guidelines that the Chinese government promulgates in the future may entail significant expenses and could materially affect our business.

Regulatory authorities in China have implemented and are considering further legislative and regulatory proposals concerning data protection. China’s new Data Security Law went into effect on September 1, 2021. The Data Security Law provides that the data processing activities must be conducted based on “data classification and hierarchical protection system” for the purpose of data protection and prohibits entities in China from transferring data stored in China to foreign law enforcement agencies or judicial authorities without prior approval by the Chinese government. The Data Security Law sets forth the legal liabilities of entities and individuals found to be in violation of their data protection obligations, including rectification order, warning, fines of up to RMB5 million, suspension of relevant business, and revocation of business permits or licenses.

In addition, the PRC Cybersecurity Law provides that personal information and important data collected and generated by operators of critical information infrastructure in the course of their operations in the PRC should be stored in the PRC, and the law imposes heightened regulation and additional security obligations on operators of critical information infrastructure. According to the initial Cybersecurity Review Measures promulgated by the Cyberspace Administration of China (“CAC”) and certain other PRC regulatory authorities in April 2020 and becoming effective in June 2020, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. Any failure or delay in the completion of the cybersecurity review procedures may prevent the critical information infrastructure operator from using or providing certain network products and services, and may result in fines of up to ten times the purchase price of such network products and services. The PRC government recently launched cybersecurity reviews against a number of mobile apps operated by several US-listed Chinese companies and prohibited these apps from registering new users during the review periods.

On July 10, 2021, the CAC issued the Cybersecurity Review Measures (revised draft for public comments), which took effect on February 15, 2022. The revised Cybersecurity Review Measures authorize the CAC to conduct cybersecurity review on a range of activities that affect or may affect national security. The PRC National Security Law defines various types of national security, including technology security and information security. The revised Cybersecurity Review Measures expands the cybersecurity review to data processing operators in possession of personal information of over 1 million users if the operators intend to list their securities in a foreign country. Under the revised Cybersecurity Review Measures, the scope of entities required to undergo cybersecurity review to assess national security risks that arise from data processing activities would be expanded to include all critical information infrastructure operators who purchase network products and services and all data processors carrying out data processing activities that affect or may affect national security. In addition, the revised Cybersecurity Review Measures provide that all such entities that maintain or store the personal information of more than 1 million users and undertake a public listing of securities in a foreign country would be required to pass cybersecurity review, which would focus on the potential risk of core data, important data, or a large amount of personal information being stolen, leaked, destroyed, illegally used or exported out of China, or critical information infrastructure being affected, controlled or maliciously used by foreign governments after such a listing. An operator that violates these Measures shall be dealt with in accordance with the provisions of the PRC Cybersecurity Law and the PRC Data Security Law.

On November 14, 2021, the CAC released the Regulations on Network Data Security (draft for public comments) and accepted public comments until December 13, 2021. The draft Regulations on Network Data Security provide more detailed guidance on how to implement the general legal requirements under legislations such as the Cybersecurity Law, Data Security Law and the Personal Information Protection Law. The draft Regulations on Network Data Security follow the principle that the state will regulate based on a data classification and multi-level protection scheme, under which data is largely classified into three categories: general data, important data and core data. Personal data and important data will be subject to “key” protection and core data to “strict” protection. We believe that the data we access falls within the category of “general data,” because such data is data of our ~~executive officers~~member merchants, does not involve personal information and ~~most~~is not large in volume. Further, when we conduct advertising data collection and analysis, such data is only related to the placement and delivery of ads, which does not involve any personal information. However, we may constitute an online platform operator under the draft Regulations on Network Data Security, which is defined as a platform that provides information publishing, social network, online transaction, online payment and online audio/video services, because our PRC subsidiary Biznest is operating a smart cloud platform that publishes commercial ads of our ~~directors~~advertiser clients. Online platform operator under the draft Regulations will be required, among other things, to disclose terms and privacy policies and the algorithms they use. Where there are ~~residents~~any changes that would result in significant impacts on users’ rights and interests, online platform operators will be required to seek public comments for at least 30 business days and publish how the public comments have been considered and incorporated into the final versions and why other comments are rejected. The draft Regulations also set forth procedures for reporting data breach incidents. In the event that a data breach incident has caused harm to any individuals or organizations, a data processor should notify the relevant individuals and organizations within 3 business days, unless such notices are not required under applicable laws or regulations. Additionally, if we are deemed as a data processor listed overseas under the draft Regulations, we will be required to carry out an annual data security assessment on our own or by engaging a third party data security services institution and submit a data security assessment report for the prior year to the local cyberspace affairs administration department before January 31 of each year. The Regulations on Network Data Security (draft for public comments) were released for public comments and subject to further changes.

On August 20, 2021, the Standing Committee of the National People’s Congress of China promulgated the Personal Information Protection Law which became effective on November 1, 2021. The Personal Information Protection Law provides a comprehensive set of data privacy and ~~not~~protection requirements that apply to the processing of personal information and expands data protection compliance obligations to cover the ~~United States,~~processing of personal information of persons by organizations and ~~substantially all~~individuals in China, and the ~~assets~~processing of ~~these~~personal information of persons ~~are located outside the United States. As a result, it could be difficult for investors to affect service of process~~ in ~~the United States or to enforce a judgment obtained in the United States against our Chinese operations and subsidiaries.~~

~~Most of our assets are located~~China outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the ~~United States~~behavior of, persons in China. The Personal Information Protection Law also provides that critical information infrastructure operators and ~~most~~personal information processing entities who process personal information meeting a volume threshold to be set by Chinese cyberspace regulators are also required to store in China personal information generated or collected in China, and to pass a security assessment administered by Chinese cyberspace regulators for any export of ~~our current operations are conducted in~~such personal information. Lastly, the ~~PRC. In addition, most~~Personal Information Protection Law contains proposals for significant fines for serious violations of ~~our directors~~up to RMB 50 million or 5% of annual revenues from the prior year and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to affect service of process within the United States upon these persons. It may also be ~~difficult for you~~ordered to ~~enforce~~suspend any related activity by competent authorities.

As our smart cloud platform is engaged in ~~U.S. courts’ judgments on~~ the ~~civil liability provisions of~~advertising business, the ~~U.S. federal securities laws against us~~advertising industry is not subject to any foreign investment restrictions and our ~~officers and directors, most of whom are~~smart cloud platform does not ~~residents in the United States and the substantial majority of their assets are located outside of the United States. In addition, there is uncertainty as~~collect any personal information, we believe that we will be able to whether the courts of the PRC would recognize or enforce judgments of U.S. courts. Our counsel as to PRC law has advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. Courts in China may recognize and enforce foreign judgments in accordancecomply with the requirements of the PRC ~~Civil Procedures~~Cybersecurity Law, ~~based on treaties between China~~the PRC Data Security Law and ~~the country where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other arrangements that provide for the reciprocal recognition~~related implementing regulations. However, interpretation, application and enforcement of ~~foreign judgments~~these laws, rules and regulations evolve from time to time and their scope may continually change, through new legislation, amendments to existing legislation or changes in enforcement. Compliance with the ~~United States. In addition,~~PRC Cybersecurity Law and the PRC Data Security Law could increase the cost to us in providing our services, require changes to our operations or may prevent us from providing certain services.

PRC laws and regulations establish complex procedures in connection with certain acquisitions of China-based companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions or mergers in China.

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce (“MOFCOM”), the State-Owned Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Industry and Commerce, the CSRC, and the State Administration of Foreign Exchange, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules include, among other things, provisions that purport to require that an offshore special purpose vehicle formed for the purpose of an overseas listing of securities of a PRC company obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas listings through special purpose vehicles. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose vehicles.

The regulations also established additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from the MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies.

Moreover, according to the ~~PRC Civil Procedures~~Anti-Monopoly Law ~~courts~~of the People’s Republic of China promulgated on August 30, 2007 and the Provisions on Thresholds for Reporting of Concentrations of Undertakings (the “Prior Reporting Rules”) issued by the State Council in August 2008 and amended in September 2018, the ~~PRC will~~concentration of business undertakings by way of mergers, acquisitions or contractual arrangements that allow one market player to take control of or to exert decisive impact on another market player must also be notified in advance to the anti-monopoly enforcement agency of the State Council when the applicable threshold is crossed and such concentration shall not ~~enforce~~be implemented without the clearance of prior reporting. In addition, the Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprise by Foreign Investors (the “Security Review Rules”) issued by the MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass a ~~foreign judgment against us~~security review by structuring the transaction through, among other things, trusts, entrustment or contractual control arrangements.

We may grow our ~~directors~~business in part by acquiring other companies operating in our industry. Compliance with the requirements of the regulations to complete such transactions could be time-consuming, and ~~officers, if they decide that~~any required approval processes, including approval from the ~~judgment violates basic principles of PRC law~~MOFCOM, may delay or ~~national sovereignty, security,~~inhibit our ability to complete such transactions, which could affect our ability to expand our business or ~~the public interest. So it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States.~~maintain our market share.

The ~~PRC government exerts substantial influence over the manner in which we must conduct our business activities.~~

~~The PRC government has exercised and continues to exercise substantial control over virtually every sector~~approval of the CSRC or other Chinese ~~economy through regulations and state ownership. Our ability to operate in China~~regulatory agencies may be ~~harmed~~required in connection with our future overseas capital-raising activities under Chinese law.

The “M&A Rules” purport to require offshore special purpose vehicles that are controlled by ~~changes~~Chinese companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of Chinese domestic companies or assets in exchange for the shares of the offshore special purpose vehicles shall obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange.

Based on our understanding of the Chinese laws and regulations ~~including those~~currently in effect, we will not be required to submit an application to the CSRC for its approval of any of our offerings of securities to foreign investors under the M&A Rules. However, there remains some uncertainties as to how the M&A Rules will be interpreted or implemented, and our view of our obligations under the M&A Rules is subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to ~~taxation, import~~the M&A Rules. We cannot assure you that relevant Chinese government agencies, including the CSRC, would reach the same conclusion.

Furthermore, on July 6, 2021, the General Office of the Central Committee of the Communist Party of China and ~~export tariffs, environmental~~the General Office of the State Council jointly promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities, pursuant to which Chinese regulators are required to accelerate rulemaking related to the overseas issuance and listing of securities, and update the existing laws and regulations ~~land use rights, property,~~related to data security, cross-border data flow, and management of confidential information. Numerous regulations, guidelines and other ~~matters. We believe that our operations~~measures have been or are expected to be adopted under the umbrella of or in ~~China are in material compliance with all applicable legal~~addition to the Cybersecurity Law and ~~regulatory requirements. However,~~Data Security Law.

On December 24, 2021, the ~~central or local governments~~CSRC released the Administrative Provisions of the ~~jurisdictions, in which~~State Council Regarding Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Administrative Provisions”), and the Measures Regarding Recordation of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Measures”). The Administrative Provisions and Measures aim to establish a unified supervision system and promote cross-border regulatory cooperation. The Measures lay out filing procedures for domestic companies to record their initial public offerings and follow-on offerings abroad with the CSRC. Issuers are required to file follow-on offerings with the CSRC within 3 business days after the closing of such offerings.

According to the Q&A held by CSRC officials for journalists thereafter, the CSRC will adhere to the principle of non-retroactive application of law and first focus on issuers conducting initial public offerings and follow-on offerings by requiring them to complete the recordation procedures. Other issuers will be given a sufficient transition period. The CSRC officials also noted that the regulation system contemplated by the draft Administrative Provisions and Measures differentiates between IPOs and follow-on offerings to take into account overseas capital markets’ fast and efficient features and to reduce impacts on overseas financing activities by domestic companies. If the Administrative Provisions and the Measures are enacted as proposed, we ~~operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures~~expect to perform necessary recordation filings with the CSRC for our listing on the Nasdaq within the prescribed transition period and ~~efforts on our part to ensure our compliance with such regulations or interpretations.~~

~~Accordingly, government actions~~for this offering in the ~~future, including any decision not to continue to support recent economic reforms~~event that it takes place after the Administrative Provisions and ~~to return to a more centrally planned economy or regional or local variations in~~ the Measures enter into force.

As there are still uncertainties regarding the interpretation and implementation of ~~economic policies, could have a significant effect on economic conditions in China or particular regions thereof and could require us~~such regulatory guidance, we cannot assure you that we will be able to ~~divest ourselves of any interest we then hold in Chinese properties or joint ventures.~~

~~If we fail to obtain or maintain all licenses and approvals required to operate our businesses in the PRC, our business and operations may be adversely affected.~~

~~Fulfillment of certain Police-use Geographic Information Systems (“PGIS”) contracts~~comply with PRC governmental customers is restricted to entities that possess the necessary government licenses and approvals, which our subsidiary IST does not have. We currently perform PGIS contracts through iASPEC, which possesses the requisite licenses and approvals. Pursuantnew regulatory requirements relating to our MSA with iASPEC, whereby iASPEC exclusively engages IST as its subcontractor to provide iASPEC with outsourcing services (to the extent that those services do not violate any special governmental permits held by iASPECfuture overseas capital-raising activities and ~~do not involve the improper transfer of any sensitive confidential governmental or other data). If the PRC government determines that we are operating without the requisite licenses,~~ we may become subject to more stringent requirements with respect to matters including data privacy and cross-border investigation and enforcement of legal claims. Notwithstanding the foregoing, as of the date hereof, we are not aware of any Chinese laws or regulations in effect requiring that we obtain permission from any Chinese authority to issue securities to foreign investors, and we have not received any inquiry, notice, warning, or sanction in relation to the trading of the Ordinary Shares on the Nasdaq from the CSRC, the CAC or any other Chinese authorities that have jurisdiction over our operations.

We believe that we are not required to submit an application to the CSRC or the CAC for the approval of any of our offerings of securities to foreign investors or trading of the Ordinary Shares on the Nasdaq. However, there remains significant uncertainty as to the enactment, interpretation and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities. If it is determined in the future that the approval of the CSRC, CAC or any other regulatory authority is required for any of our offerings, we may face sanctions by the CSRC, the CAC or other Chinese regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from overseas offerings into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, the value of our securities, as well as our ability to offer or continue to offer securities to investors or cause such securities to significantly decline in value or become worthless. In addition, if the CSRC, the CAC or other regulatory agencies later promulgate new rules requiring that we obtain their approvals for any of our offerings, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on the value of the securities that we are registering.

PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent Taoping from making additional capital contributions or loans to its PRC subsidiaries.

Taoping, as an offshore holding company, is permitted under PRC laws and regulations to provide funding to its PRC subsidiaries through loans or capital contributions. However, loans by Taoping to its PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of the State Administration of Foreign Exchange and capital contributions to its PRC subsidiaries are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System, and registration with other governmental authorities in China.

The State Administration of Foreign Exchange promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign- Invested Enterprises, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses. According to Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of bank loans that have been transferred to a third party. Although Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is unclear whether the State Administration of Foreign Exchange will permit such capital to be used for equity investments in the PRC in actual practice. The State Administration of Foreign Exchange promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to grant loans to non-associated enterprises. Violations of Circular 19 and Circular 16 could result in administrative ~~penalties~~penalties. Circular 19 and Circular 16 may significantly limit our ability to transfer any foreign currency Taoping holds to its PRC subsidiaries, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.

In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or ~~an order~~obtain the necessary government approvals on a timely basis, if at all, with respect to ~~discontinue~~future loans or future capital contributions by us to our PRC subsidiaries. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiaries when needed. If we fail to complete such registrations or obtain such approvals, our ability to use foreign currency and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

The increased regulatory scrutiny focusing on U.S.-listed companies with significant operations in China in the U.S. could add uncertainties to our business operations, share price and reputation. Although our former auditor, UHY LLP, and current auditor, PKF, are both subject to inspection by the PCAOB, trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act if the PCAOB subsequently determines our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as the Nasdaq, may determine to delist our securities. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to the PCAOB inspections for two consecutive years instead of three.

U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud.

In recent years, as part of increased regulatory focus in the United States on access to audit information, the United States enacted the HFCA Act in December 2020. The HFCA Act includes requirements for the SEC to identify issuers whose audit reports are prepared by auditors that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. The HFCA Act also requires public companies on this SEC list to certify that they are not owned or controlled by a foreign government and make certain additional disclosures in their SEC filings. In addition, if the auditor of a U.S. listed company’s financial statements is not subject to PCAOB inspections for three consecutive “non-inspection” years after the law becomes effective, the SEC is required to prohibit the securities of such issuer from being traded on a U.S. national securities exchange, such as NYSE and Nasdaq, or in U.S. over-the-counter markets. On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement the foregoing certification and disclosure requirements and that it was seeking public comment on the issuer identification process as well as the submission and disclosure requirements. On May 13, 2021, the PCAOB issued proposed PCAOB Rule 6100 Board Determinations Under the Holding Foreign Companies Accountable Act for public comment. The proposed rule provides a framework for making determinations as to whether PCAOB is unable to inspect an audit firm in a foreign jurisdiction, including the timing, factors, bases, publication and revocation or modification of such determinations, and such determinations will be made on a jurisdiction-wide basis in a consistent manner applicable to all firms headquartered in the jurisdiction.

Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCA Act”), which if enacted into law would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive “non-inspection” years instead of three.

On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the Board is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.

On December 2, 2021, the SEC adopted amendments to finalize the interim final rules previously issued in March 2021, and established procedures to identify issuers and prohibit the trading of the securities of certain registrants as required by the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. The final amendments require SEC identified issuers to submit documentation to the SEC establishing that, if true, it is not owned or controlled by a governmental entity in the public accounting firm’s foreign jurisdiction. The amendments also require that an SEC-identified issuer that is a “foreign issuer,” as defined in Exchange Act Rule 3b-4, provide certain additional disclosures in its annual report for itself and any of its consolidated foreign operating entities. An SEC-identified issuer will be required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified. If a registrant is identified as an SEC identified issuer based on its annual report for the fiscal year ending December 31, 2021, the registrant will be required to comply with the submission or disclosure requirements in its annual report filing covering the fiscal year ending December 31, 2022. Accordingly, if we are determined by the SEC to be an SEC identified issuer, we will incur additional costs in complying with the submission and disclosure requirements in the annual report for each year in which we are identified. In the event that we are deemed to have had three consecutive “non-inspection” years by the SEC, our securities will be prohibited from trading on any national securities exchange or over-the-counter markets in the United States. Moreover, if the AHFCA Act is enacted into law, it would reduce the time before our securities may be prohibited from trading or delisted from three years to two years.

On December 16, 2021, pursuant to the HFCA Act, the PCAOB issued a Determination Report which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in mainland China of the People’s Republic of China and Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in such jurisdictions. In addition, the PCAOB’s report identified specific registered public accounting firms which are subject to these determinations. Our current registered public accounting firm, PKF, or our former registered public accounting firm, UHY LLP, is not headquartered in mainland China or Hong Kong and was not identified in this report as a firm subject to the PCAOB’s determination.

As an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, our current auditor PKF is required by the laws of the United States to undergo regular inspections by the PCAOB. PKF is headquartered in London, the United Kingdom, and has been inspected by the PCAOB on a regular basis. They were last inspected between November 2020 and February 2021. Furthermore, the PCAOB is able to inspect the audit workpapers of our China subsidiaries, as such workpapers are electronic files possessed by our registered public accounting firms. However, if the PCAOB determines in the future that it cannot inspect or fully investigate our auditor at such future time, trading in our securities would be prohibited under the HFCA Act.

While we understand that there has been dialogue among the CSRC, the SEC and the PCAOB regarding the inspection of PCAOB-registered accounting firms in China, and our former auditor UHY LLP and current auditor PKF are subject to inspection by the PCAOB, there can be no assurance that our auditors or us will be able to comply with requirements imposed by U.S. regulators in the future. The value of the securities we are registering could be adversely affected as a result of anticipated negative impacts of the HFCA Act upon, as well as negative investor sentiment towards, China-based companies listed in the United States, regardless of our actual operating performance.

Furthermore, as part of ongoing efforts to protect U.S. investors, the U.S. President’s Working Group on Financial Markets, or the PWG, released a report in August 2020 recommending certain enhancements to listing standards on U.S. stock exchanges, including that the PCAOB have access to work papers of the principal audit firm for the audit of each company as a condition to initial and continued exchange listing. Companies unable to satisfy this standard as a result of governmental restrictions on access to audit work papers and practices in their jurisdiction may satisfy this standard by providing a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate inspection of the co-audit firm. The SEC announced that its staff have been directed to prepare and develop proposals in response to the report of the PWG. Any resulting actions, proceedings or new rules could adversely affect the listing and compliance status of China-based issuers listed in the United States, such as Taoping, and may have a material and adverse ~~effect~~impact on ~~our business~~the trading prices of the securities of such issuers, and ~~results~~substantially reduce or effectively terminate the trading of ~~operations.~~Taoping’s securities in the United States.

Future inflation in China may inhibit our ability to conduct business in China.

According to the ~~Chinese economy has experienced periods~~National Bureau of ~~rapid expansion~~Statistics of China, the annual average percent changes in the consumer price index in China for 2019, 2020 and ~~highly fluctuating rates of inflation. During~~2021 were 2.9%, 2.5% and 0.9%, respectively. Although we have not been materially affected by inflation in the past, ~~ten years,~~we can provide no assurance that we will not be affected in the ~~rate~~future by higher rates of inflation in ~~China has been~~China. For example, certain operating costs and expenses, such as employee salaries and office operating expenses may increase as a result of higher inflation. Additionally, since a substantial portion of our assets consists of cash and cash equivalents, high ~~as 8.5% . These factors have led~~inflation could significantly reduce the ~~Chinese government, from time to time, to adopt various corrective measures designed to restrict the availability~~value and purchasing power of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and our company.these assets.

Restrictions on currency exchange may limit our ability to receive and use our ~~sales~~income effectively.

The majority of our sales will be settled in RMB, and any future restrictions on currency exchanges may limit our ability to use revenue generated in RMB to fund any future business activities outside of China or to make dividend or other payments in U.S. dollars. Although the ~~Chinese government introduced regulations in 1996 to allow greater convertibility~~conversion of RMB into foreign currency for current account transactions, such as interest payments, profit distributions, and trade or service related transactions, can be made without prior governmental approval, significant restrictions still remain, including primarily the restriction that FIEs may only buy, sell, or remit foreign currencies after providing valid commercial documents to ~~those~~certain banks in China authorized to conduct foreign exchange business. In addition, conversion of RMB for capital account items, including direct investment and loans, are subject to governmental approval in China, and requires companies to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB.

Fluctuations in exchange rates could adversely affect our business and the value of our securities.

The value of our ordinary shares will be indirectly affected by the foreign exchange rate between the U.S. dollar and RMB, and between ~~those~~the two currencies and other currencies in which our sales may be denominated. Appreciation or depreciation in the value of RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar ~~terms~~ without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue that will be exchanged into U.S. dollars, as well as earnings from any U.S. dollar-denominated investments we make in the future.

Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.

Very limited hedging transactions are available in China to reduce our exposure to the exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited. We may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

Restrictions under PRC law on our PRC subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our business.

Substantially all of our ~~sales~~revenues are earned by our PRC subsidiaries. However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to their offshore parent companies. PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in said reserve fund ~~reaches~~reach 50% of ~~their~~the company’s registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

~~Failure to comply with~~ PRC regulations relating to ~~the investment~~investments in offshore ~~special purpose~~ companies by PRC residents may subject our PRC-resident beneficial owners or our PRC ~~resident stockholders~~subsidiary to ~~personal~~ liability or penalties, limit our ability ~~to acquire PRC companies or~~ to inject capital into our PRC ~~subsidiaries,~~subsidiary or limit our PRC ~~subsidiaries’~~subsidiary’s ability to increase their registered capital or distribute ~~profits to us or otherwise materially adversely affect us.~~profits.

The State Administration of Foreign Exchange (SAFE) promulgated the Circular on Relevant Issues ~~Relating to~~Concerning Foreign Exchange Control on Domestic Residents’ ~~Investments, Financings~~Offshore Investment and Financing and Roundtrip ~~Investments~~Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular ~~75,~~75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of the SAFE in connection with their direct ~~establishments~~establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” ~~See Item 4 “Information on the Company—B. Business Overview—Regulation—Circular 37” for a detailed discussion of~~SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ~~implementation.~~ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. According to the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment released on February 13, 2015 by SAFE, local banks will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration and amendment registration, under SAFE Circular 37 from June 1, 2015.

According to SAFE Circular 37, our shareholders or beneficial owners, who are PRC residents, are subject to SAFE Circular 37 or other foreign exchange administrative regulations in respect of their investment in our company. We have notified substantial beneficial owners of ~~our company, whom~~ordinary shares who we know are PRC residents ~~to comply with the registration obligation. However,~~of their filing obligations. Nevertheless, we may not be aware of the identities of all of our beneficial owners who are PRC residents. ~~In addition, we~~We do not have control over our beneficial owners and ~~cannot assure you~~there can be no assurance that all of our ~~PRC resident~~PRC-resident beneficial owners will comply with SAFE Circular ~~37.~~37 and subsequent implementation rules, and there is no assurance that the registration under SAFE Circular 37 and any amendment will be completed in a timely manner, or will be completed at all. The failure of our beneficial owners who are PRC residents to register or amend their ~~SAFE~~foreign exchange registrations in a timely manner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. ~~Failure~~Such failure to register or ~~amend the registration by beneficial owners of our company~~comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries ~~or receive dividends or other distributions from~~and limit our PRC ~~subsidiaries or other proceeds from disposal of our PRC subsidiaries, or we may be penalized by SAFE.~~subsidiaries’ ability to distribute dividends to us. These risks may have a material ~~and~~ adverse effect on our business, financial condition and results of operations.

Furthermore, it is uncertain how SAFE Circular 37, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, and we cannot predict how these regulations will affect our business operations or future strategy. Failure to register or comply with relevant requirements may ~~be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations which became effective on September 8, 2006.~~

On August 9, 2006, six PRC regulatory agencies, including the China Securities Regulatory Commission, promulgated the Regulation on Mergers and Acquisitions of Domestic Companies by Foreign Investors, which became effective on September 8, 2006, and was subsequently amended in 2009. This regulation, among other things, governs the approval process of a PRC company’s participation in an acquisition of assets or equity interests. Depending on the structure of the transaction, the regulation requires the PRC parties to make a series of applications and supplemental applications to the government agencies for approval of acquisition of assets or equity interests from other entity. In some instances, the application process may require a presentation of economic data concerning the transaction, including appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess viability of the transaction. Government approvals will have expiration dates, by which a transaction must be completed and reported to the government agencies. Compliance with the regulation is likely to be more time consuming and expensive than it was in the past, and provides the government more controls over business combination of two enterprises. As a result,also limit our ability to ~~engage in business combination transactions has become significantly more complicated, time consuming, and expensive. We may not be able to negotiate a transaction that is acceptable~~contribute additional capital to our ~~stockholders or sufficiently protect their interests in a transaction.~~

~~The regulation allows~~ PRC ~~governmental agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to MOFCOM~~subsidiaries and other relevant government agencies an appraisal report, an evaluation report, and the acquisition agreement, all of which were a part of the application for approval, depending on the structure of the transaction. The regulation also prohibits a transaction with an acquisition price obviously lower than the appraised value of thelimit our PRC ~~business or assets and in certain transaction structures, and requires consideration being paid within a defined period, generally not in excess of a year. The regulation also limits our~~subsidiaries’ ability to ~~negotiate various terms of~~distribute dividends to us. These risks could in the acquisition, including the initial consideration, contingent consideration, holdback provisions, indemnification provisions, and provisions related to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such regulation may impede our ability to negotiate and complete a business combination transaction on financial terms that satisfy our investors and protect our stockholders’ economic interests.

~~Our existing contractual arrangements with iASPEC and its shareholders may be subject to national security review by MOFCOM, and the failure to receive the national security review could~~future have a material adverse effect on our business, financial condition and ~~operating results.~~results of operations.

Any failure to comply with PRC regulations regarding employee share incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the ~~Rules~~foreign exchange registration with respect to offshore special purpose companies. In the meantime, directors, executive officers and other employees who are PRC citizens or who are non-PRC residents residing in the PRC for a continuous period of ~~Ministry~~not less than one year, subject to limited exceptions, and who have been granted restricted shares, options or restricted share units, or RSUs may follow the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of ~~Commerce on Implementation~~Overseas Publicly Listed Company, issued by SAFE in February 2012, to apply for the foreign exchange registration. According to those regulations, employees, directors and other management members participating in any stock incentive plan of ~~Security Review System~~an overseas publicly listed company who are PRC citizens or who are non-PRC citizens residing in China for ~~Merger~~a continuous period of not less than one year, subject to limited exceptions, are required to register with SAFE through a domestic qualified agent, which may be a PRC subsidiary of the overseas listed company, and ~~Acquisition~~complete certain other procedures. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit their ability to make payment under the relevant equity incentive plans or receive dividends or sales proceeds related thereto in foreign currencies, or our ability to contribute additional capital into our subsidiaries in China and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties under PRC law that could restrict our ability to adopt additional equity incentive plans for our directors, officers and employees who are PRC citizens or who are non-PRC residents residing in the PRC for a continuous period of ~~Domestic Enterprises by Foreign Investors,~~not less than one year, subject to limited exceptions.

In addition, the State Administration of Taxation has issued circulars concerning employee share options, restricted shares or RSUs. Under these circulars, employees working in the PRC who exercise share options, or whose restricted shares or RSUs vest, will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees related to their share options, restricted shares or RSUs. Although we currently withhold income tax from our PRC employees in connection with their exercise of options and the vesting of their restricted shares and RSUs, if the employees fail to pay, or the ~~Security Review Rules,~~PRC subsidiaries fail to ~~implement~~withhold, their income taxes according to relevant laws, rules and regulations, the Notice of the General Office of the State Council on Establishing the Security Review System for Merger and Acquisition of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, or Circular 6. The Security Review Rules became effective on September 1, 2011. Under the Security Review Rules, a national security review is required for certain mergers and acquisitions by foreign investors raising concerns regarding national defense and security. Foreign investors are prohibited from circumventing the national security review requirements by structuring transactions through proxies, trusts, indirect investments, leases, loans, controls through contractual arrangements or offshore transactions. The application and interpretation of the Security Review Rules remain unclear. Based on our understanding of the Security Review Rules, we do not need to submit our existing contractual arrangements with iASPEC and its shareholders to MOFCOM for national security review because, among other reasons, (i) we gained de facto control over iASPEC in 2007 prior to the effectiveness of Circular 6 and the Security Review Rules; and (ii) there are currently no explicit provisions or official interpretations indicating that our current businesses fall within the scope of national security review. Although we have no plan to submit our existing contractual arrangements with iASPEC and its shareholders to MOFCOM for national security review, the relevant PRC governmental agencies, such as MOFCOM, may reach a different conclusion, if we had submitted our existing contractual arrangements with iASPEC and its shareholders for security review. If MOFCOM or another PRC regulatory agency subsequently determines that we need to submit our existing contractual arrangements with iASPEC and its shareholders for national security review by interpretation, clarification or amendment of the Security Review Rules or by any new rules, regulations, or directives promulgated, wesubsidiaries may face sanctions imposed by ~~MOFCOM or another PRC regulatory agency. These sanctions may include revoking~~ the business or operating licenses of our PRC subsidiary, IST, or iASPEC and its subsidiaries, discontinuing or restricting our operations in China, confiscating our income or the income from iASPEC, and taking other regulatory or enforcement actions, such as levying fines, that could be harmful to our business. Any of these sanctions could cause significant disruption to our business operations.tax authorities.

~~The Security Review Rules may make it more difficult for us to make future acquisitions or dispositions of our business operations or assets in China.~~

The Security Review Rules, effective as of September 1, 2011, provides that when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the national security review by MOFCOM, the principle of substance-over-form should be applied and foreign investors are prohibited from circumventing the national security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. If the business of any target company that we plan to acquire falls within the scope subject to national security review, we may not be able to successfully acquire such company by equity or asset acquisition, capital increase or even through any contractual arrangement.

Under the Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.

On March 16, 2007, the National People’s Congress of China passed a new Enterprise Income Tax Law, or the EIT Law. On November 28, 2007, the State Council of China passed its implementing rules, which took effect on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.

In October 2017, the State Administration of Taxation issued the Bulletin on ~~Chinese company’s business operations and its acquisition strategy.~~

~~Pursuant to~~Issues Concerning the Withholding of Non-PRC Resident Enterprise Income Tax at Source, or Bulletin 37, which replaced the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises ~~or SAT Circular 698, effective~~issued by the State Administration of Taxation on ~~January 1, 2008,~~December 10, 2009, and partially replaced and supplemented rules under the ~~Announcement~~Bulletin on ~~Several~~ Issues ~~Related to~~of Enterprise Income Tax ~~for~~on Indirect ~~Asset Transfer~~Transfers of Assets by Non-PRC Resident Enterprises, , or ~~SAT Announcement~~Bulletin 7, ~~effective~~issued by the State Administration of Taxation on February 3, ~~2015, issued by the SAT, if~~2015. Pursuant to Bulletin 7, an “indirect transfer” of PRC assets, including a ~~non-resident enterprise transfers the~~transfer of equity interests in an unlisted non-PRC holding company of ~~or similar rights or interests in overseas companies that directly or indirectly own~~a PRC ~~taxable assets through an arrangement without a reasonable commercial purpose, but rather to avoid PRC corporate income tax, the transaction will~~resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of the underlying PRC assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. According to Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in China, immoveable properties located in China, and equity investments in PRC resident enterprises and any gains from the transfer of such asset by a direct holder, who is a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, factors to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In the case of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the PRC establishment or place of business being transferred, and may consequently be subject to PRC ~~corporate~~enterprise income ~~tax. SAT Announcement~~tax at a rate of 25%. Where the underlying transfer relates to immoveable properties located in China or to equity investments in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Pursuant to Bulletin 37, the withholding agent shall declare and pay the withheld tax to the competent tax authority in the place where such withholding agent is located within 7 ~~specifies certain factors that should be considered in determining whether an indirect transfer has~~days from the date of occurrence of the withholding obligation, while the transferor is required to declare and pay such tax to the competent tax authority within the statutory time limit according to Bulletin 7. Late payment of applicable tax will subject the transferor to default interest charges. Both Bulletin 37 and Bulletin 7 do not apply to transactions of sale of shares by investors through a ~~reasonable commercial purpose. However, as SAT Announcement 7 is newly issued, there~~public stock exchange where such shares were acquired from a transaction through a public stock exchange.

There is uncertainty as to the application of ~~SAT Announcement 7 and the interpretation of the term “reasonable commercial purpose.”~~

~~Under SAT Announcement 7, the entity which has the obligation to pay the consideration for the transfer~~Bulletin 37 or previous rules under Bulletin 7. We face uncertainties as to the ~~transferring shareholders has the obligation to withhold any~~reporting and other implications of certain past and future transactions where PRC corporate income tax that is due. If the transferring shareholders do not pay corporate income tax that is due for a transfer and the entity which has the obligation to pay the consideration does not withhold the tax due, the PRC tax authorities may impose a penalty on the entity that so fails to withhold. The penalty may be relieved or exempted from the withholding obligation and any resulting penalty under certain circumstances, if it reportstaxable assets are involved, such ~~transfer to the PRC tax authorities.~~

~~Although SAT Announcement 7 is generally effective~~ as of February 3, 2015, it also applies to the cases, where the PRC tax treatment of a transaction that took place prior to its effectiveness has not yet been finally settled. As a result, the PRC tax authorities can determine SAT Announcement 7 to be applicable to the historical reorganization, and can possibly determine that these transactions lacking a reasonable commercial purpose. As a result, the transfer of shares by certain shareholders to other parties could be subject to corporate income tax of up to 10% on capital gains generated from such transfers. The PRC tax authorities could impose tax obligations on the transferring shareholders or subject us to penalty, if the transferring shareholders do not pay such obligations and withhold such tax.

SAT Announcement 7 and its interpretation by relevant PRC authorities clarify that an exemption provided by SAT Circular 698 for transfers of shares in a publicly traded entity that is listed overseas is available, if the purchase of the shares and theoffshore restructuring, sale of the shares ~~both take place~~ in ~~the open market transactions. However, if a shareholder of an entity that is listed overseas purchases shares in the open market and sells them in a private transaction,~~our offshore subsidiaries or ~~vice-versa, PRC tax authorities might deem such a transfer to~~investments. Our company may be subject to ~~SAT Circular 698 and SAT Announcement 7, which could subject such shareholder to additional reporting~~filing obligations or ~~tax burdens. Accordingly,~~taxes if ~~a holder~~our company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions, under Bulletin 37 and Bulletin 7. For transfer of ~~the Company’s ordinary shares purchases such ordinary~~ shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiary may be requested to assist in the ~~open market~~filing under Bulletin 37 and ~~sells them in~~Bulletin 7. As a ~~private transaction, or vice-versa, and fails~~result, we may be required to expend valuable resources to comply with ~~SAT Circular 698~~Bulletin 37 and Bulletin 7 or ~~SAT Announcement 7,~~to request the ~~PRC tax authorities~~relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may ~~take actions, including requesting to provide assistance for their investigation or impose a penalty on it, which could~~ have a ~~negative impact~~material adverse effect on ~~the company’s business~~our financial condition and results of operations.

We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we violated these laws could have a material adverse effect on our business.

We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have operations, agreements with third parties, and make most of our sales in China. The PRC also strictly prohibits bribery of government officials. Our activities in China create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents, or distributors of our Company to government officials or political parties, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents, or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for ~~successor liability~~ FCPA violations committed by companies in which we invest or that we acquire.

If we become directly subject to the scrutiny, criticism, and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter, which could harm our business operations, stock price, and reputation. It could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved favorably.

In the past few years, U.S. publicly traded companies that have substantially all of their operations in China, particularly companies like us have been the subject of intense scrutiny, criticism, and negative publicity by investors, financial commentators, and regulatory agencies, such as the SEC. Much of the scrutiny, criticism, and negative publicity has centered around financial and accounting irregularities and mistakes, ~~lacking~~lack of effective internal controls over financial accounting, inadequate corporate governance policies or ~~lacking~~lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism, and negative publicity, the publicly traded stocks of many U.S. listed Chinese companies have sharply decreased in value and, in some cases, have become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions, and are conducting internal and external investigations into the allegations. It is not clear the effect of this sector-wide scrutiny, criticism, and negative publicity will have on our Company, our business, and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations defending our Company. This situation will be costly, time consuming, and distract our management from growing our company.

The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC. Accordingly, our public disclosure should be reviewed in light of the fact that no governmental agency that is located in China where substantially all of our operations and business are located ~~have~~has conducted any due diligence on our operations, or reviewed or ~~cleared~~passed upon the accuracy and completeness of any of our ~~disclosure.~~disclosures.

Since we are regulated by the SEC, ~~that~~ our reports and other filings with the SEC are subject to SEC’s review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Unlike publicly traded companies whose operations are located primarily in the United States, substantially all of our operations are located in China. Since substantially all of our operations and business take place in China, it may be more difficult for the SEC staff to overcome the geographic and cultural obstacles, when they review our disclosures. ~~These same~~Such obstacles are not present for similar companies whose operations and business take place entirely or primarily in the United States. Furthermore, our SEC reports and other disclosures and public ~~pronouncements~~announcements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosures in our SEC reports and other filings are not subject to the review of the China Securities Regulatory Commission, a PRC regulator that is tasked with oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings, and ~~our~~ other public ~~pronouncements~~announcements with the understanding that no local regulator has done any due diligence on our company and ~~with the understanding~~ that none of our SEC reports, other filings, or any of our other public ~~pronouncements~~announcements has been reviewed or otherwise been scrutinized by any local regulator.

If we fail to comply with the continued listing requirements of NASDAQ, we would face possible delisting, which would result in a limited public market for ~~trading~~ our shares and make obtaining future debt or equity financing more difficult for us.

Our ordinary shares are traded and listed on the Nasdaq Capital Market under the symbol of ~~“CNIT.~~“TAOP.” ~~The ordinary shares may be delisted, if we fail to maintain certain listing requirements of~~We received a notification from Nasdaq Listing Qualifications on June 18, 2019, as announced in a report with the ~~Nasdaq Stock Market, or NASDAQ. For instance, companies listed~~SEC on ~~NASDAQ are subject to delisting for, among other things, failure to maintain~~ a ~~minimum closing bid price per share of $1.00 for 30 consecutive business days. On October 17, 2016 we received written notice from NASDAQ stating~~6-K Form filed on June 19, 2019, that we ~~are no longer~~were not in compliance with the ~~requirement for $1.00~~ minimum ~~closing~~ bid price requirements set forth in Nasdaq Listing Rule ~~5450(a)(1)~~5550(a)(2) for continued listing on The Nasdaq ~~Global Select~~Capital Market. ~~In accordance with~~Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A)~~, we have~~ provides that a ~~grace~~failure to meet the minimum bid price requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the closing bid price of the Company’s ordinary shares for the 30 consecutive business days prior to the date of the notification letter from Nasdaq, the Company no longer satisfied the minimum bid price requirement. The notification letter provided that the Company had 180 calendar days, or until ~~April 17, 2017,~~December 16, 2019, to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the ~~requirement for minimum~~Company’s ordinary shares must have a closing bid ~~price.~~ price of at least $1.00 per share for a minimum of 10 consecutive business days (Nasdaq may monitor the price for as long as 20 consecutive business days prior to making a final compliance determination).

On ~~April~~December 17, ~~2017, NASDAQ notified~~2019, we received a second notice from the Nasdaq Listing Qualifications, in which Nasdaq granted us ~~that we were provided~~ an additional ~~180-day period~~180 days, or until June 15, 2020, to regain compliance, because the Company met the continued listing requirement for public float and ~~effective on April 19, 2017,~~other applicable requirements, except the ~~listing~~bid price requirement, and the Company had indicated its intention of curing the deficiency by effecting a reverse stock split, if necessary. The compliance deadline was thereafter extended from June 15, 2020 to August 28, 2020 according to SR-NASDAQ-2020-021. On July 30, 2020, we effectuated a share combination of our ordinary shares ~~was transferred~~at a ratio of one-for-six in order to ~~Nasdaq Capital Market. On September 12, 2017, we were notified by The Nasdaq Stock Market that~~increase the ~~Company has~~per share trading price of our ordinary shares to satisfy the $1.00 minimum bid price requirement. We regained compliance with the minimum bid price ~~requirement for~~rule on August 20, 2020.

However, there is no assurance that we will be able to continue to maintain our compliance with the NASDAQ continued listing ~~on NASDAQ Capital Market.~~

requirements. If ~~our~~we fail to do so, the Company’s ordinary shares may lose their status on ~~Nasdaq~~NASDAQ Capital Market ~~our shares~~and they would likely be traded ~~in the over-the-counter market. If our shares were traded~~ on the over-the-counter ~~market,~~markets, including the Pink Sheets market. As a result, selling ~~our~~the Company’s ordinary shares could be more difficult because smaller quantities of shares would likely be bought and sold, transactions could be delayed, and security analysts’ coverage of us may be reduced. In addition, in the event ~~our~~the Company’s ordinary shares are delisted, broker dealers would ~~have~~ bear certain regulatory burdens which may discourage broker dealers from effecting transactions in ~~our~~ the Company’s ordinary shares and further ~~limiting~~limit the liquidity of ~~our~~ the Company’s shares. These factors could result in lower prices and larger spreads in the bid and ask prices for ~~our~~the Company’s ordinary shares. Such delisting from NASDAQ and continued or further declines in ~~our~~ the Company’s ordinary share price could also greatly impair our ability to raise additional necessary capital through equity or debt financing and could significantly increase the ownership dilution to shareholders caused by ~~our~~ the Company’s issuing equity in financing or other transactions.

If we were delisted from NASDAQ, we may become subject to the trading complications experienced by “Penny Stocks” in the over-the-counter market.

Delisting from NASDAQ may cause ~~our~~ the Company’s shares to become subject to the SEC’s “penny stock” rules. The SEC generally defines a penny stock as an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to ~~specific~~certain exemptions. One such exemption is to be listed on NASDAQ. ~~The market price of our ordinary shares is currently below $5.00 per share.~~ Therefore, were we to be delisted from NASDAQ, ~~our~~ the Company’s ordinary shares may become subject to the SEC’s “penny stock” rules. These rules require, among other things, that any broker engaging in a purchase or sale of ~~our~~ the Company’s securities provide its customers with: (i) a risk disclosure document, (ii) disclosure of market quotations, if any, (iii) disclosure of the compensation of the broker and its salespersons in the transaction, and (iv) monthly account statements showing the market values of ~~our~~ the Company’s securities held in the customer’s accounts. A broker would be required to provide the bid and offer quotations and compensation information before effecting the transaction. This information must be contained on the customer’s confirmation. Generally, brokers are less willing to effect transactions in penny stocks due to these additional delivery requirements. These requirements may make it more difficult for shareholders to purchase or sell ~~our~~ the Company’s ordinary shares. ~~Because~~Since the broker, not us, prepares this information, we would not be able to assure that such information is accurate, complete or current.

~~Our stock~~We have issued convertible note that contains variable conversion prices which could result in substantial dilution to the Company’s existing shareholders.

On September 10, 2020, we and an individual investor entered into a securities purchase agreement, pursuant to which we sold to the investor 222,222 ordinary shares at a purchase price of $2.70 per share, in a registered direct offering. In a concurrent private placement, for a purchase price of $1,400,000, we sold and issued to the investor a convertible promissory note in a principal amount of $1,480,000 and a warrant to purchase 53,333 ordinary shares at $9.00 per share within three years following the issue date. The note carries an original issue discount of $80,000 matures in 12 months from the issue date, bearing interest at a rate of 5.0% per annum. At any time prior to the maturity, the note, at the investor’s option, may be convertible into fully paid ordinary shares at a conversion price of $9.00 per share. At any time after the occurrence of an event of default (as defined in the note), the investor may convert all of the outstanding balance of the note into ordinary shares in an aggregate amount not exceeding 1.0 million shares. At the maturity, the investors may also covert all of the outstanding balance of the note into ordinary shares at a price no less than $2.40 per share. In addition, if the note remains outstanding and due in each of the months of March and June 2021, the investor has a one-time option during the first three weeks in each of March and June 2021, respectively, to convert no more than one half of the then outstanding balance of the note into ordinary shares at a price no less than $2.40 per share.

On July 12, 2021, we and investors entered into a securities purchase agreement, pursuant to which we sold to the investor 1,200,000 ordinary shares at a purchase price of $4.15 per share, in a registered direct offering. In a concurrent private placement, we are also selling to the same investors warrants to purchase an aggregate of up to 360,000 Ordinary Shares at an exercise price of $4.56 per share. The Warrants will be exercisable for a period of three years commencing on the issue date. At any time prior to the maturity, the note, at the investor’s option, may be convertible into fully paid ordinary shares at a conversion price of $4.56 per share.

Therefore, if the investor elects to convert the then-outstanding balance of the note into the Company ordinary shares at or prior to maturity, such conversion may be made at a significant discount to the then market price of the Company’s shares. In the event that the investor converts any or all of the above note, the Company’s existing shareholders will experience immediate dilution in their ownership of the Company’s shares, as a result of the discounted price at which the note may be converted.

The trading price of the Company’s ordinary shares is highly volatile, leading to the possibility of its value being depressed at a time when you want to sell your holdings.

The market price of ~~our~~ the Company’s ordinary shares is volatile, and this volatility may continue. Numerous factors, many of which are beyond our control, may cause the market price of ~~our~~ the Company’s ordinary shares to fluctuate significantly. These factors include:

In the past, shareholders of a public company often brought securities class action ~~litigation is often instituted~~suits against ~~companies~~the company following periods of ~~volatility~~instability in ~~their share price. This type~~the market price of ~~litigation~~that company’s securities. If we were involved in a class action suit, it could ~~result in substantial costs to us and~~ divert a significant amount of our management’s attention and ~~resources. Moreover, securities markets may~~other resources from ~~time~~our business and operations, which could harm our results of operations and require us to ~~time experience~~incur significant ~~price~~expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and ~~volume fluctuations for reasons unrelated~~restrict our ability to ~~operating performance of particular companies. For example, in July 2008, the securities markets~~raise capital in the ~~United States, China~~future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and ~~other jurisdictions experienced the largest decline in share prices since September 2001. These market fluctuations may adversely affect the price~~results of ~~our ordinary shares and other interests in our company at a time when you want to sell your interest in us.~~operations.

~~Our~~ The Company’s outstanding warrants may adversely affect the market price of ~~our~~ the Company’s ordinary shares.

As of the date of this report, there are warrants ~~outstanding. Each warrant entitles the holders~~outstanding to purchase ~~one~~508,334 ordinary ~~share~~shares of the ~~Company~~Company. These warrants consist of warrants exercisable for three years for 133,334 ordinary shares at aan exercise price of ~~$7.73. The series A warrant~~$9.0 per share, warrants exercisable for 15,000 ordinary shares at an exercise price of $6.3 per share, warrants exercisable for 360,000 ordinary shares at an exercise price of $4.56 per share. Most of the warrants could be exercised on a cashless basis. The sale or possibility of sale of the shares underlying the warrants could have an adverse effect on the market price of our ordinary shares or our ability to obtain future financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.

Techniques employed by short sellers may drive down the market price of the Company’s ordinary shares.

Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.

Public companies that have substantially all of their operations in China have been the subject of short selling. Much of the scrutiny and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, a number of targets of such efforts are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.

If we were to become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such allegations and/or defend ourselves. While we would vigorously defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could distract our management from growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact our business operations, and any investment in the Company’s ordinary shares could be greatly reduced or even rendered worthless.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price and trading volume for the Company’s shares could decline.

The trading market for the Company’s ordinary shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades the Company’s ordinary shares or publishes inaccurate or unfavorable research about our business, the market price for the Company’s ordinary shares would likely decline. If one or more of these analysts cease coverage of the Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the Company’s ordinary shares to decline.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and do not anticipate paying any cash dividends on ~~our~~the Company’s shares. Accordingly, investors must be prepared to rely on sales of their shares after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase ~~our~~the Company’s shares. Any determination to pay dividends in the future will be made at the discretion of our Board of Directors, and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable laws, and other factors our board deems relevant.

~~Certain of our shareholders hold a significant percentage of our~~The Company’s outstanding voting ~~securities.~~securities are concentrated in a few shareholders.

Mr. Jianghuai Lin, our Chairman and Chief Executive Officer, is the beneficial owner of approximately ~~41.6%~~26.9% of ~~our~~the Company’s outstanding voting securities. As a result, he possesses significant influence, and can elect a majority of our board of directors and authorize or prevent proposed significant corporate transactions. His ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover, or other business combination, or discourage a potential acquirer from making a tender offer.

We are a “foreign private issuer” and have disclosure obligations that are different than those of U.S. domestic reporting companies. Therefore, you should not expect to receive the same information about us as a U.S. domestic reporting company may provide. Furthermore, if we or lose our status as a foreign private issuer, we would be required to fully comply with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers and incur significant operational, administrative, legal, and accounting costs that we would not incur as a foreign private issuer.

We are a foreign private issuer. As a result, we are not subject to certain of the requirements imposed upon U.S. domestic issuers by the SEC. For example, we are not required by the SEC or the federal securities laws to issue quarterly reports or file proxy statements with the SEC. We are also allowed to file our annual report with the SEC within four months of our fiscal year end. We are also not required to disclose certain detailed information regarding executive compensation that is required from U.S. domestic issuers. Further, our directors and executive officers are not required to report equity holdings under Section 16 of the Securities Act. As a foreign private issuer, we are also exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, ~~are meant~~aim to ensure that select groups of investors are not privy to specific information about an issuer before other investors. We are, however, still subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5. Since many of the disclosure obligations required of us as a foreign private issuer are different than those required by U.S. domestic reporting companies, our shareholders should not expect to receive all of the same types of information about us and at the same time as information is received from, or provided by, U.S. domestic reporting companies. We are liable for violations of the rules and regulations of the SEC, which do apply to us as a foreign private issuer. Violations of these rules could affect our business, results of operations, and financial condition.

As a foreign private issuer, we are permitted to rely on exemptions from certain NASDAQ corporate governance standards applicable to domestic U.S. issuers. This may afford less protection to holders of ~~our~~the Company’s securities.

We are exempted from certain corporate governance requirements of the Nasdaq Stock Market by virtue of being a foreign private issuer. As a foreign private issuer, we are permitted to follow the governance practices of our home country, the BVI in lieu of certain corporate governance requirements of NASDAQ. As a result, the standards applicable to us are considerably different than the standards applied to domestic U.S. issuers. For instance, we are not required to:

As a result, you may not have the same protections afforded to shareholders of companies that are subject to all of the Nasdaq corporate governance requirements.

You may have difficulty enforcing judgments obtained against ~~us.~~us or our directors and officers.

Taoping is a BVI company with executive offices in Hong Kong and substantially all of our assets are located outside of the United States. ~~Virtually all of our assets and~~In addition, a ~~substantial portion~~significant majority of our current business operations are conducted in the ~~PRC. In addition, almost~~PRC and all of ~~our~~Taoping’s directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is also located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon us or these persons. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States. It may also be difficult for you to enforce the U.S. courts judgments obtained in U.S. courts including judgments based on the civil liability provisions of the U.S. federal securities laws against us ~~and~~or our officers and directors, many of whom are not residents in the United States, and whose significant part of assets are located outside of the United States. The courts of the BVI would recognize as a valid judgment, a final and conclusive judgment in person and obtained in the federal or state courts in the United States against the Company, under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that (a) such courts had proper jurisdiction over the parties subject to such judgment, (b) such courts did not contravene the rules of natural justice of the BVI, (c) such judgment was not obtained by fraud, (d) the enforcement of the judgment would not be contrary to the public policy of the BVI, (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the BVI, and (f) there is due compliance with the correct procedures under the laws of the BVI.directors. In addition, there is uncertainty as to whether the courts of the BVI or ~~the PRC, respectively,~~Hong Kong would (i) recognize or enforce judgments of ~~U.S.~~United States courts obtained against us or ~~such persons~~our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any ~~state. In addition, it is uncertain whether such BVI~~state in the United States or ~~PRC courts would~~(ii) entertain original actions brought in the ~~courts of the~~ BVI or ~~the PRC,~~Hong Kong against us or ~~such persons~~our directors or officers predicated upon the securities laws of the United States or any ~~state.~~state in the United States. The courts of the BVI or Hong Kong may enforce a foreign judgment subject to various conditions, including but not limited to, that the foreign judgment is a final judgment conclusive upon the merits of the claim, the judgment is for a liquidated amount in a civil matter and not in respect of taxes, fines, penalties, or similar charges, the proceedings in which the judgment was obtained were not contrary to natural justice, and the enforcement of the judgment is not contrary to public policy of the BVI or Hong Kong.

The recognition and enforcement of foreign judgments in mainland China are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our director and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.

~~Because~~As we ~~are~~were incorporated under the laws of the BVI, it may be more difficult for our shareholders to protect their rights than it would be for a shareholder of a corporation incorporated in another jurisdiction.

Our corporate affairs are governed by ~~our memorandum~~the Company’s Memorandum and ~~articles~~Articles of ~~association,~~Association, by the BVI Business Companies Act ~~2004~~ (as amended), or the BVI Act, and by the common law of the ~~BVI.~~BVI Principles of law relating to such matters as the validity of corporate procedures, the fiduciary duties of management, and the rights of our ~~shareholders~~shareholders. Such matters differ from those that would apply, ifhad we ~~were~~been incorporated in the United States or another jurisdiction. The rights of shareholders under BVI law may not be as clearly established as the rights of shareholders are in the United States or other jurisdictions. Under the laws of most jurisdictions in the United States, majority and controlling shareholders generally have certain fiduciary responsibilities to the minority shareholders. Shareholders’ actions must be taken in good faith. Obviously unreasonable actions by controlling shareholders may be declared null and void. BVI law protecting the interests of minority shareholders may not be as ~~protective~~vigorous in all circumstances as the law protecting minority shareholders in United States or other jurisdictions. Although a shareholder of a BVI company may sue the company derivatively, the procedures and defenses available to the company may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company organized in the United States. Furthermore, our directors have the power to take certain actions without shareholders’ approval, of which would require shareholders’ approval under the laws of most United States or other jurisdictions. The directors of a BVI corporation, subject in certain cases to the court’s approval but without shareholders’ approval, may implement a reorganization, merger or consolidation, or sale of assets, property, ~~part of the~~ business or securities of the corporation of which sale is subject to a limit of up to 50% of such assets. The ability of our board of directors to create new classes or series of shares and the rights attached by amending ~~our~~the Company’s Memorandum ~~of Association~~ and Articles of Association without shareholders’ approval could have the effect of delaying, deterring or preventing a change in our control without any further action by the shareholders, including a tender offer to purchase ~~our~~the Company’s ordinary shares at a premium over then ~~current~~ market prices. Thus, our shareholders may have more difficulty protecting their interests in the face of actions by our board of directors or our controlling shareholders than they would have as shareholders of a corporation incorporated in another jurisdiction.

We are subject to changing law and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance.

We are subject to rules and regulations by various governing bodies, including, for example, the SEC, which are charged with the protection of investors and the oversight of companies whose securities are publicly traded, and to new and evolving regulatory measures under applicable law, including the laws of the BVI. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalty and our business may be harmed.

Taoping employs a mail forwarding service, which may delay or disrupt our ability to receive mail in a timely manner.

Mail addressed to Taoping and received at its registered office in the BVI will be forwarded unopened to the forwarding address supplied by Taoping to be dealt with. None of Taoping, its directors, officers, advisors or service providers (including the organization which provides registered office services in the BVI) will bear any responsibility for any delay howsoever caused in mail reaching the forwarding address, which may impair your ability to communicate with us.

Taoping’ s executive offices and most of its officers and directors are located in Hong Kong. Accordingly, our business operation will be affected by the political and legal developments in Hong Kong. Hong Kong is a special administrative region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law, namely, Hong Kong’s constitutional document, which provides Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle of “one country, two systems”. However, there is no assurance that there will not be any changes in the economic, political and legal environment in Hong Kong in the future.

Under the Basic Law of the Hong Kong Special Administrative Region of the PRC, Hong Kong is exclusively in charge of its internal affairs and external relations, while the government of the PRC is responsible for its foreign affairs and defense. As a separate customs territory, Hong Kong maintains and develops relations with foreign states and regions. Based on certain recent development including the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region issued by the Standing Committee of the PRC National People’s Congress in June 2020, the U.S. State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from PRC and President Trump signed an executive order and Hong Kong Autonomy Act, or HKAA, to remove Hong Kong’s preferential trade status and to authorize the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have materially contributed to the erosion of Hong Kong’s autonomy. The United States may impose the same tariffs and other trade restrictions on exports from Hong Kong that it places on goods from mainland China. These and other recent actions may represent an escalation in political and trade tensions involving the U.S., mainland China and Hong Kong, which could potentially harm our business.

Given the relatively small geographical size of Hong Kong, any of such incidents may have a widespread effect on our business operations, which could in turn adversely and materially affect our business, results of operations and financial condition. It is difficult to predict the full impact of the HKAA on Hong Kong and companies with operations in Hong Kong like us. Furthermore, legislative or administrative actions in respect of China-U.S. relations could cause investor uncertainty for affected issuers, including us, and the market price of Taoping’s ordinary shares could be adversely affected.

The current legal and commercial name of the Company is ~~China Information Technology,~~Taoping Inc. ~~The Company~~Taoping Inc. was incorporated in the BVI under the BVI Act on June 18, 2012. The address of our principal place of business ~~is 21st Floor, Everbright Bank Building, Zhuzilin, Futian District, Shenzhen, Guangdong Province 518040, People’s Republic of China.~~Unit 3102, 31/F, Citicorp Centre, 18 Whitefield Road, Hong Kong. Our telephone number is ~~(+86) 755-8831-9888. The name and address of our~~852-36117837. Taoping’s registered agent ~~for service~~ in the ~~United States~~British Virgin Islands is ~~Corporation Service Company, 80 State Street, Albany, NY 12207-2543.~~Maples Corporate Services (BVI) Limited of Kingston Chambers, PO Box 173, Road Town, Tortola, British Virgin Islands. The office located in Shenzhen, China is the Company’s regional headquarters in mainland China.

Taoping’s predecessor company ~~CITN,~~ was originally organized under the laws of the State of Florida on September 19, 1979 under the name Mark Thomas Publishing Inc. On April 29, 2003, we changed our name to Irish Mag, Inc. From our inception through October 8, 2006, we provided consulting services in the offset printing industry, targeting individual retail consumers as well as small to medium sized companies.

Between October 6, 2006 and January 31, 2007, our shareholders approved a series of transactions whereby we purchased all the issued and outstanding stock of CITH from our current Chairman and Chief Executive Officer, Jiang Huai Lin, for 25,500,000 shares of our common stock. As a result of these transactions, CITH and its wholly-owned subsidiary, IST, became our wholly-owned subsidiaries. Mr. Lin became the beneficial owner of 25,500,000 shares of our common stock, which, at January 31, 2007, constituted 80.8% of our issued and outstanding common stock. As a result of these transactions, our business operation was changed as a service provider of integrated geographic information services. On January 26, 2007, we changed our name to China Public Security Technology, Inc. to more accurately reflect our new business and commercial objectives.

On April 7, 2008, we re-incorporated in the State of Nevada by merging into China Information Security Technology, Inc., a subsidiary that we established in Nevada to effect the re-incorporation. As a result, ~~our~~the Company’s name was changed to China Information Security Technology, Inc. and we became a Nevada corporation.

On August 26, 2010, wethe Company changed ~~our~~its name to China Information Technology, Inc., or CITN.

On October 31, 2012, we completed a corporate reorganization, whereby the Company, which was established as a subsidiary of CITN under the laws of the BVI to effect the reorganization, became the parent company of a publicly held entity. Consequently, CITN became a wholly-owned subsidiary of the Company. In connection with the reorganization, each outstanding share of the common stock of CITN was converted into the right to receive one ordinary share of the Company. The ordinary shares of the Company were listed on the NASDAQ Global Select Market under the trading symbol of “CNIT,” the same symbol under which the common stock of CITN were listed. Prior to the reorganization, shares of CITN’s common stock were registered pursuant to Section 12(b) of the Exchange Act. On October 31, 2012, the Company filed a Form 8-K12B under cover of a Form 6-K to establish the Company as the successor issuer to CITN pursuant to Rule 12g-3 under the Exchange Act. Pursuant to Rule 12g-3(a) under the Exchange Act, the ordinary shares of the Company, as successor issuer, were deemed registered under Section 12(b) of the Exchange Act. On November 13, 2012, CITN filed a Form 15 with the SEC to terminate the registration of the shares of its common stock and suspend its reporting obligations under Sections 13 and 15(d) of the Exchange Act. On November 19, 2012, we changed the name of CITN to China Information Technology (Nevada), Inc., which was liquidated and dissolved in July 2014.

At the Company’s 2017 Annual Meeting of Members, which was held on September 19, 2017, the shareholders of the Company approved an amendment to the Company’s Memorandum and Articles of Association to remove the par value of the Company’s ordinary shares. On October 12, 2017, the Company filed an amended and restated Memorandum and Articles of Association with the Registrar of Corporate Affairs in the British Virgin Islands, pursuant to which the par value per share of the Company’s ordinary shares has been removed.

On May 25, 2018, the Company held its 2018 Annual Meeting of Members and its shareholders approved the change of company name to “Taoping Inc.” and an amendment and restatement of its Memorandum and Articles of Association to reflect such change of name. In connection with the name change, the trading symbol of its ordinary shares was changed to “TAOP,” effective on June 1, 2018.

On July 30, 2020, Taoping completed a share combination of the Company’s ordinary shares at a ratio of one-for-six, which decreased its outstanding ordinary shares to approximately 7,332,434 shares. This share combination did not change Taoping’s authorized amount of shares or the par value of its ordinary shares. Accordingly, except as otherwise indicated, all share and per share information contained in this annual report has been restated to retroactively show the effect of the share combination.

On July 1, 2007, our subsidiary IST entered into a management services agreement, or MSA, with iASPEC and its shareholders. Pursuant to the MSA, iASPEC granted IST an exclusive, royalty-free, transferable, worldwide license to use and install certain iASPEC software, along with copies of source and object codes relating to such software in any manner permitted by applicable laws for ten years. Also, IST licensed iASPEC a royalty-free, limited, non-exclusive license to the software without right of sub-license for the sole purpose of permitting iASPEC to carry out its business as presently conducted. IST was also granted the right to designate two Chinese citizens to serve as senior managers of iASPEC, to serve on iASPEC’s Board of Directors and assist in managing the business and operations of iASPEC. In addition, both iASPEC and IST agreed to require the affirmative vote of the majority of our Board of Directors, as well as at least one non-insider director, for certain material actions with respect to iASPEC. Furthermore, underUnder the MSA, IST was entitled to receive 100% of the modified net profit of iASPEC, and would reimburse iASPEC for all net losses incurred. IST was also obligated to pay iASPEC $180,000 per year. If iASPEC or any of the iASPEC shareholders materially breaches the MSA and fails to remedy the breach within 60 days after receipt of notice from IST of such breach, iASPEC and its shareholders will be jointly and severally obligated to pay IST liquidated damages in an amount equal to the higher of (a) eight times the annualized revenues of IST for the last completed fiscal quarter, or (b) $50 million.

In connection with the MSA, IST also entered into a purchase option agreement, or Option Agreement, with iASPEC and its shareholders, effective as of July 1, 2007. Pursuant to the Option Agreement, the iASPEC shareholders granted IST, or its designee(s), an exclusive, irrevocable option to purchase from the iASPEC shareholders, from time to time, all or a part of iASPEC’s shares, according to an equity transfer agreement, or to purchase all or a part of iASPEC’s assets, according to an asset purchase and transfer agreement. However, according to the Option Agreement, the option may not be exercised by IST, if the exercise would violate any applicable laws and regulations in China or cause any license or permit held by, and necessary for the operation of iASPEC, to be cancelled or invalidated. Under the terms of the Option Agreement, the option is immediately exercisable at an exercise price of $1,800,000, in the aggregate, which is subject to regulatory approval. In addition, iASPEC and the iASPEC shareholders agreed to use their best efforts to acquire all necessary government approvals and other consents to complete a share purchase under the Option Agreement. The Option Agreement may be rescinded by IST upon 30 days’ notice, and will be terminated on the date, when we have purchased all remaining shares or assets of iASPEC, pursuant to the terms of the Option Agreement. If any of the parties breaches the Option Agreement and fails to remedy the breach, the breaching party will pay a penalty of RMB5,000,000 (approximately $683,600) to the non-breaching party or parties, and compensate the non-breaching party or parties for any losses caused by the breach.

As a result of the relationship with iASPEC, iASPEC became a variable interest entity of ~~our~~the Company. A variable interest represents a contractual or ownership interest in another entity that causes the holder to absorb the changes in fair value of the other entity’s net assets. Potential variable interests include holding economic interests; voting rights; or obligations to an entity; issuing guarantees on behalf of an entity; transferring assets to an entity; managing the assets of an entity; leasing assets from an entity; and providing financing to an entity. In consolidation of the variable interest entity is required by the enterprise that controls the economic risks and rewards of the entity, regardless of ownership. While we have held an economic interest in iASPEC since October 9, 2006, the MSA and the Option Agreement gave us controls over the business and operations of iASPEC. As a result, iASPEC’s financial data is subject to consolidation with our financial data, commencing July 1, 2007.

On July 1, 2008, our Chairman and Chief Executive Officer, Mr. Jianghuai Lin, entered into an Equity Transfer Agreement with Mr. Jin Zhu Cai, the owner of a 24% minority interest in iASPEC. Pursuant to the Agreement, Mr. Lin purchased Mr. Cai’s minority interest for a total consideration of RMB 60 million (approximately $8.7 million). As a result of the Equity Transfer Agreement, Mr. Lin holds 100% of the equity interests of iASPEC.

On December 13, 2009, IST, iASPEC and Mr. Lin, as the sole shareholder of iASPEC, amended and restated the MSA, pursuant to which IST would continue to provide management and consulting services to ~~iASPEC, subject to the following changes:~~iASPEC.

Dissolution of the ~~amended MSA, certain material actions with respect to iASPEC will require~~Variable Interest Entity Structure

In September 2021, we dissolved the ~~affirmative vote of~~variable interest entity structure by exercising the majority of the Board of Directors of the Company, including the affirmative vote of at least one member of which who is not employed by IST, iASPEC, or any affiliate of either of them. Such material actions include: (a) the nomination, appointment, election or replacement of any members of any Board of Directors of iASPEC (who must be a citizen of the PRC); (b) the approval of any profit distribution plan and loss compensation plan; (c) any merger, division, change of corporate form, dissolution or liquidation of iASPEC; (d) any loan or advance or other payments or transfers of funds from IST to iASPEC; (e) any declaration of any dividend or any distribution of profits by iASPEC; (f) the formation or disposition of any subsidiary by iASPEC, or acquisition or disposition of any equity interest or other interest in any other entity by iASPEC; (g) any corporate borrowing or lending by iASPEC, except for routine extension of terms to trade creditors; (h) the encumbrance of any assets of iASPEC under any lien, except in the ordinary course of business; (i) any change in the methods of accounting or accounting practices of iASPEC; (j) any change in the scope of business of iASPEC, or any decision to engage in any type of business other than those engaged in by iASPEC as of the date of the agreement or (k) any agreement to do any of the foregoing.

~~After the amended MSA was executed, based on the advice of the Company’s PRC legal counsel, in January 2010 all the parties to the MSA decided not to enter into a pledge agreement.~~

~~The amended MSA has a term of 30 years unless otherwise earlier terminated by the parties by one of the following means:~~

Upon effective date of termination of the amended MSA: (a) IST will cease providing management services to iASPEC; (ii) IST will deliver to iASPEC all chops and seals of iASPEC; (iii) IST will deliver to iASPEC all of the financial and other books and records of iASPEC, including any and all permits, licenses, certificates, and other proprietary and operational documents and instruments; (iv) the senior managers who are recommended by IST and elected as directors of iASPEC will resign from the Board of Directors of iASPEC in a lawful way; and (v) the software license that iASPEC granted to IST according to the amended MSA will terminate unless otherwise agreed by the parties. In addition, any amounts owing from one party to the other, on the effective date of termination under the terms of the amended MSA, will continue to be liable and payable despite such termination.

~~The amended MSA does not have renewal provisions. We expect that the parties to the amended MSA will negotiate to extend the term of the agreement before its expiration.~~

~~On July 1, 2007, in connection with the execution of the original MSA, IST entered into a~~ purchase option ~~agreement, or~~under the Option Agreement ~~with iASPEC and the then shareholders of iASPEC. The Option Agreement will terminate on the date IST exercises its~~to purchase ~~option and acquires~~ all the shares or assets of iASPEC pursuant to the terms of the Option Agreement. The Option Agreement may be rescinded by IST upon 30 days’ notice without costs to terminate. The Option Agreement does not have renewal provisions.

~~On November 7, 2007, we acquired 100%~~ of the equity interests ~~of ISSI, and its PRC operating subsidiary, TopCloud, for which we paid approximately $7.1 million~~ in ~~cash with 883,333 shares of the Company’s stock. On July 16, 2012, ISSI and~~ iASPEC ~~entered into~~at an ~~equity transfer agreement, pursuant to which ISSI agreed to transfer 100% of its equity interest in TopCloud to iASPEC for a purchase~~aggregate exercise price of ~~approximately RMB 54.0 million (approximately $8.57 million).~~

On February 1, 2008, we acquired 100% of the equity interests of ISIID, and its PRC operating subsidiary, Bocom, for a purchase price of approximately $18,000,000. We paid approximately $9,000,000 of the purchase price in cash and the remaining $9,000,000 was paid in 1,125,000 shares.

On April 7, 2008, iASPEC acquired Geo, pursuant to (1) a share purchase and capital injection agreement, dated February 16, 2008, by and among iASPEC, Wuhan Wuda Venture Capital Co., Ltd., Song Ai Hong‚ and Geo, for the purchase of 46% of Geo with a purchase price of approximately $4.8 million, and (2) a share purchase agreement, dated February 16, 2008, between iASPEC and Li Wei, for the purchase of 2.4% of Geo with a purchase price of approximately $0.7 million. On September 3, 2010, Geo increased its registered capital from RMB 60 million (approximately $8.8 million) to RMB 79.2 million (approximately $11.7 million). The RMB 19.2 million (approximately $2.8 million) increase in capital was contributed by iASPEC and a group of new shareholders, consisting of the management teams of both GEO and iASPEC, including Mr. Jiang Huai Lin, our Chief Executive Officer. On August 30, 2013, Mr. Huang Chengdong, Geo’s minority shareholder, disposed his interest in Geo of total RMB 7.0 million, while PPG Business Management and Advisory Center L.P. (“PPG”) injected capital in Geo for total of RMB 9.0 million and four natural person shareholders invested patent rights valued at approximately RMB 2.0 million, which reinforced Geo’s operating business. As a result of the capital injection, the equity interest owned by iASPEC in Geo was reduced from 57.00% to 50.37% .

On October 31, 2008, we completed the acquisition of Kwong Tai International Technology Limited, a Hong Kong company, or Kwong Tai, and its PRC operating subsidiary, Zhongtian, from Wide Peace International Investments Limited, or Wide Peace, for a purchase price of $16.5 million. We paid $9.9 million (approximately RMB 67.6 million) in cash, and the remaining $6.6 million was paid in 1,280,807 shares of the Company’ common stock.

Wide Peace was obligated to return 355,164 of the purchased shares to us, if Zhongtian did not attain an audited after tax net income, or ATNI, at minimum of $2.2 million for the fiscal year of 2009, and an additional 355,164 of the shares, if Zhongtian did not attain an audited ATNI of $2.9 million for the fiscal year of 2010. The 2009 and 2010 targets of ATNI were met by Zhongtian.

On October 1, 2009, we completed the acquisition of HPC Electronics (China) Company, Ltd., a Hong Kong company, or HPC and its PRC operating subsidiary, Information Security IoT Technology Co., Ltd. (ISIOT) (former Huipu Electronics (Shenzhen) Co., Ltd.” from Ms. Rita Kwai Fong Leung for a purchase price of $16.0 million. We paid $8.0 million (approximately RMB 54.6 million) of the purchase price in cash, and the remaining $4.0 million in 1,101,930 shares of the Company’ common stock. We were also obligated to issue and deliver to Ms. Leung up to an additional 1,101,930 shares of our common stock in accordance with certain make good provisions agreed between the parties, if HCP attained certain audited consolidated ATNI thresholds for fiscal years 2010 through 2012. On August 26, 2011, the parties entered into an amendment to the purchase agreement. Pursuant to the amendment, we waived the requirement for HPC to attain the ATNI thresholds for fiscal years 2011 and 2012, and agreed to issue 344,353 shares of the Company’s common stock to Ms. Leung in consideration for termination of employment with Ms. Leung and certain other members of HPC’s management with immediate effect. We also obtained a release of all claims that Ms. Leung and the related members of HPC’s management have or may have against us. The parties agreed that the termination of the relationship would put us in a better position to execute our management strategies related to HPC.

On May 5, 2011, Kwong Tai and iASPEC entered into an equity transfer agreement. According to the Agreement, Kwong Tai agreed to transfer 100% of its equity interest in Zhongtian to iASPEC for a purchase price of RMB 20.2 million (approximately $3.1 million). On December 29, 2011, Zhongtian’s registered capital was increased by RMB 7.5 million (approximately $1.2 million) from RMB 33.2 million (approximately $5.2 million) to RMB 40.7 million (approximately $6.4 million). This contribution was made by members of the management of Zhongtian, including Mr. Jiang Huai Lin, our Chief Executive Officer. As a result of the capital increase, the equity interest owned by iASPEC in Zhongtian was reduced from 100% to 81.65% .

On February 20, 2012, Zhongtian, increased its registered capital from RMB40.7 million (approximately $6.2 million) to RMB 42.5 million (approximately $6.5 million). The RMB 1.8 million (approximately $0.3 million) was contributed by new shareholders, comprising the management teams of Zhongtian, including Mr. Lin, the Company’s Chief Executive Officer. As a result of the capital increase, the equity interest owned by iASPEC in Zhongtian was reduced from 81.65% to 78.21% .

On August 30, 2013, a minority shareholder disposed of its interest in Geo totaling RMB 7.0 million (approximately $1.1 million). In addition, in 2013, various individual shareholders injected capital in Geo totaling of RMB21.5 million (approximately $3.5 million), and four other shareholders contributed patent rights valued at RMB2.0 million (approximately $0.3 million). Influx of capital contrition and patents reinforced Geo’s operating business. As a result of the capital increase, Geo’s minority interest increased from 47.46% to 49.63%, while the equity interest owned by iASPEC in Geo was decreased from 52.54% to 50.37% .

On September 10, 2013, iASPEC purchased common shares of Zhongtian from minority interest holders for a total of RMB 2.3 million (approximately $0.4 million). As a result, the equity interest owned by iASPEC in Zhongtian was increased from 78.21% to 83.72% .

$1,800,000. On September 18, ~~2013,~~2021, Taoping and IST HK and iASPEC entered into an equity transfer agreement, pursuant to which iASPEC transferred 100% of equity interests in TopCloud, to IST HK, for a purchase price of RMB 54.0 million (approximately $8.8 million).

On April 30, 2014, iASPEC purchased common shares of Zhongtian from minority interest holders for RMB 6.9 million (approximately $1.1 million). As a result, the equity interest owned by iAPSEC in Zhongtian was further increased from 83.72% to 99.99% .

On April 30, 2014, iASPEC purchased common shares of Geo from minority interest holders for RMB 8.3 million (approximately $1.3 million). As a result, the equity interest owned by iAPSEC in Geo was further increased from 50.37% to 54.89% .

On September 16, 2014, iASPEC and Shenzhen Yunchao Software Internet Co., Ltd., a PRC company, or Yunchao, entered into an equity transfer agreement to acquire 100% equity interest of Yuntao’s subsidiary, Shenzhen Biznest Internet Software Co., Ltd., or Biznest, for the total consideration of approximately $12.7 million, consisting of approximately $7.5 million to be paid in cash and 1,543,455 ordinary shares to be issued by the Company. Both the cash consideration and the ordinary shares have been delivered as of the date of this report.

On November 3, 2014, iASPEC formed a wholly owned PRC subsidiary, Shenzhen Taoping Internet Technology Co. Ltd. (“Taoping”), to construct online exchange for out-of-home advertisement resources. Taoping pairs small to medium sized enterprise (SME) corporate advertisers, who seek marketing and advertising channels with owners of networked digital display media terminals with display screen of 21 inch to 75 inch in size. Currently, Taoping is a module of our Yunfa Net (www.pubds.com), an information distribution and advertising delivery system, serving as an exchange platform for advertising time slot management of digital screens owned by our customers of new media industry.

~~On November 6, 2015, iASPEC~~ entered into an equity transfer agreement with ~~certain individual~~iASPEC and ~~institutional purchasers. Pursuant~~iASPEC’s then sole shareholder, Mr. Lin, under which Mr. Lin sold and transferred to ~~the transfer agreement, iASPEC sold~~IST all of ~~its ownership~~the equity interests in ~~Geo, which constituted approximately 54.89%~~and any and all rights and benefits relating thereto of ~~total capital stock~~iASPEC in exchange for 612,245 unregistered ordinary shares of ~~Geo for an aggregate of RMB 91.3 million (approximately $14.7 million). Pursuant to the transfer agreement, the transferees agreed to pay the purchase price in four installments~~Taoping as determined by ~~March 30, 2016. The purchase price had been fully collected~~dividing $1,800,000 by the ~~Company as~~volume-weighted average closing price of ~~February 29, 2016.~~

~~On November 9, 2015, iASPEC entered into an~~ordinary shares for the consecutive five (5) trading days immediately prior to September 18, 2021. The parties thereafter completed the equity transfer ~~agreement with~~through applicable PRC governmental registration(s).

Upon the closing of the equity transfer, the Company’s variable interest entity structure was dissolved and iASPEC became a certain institutional purchaser. Pursuant to the transfer agreement, iASPEC sold all of its ownership of Zhongtian, which constituted 100% of total capital stock of Zhongtian for an aggregate of RMB 30.0 million (approximately $4.8 million). Pursuant to the agreement, the transferee paid the purchase price in three installments by May 31, 2016.

On January 31, 2015, the Company deregistered Information Security Int’l Investment & Development Ltd (ISIID) in line with its business restructure. The deregistration did not result in any gain or loss for the year ended December 31, 2015.

~~On March 31, 2016, the Company disposed of Information Security Software Investment Limited (“ISSI”), a wholly-owned~~wholly owned indirect subsidiary to an unrelated third party. On August 1, 2016, the Company also disposed of Dongguan Information Security Technology (China) Co., Ltd. (“IST DG”) to an unrelated party. Both IST DG and ISSI were holding companies. The Company divested these two subsidiaries as it determined that they were no longer necessary for the business of the Company. ~~There~~The amended and restated MSA was ~~no consideration exchanged for the disposals that resulted in a total loss of approximately $0.6 million for the year ended December 31, 2016.~~automatically terminated.

After various re-organizations by the Company, HPC was no longer affiliating, serving, or controlling any of the Company’s subsidiaries, and dissolved on December 22, 2017. The dissolution of HPC did not result in any gain or loss of the Company for the year ended December 31, 2017.

On June 22, 2015, the Company announced that its Board of Directors received a preliminary, non-binding proposal letter (the “Proposal”), dated June 19, 2015, from Mr. Jianghuai Lin ("Mr. Lin"), Chairman and Chief Executive Officer of the Company, Mr. Zhiqiang Zhao (“Mr. Zhao”), Director and Chief Operating Officer of the Company, Mr. Junping Sun (“Mr. Sun”), Senior Vice President of the Company and Mr. Jinzhu Cai (“Mr. Cai”), an individual investor (together with Mr. Lin, Mr. Zhao and Mr. Sun, the "Buyer Group"), proposing a "going-private" transaction to acquire all of the outstanding ordinary shares of the Company not already owned by the Buyer Group at a proposed price of $4.43 per ordinary share.

On July 1, 2015, the Board of Directors announced that a special committee, consisting of three independent and disinterested directors of the Company, Mr. Yusen Huang, Mr. Remington Hu, and Dr. Yong Jiang, (the “Special Committee”) was formed to consider the previously announced non-binding "going private" proposal that the Board received from the Buyer Group.

On August 19, 2015, the Special Committee announced the engagements of Duff & Phelps Securities, LLC and Duff & Phelps, LLC as its financial advisors, and Gibson, Dunn & Crutcher LLP as its legal counsel, to review and evaluate the Proposal.

On October 11, 2016, the Buyer Group submitted a letter to the Special Committee to notify the Special Committee that the Buyer Group had unanimously determined to withdraw the Proposal. The withdrawal of the Proposal became effective on October 11, 2016.

The following diagram illustrates our corporate structure as of the date of this report.

The Securities and Exchange Commission, or SEC, maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

Our web site address is http://www.taop.com. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report.

For the year ended December 31, ~~2017,~~2021, our total capital expenditures and divestitures were ~~$3.8~~$11.3 million and $0 million, respectively. For the year ended December 31, ~~2016,~~2020, our total capital expenditures and divestitures were ~~$3.5~~$1.7 million and ~~$12.3~~$0 million, respectively. For the year ended December 31, ~~2015,~~2019, our total capital expenditures and divestitures were ~~$4.6~~$1.6 million and ~~$45.1~~$0 million, respectively. Such expenditures and divestitures were primarily related to the purchase and sale of long-lived assets and business acquisitions. These capital expenditures were mainly funded by our operating cash flow.

Executive Offices of the Company isare located in ~~Shenzhen, China.~~Hong Kong. As of December 31, ~~2017,~~2021, we had approximately 9676 full-time employees.

We are a leading provider of cloud-app technologies for Smart City IoT platforms, digital advertising delivery, and other internet-based information distribution systems in China. Our Internet ecosystem enables all participants of the new media community to efficiently promote branding, disseminate information, and exchange resources. In addition, we provide a broad portfolio of software and hardware with fully integrated solutions, including Information Technology infrastructure, Internet-enabled display technologies, and IoT platforms to customers in government, education, residential community management, media, transportation, and other private sectors.

Prior to 2014, we generated the majority of our revenues through selling our products and services mostly to the public service entities to help them improve their operational efficiency and service quality. Our representative customers included the China Ministry of Public Security, provincial bureaus of public security, fire departments, traffic bureaus, police stations, human resource departments, urban planning boards, civic administrations, land resource administrations, mapping and surveying bureaus, and the Shenzhen General Station of Immigration Frontier Inspection.

Since 2014, we have expanded and diversified our customer base tointo the private sector as well. Our customers in the private sector include, among others, elevator maintenance companies, residential community management, advertising agencies, auto dealerships, and educational institutes. Our new corporate mission is to make publicity accessible and affordable for businesses of all sizes.

We generated revenues from sales of hardware products, software products, system integration services, and related maintenance and support services. ~~Starting in~~In 2015, with the introduction of our cloud-based software as a service (SaaS) offering, we ~~expect~~expected to generate additional recurring monthly revenues from SaaS fees. In ~~2016~~2019 and ~~2017,~~2020, only a very small portion of our revenue was generated from SaaS, which is expected to increase in the coming years with the nationwide roll-out of our cloud-based ~~elevator IoT and~~ ad display ~~terminals.~~terminal network.

In May 2017, we completed our transformation to a provider of CAT and IoT technology based digital advertising distribution network and new media resource sharing platform, and offered an end-to-end digital advertising solution enabling customers to efficiently and cost-effectively direct advertisements to specific interactive ad display terminals in the ~~Out-of-Home~~out-of-home advertising market across China. In 2017, we became profitable as a result of a successful transition of our business model. We ~~strongly believe that there~~continued to improve our financial position in 2018. However, due to the unfavorable macro-economic environment and the slowdown of the out-of-home advertising market in China, we had net loss of approximately $9.3 million and $18.3 million respectively in 2021 and 2020. For years going forward, we will becontinue to execute our business plan and build a ~~significant financial improvement in 2018 as the new business model has proven to be successful and~~nationwide cloud-based ad terminal network by penetrating into more cities throughout China, which is expected to ~~be sustainable.~~generate recurring service revenue for the Company, in addition to equipment sales.

Starting from January 2020, the coronavirus outbreak, also known as COVID-19, has caused the Chinese government to take quarantine measures, such as nationwide lockdowns, transportation restrictions, public gathering prohibitions and temporary closures of non-essential businesses, which had put economic activities in a suspension mode until late March 2020. Although the COVID-19 epidemic has largely been contained in China since then and businesses have gradually resumed to operations, regional outbreaks of infection persisted in various localities. The adverse impact from the pandemic to the out-of-home advertising business and China macro-economy continued throughout 2021. China’s economic recovery still faces challenges.

On June 9, 2021, the Company consummated an acquisition of 100% of the equity interest of Taoping New Media Co., Ltd (“TNM”), a leading media operator in China’s out-of-home digital advertising industry. Mr. Jianghuai Lin, the Chairman and CEO of TAOP, who owns approximately 26.9% of total shares outstanding of the Company, owned approximately 51% of TNM. TNM focuses on digital life scenes and mainly engaged in selling out-of-home advertising time slots on its networked smart digital advertising display terminals with artificial intelligence and big data technologies. The acquisition of TNM is expected to enhance TAOP’s presence in the new media and advertising sectors.

In 2021, the Company launched blockchain related new business in cryptocurrency mining operations and newly established subsidiaries in Hong Kong to supplement its diminished Traditional Information Technology (TIT) business segment as a part of new business transformation. With multiple cloud data centers deployed overseas, currently in Hong Kong, the Company continues to improve computing power and create value for the encrypted digital currency industry.

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. Upon closing of the equity transfer, the Company’s existing variable interest entity structure was dissolved and iASPEC became a wholly owned indirect subsidiary of the Company.

We report financial and operational information in the following ~~two~~three segments:

Urbanization is the primary driver for the demand of our Cloud-based solutions for advertising placement and public information dissemination. China’s urbanization rate has accelerated in the past 30 years. The Chinese urban population has grown by over ~~100~~170 million in the past five years to more than ~~813 million~~1 billion in ~~2017.~~2020. According to Chinese Social Development Research, approximately 70% of the Chinese population is expected to live in urban areas by 2035. Urban lifestyle revolves around consumption of information, goods, and services that necessitates advertising and public information dissemination. At the same time, urbanization has imposed considerable pressure on land use, environment protection, and municipal infrastructure. Urbanization has also led to increasing demands for equitable treatment for all dwellers in the cities.

In the first quarter of 2014, China’s State Council unveiled a new urbanization plan for the period from 2014 to 2020 in an effort to steer the country onto a more humanistic and environmentally friendly urbanization path. The plan ~~will increase~~increases the country’s investment in urban infrastructure, public service facilities, and affordable housing constructions. It also calls for closer coordination between urban and rural developments, ~~better~~ optimization of city planning, and tighter integration of environmental protection measures into urbanization efforts. The plan also projects new construction of 20,000 to 50,000 skyscrapers around the country, as well as implementation of mass transit systems in more than 170 cities by 2025. In addition, it requires construction of regular railways to connect all medium sized cities of over 200,000 in population and high-speed railways to connect large cities of over 500,000 in population by 2020. Also, it plans to expand the nation’s civil aviation network to cover 90 percent of its total population.

As a result of urbanization, the number of elevators in China has increased sharply in recent years. According to the General Administration of Quality Supervision of China (AQSIQ), the number of elevators operating in China reached 4.3 million by the end of 2015, representing an average annual growth rate of 10%. In reaction to the increasing elevator safety challenges, the AQSIQ, mandated cities and urban areas to utilize technologies, especially IoT technologies, to improve the efficiency of elevator maintenance, emergency response, and government supervision.

Rising urbanization has resulted in prevalent traffic congestions throughout China. In medium to large sized cities, people on an average spend 39 minutes of commuting time to work. According to China New-type Urbanization Report (2014-2018), in densely populated tier one cities including Beijing, Guangzhou, and Shanghai, it costs commuters 14, 12, and 11 minutes every day in traffic jams, respectively. In Beijing, a megacity of over 2021 million residents, the daily commute takes 5245 minutes, the worst of all Chinese cities.

While traffic jams are a headache for urban commuters and city planners, they present revenue generating opportunities for out-of-home advertisers, who seek attentive audience atin high traffic areas. According to China ~~watching e-commerce analyst EnfoDesk (“EnfoDesk”),~~Industry Information Net, the estimated total market size of China’s out-of-home ~~digital~~ advertising ~~market in China grew~~is expected to reach RMB ~~14.3~~227 billion in ~~2017, representing~~2021, with a ~~12%~~ CAGR ~~growth.~~of 14%. Cosmetics, beverage, and financial service companies are ranked as top spenders consistently. Internet and real estate companies also increased their advertisement spending significantly.

The growth, starting in 2013, can be attributed to three factors: 1) macroeconomic recovery in China has encouraged businesses to increase their advertising spending; 2) industry leaders have led consolidation in the out-of-home advertising market and grown their market share in tier one cities like Beijing, Guangzhou, Shanghai, and Shenzhen; 3) rapid advancement in Internet and mobile technologies has resulted in new O2O (offline-to-online) advertising opportunities.

According to China Industry Information Net, the estimated total market size of China's out-of-home advertising is expected to reach RMB 190 billion in 2018, with a CAGR of 19%. Cosmetics, beverage, and financial service companies are ranked as top spenders consistently. Internet and real estate companies also increased their advertisement spending significantly.

Over 50% of the advertisers rated commercial buildings and public transportation hubs as the top two prime locations for advertisement placement. There are over 200 million people riding elevators every day in China. ~~Commercial buildings raked in RMB 50 billion of advertising revenue in 2017, and public transportation hubs raked in RMB 52 billion of advertising revenue in the same period of time.~~ The number of advertisers opting for residential buildings also increased considerably. Precision advertisement uses digital technologies, such as internet-based ads management and distribution and big data analysis, to target its audience, and continues to be the advertisers’ focal point, which resulted in the increasing demands for digital advertising.

In addition to urbanization, two technological developments further accelerate the demand for our CBT products and services: 1) offline-to-online migration of display terminals and 2) adoption of Quick Response (QR) codes.

Currently, most of the advertising display terminals in China are not connected to any network. Consequently, updating their media contents requires onsite manual operation through flash drives or other means. They also tend to have low asset utilization rates. Based on our own primary research, we have estimated that offline terminals have an average asset utilization rate of 40% in tier-one cities, 30% in tier-two cities, and 20% in tier-three and smaller cities. In comparison, content on cloud-based terminals can be remotely uploaded, updated, and managed resulting in substantial labor cost savings for terminal operators, i.e. advertising agencies. In addition, cloud-based terminals offer advertising agencies the flexibility of fine-tuning advertisement schedules on the fly and customizing advertisement content at each location as specific as one single office building. More importantly, idle time slots on cloud-based terminals can be discovered and sold on Taoping, an online resource exchange platform of ours that was released in the fourth quarter of 2015 as a module of our Yunfa Net (www.pubds.com), an information distribution and advertising delivery system. Therefore, asset utilization rate of advertising agencies can be greatly improved. As a result, there is a growing demand to convert offline terminals into networked terminals using our CBT products and services. In January 2018, we separated Taoping module from Yunfa Net and officially launched the Taoping Net (~~www.taoping.cn~~)(www.taoping.cn) and Taoping App. Taoping Net provides an advertising-resources trading service platform which connects screen owners, advertisers and consumers. Taoping Net integrates nationwide high-quality screen resources of Taoping Alliance, a new media operating organization founded by ~~CNIT~~us and ~~Shenzhen~~ Taoping ~~New-Media Limited~~New Media Co., Ltd. (“~~Shenzhen Taoping”~~Taoping New Media”), a company controlled by Mr. Jianghuai Lin. Taoping App, which enables customers to distribute and manage ads from mobile terminals, effectively satisfies the need to distribute fragmented ads. Using Taoping App, anyone can buy and distribute real-time ads to designated terminals.

Furthermore, the wide adoption of QR codes is also positively impacting the demand for our cloud-based products and services. A QR code is a digital barcode that contains merchants’ information. By incentivizing consumers to scan the QR code embedded in advertisement, advertising agencies can analyze the effectiveness of their advertisements and adjust their sales and marketing tactics on a real-time basis. In China, the application of QR codes is permeating from tier-one cities to the rest of the country. Although QR codes have frequently appeared in print ads as well as in digital ads displayed on offline terminals, the codes can be changed only as frequently as the advertisement itself. The data brought in to advertising agencies by the QR codes cannot be segmented by precise locations or time slots, and thus can generate only limited insight into viewer behavior. In contrast, individualized QR codes embedded in advertisement displayed on networked terminals can vary by location and time slot, and offer advertising agencies deeper insights at a much higher precision than offline terminals or print ads. Consequently, the adoption of QR codes is further driving the demand for our cloud-based ad display terminals.

In the CBT segment, we provide cloud-based ecosystem solutions mainly to ~~three end markets: 1)~~the new media in ~~Out-of-Home~~out-of-home digital advertising ~~2) education, and 3) residential community management.~~customers. Underpinning our ecosystems are our industry-specific integrated advertisement display terminal product, digital advertising distribution technology platform, resource exchange and sharing, and big data analysis services. In 2014, we sold our cloud-based solutions predominately to the Chinese new media industry. Starting from ~~2015,~~2016, we ~~further expanded our customer base into education and residential community management markets. In 2016 and 2017, we~~ have also focused our efforts in selling IoT ads display terminal hardware and providing digital ads distribution and resource sharing services for ~~Out-of-Home~~out-of-home advertising market. As a result of COVID-19 pandemic in 2020, city lockdowns, travel restrictions, and other preventive measures and persistent outbreaks of infection in regional localities through 2021 had negatively impacted on the China out-of-home advertising business and significantly dampened customers’ demand for ads display terminals. Nevertheless, mandatory home stays and work from remote locations triggered a steep surge in on-line gaming, on-line shopping, on-line entertainment, and electronic communication that created a great demand for high-end data storage servers to accommodate internet information transmission. We have stabilized supply chains for the high-end data storage server to meet market demands supplementing the declining revenue from ads display terminals and included the revenue and cost of revenue of high-end data storage servers in the CBT segment.

For the ~~Out-of-Home~~out-of-home new media industry, we provide our software as a service to automate the entire interactive workflows between advertising agencies and their customers, including, among others, establishing new advertising projects, submitting advertisement proposals, revising and approving advertising proposals, processing payment online, remotely uploading advertisement content, and tracking and analyzing performance data.

The foundation of our product offerings is our proprietary technology platform called Cloud-Application-Terminal (CAT). Its trademark has been registered in PRC. Our CAT platform includes three layers of technology: 1) cloud infrastructure, 2) software application, and 3) high-definition digital display terminals ranging from 18.5 to 84 inches in display size. Bundled together, three layers of technology serve as a turnkey solution for our customers to improve their operational efficiency and maximize their revenue.

Our CAT platform can be accessed from a variety of devices, including networked display terminals, desktop computers, and mobile devices. It can operate in all operating systems, including Windows, Android and iOS. It unifies all access points into one unique user account, through which a user can log onto our cloud system and enjoy all available software features and functions.

Building on top of our CAT platform is our industry-specific resource ~~sharing.~~sharing functionality. For the ~~Out-of-Home~~out-of-home new media industry, in the fourth quarter of 2015, we released a resource exchange called “Taoping” as a module of our proprietary cloud-based information distribution and ad delivery platform - Yunfa Net (www.pubds.com). Taoping in Chinese means “search and select display ~~terminals” in Chinese.~~terminals.” Taoping pairs those who seek, with those who own out-of-home advertisement resources of interactive display terminals, and facilitates their transactions online.

For example, a local advertising agency based in Shenzhen City may need to place advertisement in Guangzhou City, but does not own any display terminals in Guangzhou. Through Taoping, the advertising agency can search available display terminals by location, venue, and time slots, find suitable resources, negotiate rental prices with terminal owners, and process payments online. Then through Taoping, the advertising agency can upload advertisement content onto remote terminals, monitor advertisement performances, make necessary editing to the advertisement, and update advertisement content.

Taoping enables advertising terminal resource owners to improve their asset utilization rates and returns on investments. At the same time, Taoping allows advertisement promoters to leverage available advertising resources in other geographic regions, and cost effectively expand into new business territories.

Building on top of our resource sharing capability is our big data analysis service. After ~~we release~~releasing our resource sharing feature, we ~~plan to compile~~have been compiling and ~~analyze~~analyzing data related to buyer/seller behavioral preferences, so that we can provide value-added services to our customers.

For example, through big data analyses, we ~~will be~~are able to make insightful suggestions to advertising resource owners ~~with regards to~~on which specific types of venues being displayed at specific time slots ~~will~~ likely garner high rental fees ~~and~~as well as the optimal range of rental fees they could charge for each type of resources they own. For advertising promoters, we ~~will be~~are able to provide ~~advices~~advice such as the optimal ~~combination~~combinations of terminals to rent in order to reach the biggest possible audience they desire, and attain the greatest impact while staying within their advertising budget.

In combining our proprietary CAT technology platform, resource sharing functionality, and big data services with our industry expertise, we provide integrated ecosystem solutions to the industries of ~~Out-of-Home~~out-of-home digital advertising new media, healthcare, education, and residential community management. As described above, starting from the ~~Out-of-Home~~out-of-home digital advertising new media industry, we ~~will gradually roll~~have been in the process of rolling out product offerings to all of those four industries.

Within the Out-of-Home new media industry, we have sold industry-specific solutions predominantly to the community management in 2017, and will phase into the elevator management and transportation management businesses in the near future.

For our TIT segment, we usually offer a one-year or three-year warranty for our system integration services depending on the project. Our warranty includes support services, minimal updates and system maintenance. No rights of return are allowed except for non-conforming products, which have been insignificant based on historical experiences. If nonconforming products are returned due to software issues, we will provide upgrades or additional customization to suit the customers’ needs, which is infrequent with immaterial costs. The original vendors of hardware are ultimately liable for replacement of defective or non-conforming hardware products. In cases where non-conformity is ~~a result of~~due to the integrated hardware, we return the hardware to the original vendor for replacement. Based on our past ~~experiences,~~experience, the cost of our warranty provision has been immaterial.

For our CBT segment, we provide a one-year warranty for our digital ~~displays.~~displays and high-end data servers. The actual warranty service is carried out by our OEM partners, with whom we have obtained a contractual guarantee that they will repair or replace any defective hardware products that we have purchased on behalf of our customers. Our OEM partners ultimately bear and are liable for the costs of product warranty. Consequently, our own cost of warranty for this segment has been minimal.

We develop new businesses by identifying and contacting potential new customers and through referrals, or by direct contacts from new customers as a result of our strong brand recognition and reputation in the industry. We solidify our market presence through various types of marketing campaigns, such as participating in exhibitions, trade shows, and seminars, developing distributors and dealers, and presenting solutions to prospective customers. ~~With strategic partnership with Shenzhen Taoping New-Media Limited, we~~We founded and played a key role in the Taoping Alliance, a new media operating organization that ~~include~~includes numerous advertising agencies throughout China, which greatly improved our market expansion capability and industry reputation.

In fiscal year ~~2017, one related party customer represented 21% of our total revenue. In fiscal year 2016, three customers each represented 10% or more of our total revenue,~~2021, 2020 and ~~in 2015,~~2019, no single customer represented 10% or more of our total revenue. The following tables provide revenue by our major customers for the years ended December 31, ~~2017, 2016~~2021, 2020 and ~~2015.~~2019.

In the CBT segment, there are many small IT service companies in China providing one-off software packages to solve one aspect of the problems, but not ~~the~~ integrated solutions combining technology platform, resource exchange and sharing, and big data services like ours. For example, in the new media industry, we encounter competition from 56iq.com, Fujian Star-net Communication Co., Ltd, Shanghai View Show Technology Co., Ltd., and Maipu Communications Technology Co., Ltd. ~~We do not~~After completion of acquisition of Taoping New Media Co., Ltd, we compete with advertising agencies, such as Focus Media, Air Media, and Vision China ~~because we are not an advertising agency nor do we place advertisement ourselves.~~in some geographic regions in China.

Prior to 2014, we predominately sold large-scale customized IT solutions to the Chinese public service sector through various build-and-transfer projects. Due to changes in policies and regulations in China in 2012, various local governments started postponing IT projects they had previously contracted with us indefinitely. As a result, many of our existing receivables became uncollectable.

In early 2013, our management team made a strategic decision to transition our business from servicing the public sector to focusing on the private sector. We started completing our in-process IT projects and ceased taking on new customers in the public sector. In addition, we wrote off accounts receivable that we deemed no longer collectable. At the same time, we decided to transform our business from a build-and-transfer IT service company into a standardized IT product company. Leveraging our experience and expertise in handling large-scale IT projects for the public sector, we started investing in research and development of our own software products suitable for the private sector.

In 2014, continuing our transition from the public sector to the private sector, we identified new media, healthcare, education, and residential community management as the four core end markets on which we would focus. After fortifying our own software R&D ~~effort~~efforts through our acquisition of Biznest in September 2014, we decided to exit the hardware manufacturing business and complete our transformation into a software company. In November 2014, we initiated the process of closing our own manufacturing facilities and transferring hardware production to our OEM partners. Transferring hardware production to our OEM partners was completed during 2015. As a result, we wrote off a large amount of accounts receivable and took substantial goodwill and identifiable intangible asset impairment charges in 2015 and 2016.

As part of transition from the traditional IT business to the cloud-based business, we sold iASPEC’s 100% equity holding in Zhongtian and 54.89% equity holding in Geo in 2015. Proceeds from these sales totaling $19.5 million ~~will be~~have been invested in the development and market expansion of our new cloud-based business, as well as ~~used to pay off~~repayment of a portion of our ~~short term~~short-term debts.

In 2017, we completed our business transformation to a leading products and services provider of CAT and IoT technology based digital advertising distribution network and new media resource sharing platform in the ~~Out-of-Home~~out-of-home Advertising Market in China. In 2017, we ~~had a net income~~gained profitability as a result of athe successful transition of our business model. ~~We strongly believe that there will be a significant financial improvement in~~In 2018, ~~and beyond as~~we continued to prove the sustainability of the new business model ~~has proven~~and increased the net income to be ~~successful~~approximately $1.7 million. In 2021, 2020 and 2019, due to the unfavorable macro-economic environment and the slowdown of the out-of-home advertising market in China, we had net loss of approximately $9.9 million, $18.3 million and $3.6 million respectively. For years going forward, we will continue to execute our business plan and build a nationwide cloud-based ad terminal network by penetrating into more cities throughout China, which is expected to ~~be sustainable as well.~~generate recurring service revenue for the Company, in addition to equipment sales. In addition, we have been actively exploring other cloud-based solutions including the smart charging pile business throughout China, by leveraging our TAOP smart cloud and the Taoping Alliance national distribution network.

In 2021, we have expanded our CAT based new media sharing platform into digital advertising and smart community sectors by acquiring Taoping New Media Co., Ltd. to provide out-of-home digital advertising. Also, we have engaged business opportunities in blockchain, digital assets, and cryptocurrency mining operations by recruiting seasoned executives, contracting various well-known consulting firms, suppliers, and operators in these areas, We have newly formed a Blockchain Business Division to manage blockchain development, digital assets NFT (None Fungible Token) and cryptocurrency mining operations, and a Digital Culture Business Division to cover on-line education and digital advertising operations. We have generated revenues of $5.5 million from the new blockchain business for the year ended December 31, 2021.

Our success depends, in part, on our ability to maintain and protect our proprietary technology and to conduct our business without infringing on the proprietary rights of others. We rely primarily on a combination of copyrights, patents, trademarks, and trade secrets, as well as executions of employee and third-party confidentiality agreements, to safeguard our intellectual property.

As of December 31, ~~2017,~~2021, through our wholly-owned subsidiaries IST, TopCloud, iASPEC, Biznest and ~~TopCloud,~~Bocom, we had 71151 registered and copyrighted software products and held 2128 patents. ~~In addition, our variable interest entities, including iASPEC, Biznest~~We also own two domain names (http://www.taop.com; http://www.taoping.cn; and ~~Bocom, hold 110 registered and copyrighted software products and 23 patents.~~http://www.pubds.com).

We protect our know-how and technologies through confidentiality provisions in the employment contracts we enter into with our employees. In addition, our engineers are generally divided into different project groups, each of which generally handles only a portion of the project. As a result, no one engineer generally has access to the entire design process and documentation for a particular product.

We have funded a vendor to develop vehicular display terminal using our digital new media sharing platform to deliver advertisements. The development of vehicular display terminal was completed in September 2020 and started earning advertising revenue. According to modified contract, we have capitalized the funding as purchased software enjoying the intellectual property of the vehicular display terminal and shared advertising revenue generated from the vehicular display terminal within the four-year modified contract term

Because all of our operating entities are located in the PRC, we are regulated by the national and local laws of the PRC. This section summarizes the major PRC regulations relating to our business.

~~Our PRC subsidiary IST is a Shenzhen City Software Enterprise and holds ISO 9001:2000 Certification, Environment Management System Certificate, and National High-Tech Enterprise Certification.~~

Through our ~~wholly-owned~~ subsidiaries, ~~IST, TopCloud and ISIOT, as well as our variable interest entities,~~ we hold the following permits and certificates:

The establishment, operation and management of corporate entities in mainland China are governed by the Company Law of the People’s Republic of China, or the China Company Law, which was adopted by the Standing Committee of the National People’s Congress (“SCNPC”) in December 1993, implemented in July 1994, and subsequently amended in December 1999, August 2004, October 2005, December 2013 and October 2018. Under the China Company Law, companies are generally classified into two categories: limited liability companies and companies limited by shares. The ~~Enterprise Income Tax~~China Company Law ~~(“EIT Law”)~~also applies to foreign-invested limited liability companies and foreign-invested companies limited by shares. Pursuant to the China Company Law, where laws on foreign investment have other stipulations, such stipulations shall prevail. In December 2021, the SCNPC issued the draft amendment to the China Company Law for comment. The draft amended China Company Law has made roughly 70 substantive changes to the 13 chapters and 218 articles of the current Company Law (rev. 2018). It would (i) refine special provisions on state-funded companies; (ii) improve the company establishment and exit system; (iii) optimize corporate structure and corporate governance; (iv) optimize the capital structure; (v) tighten the responsibilities of controlling shareholders and management personnel; and (vi) strengthen corporate social responsibility.

Investment activities in mainland China by foreign investors are governed by the Guiding Foreign Investment Direction, which was promulgated by the State Council on February 11, 2002, and came into effect on April 1, 2002, and the latest Special Administrative Measures (Negative List) for Foreign Investment Access (2021), or the Negative List, which was promulgated by MOFCOM and ~~its implementing rules,~~ the ~~statutory tax rate is 25%~~National Development and Reform Commission (“NDRC”) on ~~Entities~~December 27, 2021, and took effect on January 1, 2022. The Negative List set out in a unified manner the restrictive measures, such as the requirements on shareholding percentages and management, for the access of foreign investments, and the industries that are ~~approved as High Technology Enterprises~~prohibited for foreign investment. The Negative List covers 12 industries, and any field not falling in the Negative List shall be administered under the principle of equal treatment to domestic and foreign investment.

The Foreign Investment Law of the People’s Republic of China, or the Foreign Investment Law was promulgated by the ~~PRC government are eligible for a preferential tax rate~~NPC in March 2019 and become effective in January 2020. After the Foreign Investment Law came into force, the Law of ~~15%.~~

~~Under~~ the ~~EIT Law, an enterprise established outside~~People’s Republic of China on Wholly Foreign-Owned Enterprises, the Law of the People’s Republic of China on Sino-foreign Equity Joint Ventures and the Law of the People’s Republic of China on Sino-foreign Contractual Joint Ventures have been repealed simultaneously. The investment activities of foreign natural persons, enterprises or other organizations (hereinafter referred to as foreign investors) directly or indirectly within the territory of mainland China shall comply with ~~“de facto~~and be governed by the Foreign Investment Law, including: 1) establishing by foreign investors of foreign-invested enterprises in mainland China alone or jointly with other investors; 2) acquiring by foreign investors of shares, equity, property shares, or other similar interests of Chinese domestic enterprises; 3) investing by foreign investors in new projects in mainland China alone or jointly with other investors; and 4) other forms of investment prescribed by laws, administrative regulations or the State Council.

In December 2019, the State Council issued the Regulations on Implementing the Foreign Investment Law, which came into effect in January 2020. After the Regulations on Implementing the Foreign Investment Law came into effect, the Regulation on Implementing the Law on Sino-foreign Equity Joint Ventures, Provisional Regulations on the Duration of Sino-Foreign Equity Joint Ventures, the Regulations on Implementing the Law on Wholly Foreign-Owned Enterprises and the Regulations on Implementing the Law on Sino-Foreign Cooperative Joint Ventures have been repealed simultaneously.

In December 2019, the MOFCOM and the State Administration for Market Regulation (“SAMR”) issued the Measures for the Reporting of Foreign Investment Information, which came into effect in January 2020. After the Measures for the Reporting of Foreign Investment Information came into effect, the Interim Measures on the Administration of Filing for Establishment and Change of Foreign Invested Enterprises has been repealed simultaneously. Since January 1, 2020, for foreign investors carrying out investment activities directly or indirectly in mainland China, the foreign investors or foreign-invested enterprises shall submit investment information to the relevant commerce administrative authorities pursuant to these measures.

In light of the above restrictions and requirements, prior to the dissolution of our VIE structure in September 2021, we conducted our value-added telecommunications businesses through our then consolidated VIEs. As a result of the dissolution of our VIE structure, we ceased the e-commerce and related businesses which constituted a minor portion of revenue of Taoping New Media. We believe that none of our PRC subsidiaries’ current business is stipulated on the Negative List (2021 Version). Therefore, our PRC subsidiaries are able to conduct their business without being subject to restrictions imposed by the foreign investment laws and regulations of the PRC.

We believe, according to the laws and regulations currently in effect, none of Taoping or our subsidiaries is required to obtain additional licenses or permits beyond a regular business license for each PRC subsidiary’s operations. Each of our PRC subsidiaries is required to obtain and has obtained a regular business license from the local branch of the State Administration for Market Regulation. No application for any such license has been denied.

Mobile Internet applications and the Internet application store are especially regulated by the Administrative Provisions on Mobile Internet Applications Information Services, or the APP Provisions, which was promulgated by the Cyberspace Administration of China, or the CAC, on June 28, 2016 and entered into force on August 1, 2016. The APP Provisions regulate the APP information and the APP store service providers, and the CAC and local offices of cyberspace administration are responsible for the supervision and administration of nationwide or local APP information respectively.

The APP information service providers shall acquire relevant qualifications in accordance with laws and regulations and fulfil the information security management ~~bodies” within~~obligations as follows: (1) shall authenticate the identity information of the registered users including their mobile telephone number and other identity information under the principle of mandatory real name registration at the back-office end, and voluntary real name display at the front-office end; (2) shall establish and perfect the mechanism for the protection of users’ information, and follow the principle of legality, rightfulness and necessity, indicate expressly the purpose, method and scope of collection and use and obtain the consent of users while collecting and using users’ personal information; (3) shall establish and perfect the mechanism for the examination and management of information content, and in terms of any information content released that violates laws or regulations, take such measures as warning, restricting the functions, suspending the update and closing the accounts as the case may be, keep relevant records and report the same to relevant competent authorities; (4) shall safeguard users’ right to know and to make choices when users are installing or using such applications, and shall neither start such functions as collecting the information of users’ positions, accessing users’ contacts, turning on the camera and recording the sound, or any other function irrelevant to the services, nor forcefully install any other irrelevant applications without prior consent of users when noticed expressly; (5) shall respect and protect the intellectual properties and shall neither produce nor release any application that infringes others’ intellectual properties; and (6) shall record the users’ log information and keep the same for 60 days.

We have established necessary mechanisms and adopted data encryption and protection technology in our mobile application to ensure the collection, protection and storage of user information are in compliance with the requirements of the APP Provisions in all material aspects.

In 1997, the Ministry of Public Security promulgated measures that prohibit use of the internet in ways which, among other things, result in a leakage of state secrets or a spread of socially destabilizing content. If an internet information service provider violates these measures, the Ministry of Public Security and the local security bureaus may revoke its operating license and shut down its websites.

Internet information in China is ~~considered~~regulated and restricted from a ~~resident enterprise~~national security standpoint. The Standing Committee of the National People’s Congress, or the SCNPC, has enacted the Decisions on Maintaining Internet Security on December 28, 2000 and further amended on August 27, 2009, which may subject violators to criminal punishment in China for any effort to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights.

The PRC Cybersecurity Law was promulgated by the SCNPC on November 7, 2016 and became effective on June 1, 2017. Under this regulation, network operators, including online information service providers, shall comply with laws and regulations and fulfill their obligations to safeguard security of the network when conducting business and providing services, and take all necessary measures pursuant to laws, regulations and compulsory national requirements to safeguard the safe and stable operation of the networks, respond to network security incidents effectively, prevent illegal and criminal activities, and maintain the integrity, confidentiality and usability of network data.

We have, in accordance with relevant provisions on network security of the PRC, established necessary mechanisms to protect information security, including, among others, adopting necessary network security protection technologies such as anti-virus firewalls, intrusion detection and data encryption, keeping record of network logs, and implementing information classification framework.

The Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in December 2011, provide that, an ~~EIT of 25% on its global income. The implementing rules define~~internet information service provider may not collect any user personal information or provide any such information to third parties without the ~~term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc.,~~consent of a ~~Chinese enterprise.” If~~user. An internet information service provider must expressly inform the ~~PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then global income~~users of ~~our public holding company will~~the method, content and purpose of the collection and processing of such user personal information and may only collect such information necessary for the provision of its services. An internet information service provider is also required to properly maintain the user personal information, and in case of any leak or likely leak of the user personal information, online lending service providers must take immediate remedial measures and, in severe circumstances, make an immediate report to the telecommunications regulatory authority.

In addition, pursuant to the Decision on Strengthening the Protection of Online Information issued by the SCNPC in December 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued by the MIIT in July 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes.

The Guidelines jointly released by ten PRC ~~income tax of 25%. For detailed discussion of PRC tax issues~~regulatory agencies in July 2015 aim, among other things, to require service providers to improve technology security standards, and safeguard user and transaction information. The Guidelines also prohibit service providers from illegally selling or disclosing users’ personal information. Pursuant to the Ninth Amendment to the Criminal Law issued by the SCNPC in August 2015, which became effective in November 2015, any Internet service provider that fails to fulfill the obligations related to ~~resident enterprise status, see Item~~Internet information security administration as required by applicable laws and refuses to rectify upon orders is subject to criminal penalty for the result of (i) any dissemination of illegal information in large scale; (ii) any severe effect due to the leakage of the client’s information; (iii) any serious loss of criminal evidence; or (iv) other severe situation, and any individual or entity that (i) sells or provides personal information to others in a way violating the applicable law, or (ii) steals or illegally obtain any personal information is subject to criminal penalty in severe situation.

Our Taoping APP is used to facilitate cloud ads and content distribution to the designated terminal in our network, which does not invoice the collection and storage of any personal information.

The SCNPC and the State Council have promulgated comprehensive laws and regulations to protect trademarks. The Trademark Law of the PRC (2019 revision, effective November 1, 2019) promulgated on August 23, 1982 and subsequently amended on February 22, 1993, October 27, 2001, August 30, 2013 and April 23, 2019 respectively, and the Implementation Regulation of the PRC Trademark Law (2014 revision) issued by the State Council on August 3, ~~“Key information—D. Risk Factors—Risks Relating~~2002 and amended on April 29, 2014, are the main regulations protecting registered trademarks. The Trademark Office under the SAIC administrates the registration of trademarks on a “first-to-file” basis, and grants a term of ten years to ~~Doing Business~~registered trademarks.

The PRC Copyright Law, adopted in ~~China—~~1990 and revised in 2001 and 2010 respectively, with its implementation rules adopted on August 8, 2002 and revised in 2011 and 2013 respectively, and the Regulations for the Protection of Computer Software as promulgated on December 20, 2001 and amended in 2011 and 2013 provide protection for copyright of computer software in the PRC. Under these rules and regulations, software owners, licensees and transferees may register their rights in software with the ~~EIT~~National Copyright Administration Center or its local branches to obtain software copyright registration certificates.

The Patent Law of the PRC was adopted by NPCSC in 1984 and amended in 1992, 2000 and 2008, respectively. A patentable invention, utility model or design must meet three conditions: novelty, inventiveness and practical applicability. Patents cannot be granted for scientific discoveries, rules and methods for intellectual activities, methods used to diagnose or treat diseases, animal and plant breeds or substances obtained by means of nuclear transformation. The Patent Office under the State Intellectual Property Office is responsible for receiving, examining and approving patent applications. A patent is valid for a term of twenty years for an invention and a term of ten years for a utility model or design, commencing on the application date. Subject to limited exceptions provided by law, any third-party user must obtain consent or a proper license from the patent owner to use the patent, or otherwise the use will constitute an infringement of the rights of the patent holder.

The MIIT, promulgated the Administrative Measures on Internet Domain Name, or the Domain Name Measures, on August 24, 2017 to protect domain names. According to the Domain Name Measures, domain name applicants are required to duly register their domain names with domain name registration service institutions. The applicants will become the holder of such domain names upon the completion of the registration procedure.

We have adopted necessary mechanisms to register, maintain and enforce intellectual property rights in China. However, we ~~may~~cannot assure you that we can prevent our intellectual property from all the unauthorized use by any third party, neither can we promise that none of our intellectual property rights would be ~~classified as a ‘resident enterprise’~~challenged any third party.

The PRC Labor Law and the Labor Contract Law require that employers execute written employment contracts with full-time employees. All employers must compensate their employees with wages equal to at least the local minimum wage standards. Violations of ~~China. Such classification will likely~~the PRC Labor Law and the Labor Contract Law may result in ~~unfavorable tax consequences~~the imposition of fines and other administrative sanctions, and serious violations may constitute criminal offences.

On December 28, 2012, the PRC Labor Contract Law was amended, effective since July 1, 2013 to usimpose more stringent requirements on labor dispatch. Under such law, dispatched workers are entitled to pay equal to that of full-time employees for equal work, but the number of dispatched workers that an employer hires may not exceed a certain percentage of its total number of employees as determined by the Ministry of Human Resources and ~~our non-PRC shareholders.”~~Social Security. Additionally, dispatched workers are only permitted to engage in temporary, auxiliary or substitute work. According to the Interim Provisions on Labor Dispatch promulgated by the Ministry of Human Resources and Social Security on January 24, 2014, which became effective on March 1, 2014, the number of dispatched workers hired by an employer shall not exceed 10% of the total number of its employees (including both directly hired employees and dispatched workers). The Interim Provisions on Labor Dispatch require employers not in compliance with the PRC Labor Contract Law in this regard to reduce the number of its dispatched workers to below 10% of the total number of its employees prior to March 1, 2016.

Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their businesses or where they are located.

According to the Interim Regulations on the Collection and Payment of Social Insurance Premiums, the Regulations on Work Injury Insurance, the Regulations on Unemployment Insurance and the Trial Measures on Employee Maternity Insurance of Enterprises, enterprises in the PRC shall provide benefit plans for their employees, which include basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and basic medical insurance. An enterprise must provide social insurance by making social insurance registration with local social insurance agencies, and shall pay or withhold relevant social insurance premiums for and on behalf of employees. The Law on Social Insurance of the PRC, which was promulgated by the SCNPC on October 28, 2010, became effective on July 1, 2011, and was most recently updated on December 29, 2018, has consolidated pertinent provisions for basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and basic medical insurance, and has elaborated in detail the legal obligations and liabilities of employers who do not comply with laws and regulations on social insurance.

According to the Regulations on the Administration of Housing Provident Fund, which was promulgated by the State Counsel and became effective on April 3, 1999, and was amended on March 24, 2002 and was partially revised on March 24, 2019 by the Decision of the State Council on Revising Some Administrative Regulations (Decree No. 710 of the State Council), housing provident fund contributions by an individual employee and housing provident fund contributions by his or her employer shall belong to the individual employee. Registration by PRC companies with the applicable housing provident fund management center is compulsory, and a special housing provident fund account for each of the employees shall be opened at an entrusted bank.

The employer shall timely pay up and deposit housing provident fund contributions in full amount and late or insufficient payments of such contributions are unlawful. The employer shall make the housing provident fund payment and deposit registrations with the housing provident fund administration center. With respect to companies which violate the above regulations and fail to complete housing provident fund payment and deposit registrations or open housing provident fund accounts for their employees, such companies shall be ordered by the housing provident fund administration center to complete such procedures within a designated time limit. Those who fail to complete their registrations within the designated period shall be levied a fine ranging from RMB 10,000 to RMB 50,000. When companies breach these regulations and fail to pay housing provident fund contributions in full amount that are due, the housing provident fund administration center shall order such companies to pay up within a designated period, and may further petition a People’s Court for mandatory enforcement against those who still fail to comply after the expiry of such period.

Under the PRC Foreign Currency Administration Rules promulgated inon January 29, 1996 and ~~revised in 1997,~~last amended on August 5, 2008 and various regulations issued by SAFE and other relevant PRC government authorities, ~~RMB is convertible into other~~payment of current account items in foreign currencies, such as trade and service payments, payment of interest and dividends can be made without prior approval from SAFE ~~only to~~by following the ~~extent of current account items, such as trade related receipts and payments, interest and dividends and after complying with certain~~appropriate procedural requirements. ~~The~~By contrast, the conversion of RMB into ~~other~~foreign currencies and remittance of the converted foreign currency outside the PRC for the purpose of capital account items, such as direct equity investments, loans and repatriation of investment, requires ~~the~~ prior approval from SAFE or its local office. ~~Payments~~

On February 13, 2015, SAFE promulgated the Circular on Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, effective from June 1, 2015, which cancels the requirement for ~~transactions that take~~obtaining approvals of foreign exchange registration of inbound foreign direct investment and outbound overseas direct investment from SAFE. The application for the registration of foreign exchange for the purpose of inbound foreign direct investment and outbound overseas direct investment may be filed with qualified banks, which, under the supervision of SAFE, may review the application and process the registration.

The Circular of the SAFE on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or SAFE Circular 19, was promulgated on March 30, 2015 and became effective on June 1, 2015. According to SAFE Circular 19, a foreign-invested enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange bureau has confirmed monetary contribution rights and interests (or for which the bank has registered the account-crediting of monetary contribution). For the time being, foreign-invested enterprises are allowed to settle 100% of their foreign exchange capitals on a discretionary basis; a foreign-invested enterprise shall truthfully use its capital for its own operational purposes within the scope of business; where an ordinary foreign-invested enterprise makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise shall first go through domestic re-investment registration and open a corresponding Account for Foreign Exchange Settlement Pending Payment with the foreign exchange bureau (bank) at the place ~~within China must be made~~of registration. The Circular of the SAFE on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, was promulgated and became effective on June 9, 2016. According to SAFE Circular 16, enterprises registered in ~~RMB. Unless otherwise approved,~~ PRC ~~companies must repatriate~~may also convert their foreign debts from foreign currency ~~payments received from abroad. Foreign-invested enterprises may retain~~into Renminbi at the enterprise’s discretion. SAFE Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) at the enterprise’s discretion, which applies to all enterprises registered in ~~accounts~~the PRC. SAFE Circular 16 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope and may not be used for investments in securities or other investment with ~~designated~~the exception of bank financial products that can guarantee the principal within the PRC unless otherwise specifically provided. Besides, the converted Renminbi shall not be used to make loans for related enterprises unless it is within the business scope or to build or to purchase any real estate that is not for the enterprise own use with the exception for the real estate enterprise.

On January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profits from domestic entities to offshore entities, including (i) banks must check whether the transaction is genuine by reviewing board resolutions regarding profit distribution, original copies of tax filing records and audited financial statements, and (ii) domestic entities must retain income to account for previous years’ losses before remitting any profits. Moreover, pursuant to SAFE Circular 3, domestic entities must explain in detail the sources of capital and how the capital will be used, and provide board resolutions, contracts and other proof as a part of the registration procedure for outbound investment.

On October 25, 2019, SAFE promulgated the Notice on Further Facilitating Cross-Board Trade and Investment, which became effective on the same date (except for Article 8.2 thereof). The notice removed restrictions on the capital equity investment in China by non-investment foreign-invested enterprises. In addition, restrictions on the use of funds for foreign exchange ~~banks subject~~settlement of domestic accounts for the realization of assets have been removed and restrictions on the use and foreign exchange settlement of foreign investors’ security deposits have been relaxed. Eligible enterprises in the pilot areas are also allowed to use revenues under capital accounts, such as capital funds, foreign debts and overseas listing revenues for domestic payments without providing materials to the bank in advance for authenticity verification on an item by item basis, while the use of funds should be true, in compliance with applicable rules and conforming to the current capital revenue management regulations.

Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents

SAFE issued the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which became effective in July 2014, to replace the Circular of the State Administration of Foreign Exchange on Issues Concerning the Regulation of Foreign Exchange in Equity Finance and Roundtrip Investments by Domestic Residents through Offshore Special Purpose Vehicles, to regulate foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. SAFE Circular 37 defines a ~~cap set~~SPV as an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate onshore or offshore assets or interests, while “round trip investment” is defined as direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 stipulates that, prior to making contributions into an SPV, PRC residents or entities be required to complete foreign exchange registration with SAFE or its local ~~office. Unless otherwise approved, domestic enterprises must convert all of their foreign currency proceeds into RMB.~~

~~On October 21, 2005,~~branch. In addition, SAFE ~~issued~~promulgated the Notice on ~~Issues Relating to~~Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in ~~Fund-raising~~February 2015, which amended SAFE Circular 37 and ~~Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, which~~ became effective ~~as of November~~on June 1, ~~2005. According to the notice, a special purpose company, or SPV, refers to an offshore company established or indirectly controlled by~~2015, requiring PRC residents ~~for the special purpose of carrying out financing of~~or entities to register with qualified banks rather than SAFE in connection with their ~~assets~~establishment or ~~equity interest in PRC domestic enterprises. Prior to establishing or assuming~~ control of an ~~SPV, each PRC resident, whether a natural or legal person, must complete~~offshore entity established for the purpose of overseas investment ~~foreign exchange registration procedures with the relevant local SAFE branch. The notice applies retroactively. As a result,~~ or financing.

PRC residents or entities who ~~have established~~had contributed legitimate onshore or ~~acquired~~offshore interests or assets to SPVs but had not obtained registration as required before the implementation of the SAFE Circular 37 must register their ownership interests or control ~~of these~~in the SPVs ~~that previously made onshore investments in China were required~~with qualified banks. An amendment to ~~complete the relevant overseas investment foreign exchange registration procedures by March 31, 2006. These PRC residents must also amend~~ the registration with the relevant SAFE branch in the following circumstances: (i) the PRC residents have completed the injection of equity investment or assets of a domestic company into the SPV; (ii) the overseas funding of the SPV has been completed; (iii)is required if there is a material change inwith respect to the ~~capital~~SPV registered, such as any change of basic information (including change of the ~~SPV. Under the rules, failure~~PRC residents, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure to comply with the ~~foreign exchange~~ registration procedures set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of the foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on the foreign exchange activities of the ~~violator,~~relevant foreign-invested enterprise, including ~~restrictions on the~~ payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent ~~company,~~or affiliate, and the capital inflow from the offshore parent, and may also subject ~~the violators~~relevant PRC residents or entities to penalties under ~~the~~ PRC foreign exchange administration regulations. See “Risk Factors—Risks Related to Doing Business in China—PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary or limit our PRC subsidiary’s ability to increase their registered capital or distribute profits.”

SAFE promulgated ~~Circular 142~~the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, or the Stock Incentive Plan Notice, in February 2012, replacing the previous rules issued by SAFE in March 2007. Pursuant to the Stock Incentive Plan Notice and other relevant rules and regulations, PRC residents participating in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and follow certain other procedures. Participants of a stock incentive plan who are PRC residents must conduct the SAFE registration and other procedures with respect to the stock incentive plan through a qualified PRC agent, which ~~regulates~~could be a PRC subsidiary of the ~~conversion~~overseas publicly listed company or another qualified institution appointed by ~~a foreign-funded enterprise~~the PRC subsidiary. In addition, the PRC agent is required to update the relevant SAFE registration should there be any material change to the stock incentive plan, the PRC agent or other material changes. The PRC agent must, on behalf of the PRC residents who have the right to exercise the employee stock options, apply to SAFE or its local branches for an annual quota for the payment of foreign ~~currency into RMB by restricting how~~currencies in connection with the ~~converted RMB may be used. In addition, SAFE promulgated Circular 45 on November 9, 2011 in order to clarify~~PRC residents’ exercise of the ~~application of Circular 142. Under Circular 142 and Circular 45, the RMB capital converted from~~employee stock options. The foreign ~~currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved~~exchange proceeds received by the ~~applicable government authority~~PRC residents from the sale of shares under the stock incentive plans granted and ~~may not~~dividends distributed by the overseas listed companies must be ~~used for~~remitted into the bank accounts in the PRC opened by the PRC agents prior to distribution to such PRC residents.

We have adopted an equity ~~investments within~~incentive plan, under which we will have the ~~PRC. In addition, SAFE strengthened its oversight~~discretion to award incentives and rewards to eligible participants. We have advised the recipients of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be usedawards under our equity incentive plan to ~~repay RMB loans if the proceeds of such loans have not been used. Violations of Circular 142 and Circular 45 could result in severe penalties, such as heavy fines as set out in the~~handle relevant foreign exchange ~~control regulations. On July 4, 2014,~~matters in accordance with the Stock Incentive Plan Notice. However, we cannot guarantee that all employees awarded equity-based incentives can successfully register with SAFE ~~promulgated SAFE Circular 36, which launched a pilot reform of~~in full compliance with the ~~administration of~~Stock Incentive Plan Notice. See “Risk Factors—Risks Relating to Doing Business in China—Any failure to comply with PRC regulations regarding employee share incentive plans may subject the ~~settlement of the foreign exchange capitals of~~PRC plan participants or us to fines and other legal or administrative sanctions.”

The principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in ~~certain designated areas from August 4, 2014. However, SAFE Circular 36 continues~~the PRC are the Company Law of the PRC, as amended, which applies to ~~prohibit~~both PRC domestic companies and foreign-invested ~~enterprises from directly or indirectly using~~companies, and the ~~Renminbi converted from their foreign exchange capitals for purposes beyond~~Foreign Investment Law and its ~~business scope. On March 30, 2015, SAFE promulgated Circular 19,~~implementation rules, which apply to ~~expand the reform nationwide. Circular 19 will come into force~~foreign-invested companies. Under these laws, rules and replace both Circular 142 and Circular 36 on June 1, 2015. Circular 36 allows enterprises established within the pilot areas to use their foreign exchange capitals to make equity investment and removes certain other restrictions provided under Circular 142 for these enterprises. Circular 19 will remove those restrictions for allregulations, foreign-invested enterprises established in the PRC. However, both Circular 36 and Circular 19 continue to prohibit foreign-invested enterprises from, among other things, using the Renminbi fund converted from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises.

~~Under applicable PRC regulations, FIEs in China~~ may pay dividends only out of their accumulated ~~profits,~~profit, if any, as determined in accordance with PRC accounting standards and regulations. ~~In addition, a FIE in China is~~Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set aside as general reserves at least 10% of ~~its~~their after-tax profit, ~~based~~until the cumulative amount of their reserves reaches 50% of their registered capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. See “Risk Factors—Risks Relating to Doing Business in China—— Restrictions under PRC law on our PRC ~~accounting standards each year~~subsidiaries’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our business.”

In March 2007, the National People’s Congress enacted the Enterprise Income Tax Law which became effective on January 1, 2008 and last amended on December 29, 2018. The PRC State Council promulgated the Implementation Rules of the Enterprise Income Tax Law on December 6, 2007, which became effective on January 1, 2008 and was partially amended on April 23, 2019. According to Enterprise Income Tax Law and its Implementation Rules, dividends payable by a foreign-invested enterprise in China to its ~~general reserves until the accumulative amount~~foreign enterprise investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of ~~such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of~~incorporation has a ~~FIE has the discretion~~tax treaty with China that provides for a preferential withholding arrangement. Pursuant to ~~allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.~~

After-tax profits/losses with respect to the payment of dividends out of accumulated profits and the annual appropriation of after-tax profits as calculated pursuant to PRC accounting standards and regulations do not result in significant differences as compared to after-tax earnings as presented in our financial statements. However, there are certain differences between PRC accounting standards and regulations and U.S. generally accepted accounting principles, arising from different treatment of items such as amortization of intangible assets and change in fair value of contingent consideration rising from business combinations.

~~In addition, under the EIT Law,~~ the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates, ~~which was~~ issued on January 29, 2008 and supplemented and revised on February 29, 2008, and the Arrangement between ~~the PRC~~Mainland China and the Hong Kong Special Administrative Region onfor the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income, which became effective on December 8, 2006 and applicable to income derived in any year of assessment commencing on or after April 1, 2007 in Hong Kong and in any year commencing on or after January 1, 2007 in the ~~Notice~~PRC, such withholding tax rate may be lowered to 5% if a Hong Kong enterprise is deemed the beneficial owner of any dividend paid by a PRC subsidiary by PRC tax authorities and holds at least 25% of the equity interest in that particular PRC subsidiary at all times within the 12-month period immediately prior to the distribution of the dividends. Furthermore, pursuant to the Announcement on Issues concerning “Beneficial Owners” in Tax Treaties issued on February 3, 2018 by the State Administration of Taxation, ~~Regarding Interpretation~~when determining the status of “beneficial owners,” a comprehensive analysis may be conducted through materials such as articles of association, financial statements, records of capital flows, minutes of board of directors, resolutions of board of directors, allocation of manpower and ~~Recognition~~material resources, the relevant expenses, functions and risk assumption, loan contracts, royalty contracts or transfer contracts, patent registration certificates and copyright certificates, etc. However, even if an applicant has the status as a “beneficiary owner,” if the competent tax authority finds necessity to apply the principal purpose test clause in the tax treaties or the general anti-tax avoidance rules stipulated in domestic tax laws, the general anti-tax avoidance provisions shall apply.

In December 2007, the State Council promulgated the Implementing Rules of ~~Beneficial Owners under~~the Enterprise Income Tax ~~Treaties,~~Law, or the Implementing Rules, which became effective on ~~October 27, 2009,~~January 1, 2008. The Enterprise Income Tax Law and its relevant Implementing Rules (i) impose a uniform 25% enterprise income tax rate, which is applicable to both foreign invested enterprises and domestic enterprises (ii) permits companies to continue to enjoy their existing tax incentives, subject to certain transitional phase-out rules and (iii) introduces new tax incentives, subject to various qualification criteria.

The Enterprise Income Tax Law also provides that enterprises organized under the laws of jurisdictions outside China with their “de facto management bodies” located within China may be considered PRC resident enterprises and therefore be subject to PRC enterprise income tax at the rate of 25% on their worldwide income. The Implementing Rules further define the term “de facto management body” as the management body that exercises substantial and overall management and control over the production and operations, personnel, accounts and properties of an enterprise. If an enterprise organized under the laws of jurisdiction outside China is considered a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, it would be subject to the PRC enterprise income tax at the rate of 25% on its worldwide income. Second, a 10% withholding tax would be imposed on dividends it pays to its non-PRC enterprise shareholders and with respect to gains derived by its non-PRC enterprise shareholders from ~~our PRC operating subsidiaries~~transfer of its shares. Dividends paid to ~~us through our Hong Kong subsidiaries~~non-PRC individual shareholders and any gain realized on the transfer of equity by such shareholders may be subject to ~~a withholding~~PRC tax at a rate of ~~10%~~20%, ~~or at a rate of 5%~~ if ~~our Hong Kong subsidiaries are considered a “beneficial owner” that~~such income is ~~generally engaged in substantial business activities and entitled~~deemed to ~~treaty benefits under the Arrangement between the~~be from PRC ~~and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion.~~

On July 14, 2014, SAFE issued a Circular on Relevant Issues Relating to Domestic Residents’ Investments, Financings, and Roundtrip Investments through Special Purpose Vehicles, or Circular 37, which replaced the Circular 75. Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in Circular 37 as a “special purpose vehicle.” Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material events. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities. Also, the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

~~As we stated under~~sources. See “Risk ~~factors—~~Factors—Risks Relating to Doing Business in China— ~~Failure~~Under the Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to ~~comply~~us and our non-PRC shareholders.”

On October 17, 2017, the State Administration of Taxation issued the Bulletin on Issues Concerning the Withholding of Non-PRC Resident Enterprise Income Tax at Source, or Bulletin 37, which replaced the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued by the State Administration of Taxation on December 10, 2009, and partially replaced and supplemented rules under the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Bulletin 7, issued by the State Administration of Taxation on February 3, 2015. Under Bulletin 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. In respect of an indirect offshore transfer of assets of a PRC establishment, the relevant gain is to be regarded as effectively connected with the PRC establishment and therefore included in its enterprise income tax filing, and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlying transfer relates to the immoveable properties in China or to equity investments in a PRC resident enterprise, which is not effectively connected to a PRC establishment of a non-resident enterprise, a PRC enterprise income tax at 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Pursuant to Bulletin 37, the withholding party shall declare and pay the withheld tax to the competent tax authority in the place where such withholding party is located within 7 days from the date of occurrence of the withholding obligation. Both Bulletin 37 and Bulletin 7 do not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange. See “Risk Factors—Risks Relating to Doing Business in China—We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to a Chinese establishment of a non-Chinese company, or immovable properties located in China owned by non-Chinese companies.”

Pursuant to the Provisional Regulations on Value-Added Tax of the PRC, or the VAT Regulations, which were promulgated by the State Council on December 13, 1993, and took effect on January 1, 1994, and were amended on November 10, 2008, February 6, 2016, and November 19, 2017, respectively, and the Rules for the Implementation of the Provisional Regulations on Value Added Tax of the PRC, which were promulgated by the Ministry of Finance, on December 25, 1993, and were amended on December 15, 2008, and October 28, 2011, respectively, entities and individuals that sell goods or labor services of processing, repair or replacement, sell services, intangible assets, or immovables, or import goods within the territory of the People’s Republic of China are taxpayers of value-added tax. The VAT rate is 17% for taxpayers selling goods, labor services, or tangible movable property leasing services or importing goods, except otherwise specified; 11% for taxpayers selling goods, labor services, or tangible movable property leasing services or importing goods, except otherwise specified; 6% for taxpayers selling services or intangible assets.

According to Provisions in the Notice on Adjusting the Value added Tax Rates, or the Notice, issued by the State Administration of Taxation and the Ministry of Finance, where taxpayers make VAT taxable sales or import goods, the applicable tax rates shall be adjusted from 17% to 16% and from 11% to 10%, respectively. The Notice took effect on May 1, 2018, and the adjusted VAT rates took effect at the same time. Pursuant to the Notice of the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs of the PRC on Relevant Policies for Deepening the Value-Added Tax Reform, which was promulgated on March 20, 2019 and became effective on April 1, 2019, the tax rate of 16% applicable to the VAT taxable sale or import of goods by a general VAT taxpayer shall be adjusted to 13%, and the tax rate of 10% applicable thereto shall be adjusted to 9%.

In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax, or the Pilot Plan. The Notice of the Ministry of Finance and the State Administration of Taxation on Implementing the Pilot Plan of Replacing Business Tax with Value-Added Tax in an All-round Manner, issued on March 23, 2016, took effect on May 1, 2016. Pursuant to the Pilot Plan and the subsequent Notice, VAT at a rate of 6% is applied nationwide to revenue generated from the provision of certain modern services in lieu of the prior Business Tax.

The policies and regulations relating to the ~~investment~~Bitcoin industry have a direct impact on the Company the Company’s customers in ~~offshore special purpose companies~~the PRC, which could indirectly impact the demand for the Company’s Bitcoin mining machines. According to the Circular of the People’s Bank of China, Ministry of Industry and Information Technology, China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission on the Prevention of Risks from Bitcoin jointly promulgated by People’s Bank of China, Ministry of Industry and Information Technology, China Banking Regulatory Commission, CSRC, and China Insurance Regulatory Commission on December 3, 2013, or the Circular, Bitcoin shall be a kind of virtual commodity in nature, which shall not be in the same legal status with currencies and shall not be circulated as currencies and used in markets as currencies. The Circular also provides that financial institutions and payment institutions shall not engage in business in connection with Bitcoin. According to Announcement of the People’s Bank of China, the Cyberspace Administration of China, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission on Preventing Initial Coin Offerings (ICO) Risks promulgated by seven PRC governmental authorities including the People’s Bank of China on September 4, 2017, or the Announcement, activities of offering and financing of tokens, including initial coin offerings, have been forbidden in the PRC since they may be suspected to be considered as illegal offering of securities or illegal fundraising. All so-called token trading platform should not (i) engage in the exchange between any statutory currency with tokens and “virtual currencies,” (ii) trade or trade the tokens or “virtual currencies” as central counterparties, or (iii) provide pricing, information agency or other services for tokens or “virtual currencies.” The Announcement further provides that financial institutions and payment institutions shall not engage in business in connection with transactions of offering and financing of tokens.

In addition to various promulgations in the past, on September 24, 2021, ten Chinese regulatory authorities, including People’s Bank of China, Ministry of Industry and Information Technology, China Banking Regulatory Commission, the Supreme People’s Court, the Supreme People’s Procuratorate, and among five other regulatory agencies, collectively promulgated a guidance to further control and monitor cryptocurrency related trading, exchanges, transaction, banking and financial service, initial coin offering, and other intermediary and derivatives transactions, which are considered illegal in accordance with effectuated laws and regulations and may be subject to penalty criminally. The new guidance also bars foreign cryptocurrency trading platforms and related businesses to provide services to China domestic individuals and business entities, and expands the application of laws and regulations to Chinese employees or contractors of foreign operatives, that provide related services to individuals or business entities domiciled in China. Although, the legality of cryptocurrency mining activity was not specifically mentioned in the guidance, notably in recent events, where the government’s sudden interventions or modifications of the laws and regulations currently in effective could negatively impact the Company’s operations and financial results. The legality of cryptocurrency mining activity may be subject to challenge by Chinese authorities. The Company has relocated its global headquarters to Hong Kong, where cryptocurrency mining operations and related trading, exchanges, transaction are lawful.

According to the Circular of the People’s Bank of China, Ministry of Industry and Information Technology, China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission on Guarding against Bitcoin Risks issued on December 3, 2013, or the 2013 Circular, Bitcoin should be regarded as a specific virtual commodity, and it does not possess the status that a legal currency has, and cannot and should not be circulated in market as a currency. The 2013 Circular also provides that financial institutions and payment institutions shall not engage in business in connection with Bitcoin.

Another notable law on recognition of virtual property is the PRC Civil Code, which became effective on January 1, 2021. Article 127 of PRC Civil Code provides that: “Where laws contain provisions in respect of the protection of data and network virtual property, such provisions shall apply.” We believe that this provision together with the 2013 Circular recognizes the lawful possession by PRC ~~residents~~citizens and organizations of Bitcoin as a kind of virtual property.

According to the Announcement of the People’s Bank of China, the Office of the Central Cyberspace Security and Informatization Leading Group, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission on Preventing Token Fundraising Risks issued on September 4, 2017, or the 2017 Announcement, activities of offering and financing of tokens, including initial coin offerings, or ICOs, should be forbidden in the PRC since they are essentially illegal public financing activities, which are suspected to involve financial crimes such as illegal distribution of financial tokens, illegal issuance of securities, illegal fundraising, financial fraud or pyramid sales. All so-called token trading platforms should not (i) engage in any exchange between any fiat currency with tokens or “virtual currencies”, (ii) trade tokens or “virtual currencies” or trade them as central counterparties, or (iii) provide pricing, information agency or other services for tokens or “virtual currencies”. The 2017 Announcement further orders that financial institutions and non-banking payment institutions should not do any business related to token trading.

According to the Risk Warning on Preventing Illegal Fundraising in the Name of “Virtual Currency” or “Blockchain” jointly promulgated by the Banking and Insurance Regulatory Commission, the Office of the Central Cyberspace Affairs Commission, the Ministry of Public Security, the People’s Bank of China and the State Administration for Market Regulation on August 24, 2018, or the 2018 Warning, raising funds through the issuance of so-called “virtual currency”, “virtual asset” or “digital asset” under the flag of “financial innovation” or “blockchain” is not based on real blockchain technology, but rather the practice of using speculative blockchain concepts for illegal fundraising, pyramid schemes, or fraud. The 2018 Warning reiterates the position of the Chinese government on ICOs.

Despite the Chinese government’s resentment of non-government backed cryptocurrencies in general, China has been testing digital Renminbi through pilot programs. On October 23, 2020, the People’s Bank of China published the revised Law of the People’s Republic of China on the People’s Bank of China (draft), or the draft PBOC Law, to solicit comment from the public. Article 19 of the draft PBOC Law provides that Renminbi may take a physical form or a digital form. This draft PBOC Law, if enacted, will pave the way for the formal launch of digital Renminbi. However, Article 22 of the draft PBOC Law reiterates that no entity or individual should produce or offer coupon tokens or digital tokens to replace Renminbi for circulation in market. This has been the consistent position of the Chinese government since 2013.

Cryptocurrency mining is not prohibited by Chinese laws, but is subject ~~our PRC resident stockholders~~ to ~~personal liability, limit our ability~~an unclear and evolving regulatory and policy framework in China. On January 2, 2018, China’s Leading Special Task Team for Remediation of Internet Financial Risks mandates that local governments should take measures of electricity prices, taxes, or land use, to ~~acquire PRC companies~~guide the orderly exit of entities from cryptocurrency mining operations and that local governments must submit reports on cryptocurrency mining operations in their respective jurisdictions to the task team on a regular basis. Since then, local regulations on cryptocurrency mining have been tightened, at least in some Chinese provinces, such as Xinjiang and Inner Mongolia.

At the beginning of 2021, which is the first year of the “14th Five-Year Plan” of China, the National Development and Reform Commission of China publicly emphasized the need to improve the dual control system for energy consumption, to solidly promote working towards carbon peaking and carbon neutrality, and to accelerate the elimination of outdated and inefficient excess production capacity. On March 9, 2021, the Inner Mongolia Development and Reform Commission and two other local governmental agencies jointly published the Certain Safeguard Measures to Ensure Completion of the “14th Five-Year Plan” Goals on Dual Control of Energy Consumption, or the Safeguard Measures. The Safeguard Measures order that, cryptocurrency mining projects in Inner Mongolia should be completely cleaned up and shut down by the end of April 2021. So far, no similar orders have been published by the government of Sichuan Province, in which province the three mining farms of the Company reside.

The Guidance Catalogue of Industry Structural Adjustment (2019 Edition), or the 2019 Guidance Catalogue, promulgated by the National Development and Reform Commission, became effective on January 1, 2020. The 2019 Guidance Catalogue contains a catch-all clause which provides that, if any process, technology, products or equipment is not in compliance with (a) the Law of the People’s Republic of China on Prevention and Control of Atmospheric Pollution, the Law of the People’s Republic of China on Prevention and Control of Water Pollution, the Law of the People’s Republic of China on Prevention and Control of Environmental Pollution Caused by Solid Wastes, the Energy Conservation Law of the People’s Republic of China, the Work Safety Law of the People’s Republic of China, the Product Quality Law of the People’s Republic of China, the Land Administration Law of the People’s Republic of China, the Law of the People’s Republic of China on Prevention & Control of Occupational Diseases or other laws and regulations, (b) national mandatory standards for safety, environmental protection, energy consumption and quality, or (c) the requirements of international environmental conventions or other requirements, they should be restricted or eliminated. We cannot exclude the possibility that the National Development and Reform Commission of China restricts or even prohibits mining operations in China on the basis that mining operations fall under the above-mentioned catch-all clause. The National Development and Reform Commission of China may even update the “Guidance Catalogue for Industry Structural Adjustment” to ~~inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability~~explicitly restrict or prohibit mining operations in China.

Entities or nodes providing information services based on blockchain technologies or systems in China are required to ~~distribute profits to us or otherwise materially adversely affect us,” we have notified substantial beneficial owners of our company, whom we know are PRC residents to comply~~be registered with the ~~registration obligation.~~Cyberspace Administration of China. According to the Administrative Regulations on Blockchain Information Services issued by the Cyberspace Administration of China and effective on February 15, 2019, or the Blockchain Regulation, blockchain information services shall refer to information services provided to the public through internet sites, applications, etc. based on blockchain technologies or systems. The Blockchain Regulations also provide that, a provider of blockchain information services shall fill in its name, service category, service form, application domain, server address and other information through the management system of blockchain information services established by the Cyberspace Administration of China. We do not believe we should make such filing with the Cyberspace Administration of China based on our current business operations. However, ~~we may not be aware~~uncertainties exist regarding the interpretation and implementation of the ~~identities of all our beneficial owners who are PRC residents. In addition, we do not have control over our beneficial owners~~Blockchain Regulation, and ~~cannot assure you that all of our PRC resident beneficial owners will comply with Circular 37. The failure of our beneficial owners, who are PRC residents~~future Chinese laws and regulations may require us to register or ~~amend their SAFE registrations in a timely manner pursuant to Circular 37, or the failure of future beneficial owners of our company, who are PRC residents to comply~~file with the registration procedures set forth in Circular 37 may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Failure to register or amend the registration may also limit our ability to contribute additional capital to our PRC subsidiaries or receive dividends or other distributions from our PRC subsidiaries or other proceeds from disposal of our PRC subsidiaries, or we may be penalized by SAFE.Chinese cyberspace authorities.

The first quarter of the calendar year is typically the slowest season of the year due to the Chinese New Year holiday. During this period, accounts receivable collection is very slow and we also need to prepare for upcoming busier seasons by making payments for inventory. With the implementation ~~plan~~ of our cloud-based business and the new revenue stream of cryptocurrency mining business, seasonality ~~can be less obvious.~~has been mitigated to some extent.

See ~~“—A.~~“A. History and Development of the Company—Corporate Structure” above for details of our current organizational structure.

All land in China is owned by the state or local governments. Individuals and companies are permitted to acquire rights to use land or land use rights for specific purposes. In the case of land used for industrial purposes, the land use rights are granted for a period of 50 years. This period may be renewed at the expiration of the initial and any subsequent terms according to the relevant Chinese laws. Granted land use rights are transferable and may be used as collateral for borrowings and other obligations.

We lease our current executive offices, which are located at Unit 3102, 31/F, Citicorp Centre, 18 Whitefield Road, Hong Kong. Our executive offices consist of approximately 328 square meters, all of which are dedicated to administrative office spaces. In addition, our China headquarters are located at 21st Floor, Everbright Bank Building, Zhuzilin, Futian District, Shenzhen, Guangdong, 518040, China, ~~for~~of which IST currently has property use rights. ~~Our executive offices consist~~This office facility property consists of approximately 1,200 square meters ~~all of which are dedicated to administrative office spaces.~~and is currently collateralized for our certain short-term bank loans. Our other ~~property~~properties primarily ~~consists~~consist of cryptocurrency mining machine, media display equipment, computer equipment, servers, licensed software, furniture and fixtures. We currently do not have any intention to make large scale improvements or developments with respect to these properties. ~~This office facility property is currently collateralized for our certain short-term bank loans.~~

On November 14, 2014, we entered into an agreement to sell our Fuyong Industrial Park to an unrelated third party for a cash consideration of RMB 375 million. As of December 2015, the cash consideration had been fully collected.

iASPEC, Bocom and Biznest lease offices, employee dormitories, and factory space in Shenzhen, Chongqing and Luoyang in the PRC, pursuant to lease agreements that expired on various dates through December 2017. Currently only Biznest has a month-to-month based lease agreement without a long term commitment. What about iASPEC and Bocom? No lease? Rent expense for the years ended December 31, 2017, 2016, and 2015, was approximately $81,000, $95,000 and $219,000, respectively.

We believe that all our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements because of various factors, including those set forth under Item 3 “Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F. See also “Introductory Notes—Forward-looking Information.”

We are a leading provider of integrated cloud-based platform, resource sharing functionality, and big data solutions to the Chinese new media, education residential community management, and elevator IoT industries. Our Internet ecosystem enables all participants of the new media community to efficiently promote brands, disseminate information, and ~~sharing~~share resources. In addition, we provide a broad portfolio of software, hardware and fully integrated solutions, including information technology infrastructure and Internet-enabled display technologies to customers in government, education, healthcare, media, transportation, and other private sectors. We also engage in cryptocurrency mining and blockchain related business operations as a part of business transformation.

We were founded in 1993 and are headquartered in ~~Shenzhen, China.~~Hong Kong. As of December 31, ~~2017,~~2021, we had approximately 9676 full-time employees.

Prior to 2014, we generated majority of our revenues through selling our products ~~mostly~~ to public service entities to help improve their operational efficiency and service quality. Our representative customers included China Ministry of Public Security, provincial bureaus of public security, fire departments, traffic bureaus, police stations, human resource departments, urban planning boards, civic administrations, land resource administrations, mapping and surveying bureaus, and the Shenzhen General Station of Exit and Entry Frontier Inspection.

Since 2014, we have diversified our customer base beyond the public sector into private sectors. Our private sector customers include, among others, advertising agencies, auto dealerships, hotels, shopping malls, educational institutes, beauty spas, and etc. Our new corporate mission is to make publicity accessible and affordable for businesses of every size.

In 2014, we generated revenues from sales of hardware products, software products, system integration services, and related maintenance and supporting services. Starting in 2015, with the introduction of our cloud-based software as a service (SaaS) offering, we generated additional recurring monthly revenues from SaaS fees. The revenue from SaaS was ~~relatively~~still small in ~~2016~~2018 and ~~2017,~~2019, which is expected to pick up ~~quickly~~ in future years along with the large-scale roll-out of our cloud-based new media ~~terminals and elevator IoT box.~~terminals.

In May 2017, we completed the business transformation and rolled out CAT and IoT technology based digital ads distribution network and new media resource sharing platform in the ~~Out-of-Home Advertising Market.~~out-of-home advertising market. In 2017, 2018 and 2019, we generated most revenue from selling fully integrated ads display terminals. In 2020, we have a portion of revenue generated from the sale of cloud severs as part of our CBT business. The revenue generated from SaaS and other software products and services remained ~~small~~small.

As part of our strategic business transformation, we established a blockchain technology business segment in ~~2017.~~2021, which is dedicated to the research and application of blockchain technology and digital assets. We launched cryptocurrency mining operations, a blockchain related new business, as the first initiative of this new business segment in the first quarter of 2021. With multiple cloud data centers deployed outside of China mainland, the Company continues to improve computing power and create value for the encrypted digital currency industry.

On January 11, 2022, the Company entered into a strategic cooperation agreement with Shenzhen Zhicheng Chuangtou New Energy Co., Ltd. (“Zhicheng Chuangtou”) to expand its smart charging pile market. Pursuant to the agreement, which has a term of three years, the Company is responsible for the market development and installation of the smart charging piles produced by Zhicheng Chuangtou. Zhicheng Chuangtou is responsible for providing charging piles and other ancillary products, as well as for the operation and management of smart charging piles after installation. The Company has planned to use its channels like Taoping Alliance network to expand the market across the country and reach out to potential property management companies. The Company expects to expand coverage to 50 cities by the end of 2022 and complete pilot projects in these cities.

On March 2, 2022, the Company has entered into a strategic cooperation agreement (“Agreement”) with Shenzhen Zhihui Yunti IoT Co., Ltd. (“Zhihui Yunti”) to jointly address the market needs of the elevator modernization and maintenance. Pursuant to the Agreement, which has a term of three years, the Company is responsible for the market development of the elevator modernization and maintenance project through its Taoping Alliance network. Zhihui Yunti is responsible for providing elevator cloud, elevator IoT and elevator ecosystem products and technical support, as well as for the operation and management after product installation.

The revenue growth and profitability of our business depend on the overall market demand for software products and related ~~services.~~services, high-end data servers, out-of-home advertising, and efficiency of our cryptocurrency mining operations. The demand for our CBT products is attributable to rapid urbanization and rising living standards in China. As a result of migration to the cities, individuals’ disposable income and consumptions of information to assist their purchases of goods and services increase as well. Consequently, our CBT products become increasingly receptive to advertisements displayed at public locations. Meanwhile, rising competition has driven merchants and service providers to seek advertisements as a way to make their brands visible and memorable that drives up the demand for innovative advertising technology like our cloud-based software and services. COVID-19 pandemic has changed landscape of business operations and resulted in significant increase in working from remote locations, on-line shopping, on-line education, on-line entertainment, and other on-line business transactions creating high demand for high-end data storage servers to accommodate the surging internet information transmission.

The demand for our TIT products is attributable to digitization of public services in China. ~~Over the past two decades, the Chinese government has encouraged the development~~Due to changes in policies and ~~use of information technology in all spheres of governmental agendas, private industries, education, and cultural affairs. The term “Informatization” or “xinxihua” has been coined~~regulations in China in 2012, various local governments started postponing IT projects they had previously contracted with us indefinitely. As a result, many of our existing receivables became uncollectable. Starting 2013, we made a strategic decision to ~~describe~~transition our business from servicing the ~~overall process of software application in China,~~public sector to focusing on the private sector. We started completing our in-process IT projects and ~~has become a linchpin of state and local economic development strategies~~ceased taking on new customers in the ~~recent years.~~public sector. As a result, the TIT business has diminished throughout the years and gradually being phased out.

TAOP and ~~CITH~~Taoping Holdings were incorporated in the BVI, and not subject to taxation in that jurisdiction. Under the “anti-inversion” rules of Section 7874 of the U.S. Internal Revenue Code, ~~CNIT~~TAOP is treated for U.S. federal taxation purpose as a U.S. corporation and, accordingly, is subject to U.S. federal income tax on its worldwide income with a maximum income tax rate of ~~35%~~21%.

No provision for income tax in the United States has been made as ~~CNIT~~TAOP has no taxable income in the United States.

IST HK, and our former subsidiary, HPC Electronics (China) Co., Limited (“HPC”) were incorporated in Hong Kong and subject to a Hong Kong Profits Tax of 16.5% according to the current Hong Kong tax laws.

Under the Chinese EIT Law, IST ~~and TopCloud, are~~is approved as High Technology Enterprises and respective income tax rates were reduced to 15%. Biznest is approved as software enterprises and enjoys EIT at the tax rate of 12.5%. TopCloud, ISIOT, iASPEC and Bocom are subject to regular EIT at 25%.

Segment information is consistent with how management reviews business health, makes investment, allocates resources and assesses operating performances. Transfers and sales between reportable segments, if any, are recorded at cost.

We report financial and operational information in the following ~~two~~three segments:

For more information regarding our operating segments, see Note 20 (Consolidated Segment Data) to our audited consolidated financial statements included elsewhere in this report.

The following table sets forth key components of our results of operations for fiscal years ended December 31, ~~2017~~2021 and ~~2016,~~2020, both in dollars and as a percentage of our revenue.

~~Revenue~~Revenue. . We generate revenues from cryptocurrency mining, advertising, selling hardware, software, ~~system integration, software as a service,~~ and other technology-related services to customers including Shenzhen Taoping New Media Co., Ltd. and its affiliates. Shenzhen Taoping New Media Co., Ltd is controlled by Mr. Lin. We have identified Shenzhen Taoping New Media Co., Ltd. and its affiliates as related parties.customers. For the year ended December 31, ~~2017,~~2021, our total revenue was ~~$18.2~~$24.8 million, of which approximately ~~$9.2~~$0.2 million was from related parties, compared to ~~$10.2~~total revenue of $11.0 million for the year ended December 31, ~~2016,~~2020, an increase of ~~$8.0~~$13.8 million, or ~~78.4%~~ 124.6%. The revenue increase was ~~primarily due~~mainly contributed by products and software sales totalling $5.8 million, advertising from TNM of $2.6 million, and cryptocurrency mining of $5.5 million.

Starting from January 2020, the coronavirus outbreak, also known as COVID-19, has caused the Chinese government to ~~our successful transformation~~take quarantine measures, such as nationwide lockdowns, transportation restrictions, public gathering prohibitions and temporary closures of ~~business model from~~non-essential businesses, which had put economic activities in a ~~mainly IT solutions provider~~suspension mode until late March 2020, in addition to the ~~public sector~~regular Chinese New Year Holiday. Although the COVID-19 pandemic was largely contained in China since the first quarter of 2020 and businesses have gradually resumed to ~~a leading products~~normal operations in 2020, China’s out-of-home advertising market was adversely impacted. In addition, imported infection cases and ~~services provider~~regional outbreaks of ~~CAT and IoT technology based~~infection persisted throughout 2021.

Upon completion of acquisition of TNM in June 2021, in the digital advertising ~~distribution network and~~sector, we became a fully integrated new media ~~resource~~advertising enterprise with technical expertise in cloud based new media sharing platform, insmart ads display terminal, and mobile applications extended to the ~~Out-of-Home Advertising Market in China. From May 2017,~~end customers who pay for the advertising slots to promote their businesses or special events. In 2021, additional $2.6 million advertising revenue from TNM strengthened our revenue generation, cash flows, liquidity, and capital resources. Meanwhile, we have ~~rolled out~~positioned ourselves in blockchain and ~~offered interactive ads display terminals,~~ digital ~~ads distribution system,~~assets related business opportunities and ~~advertising resource sharing platform~~commenced cryptocurrency mining operations as the first initiative of blockchain business segment.

With the increasing computing power in Ethereum mining, revenue from the cryptocurrency mining in 2021 was approximately $5.5 million, which constituted nearly 22.0% to the customers in the private sector. Our new products and services have been successfully received by our customers, with whom including related parties we have signed more than 17 contracts in the second half of 2017.total revenue.

The following table shows our revenue, percentage of revenue, cost of revenue and gross margin, by revenue categories:

A breakdown of revenue, percentage of revenue, cost of revenue and gross margin by segments is as follows:

Cost of revenue and gross profit. As indicated in the tables above, our cost of revenue increased by ~~$2.3~~$8.4 million, which were mainly attributed to increases in cost of products of $3.7 million, cost of advertising of $2.2 million, and cost of cryptocurrency mining of $2.8 million, or ~~29.71%~~117.8%, to ~~$9.9~~$15.5 million, for the year ended December 31, ~~2017,~~2021, from ~~$7.6~~$7.1 million for the year ended December 31, ~~2016.~~2020. As a percentage of revenue, our cost of revenue decreased to ~~54.25%~~62.4% during the year ended December 31, ~~2017,~~2021, from ~~74.63%~~64.4% during the year ended December 31, ~~2016.~~2020. As a result, gross profit as a percentage of revenue ~~was 45.75%~~increased to 37.6% for the year ended December 31, ~~2017,~~2021 from ~~25.73%~~35.7% for the year ended December 31, ~~2016.~~2020. The increase in the overall gross margin primarily resulted from the cost advantages in our new products and services offered to customers in the private sector. Our new products and services mainly consist of the CAT and IoT based interactive ads display terminals, digital ads distribution platform, and digital ads distribution service replacing standalone floor-mounted display terminals mostly for community management or catalog advertising and IoT elevator management devices offered in 2016. We have outsourced production for our CAT and IoT technology based ads display terminals that has provided significant cost savings. We have also generated revenue from saleshigher margin of software revenue and cryptocurrency mining. We expect the gross margin of 2022 will increase slightly due to the new business developments in block chain related ~~products and services, which have demanded a high gross margin.~~businesses.

Administrative expenses. Our administrative expenses consist primarily of compensation and benefits for our general management, finance and administrative staff, professional advisor consulting fees, audit fees, and other expenses incurred in connection with general operations. Our administrative expenses decreased by ~~$4.7~~$3.8 million, or ~~56.59%~~22.9%, to ~~$3.6~~$12.9 million for the year ended December 31, ~~2017,~~2021, from ~~$8.3~~$16.7 million for the year ended December 31, ~~2016.~~2020. As a percentage of revenue, administrative expenses decreased to ~~19.91%~~51.9% for ~~2017,~~2021, from ~~81.84%~~151.0% for ~~2016.~~2020. Such decrease was primarily due to ~~reductions~~a decrease of $8.0 million in ~~provision~~allowance for ~~bad debt reserve, foreign currency fluctuation exposure,~~credit losses, offset by an increase in share-based compensation of $2.4 million to certain employees and ~~head counts for~~consultants. We expect that the ~~TIT segment~~administrative expenses in 2022 will decrease as a result of the ~~transformation~~decrease of ~~our business model.~~allowance of credit losses with the recovery of out-of-home advertising market and overall economy of China, and the decrease of share-based compensation to employees. As a percentage of revenue, administrative expenses will decrease as result of the decrease of its amount and the expected additions of new revenue streams.

Research and development expenses. Our research and development expenses consist primarily of personnel related expenses, as well as costs associated with new software and hardware development and enhancement. Our research and development expenses increased by ~~$1.0~~$0.6 million, or ~~32.39%~~15.2%, to ~~$4.0~~$4.5 million for the year ended December 31, ~~2017,~~2021, from ~~$3.0~~$3.9 million for the year ended December 31, ~~2016.~~2020. Such increase was primarily due to the increase of depreciation of ~~software newly purchased in 2017~~R&D related hardware equipment and software, ~~used for~~and the ~~digital ads distribution~~increase in payroll and ~~sharing platform servicing our customers~~benefits to ~~efficiently and cost effectively promote their branding.~~R&D staff. As a percentage of revenue, research and development expenses decreased to ~~22.16%~~18.0% for ~~2017,~~2021, from ~~29.87%~~35.2% for 2020. We expect that the R&D expenses in ~~2016.~~2022 will increase as a result of our business expansion in the blockchain related applications, while as a percentage of revenue, R&D expenses will slightly decrease.

Selling expenses. Our selling expenses consist primarily of the compensation and benefits to our sales and marketing staff, traveling costs, and other selling activities related costs. Our selling expenses decreased by ~~$0.2~~$0.02 million, or ~~16.08%~~2.8%, to ~~$1.1~~$0.69 million for the year ended December 31, ~~2017,~~2021, from ~~$1.3~~$0.71 million for the year ended December 31, ~~2016.~~2020. This decrease was due to the ~~further reduction in sale force~~decrease of the ~~TIT segment.~~amortization expenses, offset by the increased payroll expenses of sales department which was in line with the increase in revenues. We expect that the selling expenses in 2022 will slightly increase in line with revenue increase, while as a percentage of revenue, selling expenses will slightly decrease.

~~Impairment of intangible assets and goodwill~~. As we transitioned our business focus from the public sector to the private sector and from a hardware manufacturer to a software and Cloud-Application-Terminal based solutions provider, we analyzed our operations and tested our goodwill and intangible assets for impairment in 2017 and 2016. We recognized goodwill impairment loss of $0 million and $4.4 million for the years ended December 31, 2017 and 2016, respectively.

Subsidy income. Because we have developed a number of new products that are promoted and designated by the Chinese government as highly innovative technology, we received governmental subsidies of ~~$0.5~~$0.2 million and ~~$0.2~~$0.6 million in ~~for the~~ years ended December 31, ~~2017~~2021 and ~~2016,~~2020, respectively.

~~Loss on disposal of consolidated entities~~. In August 2016, we disposed of our wholly-owned subsidiary Dongguan Information Security Technology (China) Co., Ltd. to an unrelated third party, as the Company determined that it was no longer necessities for the organization. The disposal resulted in a loss of approximately $0.6 million for the year ended December 31, 2016. In December 2017, we also dissolved HPC, which no longer served, affiliated, or controlled any of our subsidiaries and provided no value to the Company after various re-organizations. The dissolution of HPC has no effect on our financial result.

~~Loss on sale of deposits for land-use right.~~In September 2016, due to the shift of business strategy and transformation of our business, we terminated the purchase agreement with Dongguan municipal government for purchase of a piece of land located in Dongguan. In addition, we sold the land-use right deposit receivable of approximately $13.2 million without recourse to an unrelated party, in a consideration of approximately $10.4 million with an installment payment plan until December 31, 2019. The sale of deposit receivable resulted in a loss of approximately $2.8 million.

Other income (loss) ~~income~~. Other income for the year ended December 31, ~~2017~~2021 was approximately ~~$0.3~~$0.4 million, compared to other loss of approximately ~~$0.3~~$0.6 million in ~~2016.~~2020. Other income in ~~2017~~2021 was mainly ~~attributed to~~ the income of $0.4 million gain on sale of cryptocurrencies, the income of the return of tax payable accrued in prior years of $0.4 million, offset by the loss of inventory write-off of ~~long-aged payables offset by other loss. Other loss in 2016 was primarily due to the disposal of obsolete inventories.~~$0.3 million.

Interest expense. Interest expense for the year ended December 31, ~~2017~~2021 was approximately ~~$0.5~~$0.9 million, compared to interest expense of approximately ~~$0.5~~$1.0 million in ~~2016, as consistent with outstanding short-term bank loans for both years.~~2020. The decrease of interest expense in 2021 was mainly due to the decrease of interest accrual and the amortization of debt discount from issuance of convertible notes in 2020.

Income tax expense. We recorded income tax ~~benefit~~expense of ~~$1.1 million~~$5,321 for the year ended December 31, ~~2017,~~2021, as compared to ~~$57,844~~$71,316 of income tax ~~expense~~benefit in ~~2016, which~~2020, primarily as a result of the decrease of reclaims of excess accrual of income tax payable in the prior years.

~~Change in fair value of warrants liability~~. In 2017, we recorded a gain of approximately $3,000 in change in the fair value of the warrant derivative liability in comparison to a $34,000 of gain recorded in 2016, in connection with our equity offering closed in May 2015.

~~Net (loss) income attributable to Company~~. As a result of the cumulative effect of the foregoing factors, we had a net income attributable to the Company of $0.9 million for the year ended December 31, 2017, as compared to a net loss of $18.2 million for the year ended December 31, 2016.

~~The following table sets forth key components of our results of operations for fiscal years ended December 31, 2016 and 2015, both in dollars and as a percentage of our revenue.~~

~~Revenue~~. We generate revenues from selling hardware, software, system integration, software as a service, and other technology-related services. For the year ended December 31, 2016, our revenue was $10.2 million, slightly decreased from $10.3 million for the year ended December 31, 2015. The decrease was primarily due to our continuing transition from a traditional custom-made IT software development and system integrations (TIT) provider to the public sector to a cloud-based technology (CBT) solutions provider to private enterprise.

~~The following table shows our revenue, percentage of revenue, cost of revenue, and gross margin, by revenue categories:~~

~~A breakdown of revenue, percentage of revenue, cost of revenue and gross margin by segments is as follows:~~

~~Cost of revenue and gross profit~~. As indicated in the tables above, our cost of revenue increased by $1.2 million, or 19.21%, to $7.6 million, for the year ended December 31, 2016, from $6.4 million for the year ended December 31, 2015. As a percentage of revenue, our cost of revenue increased to 74.63% during the year ended December 31, 2016, from 62.04% during the year ended December 31, 2015. As a result, gross profit as a percentage of revenue was 25.37% for the year ended December 31, 2016, a decrease of 12.59% from 37.96% for the year ended December 31, 2015. The decrease in the overall gross margin primarily resulted from significant deterioration of cost position in the TIT segment as revenue declined by 50% from the prior year with same level of cost of revenue consisting of maintenance fees for certain close-out government projects. An increase in sales of our cloud-based elevator advertising terminal, a standardized product consisting of screen hardware, our proprietary cloud software, and service, also contributed a moderate decrease in gross margin.

~~Administrative expenses~~. Our administrative expenses consist primarily of compensation and benefits for our general management, finance and administrative staff, professional advisor consulting fees, audit fees, and other expenses incurred in connection with general operations. Our administrative expenses decreased by $2.9 million, or 25.67%, to $8.3 million for the year ended December 31, 2016, from $11.2 million for the year ended December 31, 2015. As a percentage of revenue, administrative expenses decreased to 81.84% for 2016, from 109.13% for 2015. Such decrease was primarily due to our continued transition to the CBT business, which resulted in reduction in headcount and overhead in traditional TIT business segment.

~~Research and development expenses~~. Our research and development expenses consist primarily of personnel related expenses, as well as costs associated with new software and hardware development and enhancement. Our research and development expenses decreased by $0.4 million, or 11.66%, to $3.0 million for the year ended December 31, 2016, from $3.5 million for the year ended December 31, 2015. As a percentage of revenue, research and development expenses decreased to 29.87% for 2016, from 33.51% in 2015. Research and development expenses were consistent with prior year.

~~Selling expenses~~. Our selling expenses consist primarily of compensation and benefits to our sales and marketing staff, traveling costs, and other selling activities related costs. Our selling expenses decreased by $1.3 million, or 49.87%, to $1.3 million for the year ended December 31, 2016, from $2.7 million for the year ended December 31, 2015. This decrease was attributed to our continuous downsizing of sales force in TIT segment.

~~Impairment of intangible assets and goodwill~~. As we transition our business focus from the public sector to the private sector, and from a hardware manufacturer to a software and cloud-based solutions provider, we analyzed our operations and tested our goodwill and intangible assets for impairment in 2016 and 2015. We recognized goodwill and intangible assets impairment loss of $4.4 million and $8.9 million for the periods ended December 31, 2016 and 2015, respectively.

~~Impairment of property, plant and equipment~~. As a result of shifting our business strategy from a hardware manufacturer to a software and cloud-based solutions provider we started closing our factory in late 2014, and began selling most of our manufacturing related property, plant, and equipment and disposing of the remainder. Closure of factory was completed in 2015. Consequently, we recorded $-0- million and $4.6 million of impairment in property, plant and equipment for the years ended December 31, 2016 and 2015, respectively.

~~Subsidy income~~. Because we have developed a number of products that are promoted and designated by the Chinese government as highly innovative technology, we received governmental incentivized subsidies of $0.2 million and $0.5 million in for the years ended December 31, 2016 and 2015, respectively.

~~Gain on sale of assets~~~~. As previously discussed, we completed the sale of our factory related real estate property and resulted in a gain of approximately $30.0 million on the sale of these assets.~~

~~Loss on disposal of consolidated entities~~. In August 2016, we disposed of our wholly-owned subsidiary Dongguan Information Security Technology (China) Co., Ltd. (“IST DG”) to an unrelated third party, as the company determined that it was no longer necessities for the organization. The disposal resulted in a loss of approximately $0.6 million for the year ended December 31, 2016.

~~Other (loss) income.~~Other loss for the year ended December 31, 2016 was approximately $0.3 million, compared to other income of approximately $0.8 million in 2015. Other loss in 2016 was primarily due to the disposal of the obsolete inventories.

~~Interest expense.~~Interest expense for the year ended December 31, 2016 was approximately $0.5 million, significantly decreased from approximately $3.1 million in 2015. The decrease was primarily a result of the shrink of our short-term bank loans in 2016.

~~Income tax expense~~. We recorded income tax expense of $57,844 in 2016, as compared to $4.3 million of income tax expense in 2015, which was attributable to gain on sales of assets. The income tax expense decrease was primarily due to our operating loss in 2016.

~~Change in fair value of warrants liability~~. In 2016, we recorded a gain of approximately $34,000 in change in the fair value of the warrant derivative liability in comparison to a $5.7 million of expense recorded in 2015, in connection with our equity offering closed in May 2015.

Net loss attributable to Company. As a result of the cumulative effect of the foregoing factors, we ~~incurred~~had a net loss attributable to the Company of ~~$18.2~~$9.9 million for the year ended December 31, ~~2016,~~2021, as compared to a net loss of ~~$7.5~~$17.7 million for the year ended December 31, ~~2015.~~2020.

The following table sets forth key components of our results of operations for fiscal years ended December 31, 2020 and 2019, both in dollars and as a percentage of our revenue.

Revenue. We generate revenues from selling hardware, software, system integration, software as a service, and other technology- related services to customers including TNM and its affiliates. TNM was controlled by our CEO, Mr. Lin. We have identified TNM and its affiliates as related parties. For the year ended December 31, 2020, our total revenue was $11.0 million, of which approximately $0.5 million was from related parties, compared to total revenue of $13.8 million for the year ended December 31, 2019, a decrease of $2.8 million, or 20%. The decrease was primarily due to the impact of the Covid-19 pandemic and the unfavorable macro environment and the slowdown of the out-of- home advertising market in China in 2020.

In 2020, COVID-19 adversely affected our business expansion in the out-of-home advertising market, which resulted in the decrease of ad-terminal sales to Taoping affiliates. In the meantime, we input more efforts in the sales of customized software development and super computer with low margin, for the purpose of expanding more revenue-stream under the adverse environment of 2020. Revenue generated from sales of customized software development and high-end data storage server in 2020 was $3.1 million and $4.6 million, respectively. With our well-established sales channel and business expansion in the blockchain related business, we will continue to sell high-end data storage server and cryptocurrency mining machine in 2021.

The following table shows our revenue, percentage of revenue, cost of revenue and gross margin, by revenue categories:

A breakdown of revenue, percentage of revenue, cost of revenue and gross margin by segments is as follows:

Cost of revenue and gross profit. As indicated in the tables above, our cost of revenue decreased by $0.1 million, or 1.0%, to $7.1 million, for the year ended December 31, 2020, from $7.2 million for the year ended December 31, 2019. As a percentage of revenue, our cost of revenue increased to 64.4% during the year ended December 31, 2020, from 52.1% during the year ended December 31, 2019. As a result, gross profit as a percentage of revenue decreased to 35.7% for the year ended December 31, 2020 from 47.9% for the year ended December 31, 2019. The decrease in the overall gross margin primarily resulted from the increase in sales revenues of cloud server which usually demand lower margin. We expect the gross margin of 2021 will increase as result of the new additions of cloud-based education business and blockchain related revenue.

Administrative expenses. Our administrative expenses consist primarily of compensation and benefits for our general management, finance and administrative staff, professional advisor consulting fees, audit fees, and other expenses incurred in connection with general operations. Our administrative expenses increased by $10.0 million, or 150.9%, to $16.7 million for the year ended December 31, 2020, from $6.6 million for the year ended December 31, 2019. As a percentage of revenue, administrative expenses increased to 151.0% for 2020, from 48.3% for 2019. Such increase was primarily due to an increase of $12.8 million in allowance for credit losses of receivable, as a result of the slowdown of the out-of-home advertising industry in China and the deterioration of certain customers’ financial conditions as negatively impacted by the Covid-19 pandemic. Given the unfavorable outlooks of overall economy and the out-of-home advertising market, we will continue to control our administrative expenses, by investing more efforts in the collection of accounts receivable and expenses and fees control. We expect that the administrative expenses in 2021 will decrease as a result of the decrease of allowance of credit loss with the recovery of out-of-home advertising market and overall economy of China. As a percentage of revenue, administrative expenses will decrease as a result of the foregoing and the expected additions of new revenue streams.

Research and development expenses. Our research and development expenses consist primarily of personnel related expenses, as well as costs associated with new software and hardware development and enhancement. Our research and development expenses increased by $0.3 million, or 8.3%, to $3.9 million for the year ended December 31, 2020, from $3.6 million for the year ended December 31, 2019. Such increase was primarily due to the increase of depreciation of R&D related hardware equipment and software. As a percentage of revenue, research and development expenses increased to 35.2% for 2020, from 26.1% in 2019. We expect that the R&D expenses in 2021 will increase as a result of our business expansion in the cloud-based education program and the blockchain related applications, while as a percentage of revenue, R&D expenses will slightly decrease.

Selling expenses. Our selling expenses consist primarily of the compensation and benefits to our sales and marketing staff, traveling costs, and other selling activities related costs. Our selling expenses increased by $0.2 million, or 36.4%, to $0.7 million for the year ended December 31, 2020, from $0.5 million for the year ended December 31, 2019. This increase was due to the increase of the marketing expense in support of our nationwide Taoping network. We expect that the selling expenses in 2021 will increase as a result of the acquisition of Taoping New Media and the business expansion in the cloud-based education program, while as a percentage of revenue, selling expenses will slightly decrease.

Subsidy income. Because we have developed a number of new products that are promoted and designated by the Chinese government as highly innovative technology, we received governmental subsidies of $0.6 million and $0.4 million in years ended December 31, 2020 and 2019, respectively.

Other (loss) income. Other loss for the year ended December 31, 2020 was approximately $0.6 million, compared to other income of approximately $0.2 million in 2019. Other loss in 2020 was mainly the loss of arbitration of $0.2 million due to dispute of certain sales contracts entered in prior years, accrued possible loss of $0.1 million for a legal proceeding regarding a customer’s bankruptcy claim, a loss of $0.2 million on return of prior year government conditional funding and inventory write-off of $0.1 million.

Interest expense. Interest expense for the year ended December 31, 2020 was approximately $1.0 million, compared to interest expense of approximately $0.5 million in 2019. The increase of interest expense in 2020 was mainly due to the interest accrual and the amortization of debt discount from issuance of convertible notes in 2020.

Income tax expense. We recorded income tax benefit of $0.07 million for the year ended December 31, 2020, as compared to $0.3 million of income tax benefit in 2019, primarily as a result of reversal of income tax payable in the prior years.

Net (loss) income attributable to Company. As a result of the cumulative effect of the foregoing factors, we had a net loss attributable to the Company of $17.7 million for the year ended December 31, 2020, as compared to net loss of $3.6 million for the year ended December 31, 2019.

Inflation does not materially affect our business or the results of our operations.

See Item 11 “Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Risk.”

In January 2020, the Company adopted ASU 2016-13, Topics 326-Credit Losses, Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology, as its accounting standard for its trade accounts receivable.

The Company considers the following factors when determining whether to permit a longer payment period or provide other concessions to customers:

The normal credit term is ranging from 1 month to 3 months after the customers’ acceptance of hardware or software, and completion of services. However, because of various factors of business cycle, the actual collection of outstanding accounts receivable may be beyond the normal credit terms.

In accordance with ASC 210-10-45, the non-current accounts receivable and non-current accounts receivable-related parties represent the amounts that the Company does not reasonably expect to be realized during the normal operating cycle of the Company. Considering the limited operating history with the customers and Taoping Alliance members, in accordance with ASC 210-10-45, the operating cycle of the Company is not identifiable. Therefore, the Company uses one-year time period as the basis for the separation of current and non-current assets.

The allowance for credit losses at December 31, 2021 and 2020, totaled approximately $27.3 million and $21.2 million, respectively, representing management’s best estimate. The following table describes the movement for allowance for credit losses during the year ended December 31, 2021.

Although the COVID-19 pandemic has largely been contained in China, ripple effect of negative impact from the pandemic to the out-of-home advertising business sector continues in 2021. In the first quarter of 2021, the Company completed three financing transactions issuing 3,140,740 ordinary shares in total with aggregate proceeds of $13.1 million net of issuance costs. In July 2021, the Company consummated a financing transaction issuing 1,200,000 ordinary shares and warrants with aggregate proceeds of $4.73 million net of issuance cost. Proceeds from all financing activities were used to increase the Company’s working capital.

The following table summarizes the key cash flow components from our consolidated statements of cash flows for the periods indicated.

Net cash used in operating activities was $16.1 million for the year ended December 31, 2021 and net cash used in operating activities was $1.8 and $1.7 million for the year ended December 31, 2020 and 2019. Net cash used in operating activities were primarily attributed to increase in advance to suppliers for approximately $4.3 million and approximately $9.8 million for reduction of our payable liabilities. As a result of the unfavorable macro environment and the slow-down of the out-of-home advertising industry in China, we had a net loss of $9.9 million in 2021, comparing to a net loss of $18.3 million in 2020 and a net loss of $3.6 million in 2019, respectively.

Net cash used in investing activities was $14.0 million and $1.7 million for the year ended December 31, 2021 and 2020, respectively, and net cash provided by investing activities was $0.2 million for the year ended December 31, 2019. Net cash used in investing activities in 2021 was mainly due to the purchase of property and equipment of approximately $11.3 million, and the consideration paid for acquisition of $7.3 million, offset by the proceeds from sales of cryptocurrencies of $4.5 million.

Net cash provided in financing activities was $33.0 million for the year ended December 31, 2021, mainly attributable to receipts of the borrowings from related party of $3.1 million, and net proceeds of $28.3 million from issuance of ordinary shares through private placement offerings. Net cash provided by financing activities was $3.1 million for the year ended December 31, 2020, mainly attributable to the receipts of $2.7 million of net proceeds from a convertible note financing, and $1.2 million of net proceeds from private placement. Net cash provided by financing activities was $1.6 million for the year ended December 31, 2019, mainly attributable to the receipts of $1.0 million net proceed from a convertible note financing.

Although the COVID-19 pandemic has largely been contained in China, regional outbreaks of infections persist in various localities. The negative impact from the pandemic to the out-of-home advertising business continued throughout 2021. However, our revenue achieved 124.6% year-over-year increase as a result of the additions of cryptocurrency mining operations and the acquisition of TNM for the year 2021. The Company has significantly improved profitability by $8.4 million by reducing net loss to $9.9 million for the year ended December 31, 2021 from $18.3 million a year ago. Cash and cash equivalents held by the Company on December 31, 2021 was $4.5 million, compared to cash and cash equivalents of $1.1 million a year ago.

The Company incurred a net loss of approximately $9.9 million for year ended December 31, 2021, which was mainly due to the provision of allowance of credit losses and the expenses of stock-based compensation, compared to a net loss of $18.3 million for 2020. As of December 31, 2021, the Company had a working capital deficit of approximately $6.3 million, improved from a working capital deficit of $17.4 million as of December 31, 2020.

In the first quarter of 2021, the Company completed three financing transactions issuing 3,140,740 ordinary shares in total with aggregate proceeds of $13.1 million net of issuance costs. In July 2021, the Company consummated a financing transaction comprising of 1,200,000 ordinary shares, and warrants with aggregate proceeds net of issuance cost of $4.73 million. Proceeds from all financing activities were to increase the Company’s working capital.

If the Company’s execution of business strategies is not successful in addressing its current financial concerns, additional capital raise from issuing equity security or debt instrument or additional loan facility may occur to support required cash flows. However, the Company can make no assurances that financing will be available for the amounts we need, or on terms commercially acceptable to us, if at all. If one or all of these events do not occur or subsequent capital raise was insufficient to bridge financial and liquidity shortfall, substantial doubt exists about the Company’s ability to continue as a going concern. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. To overcome the going concern issue, the Company will actively seek opportunities to achieve revenue growth through strategic acquisitions on digital advertising, new revenue streams development, and significant expansion of computing power for cryptocurrency mining operations. In addition to cash generating from business, the Company has secured at least $8 million revolving bank facility line which provides important capital support for its operation.

Our subsidiaries organized in the PRC may pay dividends only out of their accumulated profits. Our PRC subsidiaries are required to set aside at least 10% of their after-tax profit to their general reserves until such reserves cumulatively reach 50% of their respective registered capital. General reserves of our PRC subsidiaries are not distributable as cash dividends. Restrictions on our net assets also include the conversion of local currency into foreign currencies, tax withholding obligations on dividend distributions, the need to obtain approval from SAFE for loans to a non-PRC consolidated entity, and the covenants or financial restrictions related to outstanding debt obligations. We are not aware of other restrictions on our net assets or the transferability of assets via loans or advances to our non-PRC consolidated entities. As our operations are principally based in China, our non-PRC consolidated entities do not have material cash obligations.

The following table provides the amount of our statutory general reserve, the amount of restricted net assets, consolidated net assets, and the amount of restricted net assets as a percentage of consolidated net assets, as of December 31, 2021 and 2020:

An offshore holding company, as a shareholder of a Foreign Investment Entity (FIE), can make loans to the FIE, provided the parties being in compliance with the PRC regulations governing such loans. Our parent company can make a shareholder loan to a PRC subsidiary provided that (i) the amount of the loan does not exceed the difference between the total investment and registered capital as approved by the local Administration for Industry and Commerce that issued the business license of the subsidiary; and (ii) before the loan can be converted into RMB, the subsidiary reports to SAFE the intended use of proceeds (which cannot be to purchase domestic assets). The subsidiary can finance the operations of iASPEC in accordance with the terms of the MSA with iASPEC.

As of December 31, 2021 and 2020, the breakdown of our cash and cash equivalents (including restricted cash) was as follows:

We do not believe that there would be any material costs to transfer cash outside the PRC. In addition, as our operations are principally based in China, our non-PRC consolidated entities do not incur material cash obligations. If nature of the businesses for our non-PRC consolidated entities have changed in the future and require material amounts of cash being transferred to them, we will assess the feasibility and plan cash transfers in accordance with foreign exchange regulations, taking into account of tax consequences. A company registered in mainland China must apply for and receive an approval from the State Administration of Foreign Exchange to remit foreign currency to any foreign country, and must comply with PRC statutory reserve requirement as disclosed in Item 3 Key Information – D. Risk Factor of this annual report. As we conduct all of our operations in China, our inability to convert cash and short-term investments held in RMB to other currencies will materially affect our liquidity.

Our industry is characterized by extremely rapid technological change, evolving industry standards, and changing customer demands. These conditions require continuous expenditures on product research and development to enhance existing products, create new products, and avoid product obsolescence. See Item 3 “Key Information—D. Risk Factors—If we are unable to develop and offer competitive new products and services, our future operations could be adversely affected,” —”If we are unable to keep abreast with the rapid technological changes in our industry, demand for our products and services could decline and adversely affect our revenue and growth,” and —”Our technology may become obsolete, which could materially adversely affect our ability to sell our products and services.” For a detailed analysis of research and development costs, see Item 5.A. “Operating Results—Results of Operations—Research and development expenses”.

Other than as disclosed elsewhere in this annual report, we are not aware of any trend, uncertainty, demand, commitment or event that is reasonably likely to have a material effect on our net revenues and income from continuing operations, profitability, liquidity, capital resources, or would cause reported financial information not necessarily to be indicative of future operation results or financial condition.

The preparation of financial statements in conformity with U.S. GAAP requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

Beginning January 1, 2018, the Company has adopted the ASU 2014-09, Topic 606, “Revenue from Contracts with Customers” and its related amendments (collectively referred to as “ASC 606”) for its revenue recognition accounting policy that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In accordance with the ASC 606, the Company recognizes revenues net of applicable taxes, when goods or services are transferred to customers in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods or services.

The Company generates its revenues primarily from ~~four sources,~~five sources: (1) ~~hardware~~product sales, (2) software ~~subscription,~~sales, (3) ~~software sales,~~advertising, (4) cryptocurrency mining, and ~~(4) system integration services. The Company’s revenue recognition policies~~(5) other sales. Revenue is recognized when obligations under the terms of a contract with our customers are ~~in accordance with SEC Staff Accounting Bulletin No. 104, "Revenue Recognition", FASB ASC No. 605-35 "Construction-Type~~satisfied, generally, upon delivery of the goods and ~~Production-Type Contracts" ("FASB ASC 605-35"),~~services and ~~FASB ASC No. 605-25 “Multiple-Element Arrangements” (“FASB ASC 605-25”) , and FASB ASC 985-605 “Software –~~ receipts of cryptocurrencies from cryptocurrency mining pools.

~~Hardware~~Product revenues are generated primarily from the sales of elevator IoT box and display technology products, and are recognized only when persuasive evidence of an arrangement exists, delivery has occurred and upon receipt of customers’ acceptance, the price to the customer is fixed or determinable in accordance with the contract, and collectability is reasonably assured. Hardware products include hardware and software essential to the hardware products’ functionalities. The Company accounts for hardware sales in accordance with FASB ASC 605-25. Accordingly, the Company has identified three deliverables regularly included in arrangements involving the sale of ~~hardware products. The first deliverable, which represents the substantial portion of the allocation sales price, is the hardware and~~Cloud-Application-Terminal based digital ads display terminals with integrated software essential to the functionality of the hardware to our customers (inclusive of related parties) and high-end data storage servers. Although manufacturing of the products ~~delivered at the time of sale. The second deliverable is the embedded right to receive on a when-and-if-available basis, future unspecified software upgrades relating~~has been outsourced to the products essential software. The third deliverable is the non-software services to be provided to the hardware products. The Company allocates revenue among these deliverables using the relative selling price method. BecauseCompany’s Original Equipment Manufacturer (OEM) suppliers, the Company has ~~neither Vendor-Specific Objective Evidence~~acted as the principal of ~~fair value (VSOE) nor Third-Party Evidence of Selling Price (TPE) for these deliverables,~~ the ~~allocation of revenue is based on~~contract. The Company recognized the ~~Company’s ESPs. Revenue allocated to the delivered hardware and related essential software is recognized~~product sales at the ~~time~~point of ~~sales provided other conditions for revenue recognition have been met.~~

The Company’s process for determining its EPS for deliverables without VSOE or TPE considers multiple factors that may vary depending on the unique facts and circumstances related to each deliverable, including, where applicable, prices charged by the Company and market trends in the pricing for similar offerings, product specifics business objectives, estimated cost to provide the non-software services and the relative ESP of the upgrade rights and non-software services as compared to the total selling prices of the products. The Company has indicated it may from time to time provide future unspecified software upgrades to the hardware products’ essential software and/or non-software services free of charge.

In November 2014, the Company began outsourcing production of hardware to its OEM partners. The Company also shifted after-sale support of hardware to its original equipment manufacturer (OEM) partners for hardware products sold to its private-sector customers. The Company’s OEM partners are ultimately responsible for support and product warranty of hardware. Therefore, the Company normally does not defer hardware revenue for potential product warranty. Hardware sales are classified on the “Revenue-products” line on the Company’s consolidated statements of operations.

Starting in the fourth quarter of 2014, the Company began to generate software subscription revenues from the private sector. The basis for the Company’s software subscription revenue recognition is substantially governed by the accounting guidance contained in ASC 985-605, Software-Revenue Recognition.

In the private sector, the Company’s customers pay software subscription fee for the right to access and use the Company’s proprietary Cloud-Application-Terminal platform, which does not require significant customization and modification to the customers’ specifications. For software subscription arrangements that usually do not require customers’ acceptance, the Company’s customers subscribe to the Company’s Cloud-Application-Terminal platform as a service. The Company generates software-as-a-service (SaaS) revenues selling its Cloud-based Technology platform as a monthly subscription service. The Company’s SaaS revenues are generally recognized ratably over the contract term commencing with the date its service is made available to customers and all other revenue recognition criteria have been satisfied, when: (1) the Company enters into a legally binding agreement with a customer for the subscription of software platform; (2) the Company delivers the products; (3) the sale price is fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Revenues from software subscription contracts are classified on the “Revenue Software” line on the Company’s consolidated statements of operations.delivery. The Company has indicated that it may from time to time provide future unspecified software upgrades to the ~~Company’s Cloud-Application-Terminal platform~~hardware products’ essential software, which is expected to be infrequent and, free of charge.

Non-software ~~element arrangements of~~service is mainly the one-time training technical support, and future unspecified software upgrades related to use our Cloud-Application-Terminal platform are included in the monthly subscription fee. The facts of training to use our Cloud-Application-Terminal platform being a one-time event during the first introduction of the platformsession provided to the ~~customers, technical support being on~~customer to familiarize them with the software operation upon the customer’s initial introduction to the software platform. The costs of providing infrequent software upgrade and training are de minimis. As a needed basis, and software upgrades being infrequent on the when-and-if-available basis and free of charge, the fair value of these elements is immaterial to overall monthly software subscription based on the Company’s best estimate, andresult, the Company does not allocate ~~any portion of~~transaction price to software ~~subscription revenue to the non-software elements~~upgrade and ~~does not defer revenue associated with non-software elements. The Company will continuously monitor the fair value of these elements and see if the cost would be material to allocate the fair value.~~

Customers typically subscribe to SaaS offerings on a three-to-five-year basis to obtain access to the Company’s display terminals deployed on their premises and to the Company’s cloud-based software hosted on their server via the Internet. Although the duration of some of the Company’s SaaS contracts are longer than 75% of the economic life of the hardware equipment, because in the PRC payment collection beyond any three-year term is highly uncertain, the Company has chosen to recognize its SaaS revenues ratably over the contract term. Revenues from SaaS contractscustomer training. Product sales are classified ~~on the “Revenue-Software” line~~as “Revenue-Products” on the Company’s consolidated statements of operations.

Customers ~~pay~~in the private sector contract the Company ~~a fixed price~~ to design and develop software products specifically customized for their ~~needs.~~needs for a fixed price. Software development projects usually include developing software, integrating various isolated software systems into one, and testing the system. The design and build services, together with the integration of the various elements, are generally determined to be essential to the functionality of the delivered ~~software, and accordingly revenue~~software. The contracted price is ~~recognized using the percentage of completion method of accounting~~usually paid in ~~accordance with FASB ASC 985-605. The percentage of completion for each contract is estimated~~installments based on progression of the ~~ratio~~project or at the delivery of ~~direct labor hours incurred~~the software. The Company usually provides non-software services including after-sale support, technical training. The technical training only occurs at the introduction of the software. The software is highly specialized and stable, after-sale support and subsequent upgrade or enhancement are infrequent. The Company has estimated the costs associated with the non-software performance obligations and concludes that these obligations are de minimis to ~~total estimated direct labor hours.~~the overall contract. Therefore, the Company does not further allocate transaction price.

The Company usually completes the customized software contracts less than 12 months and recognizes the revenue at the point of delivery because the Company does not have an enforceable right to payment for performance completed to date. Revenues from software development contracts ~~do not include either hardware or system integration, and~~ are classified ~~on the~~as “Revenue-Software” ~~line~~ on the Company’s consolidated statements of operations.

The ~~related technical support~~Company generates revenues primarily from providing advertising slots to customers to promote their businesses by broadcasting advertisements on identifiable digital ads display terminals and ~~maintenance services are generally sold separately as stand-alone contracts. Revenues~~vehicular ads display terminals in different geographic regions and locations through a cloud- based new media sharing platform. 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 ~~these services are recognized as services are performed or ratably~~advertisement broadcasting contracts with customers over the ~~term of service period.~~contracted advertising duration.

For software products that do not require significant modification or customization, the Company will provide subsequent software updates and support. Such software sales are recognized and classified on the “Revenue-Software” line on the Company’s consolidated statements of operations.

The Company has ~~identified two deliverables regularly included~~entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts are terminable under certain circumstances. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency awards the mining pool operator receives (less digital asset transaction fees to the mining pool operator, if any.) for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in ~~arrangements involving~~solving the ~~sale~~current algorithm.

Providing computing power in digital asset transaction verification services is an output of ~~software products~~the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contract with mining pool operator.

The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value using the quoted price of the related cryptocurrency on the date received, which is not materially different than the fair value at the contract inception or at the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur (ASC 606-10-32-11), the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm), and the rights to receive, on a when-and-if-available basis, future unspecified software upgrades and support and maintenance. Because software is highly specialized and stable, subsequent upgrade or enhancement is infrequent. The fair value of software support and maintenance is immaterial estimating approximately $50,000 per annum. Therefore the Company ~~does not allocate any portion of revenue to future upgrades or support.~~

System integration revenues are generated from fixed-price contracts which combine both customized software development and integration, and non-customized hardware. System integration projects usually include the purchase of hardware, software development, and integration of various systems into one, and testreceives confirmation of the ~~system. Accordingly, system integration revenues contain multiple deliverables consisting~~consideration it will receive, at which time revenue is recognized. There is no financing component, nor allocation of ~~two separate units of account (1) software development~~transaction price in these transactions.

The Company also reports other revenue which comprises revenue generates from System upgrade and ~~integration,~~technical support services, platform service fee, and (2) hardware, both of which are clearly outlined in contracts executed with customers. Revenue from the software element is recognized using the percentage of completion method of accounting outlined above under software development contracts. Revenue from the hardware elementrental income.

System upgrade and technical support revenue is recognized when ~~all four revenue recognition criteria~~performance obligations are met, as outlined above under hardware revenues, which generally occurs upon customer’s acceptance. The hardware component of system integration projects consists of standard products and requires only minor modification and an insignificant amount of labor to meet customers’ needs. Collectively, revenues from system integration projects are recognized using percentage of completion based on the ratio of costs incurred to total estimated costs, and are classified on the “Revenue-System Integration” line on the Company’s consolidated statements of operations.

The Company accounts for system integration projects in accordance with FASB ASC 605-25. To determine the selling price of each unit of account included within the system integration contracts, the Company uses vendor-specific objective evidence (VSOE) for the software component, and third-party evidence for the hardware component. In addition, the Company provides post contract support (PCS), which includes telephone technical support that is not essential to the functionality of the software or hardware elements. Although VSOE does not exist for PCS, because (1) the PCS fees are included in the total contract amount, (2) the PCS service period is for less than one year, (3) the estimated cost of providing PCS is not significant, and (4) unspecified upgrades and enhancements offered are minimal and infrequent; the Company recognizes PCS revenue after delivery and customer acceptance.

~~Contract periods are usually less than six months, and typical contract periods for PCS are 12 months.~~

Customers are billed in accordance with contract terms, which typically require partial payment at the signing of the contract, partial payment at delivery and customer acceptance dates, with the remainder due within a stated period of time not exceeding 12 months. Occasionally, the Company enters into contracts which allow a percentage (generally 5%) of the total contract price to be paid one to three years after completion of a system integration project. Revenues on these extended payments are recognizedsatisfied upon completion of the ~~terms specified in~~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 ~~collectability is reasonably assured.~~allocate rental income among considerations in lease and non-lease components. The Company owns two units of office space renting out to a third party and TNM under non-cancelable operating lease agreements with lease terms of six years starting from May 1, 2016 and three years starting from July 1, 2019, respectively. 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 recognizes rental income.

After completion of the ~~Company’s public sector customers,~~business acquisition on June 9, 2021, TNM became a subsidiary of the Company, ~~remains responsible for providing after-sale support~~and is no longer a related party. The rental income from TNM has become an intercompany revenue and been eliminated since June 9, 2021.

The Company records advances from customers when cash payments are received or due ~~to contractual requirements specific to~~in advance of our performance.

The Company generally expenses sales commissions if any incurred because the ~~public sector. However, the original vendors of hardware are ultimately liable for replacement of defective~~amortization period would have been one year or ~~non-conforming products. Therefore,~~less. In many cases, the Company ~~normally~~is approached by customers for customizing software products for their specific needs without incurring significant selling expenses.

The Company does not ~~defer hardware revenue~~disclose the value of unsatisfied performance obligations for ~~potential product warranty.~~contracts with an original expected length of one year or less.

No rights of return are allowed except for non-conforming products, which have been insignificant based on historical experiences. If non-conforming products are returned due to software issues, the Company will provide upgrades or additional customization to suit the customers’ needs, which is infrequent with immaterial costs. In cases where nonconformity is a result of integrated hardware, the Company returns the hardware to the original vendor for replacement.

Changes in estimates for revenues, costs and profits are recognized in the period in which they are determinable. When the Company’s estimates indicate that the entire contract will be performed at a loss, a provision for the entire loss is recorded in the current accounting period.

As a result of our business transformation from traditional IT business to integrated cloud-based solutions, most IT projects performed by iASPEC are being phased out. The Company has recognized revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services.

In January 2020, the Company adopted ASU 2016-13, Topics 326-Credit Loss, Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology, as its accounting standard for its trade accounts receivable.

The adoption of the credit loss accounting standard has no material impact on the Company’s consolidated financial statements as of January 1, 2020. Accounts receivable are recognized and carried at ~~invoiced~~carrying amount less an allowance for ~~any uncollectible accounts,~~credit loss, if any. ~~We regularly evaluate and monitor the credit worthiness of our customers individually. We establish~~The Company maintains an allowance for ~~doubtful accounts~~credit losses resulting from the inability of its customers to make required payments based ~~upon estimates, historical experience~~on contractual terms. The Company reviews the collectability of its receivables on a regular and ~~other factors surrounding~~ongoing basis. The Company has further adjusted allowance for credit losses for the anticipation of future economic condition and credit risk indicators of ~~specific clients, and utilize both specific identification and a general reserve to calculate allowance for doubtful accounts. The amount~~customers, including the potential impact of ~~receivables ultimately not collected by us has generally been consistent with expectations and~~ the ~~allowance established for doubtful accounts.~~COVID-19 pandemic on its customers’ businesses. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. In the event the Company recovers amounts previously reserved for, the Company will reduce the specific allowance for credit losses.

The Company evaluates the creditworthiness of all of its customers individually before accepting them and continuously monitors the recoverability of accounts receivable. If there are any indicators that a customer may not make payment, the Company may consider making provision for non-collectability for that particular customer. At the same time, the Company may cease further sales or services to such customer.

We value inventories at the lower of cost (First-in-First-out “FIFO”) or 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. We perform analyses 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. Inventory impairments result in a new cost basis for accounting purposes.

Cryptocurrencies held, including Bitcoin and Ethereum, are accounted for as intangible assets with ~~FASB ASC topic 350, we review goodwill~~indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, ~~if an event occurs or circumstances change that would reduce the fair value below its carrying value.~~

We used the discounted cash flow method to estimate the fair value of our CBT and TIT reporting units. The goodwill impairment analysis is a two-step test on each reporting unit. Determining the fair value of a reporting unit involved the use of significant estimates and assumptions, such as revenue growth rate, gross profit rate, and discount rate.

Any goodwill and any fair value adjustment to the carrying amounts of assets and liabilities as a result of the acquisition of foreign operation shall be treated as assets and liabilities of that foreign operation. Thus they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate. As our acquired subsidiaries’ functional currency is RMB, goodwill as a result of these acquisitions is denominated in RMB. As our presentation currency is USD, the change of goodwill balance includes foreign exchange differences between each period or year-end.

~~Long-lived assets held and used by the Company are reviewed for impairment, whenever~~when events or changes in circumstances ~~indicate~~occur indicating that it is more likely than not 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 changes in the industry. Recoverability of an asset to be held and used is determined by comparing its carrying amount with the net undiscounted future cash flows it should generate. If suchindefinite-lived asset is ~~considered to be impaired,~~impaired. Impairment exists when the ~~impairment to be recognized is measured by how much its~~ carrying amount exceeds its fair ~~value. Assets held for disposal, if any, are reported~~value, which is measured using the quoted price of the cryptocurrency at the ~~lower of the carrying amount or~~time its fair value ~~less costs~~is being measured. In testing for impairment, the Company has the option to ~~sell.~~

~~Management reviews impairment of property, plant and equipment, if an event occurs or circumstances change that would~~first perform a qualitative assessment to determine whether it is more likely than not ~~reduce~~that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

Cryptocurrencies awarded to the Company through its mining activities are included within operating activities in the consolidated statements of cash flows. The sales of cryptocurrencies are included within investing activities in the consolidated statements of cash flows and any realized gains or losses from such sales are included in other income (expense) in the consolidated statements of operations. The Company accounts for its gains or losses in accordance with the first in first out (FIFO) method of accounting.

The Company’s long-term investment consists of investments accounted for under the equity method and equity investments without readily determinable fair value. Pursuant to ASC 321, equity investments, except for those accounted for under the equity method, those that result in consolidation of the investee and certain other investments, are measured at fair value, and any changes in fair value are recognized in earnings. For equity securities without readily determinable fair value and do not qualify for the existing practical expedient in ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) to estimate fair value using the net asset value per share (or its equivalent) of the investment, the Company elected to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any.

For equity investments that the Company elects to measure at cost, less any impairment, plus or minus changes resulting from observable price changes, the Company makes a qualitative assessment considering impairment indicators to evaluate whether investments are impaired at each reporting date. Impairment indicators considered include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee, including factors that raise significant concerns about the investee’s ability to continue as a going concern, a significant adverse change in the regulatory, economic, or technologic environment of the investee and a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates. If a qualitative assessment indicates that the investment is impaired, the entity has to estimate the investment’s fair value in accordance with the principles of ASC 820. For equity investments without readily determinable fair value, the Company uses Level 3 inputs of fair value accounting in accordance with ASC 820-10 and recognizes impairment loss other than temporary in the statement of operations equal to the difference between its initial investment and its proportional share of the net book value of the ~~property, plant and equipment to below~~investee’s net assets which approximates its ~~carrying~~fair value. ~~Management used the discounted cash flow method to estimate the~~

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 ~~property, plant~~net book value of investee’s net assets which approximates its fair value if those are determined to be other than temporary.

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 ~~equipment.~~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.

The Company accounts for lease under ASC 842 “Leases”, and also elects practical expedient not to separate non-lease component from lease components in accordance with ASC 842-10-15-37 and instead to account for each separate lease component and the non-lease components associated with that lease component as a single lease component. The Company also elects the practical expedient not to recognize lease assets and lease liabilities for leases with a term of 12 months or less.

The Company recognized a lease liability and corresponding right-to-use asset based on the present value of minimum lease payments discounted at the Company’s incremental borrowing rate. The Company records amortization and interest expense on a straight-line basis based on lease terms and reduces lease liabilities upon making lease payments.

Deferred income taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are recognized for all significant temporary differences at enacted rates and classified as non-current based upon the classification of the related asset or liability in the financial statements. A valuation allowance is provided to reduce the amount of deferred tax assets, if it is considered more likely than not that some portion, or all of the deferred tax asset will not be realized. The Company classifies interest and/or penalties related to unrecognized tax benefits, if any, as a component of income tax provisions.

~~Please refer to Note 2 to our audited consolidated financial statements for a discussion of relevant pronouncements.~~

As of December 31, ~~2017, we had cash~~2021 and ~~cash equivalents~~2020, our loan facilities were as follows:

Although the COVID-19 pandemic has largely been contained in China, regional outbreaks of ~~$3.3 million.~~

~~In previous years, with respect~~infections persist in various localities. The negative impact from the pandemic to ~~private-sector customers, we generally provided for~~the out-of-home advertising business continued throughout 2021. However, our revenue achieved 124.6% year-over-year increase as a ~~payment term~~result of ~~90 days. For certain strategic customers, we extended~~ the ~~payment term up to 120 days. Starting from 2015, we have implemented far more stringent cash collection policies than ever before. With our private-sector customers, we generally require 30%~~additions of ~~cash down payment at the signing of a sales contract~~cryptocurrency mining operations and the ~~reminder 70% to be paid prior to product shipment.~~

~~Management performs ongoing credit evaluations, and we maintain an allowance~~acquisition of TNM for potential credit losses based upon our loss history and our aging analysis. We estimated that the amount of probable credit losses in existing accounts receivable was equal to the allowance for doubtful accounts of $3.0 million as of December 31, 2017 and $2.6 million at December 31, 2016. The following table describes the movement in the allowance for doubtful accounts during the year ~~ended December 31, 2017:~~

2021. The ~~following table summarizes the key cash flow components from our consolidated statements of cash flows for the periods indicated.~~

~~Net cash provided~~Company has significantly improved profitability by ~~operating activities was $4.5~~$8.4 million by reducing net loss to $9.9 million for the year ended December 31, ~~2017,~~2021 from $18.3 million a year ago. Cash and cash equivalents held by the Company on December 31, 2021 was $4.5 million, compared to cash and cash equivalents of $1.1 million a year ago.

The Company incurred a net ~~cash used in operating activities was $2.8~~loss of approximately $9.9 million for ~~the~~ year ended December 31, ~~2016. As a result~~2021, which was mainly due to the provision of ~~a successful transformation~~allowance of ~~our business, we had a net income~~credit losses and the expenses of ~~$0.9 million in 2017 comparing~~stock-based compensation, compared to a net loss of ~~$18.5~~$18.3 million for ~~2016.~~2020. As of December 31, 2021, the Company had a working capital deficit of approximately $6.3 million, improved from a working capital deficit of $17.4 million as of December 31, 2020.

~~Net cash used~~In the first quarter of 2021, the Company completed three financing transactions issuing 3,140,740 ordinary shares in ~~investing~~total with aggregate proceeds of $13.1 million net of issuance costs. In July 2021, the Company consummated a financing transaction comprising of 1,200,000 ordinary shares, and warrants with aggregate proceeds net of issuance cost of $4.73 million. Proceeds from all financing activities were to increase the Company’s working capital.

An offshore holding company, as a shareholder of a Foreign Investment Entity (FIE), can make loans to the FIE, provided the parties being in compliance with the PRC regulations governing such loans. Our parent company can make a shareholder loan to a PRC subsidiary provided that (i) the amount of the loan does not exceed the difference between the total investment and registered capital as approved by ~~investing activities was $9.1 million~~the local Administration for Industry and Commerce that issued the ~~year ended~~business license of the subsidiary; and (ii) before the loan can be converted into RMB, the subsidiary reports to SAFE the intended use of proceeds (which cannot be to purchase domestic assets). The subsidiary can finance the operations of iASPEC in accordance with the terms of the MSA with iASPEC.

As of December 31, ~~2016. The change~~2021 and 2020, the breakdown of our cash and cash equivalents (including restricted cash) was ~~primarily due~~as follows:

We do not believe that there would be any material costs to ~~$12.3 million~~transfer cash outside the PRC. In addition, as our operations are principally based in China, our non-PRC consolidated entities do not incur material cash obligations. If nature of the businesses for our non-PRC consolidated entities have changed in the future and require material amounts of cash ~~received~~being transferred to them, we will assess the feasibility and plan cash transfers in accordance with foreign exchange regulations, taking into account of tax consequences. A company registered in mainland China must apply for and receive an approval from the State Administration of Foreign Exchange to remit foreign currency to any foreign country, and must comply with PRC statutory reserve requirement as disclosed in Item 3 Key Information – D. Risk Factor of this annual report. As we conduct all of our operations in China, our inability to convert cash and short-term investments held in RMB to other currencies will materially affect our liquidity.

The Company generates its revenues primarily from five sources: (1) product sales, (2) software sales, (3) advertising, (4) cryptocurrency mining, and (5) other sales. Revenue is recognized when obligations under the terms of a contract with our customers are satisfied, generally, upon delivery of the goods and services and receipts of cryptocurrencies from cryptocurrency mining pools.

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 ~~equity interests~~customers (inclusive of related parties) and high-end data storage servers. Although manufacturing of the products has been outsourced to the Company’s Original Equipment Manufacturer (OEM) suppliers, the Company has acted as the principal of the contract. The Company recognized the product sales at the point of delivery. The Company has indicated that it may from time to time provide future unspecified software upgrades to the hardware products’ essential software, which is expected to be infrequent and, free of charge. Non-software service is mainly the one-time training session provided to the customer to familiarize them with the software operation upon the customer’s initial introduction to the software platform. The costs of providing infrequent software upgrade and training are de minimis. As a result, the Company does not allocate transaction price to software upgrade and customer training. Product sales are classified as “Revenue-Products” on the Company’s consolidated statements of operations.

Customers in ~~Geo~~the private sector contract the Company to design and ~~Zhongtian~~develop software products specifically customized for their needs for a fixed price. Software development projects usually include developing software, integrating various isolated software systems into one, and testing the system. The design and build services, together with the integration of the various elements, are generally determined to be essential to the functionality of the delivered software. The contracted price is usually paid in ~~2016.~~installments based on progression of the project or at the delivery of the software. The Company usually provides non-software services including after-sale support, technical training. The technical training only occurs at the introduction of the software. The software is highly specialized and stable, after-sale support and subsequent upgrade or enhancement are infrequent. The Company has estimated the costs associated with the non-software performance obligations and concludes that these obligations are de minimis to the overall contract. Therefore, the Company does not further allocate transaction price.

~~Net~~The Company usually completes the customized software contracts less than 12 months and recognizes the revenue at the point of delivery because the Company does not have an enforceable right to payment for performance completed to date. Revenues from software development contracts are classified as “Revenue-Software” on the Company’s consolidated statements of operations.

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 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 has entered into digital asset mining pools by executing contracts with the mining pool operators to provide computing power to the mining pool. The contracts are terminable under certain circumstances. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed cryptocurrency awards the mining pool operator receives (less digital asset transaction fees to the mining pool operator, if any.) for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of providing such computing power is the only performance obligation in the Company’s contract with mining pool operator.

The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value using the quoted price of the related cryptocurrency on the date received, which is not materially different than the fair value at the contract inception or at the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur (ASC 606-10-32-11), the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm), and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no financing component, nor allocation of transaction price in these transactions.

The Company also reports other revenue which comprises revenue generates from System upgrade and technical support services, platform service fee, and rental income.

System upgrade and technical support revenue is recognized when performance obligations are satisfied upon completion of the services. Platform service fee is charged based on number of the display terminals used by the customers or a percentage of advertising revenue generated by the display terminals. Platform service revenue is recognized on a monthly basis over the contract period.

The Company follows ASC 842 – Leases that requires lessor to identify the underlying assets and allocate rental income among considerations in lease and non-lease components. The Company owns two units of office space renting out to a third party and TNM under non-cancelable operating lease agreements with lease terms of six years starting from May 1, 2016 and three years starting from July 1, 2019, respectively. 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 recognizes rental income.

After completion of the business acquisition on June 9, 2021, TNM became a subsidiary of the Company, and is no longer a related party. The rental income from TNM has become an intercompany revenue and been eliminated since June 9, 2021.

The Company records advances from customers when cash ~~used~~payments are received or due in ~~financing activities was $0.5 million~~advance of our performance.

The Company generally expenses sales commissions if any incurred because the amortization period would have been one year or less. In many cases, the Company is approached by customers for customizing software products for their specific needs without incurring significant selling expenses.

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

The adoption of the credit loss accounting standard has no material impact on the Company’s consolidated financial statements as of January 1, 2020. 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. The Company has further adjusted allowance for credit losses for the ~~year ended December 31, 2017 mainly attributable~~anticipation of future economic condition and credit risk indicators of customers, including the potential impact of the COVID-19 pandemic on its customers’ businesses. After all attempts to ~~short-term bank borrowings receipts of $8.9 million with $9.4 million in repayment of short-term loans. Net cash used in financing activities was $7.2 million~~collect a receivable have failed, the receivable is written off against the allowance. In the event the Company recovers amounts previously reserved for, the ~~year ended December 31, 2016 mainly attributable~~Company will reduce the specific allowance for credit losses.

We value inventories at the lower of ~~$10.5 million~~cost (First-in-First-out “FIFO”) or 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. We perform analyses 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. Inventory impairments result in a new cost basis for accounting purposes.

Cryptocurrencies held, including Bitcoin and Ethereum, are accounted for as intangible assets with ~~$17.1 million~~indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in ~~repayment~~circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of ~~short-term loans.~~the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

For equity investments that the Company elects to measure at cost, less any impairment, plus or minus changes resulting from observable price changes, the Company makes a qualitative assessment considering impairment indicators to evaluate whether investments are impaired at each reporting date. Impairment indicators considered include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee, including factors that raise significant concerns about the investee’s ability to continue as a going concern, a significant adverse change in the regulatory, economic, or technologic environment of the investee and a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates. If a qualitative assessment indicates that the investment is impaired, the entity has to estimate the investment’s fair value in accordance with the principles of ASC 820. For equity investments without readily determinable fair value, the Company uses Level 3 inputs of fair value accounting in accordance with ASC 820-10 and recognizes impairment loss other than temporary in the statement of operations equal to the difference between its initial investment and its proportional share of the net book value of the investee’s net assets which approximates its fair value.

For impairment on equity investments without readily determinable fair value, the Company uses Level 3 inputs of fair value accounting in accordance with ASC 820-10 and recognizes impairment loss in the statement of operations equal to the difference between its initial investment and its proportional share of the net book value of investee’s net assets which approximates its fair value if those are determined to be other than temporary.

The Company determines the appropriate accounting treatment of its convertible debts in accordance with the terms in relation to conversion features. After considering the impact of such features, the Company may account for such instrument as a liability in its entirety, or separate the instrument into debt and equity components following the guidance described under ASC 815 Derivatives and Hedging and ASC 470 Debt. The debt discount, if any, together with related issuance cost are subsequently amortized as interest expense over the period from the issuance date to the earliest conversion date or stated redemption date. The Company presented the issuance cost of debt in the balance sheet as a direct deduction from the related debt.

As of December 31, ~~2017~~2021 and ~~2016,~~2020, our loan facilities were as follows:

Although the COVID-19 pandemic has largely been contained in China, regional outbreaks of ~~December 31, 2017,~~infections persist in various localities. The negative impact from the Company had short-term bank loans of $7.8 million, which mature on various dates from March 16, 2018 to December 13, 2018. The short-term bank loans can be extended for another year by the banks without additional chargespandemic to the Company upon maturity. The bank borrowings are in the form of credit facilities. Amounts available to the Company from the banks are based on the amount of collateral pledged or the amount guaranteed by the Company’s subsidiaries.

Asout-of-home advertising business continued throughout 2021. However, our revenue achieved 124.6% year-over-year increase as a result of ~~a successful transformation~~the additions of ~~our business, we had a positive cash flow~~cryptocurrency mining operations and the acquisition of ~~$4.5~~TNM for the year 2021. The Company has significantly improved profitability by $8.4 million ~~from operating activities~~by reducing net loss to $9.9 million for the year ended December 31, ~~2017 comparing~~2021 from $18.3 million a year ago. Cash and cash equivalents held by the Company on December 31, 2021 was $4.5 million, compared to cash and cash equivalents of $1.1 million a ~~negative cash flow from operating activities~~year ago.

The Company incurred a net loss of ~~$2.8 million and negative cash flow from operating activities of $25.3~~approximately $9.9 million for ~~the years~~year ended December 31, ~~2016~~2021, which was mainly due to the provision of allowance of credit losses and ~~2015, respectively. Although we~~the expenses of stock-based compensation, compared to a net loss of $18.3 million for 2020. As of December 31, 2021, the Company had a working capital ~~deficiency~~deficit of ~~$1.5~~approximately $6.3 million, improved from a working capital deficit of $17.4 million as of December 31, ~~2017, it~~2020.

In June 2021, the Company completed an acquisition of 100% of equity of TNM to offer more comprehensive services of the new media sharing platform and enhance revenue generation from new media and advertising sectors. In April 2021, the Company also formed a Blockchain business segment and engages in cryptocurrency mining activities as the first initiative of this sector to supplement the diminished Traditional Information Technology (TIT) business segment as a part of new business transformation. Specifically, revenue generated from cryptocurrency mining was ~~a significant improvement comparing to a working capital deficiency of $5.7~~approximately $5.5 million, ~~as of December 31, 2016~~ and ~~a working capital deficiency of $1.6~~the gross profit from cryptocurrency mining business was approximately $2.7 million ~~as of December 31, 2015. We~~for 2021. In 2022, the Company will continue ~~implementing~~to expand the business plan developed in 2015 that has encompassed seven strategies: 1) redirect our resources to selling high-margin standardized Cloud-Application-Terminal and IoT based hardware and software solutions; 2) reinforce stringent cash collection policies to shorten the Company’s days of sales outstanding; 3) streamline our purchase order management process to reduce inventory; 4) control our cost structure; 5) obtain additional government subsidies for developing new and innovative cloud-based software solutions; 6) reduce our short-term liabilities and debt burden; 7) further expand our CAT and IoT based product offerings and market coverage in Out-of-Home digital advertising ~~market, in which the company has established solid R&D capability. Our new products~~business through strategic acquisitions, increase computing powers for Blockchain related business operations and ~~services offered to the Out-of-Home digital advertising market have proven to be successful and sustainable. The management strongly believes that we will have a significant improvement~~explore business opportunity in the ~~market share~~smart community and ~~our financial performance in 2018~~new energy sectors to improve revenue and ~~beyond.~~cash flow generations. In addition, the management will also continue to execute the existing business strategies with focuses on selection of quality customers, collection of accounts receivable, maintaining proper inventory level, and managing accounts payable to enhance operating cash flows. Meanwhile, the Company will aggressively develop domestic and international markets to develop new customers in new media business, and explore more blockchain related businesses, such as establishing overseas data centers in addition to Hong Kong and developing applications of NFT, cloud desktop and cloud rendering. With its well established “Taoping” brand, technology platform and industry reputation along with strategic expansion into the Blockchain business sector, the Company believes that it has the ability ifto raise needed capital to ~~obtain additional credit lines from local banks to provide capital needs for market expansions by using~~support the ~~title of its office facility as collateral. Management believes that our current cash and cash equivalents, anticipated cash flows from operations will sustain our~~Company’s operations and business ~~expansion.~~expansions.

WeIf the Company’s execution of business strategies is not successful in addressing its current financial concerns, additional capital raise from issuing equity security or debt instrument or additional loan facility may ~~however, require additional~~occur to support required cash due to changes in business conditions or other future developments, including investments or acquisitions we may have decided to pursue. If our existing cash and amounts available under existing credit facilities are insufficient to meet our needs, we may seek to sell additional equity securities, debt securities, or borrow funds from lending institutions. Weflows. However, the Company can make no assurances that financing will be available for the amounts we need, or on terms commercially acceptable to us, if at all. ~~Although sale~~If one or all of ~~additional equity securities, including convertible debt securities, would dilute~~these events do not occur or subsequent capital raise was insufficient to bridge financial and liquidity shortfall, substantial doubt exists about the ~~interests~~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 ~~our current shareholders, we would~~this uncertainty. To overcome the going concern issue, ~~equity securities~~the Company will actively seek opportunities to ~~raise necessary~~achieve revenue growth through strategic acquisitions on digital advertising, new revenue streams development, and significant expansion of computing power for cryptocurrency mining operations. In addition to cash generating from business, the Company has secured at least $8 million revolving bank facility line which provides important capital ~~to support.~~support for its operation.

As of December 31, ~~2017~~2021 and ~~2016,~~2020, the breakdown of our cash and cash equivalents (including restricted cash) was as follows:

Our industry is characterized by extremely rapid technological change, evolving industry standards, and changing customer demands. These conditions require continuous expenditures on product research and development to enhance existing products, create new products, and avoid product obsolescence. See Item 3 “Key Information—D. Risk Factors—If we are unable to develop and offer competitive new products and ~~service offerings~~services, our future ~~results of~~ operations could be adversely affected,” —“—”If we are unable to keep ~~pace~~abreast with the rapid technological changes in our industry, demand for our products and services could decline ~~which would~~and adversely affect our revenue and growth,” and —“—”Our technology may become obsolete, which could materially adversely affect our ability to sell our products and services.”

For the years ended December 31, 2017, 2016, and 2015, our researched and development expenses amounted to $4.0 million, $3.0 million, and $3.5 million, respectively, accounting for approximately 22.16%, 29.87% and 33.51%,a detailed analysis of ~~our total revenue, respectively. These expenses consist primarily of personnel-related expenses, as well as costs associated with new software and hardware development and enhancement.~~

~~As of December 31, 2017, we had approximately 50 employees devoted to our~~ research and development ~~efforts, which are mainly focus on our cloud-based business aiming at creating new varieties~~costs, see Item 5.A. “Operating Results—Results of ~~products, enhancing existing products, improving overall product quality,~~Operations—Research and ~~reducing production costs.~~development expenses”.

Product revenues are generated primarily from the sale of Cloud-Application-Terminal based digital ads display terminals with integrated software essential to the functionality of the hardware to our customers (inclusive of related parties) and high-end data storage servers. Although manufacturing of the products has been outsourced to the Company’s Original Equipment Manufacturer (OEM) suppliers, the Company has acted as the principal of the contract. The Company recognized the product sales at the point of delivery. The Company has indicated that it may from time to time provide future unspecified software upgrades to the hardware products’ essential software, which is expected to be infrequent and, free of charge. Non-software service is mainly the one-time training session provided to the customer to familiarize them with the software operation upon the customer’s initial introduction to the software platform. The costs of providing infrequent software upgrade and training are de minimis. As a result, the Company does not allocate transaction price to software upgrade and customer training. Product sales are classified as “Revenue-Products” on the Company’s consolidated statements of operations.

Customers in the private sector contract the Company to design and develop software products specifically customized for their needs for a fixed price. Software development projects usually include developing software, integrating various isolated software systems into one, and testing the system. The design and build services, together with the integration of the various elements, are generally determined to be essential to the functionality of the delivered software. The contracted price is usually paid in installments based on progression of the project or at the delivery of the software. The Company usually provides non-software services including after-sale support, technical training. The technical training only occurs at the introduction of the software. The software is highly specialized and stable, after-sale support and subsequent upgrade or enhancement are infrequent. The Company has estimated the costs associated with the non-software performance obligations and concludes that these obligations are de minimis to the overall contract. Therefore, the Company does not further allocate transaction price.

The Company usually completes the customized software contracts less than 12 months and recognizes the revenue at the point of delivery because the Company does not have an enforceable right to payment for performance completed to date. Revenues from software development contracts are classified as “Revenue-Software” on the Company’s consolidated statements of operations.

The Company recognizes the revenues, net of applicable taxes, from advertisement broadcasting contracts with customers over the contracted advertising duration.

The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value using the quoted price of the related cryptocurrency on the date received, which is not materially different than the fair value at the contract inception or at the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur (ASC 606-10-32-11), the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm), and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no financing component, nor allocation of transaction price in these transactions.

The Company also reports other revenue which comprises revenue generates from System upgrade and technical support services, platform service fee, and rental income.

The Company records advances from customers when cash payments are received or due in advance of our performance.

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

The adoption of the credit loss accounting standard has no material impact on the Company’s consolidated financial statements as of January 1, 2020. 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. The Company has further adjusted allowance for credit losses for the anticipation of future economic condition and credit risk indicators of customers, including the potential impact of the COVID-19 pandemic on its customers’ businesses. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. In the event the Company recovers amounts previously reserved for, the Company will reduce the specific allowance for credit losses.

Cryptocurrencies held, including Bitcoin and Ethereum, are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

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 ~~have off~~qualify for the existing practical expedient in ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”) to estimate fair value using the net asset value per share (or its equivalent) of the investment, the Company elected to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any.

For equity investments that the Company elects to measure at cost, less any impairment, plus or minus changes resulting from observable price changes, the Company makes a qualitative assessment considering impairment indicators to evaluate whether investments are impaired at each reporting date. Impairment indicators considered include, but are not limited to, a significant deterioration in the earnings performance or business prospects of the investee, including factors that raise significant concerns about the investee’s ability to continue as a going concern, a significant adverse change in the regulatory, economic, or technologic environment of the investee and a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates. If a qualitative assessment indicates that the investment is impaired, the entity has to estimate the investment’s fair value in accordance with the principles of ASC 820. For equity investments without readily determinable fair value, the Company uses Level 3 inputs of fair value accounting in accordance with ASC 820-10 and recognizes impairment loss other than temporary in the statement of operations equal to the difference between its initial investment and its proportional share of the net book value of the investee’s net assets which approximates its fair value.

For impairment on equity investments without readily determinable fair value, the Company uses Level 3 inputs of fair value accounting in accordance with ASC 820-10 and recognizes impairment loss in the statement of operations equal to the difference between its initial investment and its proportional share of the net book value of investee’s net assets which approximates its fair value if those are determined to be other than temporary.

The Company determines the appropriate accounting treatment of its convertible debts in accordance with the terms in relation to conversion features. After considering the impact of such features, the Company may account for such instrument as a liability in its entirety, or separate the instrument into debt and equity components following the guidance described under ASC 815 Derivatives and Hedging and ASC 470 Debt. The debt discount, if any, together with related issuance cost are subsequently amortized as interest expense over the period from the issuance date to the earliest conversion date or stated redemption date. The Company presented the issuance cost of debt in the balance sheet ~~arrangements~~as a direct deduction from the related debt.

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 ~~have~~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.

Deferred income taxes are ~~reasonably~~provided on an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are recognized for all significant temporary differences at enacted rates and classified as non-current based upon the classification of the related asset or liability in the financial statements. A valuation allowance is provided to reduce the amount of deferred tax assets, if it is considered more likely than not that some portion, or all of the deferred tax asset will not be realized. The Company classifies interest and/or penalties related to ~~have~~unrecognized tax benefits, if any, as a ~~current or future effect on our financial condition, changes in financial position, revenues or expenses, results~~component of ~~operations, liquidity, capital expenditures, or capital resources that are material to an investment in our securities.~~income tax provisions.

~~The table below shows our material contractual obligations as of December 31, 2017.~~

Please refer to Note 2 to our audited consolidated financial statements for a discussion of relevant pronouncements.

The following table sets forth certain information regarding our directors and senior management, as well as employees upon whose work we are dependent, as of the date of this annual report.

Mr. Jianghuai Lin.Mr. Lin has been the Chairman of Board of Directors and the Chief Executive Officer of the Company since 2006. Mr. Lin has also served as the Chairman and Chief Executive Officer of our subsidiary, IST, since its incorporation in January 2006. During the period from September 2000 to June 2004, Mr. Lin served as the President and Chief Executive Officer of Hong Kong United Development Group, a consolidated enterprise engaging in investment, high technology, and education. Before that, during the period from February 1995 through August 2000, Mr. Lin was a Director and the General Manager of Fujian Wild Wolf Electronics Limited, a company engaged in the business of manufacturing electrical consumer products. Mr. Lin holds a ~~Master~~Master’s Degree in Software Engineering from Wuhan University and a ~~Bachelor~~Bachelor’s Degree in Industrial Accounting from Xiamen University.

Mr. Zhiqiang Zhao.Mr. Zhao has been the President of the Company since August ~~2015, Interim Chief Financial Officer since October~~ 2015 and a member of Board of Directors since June 19, 2012. Mr. Zhao has extensive experience in corporate operations and integrations, strategic planning, and human resource management. From March 2003 to March 2005, Mr. Zhao served as Supervisor of Human Resources for the Foxconn Technology Group. From April 2005 to July 2006, Mr. Zhao served as Administrative and Human Resource Director of iASPEC; and as Deputy General Manager of iASPEC from July 2006 to August 2010. From November 2010, Mr. Zhao began serving as the Chief Operating Officer and Vice President of ~~CNIT.~~TAOP. From August 2010, he was vice chairman of iASPEC. From July 2011, Mr. Zhao served as General Manager of ISIOT (former HPC Electronics (Shenzhen) Ltd.). Mr. Zhao holds a ~~Bachelor~~Bachelor’s Degree in Mechanical & Electrical Engineering from Inner Mongolia University.

Ms. Liqiong (Iris) Yan. Ms. Yan has been the Chief Financial Officer of the Company since May 2021. Ms. Yan has over ten years’ experience in finance, investor relations and corporate governance. She served as the Company’s Assistant CFO between 2018 and 2021 and prior to that she was the Director of Investor Relations and Secretary of the Board of TAOP since 2007. During her tenure, Ms. Yan assisted in Company’s NASDAQ listing, Company’s strategic acquisitions and overseas equity/debt financings, and was instrumental in strategy planning, financial management and capital strategy management. Ms. Yan is a Certified Management Accountant (CMA) licensed by the Institute of Management Accountants. Ms. Yan received a postgraduate diploma in Investment from Fudan University and a bachelor’s degree in International Economics from Beijing Normal University.

Mr. Zhixiong Huang.Mr. Huang has been Chief Operating Officer of the Company since August 2015. Between July 2001 and March 2002, Mr. Huang served as the General Manager of product development of Shenzhen Runsheng Information Systems Company Ltd., and was responsible for overseeing general operations. From September 2002 and October 2006, Mr. Huang served as the deputy general manager of iASPEC, where he supervised iASPEC’s research and development activities and consulted on various sophisticated technical issues. From January 2006 to September 2013, he served as ~~CNIT’s vice president,~~TAOP’s Vice President, and ~~became~~was Chief Technology Officer from December 2008 and September 2013. Mr. Huang holds a ~~Bachelor Degree.~~Bachelor’s Degree in computer science from Hehai University in China, and has over twenty years of’ experience in information systems. Mr. Huang is currently a Director of the Shenzhen Computer Association, and an expert with the Shenzhen Expert Association and the Shenzhen Science and Technology Innovation Association.

Mr. Guangzeng Chen.Mr. Chen has served as Chief Technology Officer of the Company ~~from~~since December 1, 2015 and was Chief Product Officer since June 26, 2015. Mr. Chen joined the Company as Vice President of the Research & Development Division in March 2014. Prior to joining ~~CNIT,~~TAOP, Mr. Chen was a project manager at CoolPad Group Limited, a Shenzhen-based telecommunications equipment company that iswas one of the top ten smartphone manufacturing companies in China, from May 2011 to February 2014. Previously, Mr. Chen was the head of research and development at VideoHome, a Taiwanese multimedia appliance manufacturer and exporter, from June 2004 to May 2011. Mr. Chen graduated from Zhengzhou University with a ~~Bachelor~~Bachelor’s Degree in Computer Science.

Mr. Dongfeng Wang. Mr. Wang has served as Chief Strategic Officer of the Company since March 2021. Mr. Wang has more than twenty years of work experience in the Internet industry. He has gone through the eras of PC Internet and mobile Internet, and deeply participated in the growing blockchain Internet. His rich entrepreneurship experience put him in the forefront of development trends in digital revolution, and enabled him to accumulate great management expertise in enterprise positioning and corporate innovation. In 2004, Mr. Wang founded Zcom Digital Magazine, one of the earliest e-magazine platforms in China. In 2009, Mr. Wang co-founded Forgame Group, a company engaged in the business of game and fintech in China, and successfully listed the company on the Main Board of The Stock Exchange of Hong Kong Limited in 2013. In 2017, Mr. Wang started investments in blockchain technology and digital assets mining operations as a venture partner of Longling Capital Co. Ltd, a Chinese venture capital firm specializing in seed stage, early stage and angel investments. Mr. Wang graduated from Beijing Construction University with a bachelor’s degree in International Trade.

Mr. Qian Wang. Mr. Wang has served as Chief Marketing Officer of the Company since March 2021. Mr. Wang has extensive industry experience in cloud computing services, blockchain applications and operations, and overseas capital market operations. Before joining TAOP, he served as co-Chief Executive Officer of Grand Shores Technology (1647.HK), the major business of which focuses on design, construction, and operation of crypto cloud computing centers and development of blockchain innovation. Mr. Wang got CFA charter and received both a Postgraduate Diploma in Financial Markets and Portfolio Management and Bachelor’s degree in Accounting and Finance from the University of Hong Kong.

Mr. Huan Li. Mr. Li has served as Chief Marketing Officer of the Company since July 2021. He has over 15 years’ experience in the culture and media field. He has worked as a reporter for several media outlets including Asia Pacific Media Group. Mr. Li has been directly responsible for the planning and operation management of a number of large-scale commercial and cultural projects. Mr. Li holds a Bachelor’s Degree in Journalism from Jiangsu Ocean University in China.

Mr. Yunsen Huang.Mr. Huang has been a member of Board of Directors of the Company since June 19, 2012, and was a member of the Board of CITN from August 10, 2007 until completion of the corporate reorganization on October 31, 2012. Mr. Huang has been a Professor in the School of Information Engineering at Shenzhen University since September 1984. He has involved in many computer application projects, and received many awards, including a First Grade Award of Technology Advancement from Sichuan Province, a Second Grade Award of Technology Advancement from Guangdong Province, and a Third Grade Award of Technology Advancement from the Chemical Ministry. Mr. Huang has published eight books in the field of Networks and Multimedia Applications. In addition, Mr. Huang was a founder and the Chairman of International Software Development (Shenzhen) Co., Ltd, a jointing venture incorporated by IBM, East Asia Bank, and Shenzhen SDC Company, between 2001 and 2006. Currently, Mr. Huang is a Director of the Shenzhen Computer Academy, a Vice Director of the Guangdong Province Computer Academy, as well as Executive Director of China University Computer Basic Education Committee. Mr. Huang holds a ~~Bachelor~~Bachelor’s Degree ofin Electronics Engineering from Tsinghua University.

Dr. Yong Jiang.Dr. Jiang has been a member of Board of Directors of the Company since August 13, 2013. As a professor and supervisor for Ph. D candidates, Dr. Jiang has been the Vice Director of Division of Information Science & Technology and the Director of Network Center in the Graduate School at Shenzhen, Tsinghua University (GSST) since 2002. Dr. Jiang is a member of Association of Computing Machinery (ACM), the world’s largest educational and scientific computing society, and a member of China Computer Federation (CCF). He also serves as the Vice Chairman of Shenzhen Association of Chief Information Officer, and a committee member of Shenzhen Association of Experts. Dr. Jiang iswas majored in the research of next generation internet and computer network architecture, and has led more than 10 ~~state-level~~national-level scientific research programs, including programs from National Natural Science Foundation of China (NSFC), the National 863 Program, the pilot program from China Next Generation Internet (CNGI), and National Major Projects. Dr. Jiang graduated from the Department of Computer Science and Technology of Tsinghua University.

Mr. Remington C.H. Hu.Mr. Hu has been a member of Board of Directors of the Company since June 19, 2012 and was a member of the Board of CITN from October 30, 2009 until completion of the corporate reorganization on October 31, 2012. He is a seasoned executive with more than 16 years of experience in corporate finance and investment management, and is the founder and CEO of Tomorrow Capital Limited, a financial advisory firm. Prior to founding Tomorrow Capital Limited, Mr. Hu served, from February 2008 to July 2009, as Chief Financial Officer of Yucheng Technologies Limited, a Nasdaq listed top IT solutions and BPO company servicing Chinese banking industry. From August 2004 to August 2007, Mr. Hu served as China Representative for CVM Capital Partners, LLC, the largest Taiwanese Venture Capital affiliated with the largest Taiwanese private equity investment group. Earlier in his career, Mr. Hu founded and served, from June 1999 to June 2002, as Chief Financial Officer of eSoon Communications International Corp., a software start-up focusing on the then fast-growing CRM/CTI market. He also served, from August 1996 to May 1999, as Vice President of Crimson Asia Capital Holdings, Ltd., former Asia’s largest venture capital firm backed by Taiwanese China Trust Financial Group. He began his career at Citibank, NA, as an Assistant Vice President in the Taipei and Hong Kong. Mr. Hu holds a ~~Master~~Master’s Degree in Business Administration from the Wharton Business School and a ~~Bachelor~~Bachelor’s Degree in Computer Science and Information Engineering from the National Chiao Tung University.

There is no arrangement or understanding with any major shareholders, customers, suppliers or others, pursuant to which any person named above was selected as a director or member of senior management.

In ~~2017,~~2021, we paid an aggregate of ~~$500,000~~approximately $764,927 in cash compensation to our directors and senior management as a group. We do not set aside or accrue any amounts for pension, retirement or other benefits for our directors and senior management. However, we reimburse our directors for out-of-pocket expenses incurred in connection with their services in such capacity.

On May 9, 2016, the Board of Directors of the Company adopted the 2016 Equity Incentive Plan, or the 2016 Plan, pursuant to which the Company may offer up to five million 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, combinations, recapitalizations, stock splits, stock dividends, or other change in the corporate structure of the Company affecting the shares issuable under the 2016 Plan. ~~As of December 31, 2017, we have granted options~~On July 30, 2020, the Company effectuated a 6-to-1 reverse stock split, which effectively reduced the ordinary shares authorized to ~~purchase an aggregate of approximately 3.7 million ordinary shares~~be issued under the 2016 ~~Plan.~~Plan from 5,000,000 to 833,334. On May 9, 2021, the Board of Directors of the Company amended the 2016 Plan to, among other things, (1) increase the number of ordinary shares authorized to be issued pursuant to the 2016 Plan by 4,166,666 to 5,000,000, and (2) extend the term of the 2016 Plan to May 9, 2026.

Purpose. The purposes of the 2016 Plan are to promote the long-term growth and profitability of the Company and its Affiliates by stimulating the efforts of Employees, Directors and Consultants of the Company and its Affiliates who are selected to be participants, aligning the long-term interests of participants with those of shareholders, heightening the desire of participants to continue in working toward and contributing to our success, attracting and retaining the best available personnel for positions of substantial responsibility, and generally providing additional incentive for them to promote the success of our business through the grant of Awards of or pertaining to ~~our Ordinary Shares.~~the Company’s ordinary shares. The 2016 Plan permits the grant of ISOs, NSOs, Restricted Shares, Restricted Share Units, Share Appreciation Rights, Performance Units and Performance Shares as the Administrator may determine.

Administration. The 2016 Plan may be administered by our Board or a committee. The 2016 Plan is currently being administered by our Compensation Committee. The Administrator has the authority to determine the specific terms and conditions of all Awards granted under the 2016 Plan, including, without limitation, the number of ~~Ordinary Shares~~ordinary shares subject to each Award, the price to be paid for the ~~Ordinary Shares~~ordinary shares and the applicable vesting criteria. The Administrator has discretion to make all other determinations necessary or advisable for the administration of the 2016 Plan.

Eligibility. NSOs, Restricted Shares, Restricted Share Units, Share Appreciation Rights, Performance Units and Performance Shares may be granted to Employees, Directors or Consultants either alone or in combination with any other Awards. ISOs may be granted only to employees of the Company, and of any Parent or Subsidiary.

Shares Available for Issuance Under the 2016 Plan. Subject to adjustment as described below, (a) the maximum aggregate number of Shares that may be issued under the 2016 Plan is 5,000,000 ~~Ordinary Shares,~~ordinary shares, (b) to the extent consistent with Section 422 of the Code, not more than an aggregate of 5,000,000 Ordinary Shares may be issued under ISOs, and (c) not more than 500,000 ~~Ordinary Shares~~ordinary shares (or for Awards denominated in cash, the Fair Market Value of 500,000 ~~Ordinary Shares~~ordinary shares on the Grant Date), may be awarded to any individual Participant in the aggregate in any one fiscal year of the Company, such limitation to be applied in a manner consistent with the requirements of, and only to the extent required for compliance with, the exclusion from the limitation on deductibility of compensation under Code Section 162(m). The number and class of shares available under the 2016 Plan are subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, share splits, share dividends, or other similar events which change the number or kind of shares outstanding.

Transferability. Unless otherwise provided in the 2016 Plan or otherwise determined by the Administrator, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Participant, only by the Participant. However, the Administrator may, at or after the grant of an Award other than an ISO, provide that such Award may be transferred by the recipient to a “family member” (as defined in the 2016 Plan); provided, however, that any such transfer is without payment of any consideration whatsoever and that no transfer shall be valid unless first approved by the Administrator, acting in its sole discretion, and as required by ~~our Amended~~the Company’s amended and ~~Restated~~restated Memorandum and Articles of Association. If the Administrator makes an Award transferable, such Award will contain such additional terms and conditions as the Administrator deems appropriate.

Termination of, or Amendments to, the 2016 Plan. The Board may at any time amend, alter, suspend or terminate the 2016 Plan, provided that the Company will obtain shareholder approval of any 2016 Plan amendment to the extent necessary and desirable to comply with Applicable Laws. No amendment, alteration, suspension or termination of the 2016 Plan will impair the rights of any Participant, unless mutually agreed otherwise between the Participant and the Administrator, which agreement must be in writing and signed by the Participant and the Company. Termination of the 2016 Plan will not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted prior to the date of such termination.

The 2016 Plan will ~~terminate five years following the date it was adopted by the Board,~~expire on May 9, 2026, unless sooner terminated by the Board.

On ~~September 11, 2013,~~May 27, 2016, the ~~Board of Directors~~following directors and officers were granted options to purchase ordinary shares of the Company ~~adopted~~under the ~~2013 Equity Incentive Plan, or~~2016 Plan:

The options are exercisable at the ~~2013 Plan, pursuant to which~~fair market value of the ~~Company may offer up to five million~~Company’s ordinary shares ~~as equity incentives to its directors, employees~~on the grant date May 27, 2016 ($7.26 per share) with 40% of the options vesting 18 months after the date of grant, 30% vesting 30 months after the date of grant and ~~consultants. Such number~~the remaining 30% vesting 42 months after the date of grant. On January 22, 2018, Messrs. Lin, Zhao, Huang and Chen exercised their options granted on May 27, 2016 on a cashless basis, and received 11,934, 7,956, 7,956 and 5,967 ordinary shares ~~is subject to adjustment in the event of certain reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends, or other change in the corporate structure~~ of the Company, ~~affecting~~respectively. On July 31, 2020, Messrs. Lin, Zhao, Huang and Chen exercised their options granted on May 27, 2016 on a cashless basis, and received 5,250, 3,500, 3,500, 2,625 ordinary shares of the Company, respectively.

On May 17, 2017, Mr. Chen was granted options to purchase additional 40,000 ordinary shares ~~issuable~~of the Company under the ~~2013~~2016 Plan. AtThe options are exercisable at the fair market value of the Company’s ~~2013 Annual Meeting~~ordinary shares on the date of ~~Members~~the grant ($5.94 per share) with 40% of the options vesting 12 months after the date of grant, 30% vesting 24 months after the date of grant and the remaining 30% vesting 36 months after the date of grant. On July 31, 2020, Mr. Chen exercised his options granted on ~~December 20, 2013, our shareholders approved~~May 17, 2017 on a cashless basis, and received 13,000 ordinary shares of the ~~2013 Plan.~~ Company.

On July 10, 2020, a total of 57,366 share options were granted to certain consultants of the Company.

On July 24, 2020, the following directors and officers were granted options to purchase ordinary shares of the Company under the 2016 Plan:

As of ~~December 31, 2017,~~the date of this report, we have issued ~~4.4 million~~374,524 restricted shares and granted options to purchase an aggregate of ~~restricted stock to our officers and employees~~approximately 390,714 ordinary shares under the ~~2013~~2016 Plan. ~~The 2013 Plan has similar terms as the 2016 Plan and will terminate five years following the date it was adopted by the Board, unless sooner terminated by the Board.~~

Our Board of Directors currently consists of five directors, who were elected to serve until ~~their successors~~they resign, are ~~duly elected and qualified.~~removed or otherwise leave offices. Directors may be elected by shareholders at any general meeting by a majority of votes cast. Each director so elected holds office for the term, if any, as may be specified in the resolution appointing him or until his earlier death, disqualification, resignation or removal. The directors may appoint one or more directors to fill a vacancy on the Board of Directors. We do not have any contracts with our directors providing for benefits upon termination of employment.

Our executive officers are appointed by our Board of Directors. The executive officers shall hold office until their successors are duly elected and qualified, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by a majority vote of the directors.

The Board has established three standing committees: ~~the~~ Audit Committee, ~~the~~ Compensation Committee and ~~the~~ Governance and Nominating Committee. Each of the Audit Committee, Compensation Committee and Governance and Nominating Committee ~~are~~is comprised entirely of independent directors. From time to time, the Board may establish other committees. The Board has adopted a written charter for each of the Committees which are available on the corporate governance page of our website at~~www.chinacnit.com~~www.taop.com. Printed copies of these charters may be obtained, without charge, by contacting the Corporate Secretary, ~~China Information Technology,~~Taoping Inc., 21st Floor, Everbright Bank Building, Zhuzilin, Futian District, Shenzhen, Guangdong 518040, China.

Our Audit Committee is currently composed of three members: Messrs. Yunsen Huang, Yong Jiang, and Remington C.H. Hu. Our Board of Directors determined that each member of the Audit Committee meets the independence criteria prescribed by applicable regulation and the rules of the SEC for audit committee membership and is an “independent” director within the meaning of the NASDAQ Marketplace Rules. Each Audit Committee member also meets NASDAQ’s financial literacy requirements. Mr. Hu serves as Chair of the Audit Committee.

Our Audit Committee oversees our accounting and financial reporting processes and the audits of our financial statements. Our Audit Committee is responsible for, among other things:

Our Board of Directors has determined that Mr. Hu is the “audit committee financial expert” as such term is defined in Item 407(d) of Regulation S-K promulgated by the SEC and also meets NASDAQ’s financial sophistication requirements.

Our Compensation Committee is currently composed of three members: Messrs. Yunsen Huang, Yong Jiang, and Remington C.H. Hu, each of whom is “independent” within the meaning of the NASDAQ Marketplace Rules. Mr. Huang serves as Chair of the Compensation Committee.

The purpose of our Compensation Committee ~~discharge~~discharges the responsibilities of the Company’s Board of Directors relating to compensation of the Company’s executives, to produce an annual report on executive compensation for inclusion in the Company’s proxy statement, if required, and to oversee and advise the Board on the adoption of policies that govern the Company’s compensation programs, including stock and benefit plans. Our chief executive officer may not be present at any Compensation Committee meeting during which his compensation is deliberated. The Compensation Committee is responsible for, among other things:

Our Governance and Nominating Committee is currently composed of three members: Messrs. Yunsen Huang, Yong Jiang, and Remington C.H. Hu, each of whom is “independent” within the meaning of the NASDAQ Marketplace Rules. Mr. Jiang serves as Chair of the Governance and Nominating Committee.

The Governance and Nominating Committee assists the Board in identifying individuals qualified to become our directors and in determining the composition of the Board and its committees.

The procedures by which stockholders may recommend nominees have not changed materially since last year’s proxy statement.

As of December 31, ~~2017,~~2021, we had approximately 9676 full-time employees. The following table illustrates the allocation of these employees among the various job functions ~~conducted at our company.~~conducted.

Department		Number of Employees
Software Development	5026
Sales & Marketing	1012
Administration & Human Resources	1011
Operation	11
Finance and Accounting	10
Management	6
~~Project Execution~~TOTAL	1076

~~TOTAL~~

We believe that our relationship with our employees is good. Our Chinese subsidiaries have trade unions which protect employees’ rights, aim to assist in the fulfillment of our economic objectives, encourage employee participation in management decisions and assist in mediating disputes between us and union members. We have not experienced any significant problems or disruption to our operations due to labor disputes, nor have we experienced any difficulties in recruitment and retention of experienced staff. The remuneration payable to employees includes basic salaries and allowances. We also provide training for our staff from time to time to enhance their technical knowledge.

As required by applicable Chinese law, we have entered into employment contracts with all of our officers, managers and employees.

Our employees in China participate in a state pension scheme organized by Chinese municipal and provincial governments. We are required to contribute to the scheme at rates ranging from 13% to 18% of the average monthly salary. As of the date of this report, we have complied with the regulation and have paid the state pension plan as required by law. In addition, we are required by Chinese law to cover employees in China with various types of social insurance. We have purchased social insurance for all of our employees.

E. Share Ownership

The following table sets forth information regarding beneficial ownership of each class of ~~our~~Taoping’s voting securities as of ~~March 30, 2018~~April 26, 2022 (i) by each person who is known by us to beneficially own 5% or more ~~than 5%~~ of ~~our~~each class of Taoping’s voting securities; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, 21^st~~Floor, Everbright Bank Building, Zhuzilin, Shenzhen 518040, China.~~Unit 3102, 31/F, Citicorp Centre, 18 Whitefield Road, Hong Kong.

Name and Address of Beneficial
Owner Office, If Any Title of Class Amount and
Nature of
Beneficial
Ownership⁽¹⁾ Percent
of
Class⁽²⁾
Officers and Directors
Jianghuai Lin Chairman and CEO Ordinary Shares 16,958,134 41.6%
Zhiqiang Zhao Director, President and Interim
Chief Financial Officer Ordinary Shares 150,901 0.4%
Zhixiong Huang Chief Operating Officer Ordinary Shares 98,876 0.2%
Guangzeng Chen Chief Technology Officer and Ordinary Shares 40,800 0.1%
Chief Product Officer
Yunsen Huang Director Ordinary Shares - -
Yong Jiang Director Ordinary Shares - -
Remington C.H. Hu Director Ordinary Shares - -
All officers and directors as a group
(7 persons named above) Ordinary Shares 17,248,711 42.3%
5% Security Holders
Jianghuai Lin⁽³⁾ Ordinary Shares 16,958,134 41.6%

Name and Address of Beneficial Owner

Office, If Any

Title of Class

Amount and Nature of Beneficial Ownership⁽¹⁾

Percent of Class⁽²⁾

Officers and Directors

Jianghuai Lin

Chairman and CEO

Ordinary Shares

4,189,555

26.9

Zhiqiang Zhao

President and Director

Ordinary Shares

66,575

Liqiong (Iris) Yan

Chief Financial Officer

Ordinary Shares

7,619

Zhixiong Huang

Chief Operating Officer

Ordinary Shares

49,455

Guangzeng Chen

Chief Technology Officer

Ordinary Shares

10,000

Dongfeng Wang

Chief Strategy Officer

Ordinary Shares

500,000

3.2

Qian Wang

Chief Investment Officer

Ordinary Shares

Huan Li

Chief Marketing Officer

Ordinary Shares

Yunsen Huang

Director

Ordinary Shares

Yong Jiang

Director

Ordinary Shares

Remington C.H. Hu

Director

Ordinary Shares

All officers and directors as a group (11 persons named above)

Ordinary Shares

4,823,204

30.9

5% Security Holders

Jianghuai Lin

Ordinary Shares

4,189,555

26.9

* Less than 1%

~~(1)~~

(1)

Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to ~~our~~the Company ordinary shares.


(2)	As of ~~March 30, 2018,~~April 26, 2022, a total of ~~40,760,163~~15,590,789 ordinary shares are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each Beneficial Owner above, any securities that are exercisable or convertible within 60 days have been included in the denominator.

~~(3)~~

Among these shares, 16,164,893 ordinary shares are held by Union Investment Holdings Limited, which is wholly owned and controlled by Mr. Lin and Mr. Lin may be deemed to be a beneficial owner of the shares held by Union Investment Holdings Limited.

~~On May 27, 2016, the following directors and officers were granted options to purchase ordinary shares of the Company under its 2016 Plan:~~

	•	~~Jianghuai Lin, options to purchase 300,000 ordinary shares~~

	•	~~Zhiqiang Zhao, options to purchase 200,000 ordinary shares~~

	•	~~Zhixiong Huang, options to purchase 200,000 ordinary shares~~

	•	~~Guangzeng Chen, options to purchase 150,000 ordinary shares~~

The Options will be exercisable at the fair market value of the Company's ordinary shares on the grant date May 27, 2016 ($1.21 per share) with 40% of the Options vesting 18 months after the date of grant, 30% vesting 30 months after the date of grant and the remaining 30% vesting 42 months after the date of grant.

On May 17, 2017, Mr. Chen was granted options to purchase additional 240,000 ordinary shares of the Company. The options will be exercisable at the fair market value of the Company's ordinary shares on the date of the grant ($0.99 per share) with 40% of the options vesting 12 months after the date of grant, 30% vesting 24 months after the date of grant and the remaining 30% vesting 36 months after the date of grant.

On January 22, 2018, Messrs. Lin, Zhao, Huang and Chen exercised their options granted on May 27, 2016 at a cashless basis, and received 71,600, 47,734, 47,734 and 35,800 ordinary shares of the Company, respectively, which have been included in the above table of ownership.

None of our major shareholders have different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of ~~our~~the Company.

~~ITEM 7.~~

~~MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS~~

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Please refer to Item 6 “Directors, Senior Management and Employees—E. Share Ownership.”

B. Related Party Transactions

The following includes a summary of transactions since ~~the beginning of the 2015 fiscal year~~January 1, 2019 between us and certain related persons. We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

	•●	Mr. Lin, the CEO of the Company, provided the Company with RMB5.5 million (US$895,950) of personal loan without charging any interest on December 25, 2013. The due date of such loan was extended to December 26, 2015 and has been fully repaid to Mr. Lin by the end of December, 2015.

	•	iASPEC and Bocom lease office spaces in a building personally owned by Mr. Lin. Consequently, the Company paid Mr. Lin approximately $170,000 and $263,915 of rental expenses during the years ended December 31, 2015 and 2014. Starting from January 1, 2016, iASPEC and Bocom lease different office from an un-related party.

	•	Since May 2017, the Company has entered into a series of contracts with ~~Shenzhen~~ Taoping New Media Co., Ltd. (TNM) and its affiliates for the sale of the Company’s Cloud-Application-Terminal based digital ads display terminals, software and technical services. ~~Shenzhen~~ Taoping isNew Media was a related party company controlled by Mr. ~~Lin. These transactions have been fully approved by~~Lin, the ~~board of directors~~Company’s Chairman and Chief Executive Officer, until the Company’s completion of the acquisition on June 9, 2021, after which date the related party transactions were eliminated in the Company’s consolidated financial statements. For the years ended December 31, 2021, 2020 and 2019, revenues from related parties for sales of products were approximately $0.1 million, $0.4 million and $7.4 million, respectively. Accounts receivable from related parties, net of allowance for credit losses, as of December 31, 2021, 2020 and 2019 were approximately $0.4 million, $4.2 million and $12.5 million, respectively. Advances received from related parties were approximately $0.1 million, $0.2 million and $0.1 million as of December 31, 2021, 2020 and 2019, respectively.

	●	On July 1, 2017, the Company entered into a lease agreement with TNM for leasing the Company’s office space located at 18th Floor, Education and Technology Building, Zhuzilin, Futian District, Shenzhen City which has been renewed on July 1, 2019 and expires on June 30, 2022. Upon completion of the Company’s acquisition of TNM on June 9, 2021, the related party rental income was eliminated in the Company’s consolidated financial statements thereafter. For the years ended December 31, 2021, 2020 and 2019, the Company’s rental income from related party were approximately $27,000, $61,000 and $61,000, respectively. Other revenue generated from related parties also includes system maintenance service provided to Taoping affiliate customers, which was $48,949, $85,289 and $44,621, for the years ended December 31, 2021, 2020 and 2019, respectively.

	●	iASPEC and Bocom had a balance of $69,585 payable to TNM as of December 31, 2020 for certain consultation service. Before the acquisition of TNM, the balance was fully repaid to TNM in April 2021.

	●	As of December 31, 2020, the Company recorded a loan receivable of $0.5 million from TNM, which was originally for a nine-month short-term loan without interest and was fully repaid by September 2021. Before the acquisition of TNM, $0.17 million was repaid to the Company. The remaining balance of $0.33 million was eliminated for consolidation purposes as of December 31, 2021.

	●	As of December 31, 2020, the amount due to related parties was $0.14 million, which was borrowed from TNM for working capital purpose. Before the acquisition of TNM, the balance was fully repaid to TNM. As of December 31, 2021, the amount due to related parties was $3.15 million, which included a loan of approximately $3,145,000 (RMB20 million) from a related company 100% owned by Mr. Lin for 12-month at the interest of 5.85% per annum, which matures on May 17, 2022.

On July 1, 2017, the Company entered a lease agreement with Shenzhen Taoping New Media Co., Ltd that is controlled by Mr. Lin for leasing office space locate at 18the Floor, Education and Technology Building, Zhuzilin, Futian District, Shenzhen City for a period of 12 months.

	●	On June 9, 2021, the Company and Biznest, a subsidiary of the Company consummated an acquisition of 100% of the equity interests of TNM. Mr. Jianghuai Lin, the Chairman and CEO of the Company, who owns approximately 26.9% of total shares outstanding of the Company, owned approximately 51% of TNM. TNM is a new media operator focusing on digital life scenes and mainly engaged in selling out-of-home advertising time slots on its networked smart digital advertising display terminals with artificial intelligence and big data technologies. Acquiring TNM and synergizing its new media network will enhance the Company’s presence in the new media and advertising sectors. After completion of the acquisition, TNM becomes a wholly owned subsidiary of Biznest.

		On September 18, 2021, the Company and the Company’s wholly owned subsidiary, Information Security Technology (China) Co., Ltd. entered into an equity transfer agreement with Mr. Jianghuai Lin, the sole shareholder of iASPEC. Upon closing of the equity transfer, the Company’s existing variable interest entity structure was dissolved and iASPEC became a wholly owned subsidiary of the Company.

See also Item 6 “Directors, Senior Management and Employees—B. Compensation.”

C. Interests of Experts and Counsel

Not applicable.

~~ITEM 8.~~

~~FINANCIAL INFORMATION~~

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Financial Statements

We have appended consolidated financial statements filed as part of this annual report. See Item 18 “Financial Statements.”

Legal Proceedings

We may be subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. We are currently subject to legal or arbitration proceedings with customers pertaining to our performance of the sales contracts. The Company estimates, with 50% of probability, a possible loss ranging from approximately $-0- to $300,000, if the proceedings are ruled by arbitration.

Dividend Policy

To date, we have not paid any cash dividends on ~~our~~the Company ordinary shares. As a BVI company, we may only declare and pay dividends if our directors are satisfied, on reasonable grounds, that immediately after the distribution (i) the value of our assets will exceed our liabilities and (ii) we will be able to pay our debts as they fall due. We currently anticipate that we will retain any available funds to finance the growth and operation of our business and we do not anticipate paying any cash dividends in the foreseeable future. Additionally, our cash held in foreign countries may be subject to certain control limitations or repatriation requirements, limiting our ability to use this cash to pay dividends.

B. Significant Changes

No significant change has occurred since the date of our consolidated financial statements filed as part of this annual report.

~~ITEM 9.~~

~~THE OFFER AND LISTING~~

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

~~Our~~

Taoping’s ordinary shares ~~are~~have been listed on the NASDAQ Capital Market ~~and trade~~under the trading symbol “TAOP” since June 1, 2018. Prior to that, the ordinary shares were listed on the NASDAQ Capital Market under the symbol “CNIT.” ~~The following table provides the high and low reported market prices of our ordinary shares as reported by Yahoo! Finance for the periods indicated.~~

Closing Prices
High Low
Annual Market Prices $ $
2013 7.23 0.91
2014 7.46 3.43
2015 7.17 0.69
2016 1.72 0.72
2017 1.78 0.67

Closing Prices
High Low

Quarterly Market Prices $ $
1^stQuarter 2016 1.72 1.05
2^ndQuarter 2016 1.66 1.15
3^rdQuarter 2016 1.20 0.80
4^thQuarter 2016 0.89 0.72
1^stQuarter 2017 0.87 0.67
2^ndQuarter 2017 1.08 0.67
3^rdQuarter 2017 1.28 0.88
4^thQuarter 2017 1.78 1.13
1^stQuarter 2018

Monthly Market Prices $ $
September 2017 1.28 1.08
October 2017 1.33 1.13
November 2017 1.78 1.34
December 2017 1.57 1.40
January 2018 3.00 1.55
February 2018 2.19 1.93
March 2018 (up to March 29, 2018) 2.16 1.72

B. Plan of Distribution

Not applicable.

C. Markets

See our disclosures above under “A. Offer and Listing Details.”

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

~~ITEM 10.~~

~~ADDITIONAL INFORMATION~~

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

The following represents a summary of certain key provisions of ~~our~~the Company’s memorandum and articles of association. The summary does not purport to be a summary of all of the provisions of ~~our~~ the Company’s memorandum and articles of association and of all relevant provisions of BVI law governing the management and regulation of BVI companies.

Register

~~We were~~Taoping was incorporated in the BVI on June 18, 2012 under the BVI Act. ~~Our~~Its memorandum of association authorizes the issuance of up to 100,000,000 ordinary shares without par value, which may be issued from time to time at the discretion of the Board of Directors without shareholder approval. ~~Our~~The Board of Directors is authorized to issue these shares in different classes and series and, with respect to each class or series, to determine the designations, powers, preferences, privileges and other rights, including dividend rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers and rights associated with the ordinary shares, at such times and on such other terms as they think proper.

On July 30, 2020, we completed a share combination of Taoping’s ordinary shares at a ratio of one-for-six, which decreased the Company’s outstanding ordinary shares to approximately 7,332,434 shares. This share combination did not change the authorized amount of shares or the par value of Taoping ordinary shares. Accordingly, except as otherwise indicated, all share and per share information contained in this annual report has been restated to retroactively show the effect of the share combination.

Objects and Purposes

~~Our~~

Taoping’s memorandum of association grants usthe Company full power and capacity to carry on or undertake any business or activity and do any act or enter into any transaction not prohibited by the BVI Act or any other BVI legislation.

Directors

Directors have the powers necessary for managing, and for directing and supervising ~~our~~the Company business and affairs, including general powers to borrow on behalf of the Company.

~~Our~~

Taoping’s articles of association provide that a director who is interested in a transaction entered into or to be entered into by usthe Company may: (i) vote on a matter relating to the transaction; (ii) attend a meeting of directors at which a matter relating to the transaction arises and be included among the directors present at the meeting for the purposes of a quorum; and (iii) sign a document on our behalf, or do any other thing in his capacity as a director, that relates to the transaction. Additionally, ~~our~~Taoping’s articles of association provide that no director shall be disqualified by his office from contracting with us either as a buyer, seller or otherwise, nor shall any such contract or arrangement entered into by or on ~~our~~the Company’s behalf in which any director shall be in any way interested be voided, nor shall any director so contracting or being so interested be liable to account to us for any profit realized by any such contract or arrangement, by reason of such director holding that office or by reason of the fiduciary relationship thereby established, provided such director shall, immediately after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by us, disclose such interest to ~~our~~the Company’s Board of Directors. A director is not required to make such a disclosure if: (i) the transaction or proposed transaction is between us and the director, and (ii) the transaction or proposed transaction is or is to be entered into in the ordinary course of ~~our~~the Company’s business and on usual terms and conditions. A disclosure to ~~our~~the Company’s Board to the effect that a director is a member, director, officer or trustee of another named company or other person and is to be regarded as interested in any transaction which may, after the date of the entry or disclosure, be entered into with that company or person, is a sufficient disclosure of interest in relation to that transaction. Such a disclosure is not made to our Board of directors unless it is made or brought to the attention of every director on the Board. Subject to Section 125(1) of the BVI Act, the failure by a director to comply with this provision does not affect the validity of a transaction entered into by the director or the Company.

Pursuant to ~~our~~the Company’s articles of association, a director shall not require a share qualification, but nevertheless shall be entitled to attend and speak at any meeting of the directors and meeting of the shareholders and at any separate meeting of the holders of any class of ~~our~~the Company’s shares. In addition, the remuneration of directors (whether by way of salary, commission, participation in profits or otherwise) in respect of services rendered or to be rendered in any capacity to us (including to any company in which we may be interested) shall be fixed by resolution of directors or shareholders. The directors may also be paid such travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors, or any committee of the directors or meetings of the shareholders, or in connection with our business as shall be approved by resolution of directors or of shareholders.

Rights and Obligations of Shareholders

Dividends. Subject to the BVI Act, the directors may, by resolution of directors, authorize a distribution (including a dividend) by us to shareholders at such time and of such an amount as they think fit if they are satisfied, on reasonable grounds, that immediately after the distribution, the value of our assets exceeds our liabilities and we are able to pay our debts as they fall due. Any distribution payable in respect of a share which has remained unclaimed for three years from the date when it became due for payment shall, if the board of the directors so resolves, be forfeited and cease to remain owing by us. The directors may, before authorizing any distribution, set aside out of our profits such sum as they think proper as a reserve fund, and may invest the sum so set apart as a reserve fund upon such securities as they may select. The holder of each ordinary share has the right to an equal share in any distribution paid by us.

Voting Rights. Each ordinary share confers on the shareholder the right to one vote at a meeting of the shareholders or on any resolution of shareholders on all matters before ~~our~~the Company’s shareholders.

Winding Up. The holder of each ordinary share is entitled to an equal share in the distribution of the surplus assets of us on a winding up.

Redemption. The directors may, on behalf of the Company, purchase, redeem or otherwise acquire any of ~~our~~the Company’s own shares for such consideration as the directors consider fit, and either cancel or hold such shares as treasury shares. Shares may be purchased or otherwise acquired in exchange for newly issued shares. The directors shall not, unless permitted pursuant to the BVI Act, purchase, redeem or otherwise acquire any of ~~our~~the Company’s own shares unless immediately after such purchase, redemption or other acquisition, the value of ~~our~~the Company’s assets exceeds ~~our~~the Company’s liabilities and we are able to pay ~~our~~the Company’s debts as they fall due.

Changes in Rights of Shareholders

Under ~~our~~the Company’s memorandum and articles of association, if at any time the shares which we are authorized to issue are divided into different classes of shares, the rights attaching to any class may only be changed by a consent in writing of the holders of a majority of the issued shares of that class or with the sanction of a resolution passed by the holders of at least a majority of the shares of the class present in person or by proxy at a separate general meeting of the holders of the shares of the class. At such a separate general meeting, the quorum shall be at least one person holding or representing by proxy a majority of the issued shares of the class.

Meetings

Under the BVI Act, there is no requirement for an annual meeting of shareholders. Under ~~our~~the Company’s articles of association, we are not required to hold an annual meeting of ~~shareholders at the time designated by the Board of Directors. Our annual~~shareholders. The Company’s shareholders’ meetings may be held at such times and in such place within or outside the BVI as our Board of Directors considers appropriate.

Our Board of Directors shall call a shareholders’ meeting if requested in writing to do so by shareholders entitled to exercise at least 10% of the voting rights in respect of the matter for which the meeting is being requested.

Our Board of Directors shall give not less than 10 days and not more than 60 days prior written notice of a shareholders’ meeting to those persons whose names on, either (a) the date the notice is given or (b) on a date fixed by the directors as the record date (which must be a date that is not less than 10 days nor more than 60 days prior to the meeting), appear as shareholders in our register and are entitled to vote at the meeting. The inadvertent failure of the directors to give notice of a meeting to a shareholder, or the fact that a shareholder has not received notice, does not invalidate the meeting.

~~Our~~

The Company’s articles of association provide that a meeting of shareholders is duly constituted if, at the commencement of the meeting, there are shareholders present in person or by proxy representing not less than a majority of the votes of the shares or class or series of shares entitled to vote on resolutions of shareholders to be considered at the meeting. A shareholder may be represented at a meeting of shareholders by a proxy (who need not be a shareholder) who may speak and vote on behalf of the shareholder. A written instrument giving the proxy such authority must be produced at the place appointed for such purpose. A shareholder shall be deemed to be present at the meeting if he participates by telephone or other electronic means and all shareholders participating in the meeting are able to hear each other.

Holders of ~~our~~the Company’s ordinary shares are entitled to one vote for each share held of record on all matters at all meetings of shareholders, except at a meeting where holders of a particular class or series of shares are entitled to vote separately. ~~Our~~The Company’s shareholders have no cumulative voting rights. ~~Our~~The Company’s shareholders take action by a majority of votes cast, unless otherwise provided by the BVI Act or ~~our~~the Company’s memorandum and articles of association.

Limitations on Ownership of Securities

There are no limitations on the right of non-residents or foreign persons to own ~~our~~the Company’s securities imposed by BVI law or by ~~our~~the Company’s memorandum and articles of association.

Change in Control of Company

Our Board of Directors is authorized to issue ~~our~~the Company’s ordinary shares in different classes and series and, with respect to each class or series, to determine the designations, powers, preferences, privileges and other rights, including dividend rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers and rights associated with the ordinary shares, at such times and on such other terms as they think proper. Such power could be used in a manner that would delay, defer or prevent a change of control of ~~our~~the Company.

Ownership Threshold

There are no provisions governing the ownership threshold above which shareholder ownership must be disclosed imposed by BVI law or by ~~our~~the Company’s memorandum and articles of association.

Changes in Capital

Subject to the provisions of ~~our~~the Company’s amended and restated memorandum and articles of association, the BVI Act and the rules of NASDAQ, ~~our~~the Company’s unissued shares shall be at the disposal of the directors who may, without prejudice to any rights previously conferred on the holders of any existing shares or class or series of shares, offer, allot, grant options over or otherwise dispose of the shares to such persons, at such times and upon such terms and conditions as we may by resolution of directors determine.

Subject to the provisions of the amended and restated memorandum of association relating to changes in the rights of shareholders and the powers of directors in relation to shareholders, we may, by a resolution of members, amend ~~our~~the Company’s memorandum of association to increase or decrease the number of ordinary shares authorized to be issued.

Differences in Corporate Law

BVI law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of BVI law applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.

Protection for Minority Shareholders

Under the laws of most U.S. jurisdictions, majority and controlling shareholders of a company generally have certain “fiduciary” responsibilities to the minority shareholders. Corporate actions taken by majority and controlling shareholders which are unreasonable and materially detrimental to the interests of minority shareholders may be declared null and void. Minority shareholders may have less protection for their rights under BVI law than they would have under U.S. law.

Powers of Directors

Unlike most U.S. jurisdictions, the directors of a BVI company, subject in certain cases to court approval but without shareholders’ approval, may implement the sale, transfer, exchange or disposition of any Company asset, property, part of the business, or securities, with the exception that shareholder approval is required for the disposition of over 50% in the value of ~~our~~the Company’s total assets.

Conflict of Interests

Similar to the laws of most U.S. jurisdictions, when a director becomes aware of the fact that he has an interest in a transaction which we are to enter into, he must disclose it to our Board. However, with sufficient disclosure of interest in relation to that transaction, the director who is interested in a transaction entered into or to be entered into by us may (i) vote on a matter relating to the transaction; (ii) attend a meeting of directors at which a matter relating to the transaction arises and be included in the quorum; and (iii) sign a document on behalf of us, or do any other thing in his capacity as a director, that relates to the transaction.

Written Consent and Cumulative Voting

Similar to the laws of most U.S. jurisdictions, under BVI law, shareholders are permitted to approve matters by way of written resolution in place of a formal meeting. BVI law does not make a specific reference to cumulative voting, and ~~our~~the Company’s current articles of association have no provisions authorizing cumulative voting.

Takeover Provisions

Some provisions of ~~our~~the Company’s memorandum and articles of association may discourage, delay or prevent a change in control of ~~our company~~the Company or management that shareholders may consider favorable. For instance, our Board of Directors is authorized to issue ordinary shares in different classes and series and, with respect to each class or series, to determine the designations, powers, preferences, privileges and other rights, including dividend rights, conversion rights, terms of redemption and liquidation preferences, any or all of which may be greater than the powers and rights associated with the ordinary shares previously issued, at such times and on such other terms as they think proper.

Shareholder’s Access to Corporate Records

Under the BVI Act, a member of a business company may, on giving written notice to a company, inspect the company’s memorandum and articles, the register of shareholders, the register of directors and the minutes of meetings and resolutions of shareholders and of those classes of shareholders of which he is a member.

In addition, ~~our~~the Company’s articles of association allow any shareholder of record who owns at least 15% of ~~our~~the Company’s outstanding shares, upon at least five days’ written demand, to inspect, during usual business hours, the books of account and all financial records, to make copies of records, and to conduct an audit of such records at their own cost.

~~Indemnification~~

Indemnification

BVI law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the BVI courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.

Under ~~our~~the Company’s articles of association, subject to the BVI Act, we shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director or officer (excluding the auditors), or who is or was serving at our request as a director or officer of another company, partnership, joint venture, trust or other enterprise. Each such indemnified person shall be indemnified out of our assets against any liability, action, proceeding, claim, demand, judgments, fines, costs, damages or expenses, including legal expenses, whatsoever which they or any of them may reasonably incur as a result of any act or failure to act in carrying out their functions other than such liability that they may incur by reason of their own actual fraud or willful default. In addition, to be entitled to indemnification, an indemnified person must not have acted in such a manner as to have incurred the liability by virtue of having committed actual fraud or willful default but no person shall be found to have committed actual fraud or willful default unless or until a court of competent jurisdiction shall have made a finding to that effect.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us under the foregoing provisions, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Mergers and Similar Arrangements

Under the laws of the BVI, two or more companies may merge or consolidate in accordance with Section 170 of the BVI Act. A merger means the merging of two or more constituent companies into one of the constituent companies, and a consolidation means the uniting of two or more constituent companies into a new company. In order to merge or consolidate, the directors of each constituent company must approve a written plan of merger or consolidation which must be authorized by a resolution of shareholders.

While a director may vote on the plan even if he has a financial interest in the plan, in order for the resolution to be valid, the material facts of the interest and the director’s relationship to any party to the transaction must be disclosed and the resolution approved (1)without counting the vote or consent of any interested director, or (2)by the unanimous vote or consent of all disinterested directors if the votes or consents of all disinterested directors is insufficient to approve a resolution of directors.

Shareholders not otherwise entitled to vote on the merger or consolidation may still acquire the right to vote if the plan of merger or consolidation contains any provision which, if proposed as an amendment to the memorandum or articles of association, would entitle them to vote as a class or series on the proposed amendment. In any event, all shareholders must be given a copy of the plan of merger or consolidation irrespective of whether they are entitled to vote at the meeting or consent to the written resolution to approve the plan of merger or consolidation.

The shareholders of the constituent companies are not required to receive shares of the surviving or consolidated company but may receive debt obligations or other securities of the surviving or consolidated company, or other assets, or a combination thereof. Further, some or all of the shares of a class or series may be converted into a kind of asset while the other shares of the same class or series may receive a different kind of asset. As such, not all the shares of a class or series must receive the same kind of consideration.

After the plan of merger or consolidation has been approved by the directors and authorized by a resolution of the shareholders, articles of merger or consolidation are executed by each company and filed with the Registrar of Corporate Affairs in the BVI.

Dissenter Rights

A shareholder may dissent from a mandatory redemption of his shares, an arrangement (if permitted by the court), a merger (unless the shareholder was a shareholder of the surviving company prior to the merger and continues to hold the same or similar shares after the merger) and a consolidation. A shareholder properly exercising his dissent rights is entitled to payment in cash of the fair value of his shares.

A shareholder dissenting from a merger or consolidation must object in writing to the merger or consolidation before the vote by the shareholders on the merger or consolidation, unless notice of the meeting was not given to the shareholder. If the merger or consolidation is approved by the shareholders, the company must within 20 days give notice of this fact to each shareholder who gave written objection, and to each shareholder who did not receive notice of the meeting. Such shareholders then have 20 days to give their written election in the form specified by the BVI Act to dissent from the merger or consolidation, provided that in the case of a merger, the 20 days starts when the plan of merger is delivered to the shareholder.

Upon giving notice of his election to dissent, a shareholder ceases to have any rights of a shareholder except the right to be paid the fair value of his shares. As such, the merger or consolidation may proceed in the ordinary course notwithstanding the dissent.

Within seven days of the later of the delivery of the notice of election to dissent and the effective date of the merger or consolidation, the company must make a written offer to each dissenting shareholder to purchase his shares at a specified price that the company determines to be their fair value. The company and the shareholder then have 30 days to agree upon the price. If the company and a shareholder fail to agree on the price within the 30 days, then the company and the shareholder shall each designate an appraiser and these two appraisers shall designate a third appraiser. These three appraisers shall fix the fair value of the shares as of the close of business on the day before the shareholders approved the transaction without taking into account any change in value as a result of the transaction.

Under BVI law, shareholders are not entitled to dissenters’ rights in relation to liquidation.

Shareholders’ Suits

Similar to the laws of most U.S. jurisdictions, BVI law permits derivative actions against its directors. However, the circumstances under which such actions may be brought, and the procedures and defenses available may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company incorporated and/or existing in the United States.

The courts of the BVI may, on the application of a shareholder of a company, grant leave to that shareholder to bring proceedings in the name and on behalf of that company, or intervene in proceedings to which the company is a party for the purpose of continuing, defending or discontinuing the proceedings on behalf of the company. In determining whether to grant leave, the courts must take into account (1) whether the shareholder is acting in good faith; (2) whether the derivative action is in the interests of the company taking account of the views of the company’s directors on commercial matters; (3) whether the proceedings are likely to succeed; (4) the costs of the proceedings in relation to the relief likely to be obtained; and (5) whether an alternative remedy to the derivative claim is available.

Leave to bring or intervene in proceedings may be granted only if the court is satisfied that (1) the company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or (2)it is in the interests of the company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole.

C. Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in Item 4 “Information on the Company,” Item 5 “Operating and Financial Review and Prospects—F. Tabular Disclosure of Contractual Obligations,” Item 7 “Major Shareholders and Related Party Transactions,” or filed (or incorporated by reference) as exhibits to this annual report or otherwise described or referenced in this annual report.

D. Exchange Controls

BVI Exchange Controls

There are no material exchange controls restrictions on payment of dividends, interest or other payments to the holders of ~~our~~Taoping’s ordinary shares or on the conduct of our operations in the BVI, where ~~we were~~Taoping was incorporated. There are no material BVI laws that impose any material exchange controls on us or that affect the payment of dividends, interest or other payments to nonresident holders of ~~our~~Taoping’s ordinary shares. BVI law and ~~our~~the Company’s memorandum and articles of association do not impose any material limitations on the right of non-residents or foreign owners to hold or vote ~~our~~the Company’s ordinary shares.

PRC Exchange Controls

Regulations on Foreign Currency Exchange

Under thePRC Foreign Currency Administration Rules promulgated inon January 29, 1996 and ~~revised in 1997,~~last amended on August 5, 2008 and various regulations issued by SAFE and other relevant PRC government authorities, ~~RMB is convertible into other~~payment of current account items in foreign currencies, such as trade and service payments, payment of interest and dividends can be made without prior approval from SAFE ~~only to~~by following the ~~extent of current account items, such as trade related receipts and payments, interest and dividends and after complying with certain~~appropriate procedural requirements. ~~The~~By contrast, the conversion of RMB into ~~other~~foreign currencies and remittance of the converted foreign currency outside the PRC for the purpose of capital account items, such as direct equity investments, loans and repatriation of investment, requires ~~the~~ prior approval from SAFE or its local office. ~~Payments~~

On February 13, 2015, SAFE promulgated the Circular on Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, effective from June 1, 2015, which cancels the requirement for ~~transactions that take~~obtaining approvals of foreign exchange registration of foreign direct investment and overseas direct investment from SAFE. The application for the registration of foreign exchange for the purpose of foreign direct investment and overseas direct investment may be filed with qualified banks, which, under the supervision of SAFE, may review the application and process the registration.

The Circular of the SAFE on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or SAFE Circular 19, was promulgated on March 30, 2015 and became effective on June 1, 2015. According to SAFE Circular 19, a foreign-invested enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange bureau has confirmed monetary contribution rights and interests (or for which the bank has registered the account-crediting of monetary contribution). For the time being, foreign-invested enterprises are allowed to settle 100% of their foreign exchange capitals on a discretionary basis; a foreign-invested enterprise shall truthfully use its capital for its own operational purposes within the scope of business; where an ordinary foreign-invested enterprise makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise shall first go through domestic re-investment registration and open a corresponding Account for Foreign Exchange Settlement Pending Payment with the foreign exchange bureau (bank) at the place ~~within China must be made~~of registration. The Circular of the SAFE on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, was promulgated and became effective on June 9, 2016. According to SAFE Circular 16, enterprises registered in ~~RMB. Unless otherwise approved,~~ PRC ~~companies must repatriate~~may also convert their foreign debts from foreign currency ~~payments received from abroad. Foreign-invested enterprises may retain~~into Renminbi at the enterprise’s discretion. SAFE Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on self—discretionary basis, which applies to all enterprises registered in ~~accounts~~the PRC. SAFE Circular 16 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope and may not be used for investments in securities or other investment with ~~designated~~the exception of bank financial products that can guarantee the principal in the PRC unless otherwise specifically provided. Besides, the converted Renminbi shall not be used to make loans for related enterprises unless it is within the business scope or to build or to purchase any real estate that is not for the enterprise own use with the exception for the real estate enterprise.

On January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuineness and Compliance Verification, or SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profits from domestic entities to offshore entities, including (i) banks must check whether the transaction is genuine by reviewing board resolutions regarding profit distribution, original copies of tax filing records and audited financial statements, and (ii) domestic entities must retain income to account for previous years’ losses before remitting any profits. Moreover, pursuant to SAFE Circular 3, domestic entities must explain in detail the sources of capital and how the capital will be used, and provide board resolutions, contracts and other proof as a part of the registration procedure for outbound investment.

On October 25, 2019, SAFE promulgated the Notice on Further Facilitating Cross-Board Trade and Investment, which became effective on the same date (except for Article 8.2 thereof). The notice removed restrictions on the capital equity investment in China by non-investment foreign-invested enterprises. In addition, restrictions on the use of funds for foreign exchange ~~banks subject~~settlement of domestic accounts for the realization of assets have been removed and restrictions on the use and foreign exchange settlement of foreign investors’ security deposits have been relaxed. Eligible enterprises in the pilot areas are also allowed to use revenues under capital accounts, such as capital funds, foreign debts and overseas listing revenues for domestic payments without providing materials to the bank in advance for authenticity verification on an item by item basis, while the use of funds should be true, in compliance with applicable rules and conforming to the current capital revenue management regulations.

Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents

SAFE issued the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which became effective in July 2014, to replace the Circular of the State Administration of Foreign Exchange on Issues Concerning the Regulation of Foreign Exchange in Equity Finance and Roundtrip Investments by Domestic Residents through Offshore Special Purpose Vehicles, to regulate foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing or conduct round trip investment in China. SAFE Circular 37 defines a ~~cap set~~SPV as an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate onshore or offshore assets or interests, while “round trip investment” is defined as direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 stipulates that, prior to making contributions into an SPV, PRC residents or entities be required to complete foreign exchange registration with SAFE or its local ~~office. Unless otherwise approved, domestic enterprises must convert all of their foreign currency proceeds into RMB.~~

~~On October 21, 2005,~~branch. In addition, SAFE ~~issued~~promulgated the Notice on ~~Issues Relating to~~Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in ~~Fund-raising~~February 2015, which amended SAFE Circular 37 and ~~Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, which~~ became effective ~~as of November~~on June 1, ~~2005. According to the notice, a special purpose company, or SPV, refers to an offshore company established or indirectly controlled by~~2015, requiring PRC residents ~~for the special purpose of carrying out financing of~~or entities to register with qualified banks rather than SAFE in connection with their ~~assets~~establishment or ~~equity interest in PRC domestic enterprises. Prior to establishing or assuming~~ control of an ~~SPV, each PRC resident, whether a natural or legal person, must complete~~offshore entity established for the purpose of overseas investment ~~foreign exchange registration procedures with the relevant local SAFE branch. The notice applies retroactively. As a result,~~ or financing.

~~On August 29, 2008, SAFE promulgated Circular 142 which regulates the conversion~~ See “Risk Factors—Risks Relating to Doing Business in China—PRC regulations relating to investments in offshore companies by ~~a foreign-funded enterprise of foreign currency~~PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into ~~RMB by restricting how the converted RMB may be used. In addition, SAFE promulgated Circular 45 on November 9, 2011 in order~~our PRC subsidiary or limit our PRC subsidiary’s ability to ~~clarify the application of Circular 142. Under Circular 142 and Circular 45, the RMB capital converted from foreign currency~~increase their registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, or distribute profits.”

Regulations on Stock Incentive Plans

SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. On April 9, 2015, SAFE releasedpromulgated the Notice on Issues Concerning the ~~Reform~~Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, or the Stock Incentive Plan Notice, in February 2012, replacing the previous rules issued by SAFE in March 2007. Pursuant to the Stock Incentive Plan Notice and other relevant rules and regulations, PRC residents participating in stock incentive plan in an overseas publicly-listed company are required to register with SAFE or its local branches and follow certain other procedures. Participants of a stock incentive plan who are PRC residents must conduct the SAFE registration and other procedures with respect to the stock incentive plan through a qualified PRC agent, which could be a PRC subsidiary of the ~~Administration Method~~overseas publicly listed company or another qualified institution appointed by the PRC subsidiary. In addition, the PRC agent is required to update the relevant SAFE registration should there be any material change to the stock incentive plan, the PRC agent or other material changes. The PRC agent must, on behalf of the PRC residents who have the right to exercise the employee stock options, apply to SAFE or its local branches for an annual quota for the ~~Settlement~~payment of ~~Foreign Exchange Capital~~foreign currencies in connection with the PRC residents’ exercise of ~~Foreign-invested Enterprises, or SAFE Circular 19, which came into force and superseded SAFE Circular 142 on June 1, 2015. Circular 19 allows foreign invested enterprises to settle their~~the employee stock options. The foreign exchange ~~capital on a discretionary basis according~~proceeds received by the PRC residents from the sale of shares under the stock incentive plans granted and dividends distributed by the overseas listed companies must be remitted into the bank accounts in the PRC opened by the PRC agents prior to distribution to such PRC residents.

We adopted an equity incentive plan, under which we have the ~~actual needs~~discretion to award incentives and rewards to eligible participants. We have advised the recipients of ~~their business operation~~awards under our equity incentive plan to handle relevant foreign exchange matters in accordance with the Stock Incentive Plan Notice. However, we cannot guarantee that all employee awarded equity-based incentives can successfully register with SAFE in full compliance with the Stock Incentive Plan Notice. See “Risk Factors—Risks Relating to Doing Business in China—Any failure to comply with PRC regulations regarding employee share incentive plans may subject the PRC plan participants or us to fines and provides the procedures for foreign invested companies to use Renminbi converted from foreign currency-denominated capital for equity investment. Nevertheless, Circular 19 also reiterates the principle that Renminbi converted from foreign currency-denominated capital of a foreign-invested company may not be directlyother legal or ~~indirectly used for purposes beyond its business scope.~~administrative sanctions.”

See also “Item 4.B. Information on the Company— Business Overview—Regulation—Foreign Currency Exchange,” “Item 4.B. Information on the Company—Business Overview—Regulation—Dividend Distributions” and “Item 4.B. Information on the Company—Business Overview—Regulation—Circular 37.”

E. Taxation

The following is a general summary of certain material BVI, PRC andU.S. federal income tax considerations. The discussion is not intended to be,nor should it be construed as, legal or tax advice to any particular shareholder orprospective shareholder. The discussion is based on laws and relevantinterpretations thereof in effect as of the date hereof, all of which are subject to change or different interpretations, possibly with retroactive effect.

BVI Taxation

The BVI does not impose a withholding tax on dividends paid to holders of ~~our~~the Company’s ordinary shares, nor does the BVI levy any capital gains or income taxes on us. Further, a holder of ~~our~~the Company’s ordinary shares who is not a resident of the BVI is exempt from the BVI income tax on dividends paid with respect to the ordinary shares. Holders of ordinary shares are not subject to the BVI income tax on gains realized on the sale or disposition of the ordinary shares.

Our ordinary shares are not subject to transfer taxes, stamp duties or similar charges in the BVI. However, as a company incorporated under the BVI Act, we are required to pay the BVI government an annual license fee based on the number of shares we are authorized to issue.

There is no income tax treaty or convention currently in effect between the United States and the BVI.

PRC Taxation

~~We are~~

Taoping is a holding company incorporated in the BVI, which indirectly holds ~~our~~ equity interests in ~~our~~its PRC operating subsidiaries. The EIT Law and its implementation rules, both of which became effective as of January 1, 2008, as amended on February 24, 2017, provide that a PRC enterprise is subject to a standard income tax rate of 25% and China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its overseas parent, will normally be subject to PRC withholding tax at a rate of 10%, unless there are applicable treaties between the overseas parent’s jurisdiction of incorporation and China to reduce such rate.

~~Under~~

The EIT Law also provides that enterprises organized under the ~~Arrangement between the Mainland and the Hong Kong Special Administrative Region for the Avoidance~~laws of ~~Double Taxation and the Prevention of Fiscal Evasion~~jurisdictions outside China with respect to Taxes on Income, or the Double Taxation Arrangement, effective as of January 1, 2007, such dividend withholding tax rate is reduced to 5% if a Hong Kong resident enterprise owns over 25% of the PRC company distributing the dividends. Under the aforesaid arrangement, any dividends that our PRC operating subsidiaries pay to their ~~Hong Kong holding companies~~“de facto management bodies” located within China may be considered PRC resident enterprises and therefore subject to ~~a withholding~~PRC enterprise income tax at the rate of 5% if they are not considered to be a PRC “resident enterprise” as described below. However, if the Hong Kong holdings companies are not considered to be the “beneficial owner” of such dividends under the Notice Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties promulgated by the State Administration of Taxation on October 27, 2009 (and not a PRC “resident enterprise”), such dividends would be subject to the withholding tax rate of 10%. The withholding tax rate of 5% or 10% applicable will have a significant impact on the amount of dividends to be received by us and ultimately by shareholders.

According to the Notice Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties, the term “beneficial owner” refers to a person who has the right to own and dispose of the income and the rights or properties generated from the said income. The “beneficial owner” may be an individual, a company or any other organization which is usually engaged in substantial business operations. A conduit company is not a “beneficial owner.” The term “conduit company” refers to a company which is usually established for purposes of dodging or reducing taxes, and transferring or accumulating profits. Such a company is only registered in the country of domicile to satisfy the organizational form as required by law, but it does not engage in such substantial business operations as manufacturing, distribution and management. As our Hong Kong holding companies are controlling companies and are not engaged in substantial business operations, they could be considered as conduit companies by tax authorities and we do not expect them to be a beneficial owner.

In addition to the changes to the current tax structure, under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to an EIT of 25% on ~~its global~~their worldwide income. ~~The implementing~~Its implementation rules further define the term “de facto management ~~bodies”~~body” as ~~“an establishment~~the management body that exercises ~~in substance,~~substantial and overall management and control over the ~~production,~~ business, personnel, ~~accounting, etc.,~~accounts, and properties of ~~a Chinese~~an enterprise.”

~~It remains unclear whether the PRC tax authorities would require or permit our overseas registered entities to be treated as PRC resident enterprises. We~~ While we do not currently consider ~~our company~~Taoping or any of Taoping’s overseas subsidiaries to be a PRC resident ~~enterprise. However, if~~enterprise, there is a risk that the PRC tax authorities may deem Taoping or any of its overseas subsidiaries as a PRC resident enterprise since a substantial majority of the members of Taoping’s management team as well as the management team of our overseas subsidiaries are located in China, in which case Taoping or the overseas subsidiaries, as the case may be, would be subject to the PRC enterprise income tax at the rate of 25% on worldwide income. If the PRC tax authorities determine that ~~we are~~Taoping is a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. ~~First, we may be~~Under the EIT Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is applicable to dividends paid to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC. In addition, any gain realized on the transfer of shares by such investors is also subject to ~~the enterprise income~~PRC tax at a rate of ~~25%~~10%, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on ~~our worldwide taxable~~the Company’s ordinary shares, and any gain realized from the transfer of the Company’s ordinary shares, may be treated as income derived from sources within the PRC and may as ~~well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as interest on offering proceeds and non-China source income would~~a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident enterprise, ~~income~~dividends paid to individual investors who are non-PRC residents and any gain realized on the transfer of ordinary shares by such investors may be subject to PRC tax at a current rate of ~~25%~~20% (which in the case of dividends may be withheld at source). ~~Second, although~~Any PRC tax liability may be reduced under applicable tax treaties or tax arrangements between China and other jurisdictions. If Taoping or any of its subsidiaries established outside of China are considered a PRC resident enterprise, it is unclear whether holders of Taoping ordinary shares would be able to claim the EIT Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processingbenefit of ~~outbound remittances to entities that are treated as resident enterprises for PRC enterprise~~ income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC shareholderstreaties or agreements entered into between China and ~~with respect to gains derived by our non-PRC shareholders from transferring our shares.~~other countries or areas.

U.S. Federal Income Taxation

The following is a discussion of certain material U.S. federal income tax consequences of the acquisition, ownership and disposition of ~~our~~Taoping’s ordinary shares. It does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s situation. The discussion applies only to holders that hold their ordinary shares as capital assets (generally property held for investment) within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended, or the Code. This discussion is based on the Code, income tax regulations promulgated thereunder, judicial positions, published positions of the Internal Revenue Service, or the IRS, and other applicable authorities, all as in effect as of the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion is general in nature and is not exhaustive of all possible tax considerations, nor does the discussion address any state, local or foreign tax considerations or any U.S. tax considerations (e.g., estate or gift tax) other than U.S. federal income tax considerations, that may be applicable to particular holders.

This discussion does not address all aspects of U.S. federal income taxation that may be relevant in light of particular circumstances, nor does it address the U.S. federal income tax consequences to persons who are subject to special rules under U.S. federal income tax law, including:

	•(a)	banks, insurance companies or other financial institutions;
	•(b)	persons subject to the alternative minimum tax;
	•(c)	tax-exempt organizations;
	•(d)	controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid United States federal income tax;
	•(e)	certain former citizens or long-term residents of the United States;
	•(f)	dealers in securities or currencies;
	•(g)	traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

	•●	persons that own, or are deemed to own, more than five percent of ~~our capital stock;~~ the Company shares;
	•●	holders who acquired ~~our stock~~the Company shares as compensation or pursuant to the exercise of a ~~stock~~share option; or
	•●	persons who hold ~~our~~the Company shares as a position in a hedging transaction, “straddle,” or other risk reduction transaction.

For purposes of this discussion, a U.S. holder is (i) an individual who is a citizen or resident of the United States for U.S. federal income tax purposes; (ii) a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States (or treated as such under applicable U.S. tax laws), any state thereof, or the District of Columbia; (iii) an estate the income of which is subject to U.S. federal income tax regardless of its source; or (iv) a trust if (a) a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) it has a valid election in effect under applicable law and regulations to be treated as a U.S. person for U.S. federal income tax purposes. A non-U.S. holder is a holder that is neither a U.S. holder nor a partnership or other entity classified as a partnership for U.S. federal income tax purposes.

In the case of a partnership or entity classified as a partnership for U.S. federal income tax purposes, the U.S. federal income tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. Partners of partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them of the merger or of the ownership and disposition of ~~our~~Taoping ordinary shares.

Because of the redomestication transaction in 2012 by which ~~CNIT,~~Taoping, a British Virgin Islands ~~corporation,~~company, became the parent of ~~our~~the group, under Section 7874 of the Code, ~~CNIT~~Taoping is treated for U.S. federal tax purposes as a U.S. corporation and, among other consequences, is subject to U.S. federal income tax on its worldwide income. This discussion assumes that Section 7874 of the Code continues to apply to treat ~~CNIT~~TAOP as a U.S. corporation for all purposes under the Code. If, for some reason (e.g., future repeal of Section 7874 of the Code), ~~CNIT~~TAOP were no longer treated as a U.S. corporation under the Code, the U.S. federal income tax consequences described herein could be materially and adversely affected.

U.S. Federal Income Tax Consequences for U.S. Holders

Distributions

We do not currently anticipate paying distributions on ~~our~~the Company’s ordinary shares. In the event that distributions are paid, however, the gross amount of such distributions will be included in the gross income of the U.S. holder as dividend income on the date of receipt to the extent that the distribution is paid out of current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such dividends will be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. Dividends received by non-corporate U.S. holders, including individuals, may be subject to reduced rates of taxation under current law. A U.S. holder may be eligible to claim a foreign tax credit with respect to any PRC withholding tax imposed on dividends paid by us. However, the foreign tax credit rules are complex, and their application in connection with Section 7874 of the Code and the Agreement Between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the U.S.-PRC Tax Treaty, is not entirely clear at this time. U.S. holders should consult their own tax advisors with respect to any benefits they may be entitled to under the foreign tax credit rules and the U.S.-PRC Tax Treaty.

To the extent that dividends paid on ~~our~~the Company’s ordinary shares exceed current and accumulated earnings and profits, the distributions will be treated first as a tax-free return of tax basis on ~~our~~the Company’s ordinary shares, and to the extent that the amount of the distribution exceeds tax basis, the excess will be treated as gain from the disposition of those ordinary shares. Because Section 7874 of the Code has applied to treat ~~CNIT~~TAOP as a U.S. corporation only since our redomestication in 2012, we may not be able to demonstrate to the IRS the extent to which a distribution on ~~our~~the Company’s ordinary shares exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), in which case all of such distribution will be treated as a dividend for U.S. federal income tax purposes.

Sale or Other Disposition

U.S. holders of ~~our~~the Company’s ordinary shares will recognize taxable gain or loss on any sale, exchange, or other taxable disposition of ordinary shares equal to the difference between the amounts realized for the ordinary shares and the U.S. holder’s tax basis in the ordinary shares. This gain or loss generally will be capital gain or loss. Under current law, non-corporate U.S. holders, including individuals, are eligible for reduced tax rates if the ordinary shares have been held for more than one year. The deductibility of capital losses is subject to limitations. A U.S. holder may be eligible to claim a foreign tax credit with respect to any PRC withholding tax imposed on gain from the sale or other disposition of ordinary shares. However, the foreign tax credit rules are complex, and their application in connection with Section 7874 of the Code and the U.S.-PRC Tax Treaty is not entirely clear at this time. U.S. holders should consult their own tax advisors with respect to any benefits they may be entitled to under the foreign tax credit rules and the U.S.-PRC Tax Treaty.

Unearned Income Medicare Contribution

Certain U.S. holders who are individuals, trusts or estates are required to pay an additional 3.8% Medicare tax on, among other things, dividends on and capital gains from the sale or other disposition of shares of ~~stock for taxable years beginning after December 31, 2012.~~stock. U.S. holders should consult their own advisors regarding the effect, if any, of this ~~legislation~~rule on their ownership and disposition of ~~our~~the Company’s ordinary shares.

~~Passive Foreign Investment Company Rules~~.

In general, a foreign corporation will be a passive foreign investment company (“PFIC”) for any taxable year in which (1) 75% or more of its gross income consists of passive income (such as dividends, interest, rents royalties and certain gains) or (2) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income.

If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation's assets and receiving our proportionate share of the other corporation's income. Although we do not expect to be a PFIC, it is not entirely clear how the contractual arrangements between us and our variable interest entities will be treated for purposes of the PFIC rules. If it were determined that we do not own the stock of our variable interest entities for United States federal income tax purposes (for instance, because the relevant PRC authorities do not respect these arrangements), we may be treated as a PFIC.

If we were a PFIC for any taxable year during which a U.S. Holder owned our ordinary shares, the U.S. Holder may be subject to adverse tax consequences. Generally, gain recognized upon a disposition (including, under certain circumstances, a pledge) of ordinary shares by the U.S. Holder would be allocated ratably over the U.S. Holder’s holding period for such share. The amounts allocated to the taxable year of disposition and to taxable years prior to the first taxable year in which we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest tax rate in effect for that taxable year for individuals or corporations, as appropriate, and an interest charge would be imposed on the tax attributable to the allocated amounts. Further, to the extent that any distribution received by a U.S. Holder on ordinary shares exceeded 125% of the average of the annual distributions received on such shares during the preceding three years or the U.S. Holder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same manner. Certain elections may be available that would result in alternative treatments (such as a mark-to-market treatment) of the shares. U.S. Holders should consult their tax advisers to determine whether such elections are available and, if so, what the consequences of the alternative treatments would be in those holders' particular circumstances. U.S. Holders should also consult their tax advisers regarding the determination of whether we are a PFIC and the potential application of the PFIC rules.

U.S. Federal Income Tax Consequences for Non-U.S. Holders

Distributions

The rules applicable to non-U.S. holders for determining the extent to which distributions on ~~our~~the Company’s ordinary shares, if any, constitute dividends for U.S. federal income tax purposes are the same as for U.S. holders.See “–U.S. Federal Income Tax Consequences for U.S. Holders– Distributions.”

Any dividends paid to a non-U.S. holder by us are treated as income derived from sources within the United States and generally will be subject to U.S. federal income tax withholding at a rate of 30% of the gross amount of the dividends, or at a lower rate provided by an applicable income tax treaty if non-U.S. holders provide proper certification of eligibility for the lower rate (usually on IRS Form W-8BEN or Form W-8BEN-E). Dividends received by a non-U.S. holder that are effectively connected with such holder’s conduct of a U.S. trade or business (and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the non-U.S. holder in the U.S.) are exempt from such withholding tax, provided that applicable certification requirements are satisfied. In such case, however, non-U.S. holders will be subject to U.S. federal income tax on such dividends, net of certain deductions, at the rates applicable to U.S. persons. In addition, corporate non-U.S. holders may be subject to an additional branch profits tax equal to 30% or such lower rate as may be specified by an applicable tax treaty on dividends received that are effectively connected with the conduct of a trade or business in the United States.

If non-U.S. holders are eligible for a reduced rate of U.S. withholding tax pursuant to an applicable income tax treaty, such non-U.S. holders may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.

Sale or Other Disposition

Except as described below for a reduced rate of U.S. withholding tax pursuant to an applicable income tax treaty, any gain realized by a non-U.S. holder upon the sale or other disposition of ~~our~~the Company’s ordinary shares generally will not be subject to U.S. federal income tax unless:

	•●	the gain is effectively connected with the conduct of a trade or business in the United States by such non- U.S. holder, and, if an income tax treaty applies, is attributable to a permanent establishment maintained by such non- U.S. holder in the U.S.;
	•●	the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition, and certain other conditions are met; or
	•●	~~CNIT~~TAOP is or has been a “U.S. real property holding corporation,” or USRPHC, for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period during which the holder has held ~~our~~the Company’s ordinary shares.

100

Non-U.S. holders whose gain is described in the first bullet point above will be subject to U.S. federal income tax on the gain derived from the sale, net of certain deductions, at the rates applicable to U.S. persons. Corporate non-U.S. holders whose gain is described in the first bullet point above may also be subject to the branch profits tax described above at a 30% rate or lower rate provided by an applicable income tax treaty. Individual non-U.S. holders described in the second bullet point above will be subject to a flat 30% U.S. federal income tax rate on the gain derived from the sale, which may be offset by U.S.-source capital losses, even though such non-U.S. holders are not considered to be residents of the United States.

A corporation will be a USRPHC if the fair market value of its U.S. real property interests equals or exceeds 50 percent of the aggregate of its real property interests (U.S. and non-U.S.) and its assets used or held for use in a trade or business. Because we do not currently own significant U.S. real property, we believe that we are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as ~~our~~the Company’s ordinary shares are regularly traded on an established securities market, such ordinary shares will be treated as U.S. real property interests only if a non-U.S. holder actually or constructively holds more than 5% of such regularly traded ordinary shares at any time during the applicable period that is specified in the Code.

Foreign Account Tax Compliance

The Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act (generally referred to as “FATCA”), when applicable, will impose a U.S. federal withholding tax of 30% on payments of dividends on, and ~~(for dispositions after December 31, 2018)~~ gross proceeds from dispositions of, ~~our~~the Company’s ordinary shares that are held through ~~‘‘foreign~~“foreign financial ~~institutions’’~~institutions” (which is broadly defined for this purpose and in general includes investment vehicles) and certain other non-U.S. entities unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of certain interests in or accounts with those entities) have been satisfied or an exemption applies. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. U.S. Holders should consult their tax advisers regarding the effect, if any, of the FATCA provisions on their particular circumstances.

Information Reporting and Backup Withholding

Payments of dividends or of proceeds on the disposition of stock made to a holder of ~~our~~the Company’s ordinary shares may be subject to information reporting and backup withholding at a current rate of ~~28%~~24% unless such holder provides a correct taxpayer identification number on IRS Form W-9 (or other appropriate withholding form) or establishes an exemption from backup withholding, for example by properly certifying the holder’s non-U.S. status on a Form W-8BEN, Form W-8BEN-E or another appropriate version of IRS Form W-8. Payments of dividends to holders must generally be reported annually to the IRS, along with the name and address of the holder and the amount of tax withheld, if any. A similar report is sent to the holder. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in the holder’s country of residence.

Backup withholding is not an additional tax; rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

101

H. Documents on Display

We have filed this annual report on Form 20-F with the SEC under the Exchange Act. Statements made in this report as to the contents of any document referred to are not necessarily complete. With respect to each such document filed as an exhibit to this report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.

We are subject to the informational requirements of the Exchange Act as a foreign private issuer and file reports and other information with the SEC. Reports and other information filed by us with the SEC, including this report, may be inspected and copied at the public reference room of the SEC at 100 F Street, N.E., Washington D.C. 20549. You can also obtain copies of this report by mail from the Public Reference Section of the SEC, 100 F. Street, N.E., Washington D.C. 20549, at prescribed rates. Additionally, copies of this material may be obtained from the SEC’s Internet site athttp://~~www.sec.gov~~.www.sec.gov. The SEC’s telephone number is 1-800-SEC-0330. In accordance with NASDAQ Stock Market Rule 5250(d), we will also post this annual report on Form 20-F on our website at ~~www.chinacnit.com.~~www.taop.com. In addition, we will provide hardcopies of our annual report free of charge to shareholders upon request.

As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

I. Subsidiary Information

Not applicable.

~~ITEM 11.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We deposit surplus funds with Chinese banks earning daily interest. We do not invest in any instruments for trading purposes. Most of our outstanding debt instruments carry fixed rates of interest. Our operations generally are not directly sensitive to fluctuations in interest rates. There was no long-term debt outstanding as of December 31, ~~2017~~2021 and ~~2016.~~2020. A hypothetical 1.0% increase in the annual interest rates for all of our credit facilities under which we had outstanding borrowings at December 31, ~~2017~~2021 would ~~decrease~~increase net ~~income~~loss before income taxes by approximately ~~$19,700,~~$77,900 or less than 1% for the year ended December 31, ~~2017.~~2021. Management monitors the banks’ prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.

Foreign Exchange Risk

While our reporting currency is the U.S. dollar, substantially all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. Substantially all of our assets are denominated in RMB except for ~~cash.~~a small portion of cash and cryptocurrencies. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between the U.S. dollar and the RMB. If the RMB depreciates against the U.S. dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline. Assets and liabilities are translated at exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income but are included in determining other comprehensive income, a component of equity. An average appreciation (depreciation) of the RMB against the U.S. dollar of 5% would increase (decrease) our comprehensive income by ~~$3.4~~$1.2 million based on our outstanding revenues, costs and expenses, assets and liabilities denominated in RMB as of December 31, ~~2017.~~2021. As of December 31, ~~2017,~~2021, our accumulated other comprehensive income was ~~$24.2~~approximately $23.8 million. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.

The value of RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July 2005, RMB has not been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in RMB exchange rate and lessen intervention in the foreign exchange market.

102

Inflation

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.

~~ITEM 12.~~

~~DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES~~

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

We do not have any American Depositary Shares.

103

PART II

~~ITEM 13.~~

~~DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES~~

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

~~ITEM 14.~~

~~MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF~~~~PROCEEDS~~

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF PROCEEDS

None.

~~ITEM 15.~~

~~CONTROLS AND PROCEDURES~~

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e), our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer, Mr. Jianghuai Lin and our ~~Interim~~ Chief Financial Officer, ~~Mr. Zhiqiang Zhao,~~Ms. Liqiong (Iris) Yan, of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31, ~~2017.~~2021. Based upon, and as of the date of this evaluation, Mr. Lin and ~~Mr. Zhao,~~Ms. Yan, determined that, as of December 31, ~~2017,~~2021, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting, which are described below.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and ~~Interim~~ Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

104

Management assessed the effectiveness of our internal control over financial reporting as of December 31, ~~2017.~~2021. In making this assessment, management used the framework set forth in the report entitled Internal Control - Integrated ~~Framework(2013)~~Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on our assessment, as a result of the material weaknesses described below, we determined that, as of December 31, ~~2017,~~2021, our internal control over financial reporting was not effective based on those criteria.

A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual financial statements will not be prevented or detected in a timely basis.

As a result of our assessment, management identified the following control deficiencies that represent material weaknesses as of December 31, ~~2017:~~2021: (1) ~~we have a~~We lack of ~~qualified technical resources~~formal process in ~~place~~respect of management going concern assessment; (2) We do not have sufficient formal procedures to ~~properly evaluate significant~~be applied for the impairment assessment of the property, plant and ~~complex transactions in accordance with accounting principles generally accepted in~~equipment and long-lived assets and to consider appropriately all the ~~United States~~internal and external impairment indicators as well; and (3) We lack of ~~America,~~formal procedures for the board to identify related parties and ~~(2) we have insufficient systems and procedures in place to ensure effective supervision and monitoring of our annual financial statement close and preparation process.~~related party transactions.

Management believes that the material weaknesses identified above were the direct result of the departure of our Controller and Chief Financial Officer during the second half of 2015. We plan to take steps to remediate these material weaknesses as soon as practicable by implementing a plan to improve our internal control over financial reporting including, but not limited to, hiring additional internal staff and/or outside consultants experienced in US GAAP financial reporting as well as in SEC reporting requirements. In 2021 we have promoted Ms. Liqiong (Iris) Yan to be our Chief Financial Officer to oversee our internal control over financial reporting, and recruited seasoned accounting staff to improve our technical capability for financial reporting process. Our management team will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements. We have retained outside consultants, who are experienced in U.S. GAAP financial reporting and SEC reporting requirements to assist the Company improving internal control over financial reporting.

Our management does not believe that these material weaknesses had a material effect on our financial condition or results of operations or caused our financial statements as of and for the year ended December 31, ~~2017~~2021 to contain a material misstatement.

Attestation Report of the Registered Public Accounting Firm

Because the Company is a non-accelerated filer, this annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

Changes in Internal Control Over Financial Reporting

Except as described above, there have been ~~no changes~~improvements in our internal control over financial reporting during the fiscal year ended December 31, ~~2017~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~ITEM 16A.~~

~~AUDIT COMMITTEE FINANCIAL EXPERT~~

~~Our~~

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The Company’s board of directors has determined that Mr. Remington C.H. Hu is an “audit committee financial expert” and that he is an “independent director” as defined by the rules and regulations of NASDAQ.

~~ITEM 16B.~~

~~CODE OF ETHICS~~

ITEM 16B. CODE OF ETHICS

Our code of conduct and business ethics conforms to the rules and regulations of NASDAQ. The code of conduct and business ethics applies to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer, and addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance with laws, regulations and policies, including disclosure requirements under the federal securities laws, confidentiality, trading on inside information, and reporting of violations of the code. A copy of conduct and business ethics has been filed as Exhibit 11.1 to ~~this~~the annual ~~report.~~report on Form 20-F dated March 30, 2018. Our code of ethics is also posted on the corporate governance page of our website at ~~www.chinacnit.com.~~www.taop.com. During the fiscal year ended December 31, ~~2017,~~2021, there were no waivers of our code of ethics.

~~ITEM 16C.~~

~~PRINCIPAL ACCOUNTANT FEES AND SERVICES~~105

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with services rendered by our principal external auditors for the periods indicated.

		Fiscal Year Ended December 31,			Fiscal Year Ended December 31,
		2017		2016	2021		2020
Audit Fees	$	208,000	$	135,000	$	242,009	$	520,418
Tax Fees		34,025		43,724		25,000		25,000
TOTAL	$	242,025	$	178,724	$	267,009	$	545,418

“Audit Fees” consisted of the aggregate fees billed for professional services rendered for the audit of our annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.

“Tax Fees” consisted of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning. Included in such Tax Fees were fees for preparation of our tax returns and consultancy and advice on other tax planning matters.

Our Audit Committee pre-approves all auditing services and permitted non-audit services to be performed for us by our independent auditor, including the fees and terms thereof (subject to the de minimums exceptions for non-audit services described in Section 10A(i)(l)(B) of the Exchange Act that are approved by our Audit Committee prior to the completion of the audit). The percentage of services provided for which we paid audit-related fees, tax fees, or other fees that were approved by our Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X promulgated by the SEC was 100%.

~~ITEM 16D.~~

~~EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES~~

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

We have not asked for, nor have we been granted, an exemption from the applicable listing standards for our Audit Committee.

~~ITEM 16E.~~

~~PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS~~

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

There were no purchases of equity securities made by or on behalf of us or any “affiliated purchaser” as defined in Rule 10b-18 of the Exchange Act during the period covered by this Annual Report.

~~ITEM 16F.~~

~~CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT~~

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

On December ~~27, 2016,~~3, 2021, the Company received notice from its ~~then~~ independent registered public accounting firm, ~~GHP Horwath, P.C.~~UHY LLP (“~~GHP”~~UHY”), that ~~GHP~~UHY has ~~chosen not to stand for re-appointment~~resigned as the Company’s ~~auditor. GHP’s resignation was~~auditor, effective ~~as of December 27, 2016.~~immediately. As a result, the ~~client auditor~~client-auditor relationship between the Company and ~~GHP ceased immediately.~~UHY ceased. The resignation of UHY was not recommended by the Company’s audit committee nor was the audit committee’s approval required. On December ~~27, 2016,~~3, 2021, upon the audit committee’s approval, the Company engaged ~~UHY~~PKF Littlejohn LLP as its new independent registered public accounting firm to audit ~~and review~~ the Company’s financial statements ~~effective immediately.~~for the fiscal year ending December 31, 2021. The disclosures required pursuant to this Item ~~16.F~~16F was included in the ~~Company's~~Company’s Report on Form 6-K furnished with the SEC on December ~~29, 2016,~~3, 2021, including Exhibit 15.1, which are hereby incorporated by reference into this Form 20-F.

~~ITEM 16G.~~

~~CORPORATE GOVERNANCE~~106

~~We are~~

ITEM 16G. CORPORATE GOVERNANCE

Taoping was incorporated in the BVI and ~~our~~its corporate governance practices are governed by applicable BVI law, ~~our~~Taoping’s memorandum and articles of association. In addition, because ~~our~~the Company’s ordinary shares are listed on NASDAQ, we are subject to ~~NASDAQ's~~NASDAQ’s corporate governance requirements.

NASDAQ Listing Rule 5615(a)(3) permits a foreign private issuer like usTaoping to follow home country practices in lieu of certain requirements of Listing Rule 5600, provided that such foreign private issuer discloses in its annual report filed with the SEC each requirement of Rule 5600 that it does not follow and describes the home country practice followed in lieu of such requirement. ~~Our BVI counsel, Maples and Calder, has provided a letter to NASDAQ certifying~~

We currently follow our home country practice that ~~under BVI law, we are~~(i) does not ~~required~~require us to seek shareholders’ approval of any issuance of securities in connection with a transaction other than a public offering where such transaction involves the issuance of securities representing more than 20% of ~~our total~~or more of the voting power outstanding ~~ordinary shares. In 2015, we followed home country practice~~before the issuance at a price lower than the “Minimum Price”, in lieu of the corporate governance requirements of Nasdaq Listing Rule 5635(d) with respect to shareholder approval; (ii) does not require us to seek shareholders’ approval for the establishment of or any material amendments to the Company’s equity compensation plans in lieu of the corporate governance requirements of Nasdaq Listing Rule 5635(c) with respect to shareholder approval; and (iii) does not require us to seek shareholders’ approval for the issuance of ~~more than 20%~~securities to external consultants, in lieu of ~~our total outstanding ordinary shares in connection~~the corporate governance requirements of Nasdaq Listing Rule 5635(c) with ~~the Registered Direct Offering. In 2016,~~respect to shareholder approval. Our BVI counsel, Maples and Calder, has provided ~~a letter~~relevant letters to NASDAQ certifying that under BVI law, we are not required to seek shareholders’ approval ~~for~~in the ~~establishment of or any material amendments~~above circumstances.

In addition, Maples and Calder has provided a letter to ~~our equity compensation plans.~~NASDAQ certifying that under BVI law, Taoping is not required to hold annual shareholders’ meetings. In ~~2016,~~the fiscal year 2021, we followed the home country practice ~~with respect to our 2016 Plan by establishing it without seeking shareholder approval.~~and did not hold an annual meeting of shareholders.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 16L. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not Applicable.

~~ITEM 16H.~~

~~MINE SAFETY DISCLOSURE~~107

~~Not applicable.~~

PART III

~~ITEM 17.~~

~~FINANCIAL STATEMENTS~~

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide our financial statements pursuant to Item 18.

~~ITEM 18.~~

~~FINANCIAL STATEMENTS~~

ITEM 18. FINANCIAL STATEMENTS

The full text of our audited consolidated financial statements begins on page F-1 of this annual report.

ITEM 19. EXHIBITS

~~ITEM 19.~~Exhibit
No.

~~EXHIBITS~~

~~Exhibit~~		Description
~~No.~~
1.1
~~1.1~~		Amended and Restated Memorandum and Articles of Association of the registrant (incorporated by reference to Exhibit 99.1 to the Report of Foreign Private Issuer on Form 6-K ~~filed~~furnished by the registrant on ~~October 17, 2017)~~December 30, 2020)
~~4.1~~2.1		~~Agreement and Plan~~Description of ~~Merger and Reorganization, dated June 20, 2012, by and among~~Rights of Ordinary Shares Registered Pursuant to Section 12 of the ~~registrant, CITN and China Information Mergerco Inc. (incorporated by reference to Annex A to the Registration Statement on Form F-4 filed by the registrant on June 21, 2012)~~
~~4.2~~		~~Amended and Restated Management Services Agreement, dated~~Exchange Act as of December ~~13, 2009, among Information Security Technology (China) Co., Ltd., iASPEC Software Co., Ltd. and Jiang Huai Lin~~31, 2020
2.2		Form of Warrant (incorporated by reference to Exhibit ~~10.5~~4.2 to the ~~Current~~ Report of Foreign Private Issuer on Form ~~8-K filed~~6-K furnished by ~~CITN~~the registrant on ~~December 17, 2009)~~March 30, 2020)
~~4.3~~2.3		~~Guaranty, dated August 1, 2007, by Jiang Huai Lin and Jin Zhu Cai~~Form of Warrant (incorporated by reference to Exhibit ~~10.2~~4.2 to the ~~Current~~ Report of Foreign Private Issuer on Form ~~8-K filed~~6-K furnished by ~~CITN~~the registrant on ~~August 6, 2007)~~September 11, 2020)
~~4.4~~2.4		~~Purchase Option Agreement, dated August 1, 2007, among Information Security Technology (China) Co., Ltd., iASPEC Software Co., Ltd., Jiang Huai Lin and Jin Zhu Cai~~Form of Warrant (incorporated by reference to Exhibit ~~10.3~~4.1 to the ~~Current~~ Report of Foreign Private Issuer on Form ~~8-K filed~~6-K furnished by ~~CITN~~the registrant on ~~August 6, 2007)~~July 14, 2021)
~~4.5~~4.1		~~Form of Employment Agreement (English Translation) (incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-KSB filed by CITN on April 16, 2007)~~
~~4.6~~		Form of Independent Director Agreement (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form F-4 filed by the registrant on June 21, 2012)
~~4.7~~4.2		Form of Indemnification Agreement (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form F-4 filed by the registrant on June 21, 2012)
~~4.8~~4.3		~~English Translation of Form of Employee Incentive Stock Purchase Agreement (incorporated by reference to Exhibit 4.1 to the Report on Form 6-K furnished by the registrant on September 27, 2013)~~
~~4.9~~		~~China Information Technology, Inc. 2013 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Report on Form 6-K furnished by the registrant on September 17, 2013)~~
~~4.10~~		Form of ~~Warrant (incorporated by reference to Exhibit 4.1 to the Report on Form 6-K furnished by the registrant on May 21, 2015)~~
~~4.11~~		Form of Purchase Agreement, dated May 20, 2015, between the Company and the Investors named therein (incorporated by reference to Exhibit 10.1 to the Report on Form 6-K furnished by the registrant on May 21, 2015)
~~4.12~~		Placement Agency Agreement, dated May 7, 2015, between the Company and FT Global Capital, Inc. (incorporated by reference to Exhibit 10.2 to the Report on Form 6-K furnished by the registrant on May 21, 2015)
~~4.13~~		~~Form of Standstill Agreement between the Company and the Holder named therein (incorporated by reference to Exhibit 4.1 to the Report on Form 6-K furnished by the registrant on September 24, 2015)~~
~~4.14~~		~~Form of Standstill Agreement between the Company and the Holder named therein (incorporated by reference to Exhibit 4.1 to the Report on Form 6-K furnished by the registrant on October 7, 2015)~~
~~4.15~~		~~Form of Stock~~Share Option Agreement (incorporated by reference to Exhibit 99.1 to the Report of Foreign Private Issuer on Form 6-K furnished by the registrant on June 1, 2016)
~~4.16~~4.4		~~China Information Technology, Inc. 2016 Equity Incentive Plan~~English translation of Consultant Service Agreement for Enterprise Strategic Transformation, dated February 19, 2021, by and between the Company and Great Bay Capital Investment Limited (incorporated by reference to Exhibit 99.1 to the ~~Registration Statement~~Report of Foreign Private Issuer on Form ~~S-8 filed~~6-K furnished by the registrant on February 19, 2021)
4.5		English translation of Share Acquisition Agreement, dated March 17, 2021, by and among the Company, Biznest Internet Technology Co., Ltd., Taoping New Media Co., Ltd. and shareholders of Taoping New Media Co., Ltd. (incorporated by reference to Exhibit 99.1 to the Report of Foreign Private Issuer on Form 6-K furnished by the registrant on March 19, 2021)
4.6		Taoping Inc. 2016 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 4.1 to the Report of Foreign Private Issuer on Form 6-K furnished by the registrant on May ~~13, 2016)~~10, 2021)

8.1*4.7		Form of Securities Purchase Agreement, dated July 12, 2021 (incorporated by reference to Exhibit 10.1 to the Report of Foreign Private Issuer on Form 6-K furnished by the registrant on July 14, 2021)
4.8		English Translation of Equity Transfer Agreement, dated September 18, 2021 (incorporated by reference to Exhibit 99.1 to the Report of Foreign Private Issuer on Form 6-K furnished by the registrant on September 20, 2021)
8.1		List of the registrant’s subsidiaries
11.1*11.1		Code of Conduct and Business Ethics, adopted on June 20, 2012 (incorporated by reference to Exhibit 11.1 to the Annual Report on Form 20-F filed on March 30, 2018)
12.1*12.1		Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-1(a)
12.2*12.2		Certifications of ~~Interim~~ Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-1(a)
13.1**13.1		Certifications of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2**13.2		Certifications of ~~Interim~~ Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1*15.1		Consent from UHY LLP, Independent Registered Public Accounting Firm
101.INS*15.2		Consent from PKF Littlejohn LLP, Independent Registered Public Accounting Firm
101.INS		Inline XBRL Instance Document
101.SCH*101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL*101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

~~_________________________~~
* Filed herewith.
** Furnished herewith.

108

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Date: ~~March 30, 2018~~May 2, 2022	~~CHINA INFORMATION TECHNOLOGY,~~TAOPING INC.

	/s/ Jianghuai Lin
	Jianghuai Lin
	Chief Executive Officer

~~CHINA INFORMATION TECHNOLOGY,~~109

TAOPING INC.

CONSOLIDATED FINANCIAL STATEMENTS

Contents	Page(s)
~~CONSOLIDATED FINANCIAL STATEMENTS~~
~~FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015~~

~~Contents~~	~~Page(s)~~
~~Reports~~Report of Independent Registered Public Accounting Firm (PCAOB ID No. 2814)	~~F-1~~F-2
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 1195)	F-5
Consolidated Balance Sheets as of December 31, 2021 and 2020	~~F-3~~F-7
Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019	~~F-4~~F-8
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019	~~F-5~~F-9
Consolidated Statements of Changes in Stockholders’ (Deficits) Equity for the years ended December 31, 2021, 2020 and 2019	~~F-6~~F-10
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019	~~F-7~~F-11
Notes to Consolidated Financial Statements	~~F-9~~F-14

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~Board of Directors and Shareholders~~
~~China Information Technology, Inc.~~

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF Taoping INC

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of ~~China Information Technology,~~Taoping Inc. ~~and its subsidiaries and variable interest entity~~ (the “Company”) as of December 31, ~~2015~~2021, and the related consolidated statements of ~~loss,~~operations and comprehensive ~~loss, changes in~~income/(loss), shareholders’ equity and cash flows for the ~~years~~year ended December 31, ~~2015~~2021 and ~~2014.~~ the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on ~~these~~the Company’s consolidated financial statements based on our ~~audits.~~

audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our ~~audits~~audit in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the ~~audits~~audit to obtain reasonable assurance about whether the financial statements are free of material ~~misstatement. An~~misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit ~~includes~~of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the consolidated financial statements. AnOur audit also ~~includes assessing~~included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial ~~statement presentation.~~statements. We believe that our audits provide a reasonable basis for our opinion.

~~In our opinion,~~

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements ~~referred~~that was communicated or required to ~~above present fairly,~~be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in ~~all material respects,~~any way our opinion on the consolidated financial ~~position of~~statements, taken as a whole, and we are not, by communicating the ~~Company as of December 31, 2015, and~~critical audit matters below, providing a separate opinion on the ~~results of its operations and its cash flows for~~critical audit matters or on the ~~years ended December 31, 2015 and 2014, in conformity with accounting principles generally accepted in the United States of America.~~

accounts or disclosures to which they relate.

Going concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the ~~Company has reported recurring net~~Company’s significant losses ~~as well as negative cash flows~~ from ~~operating activities. In addition, the Company has a~~operations, significant working capital deficit asand the uncertainty about the availability of ~~December 31, 2015. These factors~~finance in subsequent period, raise substantial doubt about ~~the Company’s~~its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans ~~in regard to~~regarding these matters are also described in Note 1.

The principal consideration for our determination that the evaluation of management’s going concern assessment was a critical audit matter are the significant judgment and subjectivity inherent in the Company’s assumptions made in the going concern assessment and the uncertainty of the Company’s ability to secure funding before December 31, 2022.

F-2

Our audit procedures related to the evaluation of management’s going concern assessment included the following, among others:

	a.	assessing the overall reasonableness of the Company’s going concern assessment, including significant assumptions utilized by the Company.
	b.	assessing the projected revenue and operating costs, liquidity of existing assets, the terms of the bank loans and related party loans and the finance facilities available.
	c.	considering the impact on the Company’s working capital of the planned acquisitions in 2022.
	d.	evaluating the adequacy of the Company’s financial statement disclosures.

Revenue recognition

The Company has the following revenue streams:

	a.	revenue from sale of products
	b.	revenue from software development
	c.	revenue from advertising service
	d.	revenue from the mining and subsequent sale of cryptocurrencies

As disclosed in Note 2 to the consolidated financial statements, ~~do not include any adjustments~~the Company recognizes revenue from product, software and advertising upon transfer of control of promised products or services. Significant judgment is exercised by the Company in determining criteria in recognizing revenue. The principal considerations for our determination that ~~might result from~~performing procedures relating to the ~~outcome~~collectability in recognizing revenue is a critical audit matter are:

	a.	revenue is material to the consolidated financial statements; and
	b.	significant judgement by management in assessing the criteria to recognize revenue was extensive and required a high degree to auditor judgment.

Our audit procedures in respect related to revenues recognition included:

	a.	obtaining understanding of the internal control environment for revenue;
	b.	understanding the management’s assessment process for revenue recognition criteria;
	c.	evaluating management’s methodology used to estimate the collectability in recognizing revenue;
	d.	evaluating the historical track record of recoverability from customers; and
	e.	obtaining management’s consideration on the macroeconomic conditions that may have negative impact on revenue.

Business Combination – Acquisition of ~~this uncertainty.~~

~~/s/ GHP HORWATH, P.C.~~

~~Denver, Colorado~~
~~April 26, 2016~~Taoping New Media Co., Ltd and its subsidiaries

As described in Note 13 to the consolidated financial statements, the Company acquired 100% shares of Taoping New Media Co., Ltd and its subsidiaries on June 9, 2021 for purchase consideration of 1,213,630 shares of the Company equivalent to the value of approximately $5.4m. The purchase price allocations resulted in the Company recording various assets and liabilities at the estimated fair values at the acquisition date.

The ~~report~~Company accounted for the acquisition under the acquisition method of accounting for business combinations. Assets required and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair value of the assets was determined based on valuations using AAP Model, a variant of the Black-Scholes option pricing model that values an Asian option with payoffs determined by the average underlying price over the pre-set period of time, and going concern premise of value, which requires significant estimates and assumptions. Management, with the assistance of an independent valuation expert, concluded that there are no material intangible assets.

F-3

Given the fair value determination of the assets and liabilities requires management to make significant estimates and assumptions related to the selection of discount rate, performing procedures to evaluate the reasonableness of the estimates and assumptions required a high degree of auditor judgement and an increased extent of effort.

Our audit procedures related to the business combination included:

	a.	reviewing the sales and purchase agreement and evaluating the transactions to determine whether the acquisition met the requirements of a business combination and our analysis of the initial allocation of the purchase price accounting as well as the termination of the balance sheet classification of each component of the transaction;
	b.	obtaining third party valuation reports to gain an understanding of the credibility of the valuation expert, the process and key assumptions for estimating the fair value of assets and liabilities, including the methodologies and assumptions used in developing the discount rate used; and
	c.	agreeing the underlying data used as part of the valuations to source documents, including the purchase and sale agreement.

Furthermore, we assessed the appropriateness of the disclosure in the consolidated financial statements.

Valuation of property, plant and equipment – mining machines

The Company holds significant monetary value of mining machines at approximately $8.1m in its cryptocurrency mining operation as disclosed in Note 8 to the consolidated financial statements.

The principal considerations for our determination that performing procedures relating to the valuation of the mining machines is a ~~copy~~critical audit matter are:

	a.	the value of the mining machines is material to the consolidated financial statements at December 31,2021; and
	b.	Significant judgement by management in assessing the value in use of the mining machines.

Our audit procedures related to the valuation of the ~~previously issued report.~~
~~The predecessor~~mining machines included:

	a)	understanding the management’s impairment assessment procedures and criteria;
	b)	physical verification of the mining machines to confirm existence;
	c)	reviewing the management’s estimates on useful economic life of the mining machines;
	d)	comparison of the determined useful economic life to industry standards; and
	e)	reviewing the revenue generated by the mining machines for value of use.

/s/ PKF Littlejohn LLP
PKF Littlejohn LLP
London, UK
May 2, 2022

PCAOB ID: 2814

We have served as the Company’s auditor ~~has not reissued the report.~~
since December 3, 2021.

~~F-1~~

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Shareholders of ~~China Information Technology,~~Taoping Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance ~~sheets~~sheet of ~~China Information Technology,~~Taoping Inc. and its subsidiaries (the “Company”) as of December 31, ~~2017 and 2016,~~2020, and the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for each of the years in the two-year period ended December 31, ~~2017,~~2020, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, ~~2017 and 2016,~~2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, ~~2017,~~2020, in conformity with accounting principles generally accepted in the United States of America.

The consolidated financial statements of the Company as of December 31, 2015, were audited by other auditors whose report dated April 26, 2016, on those statements included an explanatory paragraph regarding going concern discussed in Note 1 to the consolidated financial statements.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company ~~incurred loss~~had limited income from ~~continuing~~ operations ~~before income taxes~~ and had a significant accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

F-5

Assessment of Accounts Receivable Allowance for Credit Losses

Critical Audit Matter Description

As disclosed in Note 2 to the consolidated financial statements, the Company recognizes accounts receivable at carrying amount less an allowance of credit losses. Significant judgment and estimation are exercised by the Company in determining the collectability of the accounts receivable, especially under the global pandemic environment during 2020.

The principal considerations for our determination that performing procedures relating to the accounts receivables allowance for credit losses is a critical audit matter are (i) accounts receivable is significant to the Company’s consolidated financial statements, which amounted to approximately $10.3 million and represented 33.6% of the Company’s total assets; (ii) the evaluation of Management’s judgments and estimates in developing the accounts receivable allowance for credit losses at December 31, 2020 requires a high degree of auditor’s judgement.

How the Critical Audit Matter Was Addressed in the Audit

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included obtaining understanding of the controls over the Company’s determination of the accounts receivable allowance for credit losses. These procedures also included, among others, testing Management’s process for estimating the accounts receivable allowance for credit losses by, evaluating the appropriateness of the methodology used to estimate the allowance, evaluating the reasonableness of the probability of default and loss assumptions, testing the data used in the models, and evaluating the reasonableness of management’s judgment regarding qualitative factors related to economic uncertainty, observable changes in customers’ financial performance, and other relevant factors.

Evaluation of Revenue Recognition

Critical Audit Matter Description

As disclosed in Note 2 to the consolidated financial statements, the Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. Significant judgment is exercised by the Company in determining collectability in recognizing revenue, especially under the global pandemic environment during 2020.

The principal considerations for our determination that performing procedures relating to the collectability in recognizing revenue is a critical audit matter are (i) revenue is material to the consolidated financial statements, which amounted to approximately $11 million for the year ended December 31, 2020; (ii) significant judgement by Management in assessing the collectability to recognize revenue was extensive and required a high degree of auditor judgment.

How the Critical Audit Matter Was Addressed in the Audit

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included obtaining an understanding of the controls over the Company’s revenue recognition including the estimation of customer collections. These procedures also included, among others, testing management’s process for estimating the collectability in recognizing revenue by, evaluating the appropriateness of the methodology used to estimate the collection, testing the customers’ historical payment behavior, evaluating reasonableness of the Management’s assessment on new customers’ creditworthiness, macroeconomic conditions that may affect customers’ ability to pay, testing the data used in the models, and evaluating the reasonableness of the estimated collection periods and financing component if any, associated with the expected longer collection period.

/s/ UHY LLP

We have served as the ~~Company's~~Company’s auditor since 2016.

New York, New York
~~March~~

April 30, ~~2018~~2021

~~F-2~~

~~CHINA INFORMATION TECHNOLOGY, INC.~~

~~CONSOLIDATED BALANCE SHEETS~~

~~DECEMBER 31, 2017 AND 2016~~F-6

NOTES December 31, December 31,
2017 2016
ASSETS

CURRENT ASSETS
Cash and cash equivalents $ 3,260,808 $ 3,752,375
Accounts receivable, net 2(e) 5,267,752 3,019,349
Accounts receivable-related parties 2(e) 4,872,743 -
Advances to suppliers 1,630,980 235,877
Inventories, net 8 631,610 1,477,783
Other current assets 15 5,854,792 7,159,803
TOTAL CURRENT ASSETS 21,518,685 15,645,187

Property, plant and equipment, net 9 11,830,698 8,674,850
Intangible assets, net 11 808,707 1,556,306
Long-term investments 46,094 43,205
Deferred tax assets 13 108,927 100,435
Other non-current assets 15 3,326,319 8,267,016
TOTAL ASSETS $ 37,639,430 $ 34,286,999

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Short-term bank loans 12 $ 7,817,610 $ 7,799,852
Accounts payable 6,844,440 5,993,211
Advances from customers 281,772 1,668,049
Advances from customers-related parties 2,191,516 -
Accrued payroll and benefits 290,841 285,284
Other payables and accrued expenses 17 4,038,417 3,044,779
Income tax payable 1,548,415 2,589,422
Derivative Liability – Warrants 16 - 3,719
TOTAL CURRENT LIABILITIES 23,013,011 21,384,316

Deferred tax liabilities 13 108,927 100,435
TOTAL LIABILITIES 23,121,938 21,484,751

EQUITY
Ordinary shares, 2017: par $0, 2016: par $0.01;
       authorized capital 100,000,000 shares;
       shares issued, 2017:40,231,159 shares; 2016:41,633,607 shares;
       shares outstanding, 2017:40,231,159 shares; 2016:40,231,159 shares 19 123,950,544 426,744
Treasury stock, 2017: 0 share; 2016:1,402,448 shares 19 - (7,117,500 )
Additional paid-in capital 19 15,814,328 145,742,163
Reserve 18 13,812,095 13,812,095
Accumulated deficit (172,395,246 ) (173,149,696 )
Accumulated other comprehensive income 24,201,766 23,994,357
Total equity of the Company 5,383,487 3,708,163
Non-controlling interest 9,134,005 9,094,085
Total Equity 14,517,492 12,802,248

TOTAL LIABILITIES AND EQUITY $ 37,639,430 $ 34,286,999

TAOPING INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2021 AND 2020


	NOTES	December 31, 2021			December 31, 2020
ASSETS

CURRENT ASSETS
Cash and cash equivalents		$	4,531,266		$	882,770
Restricted cash	2(e)		-			214,144
Accounts receivable, net	2(f)		6,758,162			4,264,257
Accounts receivable-related parties, net	2(f)		351,472			2,919,215
Advances to suppliers	2(g)		6,541,323			3,202,313
Prepaid expenses			296,494			-
Inventories, net	7		542,384			254,678
Loan receivable - related party	6(d)		-			519,331
Cryptocurrencies, net	10		829,165			-
Other current assets	13(a)		1,218,148			173,026
TOTAL CURRENT ASSETS			21,068,414			12,429,734

Non-current accounts receivable, net	2(f)		-			1,839,230
Non-current accounts receivable-related parties, net	2(f)		-			1,323,196
Property, equipment and software, net	8		21,562,084			10,851,899
Right-of-use assets	2(s)		896,505			-
Long-term investments	15		679,807			30,592
Other assets, non-current net	13(b)		2,948,681			4,302,000
TOTAL ASSETS		$	47,155,491		$	30,776,651

LIABILITIES AND EQUITY

CURRENT LIABILITIES
Short-term bank loans	11	$	7,792,125		$	6,210,176
Accounts payable			9,872,924			14,857,436
Accounts payable-related parties	6(c)		-			69,585
Advances from customers			458,158			315,924
Advances from customers-related parties	6(a)		121,059			161,063
Amounts due to related parties	6(e)		3,145,260			137,664
Accrued payroll and benefits			252,827			231,598
Other payables and accrued expenses	17		4,893,499			6,636,097
Other taxes payable			379,925			-
Convertible note payable, net of debt discounts	16		-			1,180,908
Lease liability-current	14		427,372			-
TOTAL CURRENT LIABILITIES			27,343,149			29,800,451

Lease liability	14		561,843			-
TOTAL LIABILITIES			27,904,992			29,800,451

EQUITY
Ordinary shares, 2021 and 2020: par $0; authorized capital 100,000,000 shares; shares issued and outstanding, 2021: 15,513,605 shares; 2020: 8,486,956 shares*;	19		161,098,010			131,247,787
Additional paid-in capital	19		22,447,083			15,643,404
Reserve	18		14,044,269			14,044,269
Accumulated deficit			(202,137,403	)		(192,212,544	)
Accumulated other comprehensive income			23,800,299			23,612,413
Total equity (deficit) of the Company			19,252,258			(7,664,671	)
Non-controlling interest			(1,759	)		8,640,871
TOTAL EQUITY			19,250,499			976,200

TOTAL LIABILITIES AND EQUITY		$	47,155,491		$	30,776,651

*	On July 30, 2020, the Company implemented a one-for-six reverse stock split of the Company’s issued and outstanding ordinary shares. Except shares authorized, all references to number of shares, and to per share information in the consolidated financial statements have been retroactively adjusted.

The accompanying notes are an integral part of these consolidated financial statements

~~F-3~~

F-7

~~CHINA INFORMATION TECHNOLOGY,~~

TAOPING INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, ~~2017, 2016~~2021, 2020 AND ~~2015~~2019

NOTES 2017 2016 2015
Revenue – Products $ 4,312,048 $ 6,553,090 $ 4,953,139
Revenue - Products-related parties 7(c) 9,103,222 - -
Revenue – Software 3,441,582 2,347,197 3,200,905
Revenue – System integration 390,465 628,880 1,012,088
Revenue – Others 884,584 664,423 1,118,736
Revenue - Others-related parties 7(d) 57,373 - -
TOTAL REVENUE 18,189,274 10,193,590 10,284,868

Cost – Products 8,973,539 5,512,305 2,910,334
Cost – Software 733,617 921,432 1,267,834
Cost – System integration 135,224 1,078,103 1,745,647
Cost – Others 25,128 95,350 457,390
TOTAL COST 9,867,508 7,607,190 6,381,205

GROSS PROFIT 8,321,766 2,586,400 3,903,663

Administrative expenses 3,621,570 8,342,842 11,223,502
Research and development expenses 4,031,313 3,044,972 3,446,867
Selling expenses 1,119,586 1,334,147 2,661,545
Impairment of property, plant and equipment - - 4,616,679
Impairment of intangible assets and goodwill - 4,442,367 8,918,427
LOSS FROM OPERATIONS (450,703 ) (14,577,928 ) (26,963,357 )

Subsidy income 476,517 223,166 501,404
Gain on sale of assets 10 - - 29,994,037
Loss on disposal of consolidated entities 4 - (575,956 ) -
Loss on sale of deposits for land use right 15(a)(i) - (2,762,033 ) -
Other income (loss), net 281,556 (326,546 ) 776,233
Interest income 7,900 17,420 76,716
Interest expense (450,024 ) (498,931 ) (3,116,777 )
Change in fair value of warrant liability 16 3,720 34,175 (5,657,988 )

Loss from continuing operations beforeincome taxes (131,034 ) (18,466,633 ) (4,389,732 )

Income tax benefit (expense ) 13 1,070,343 (57,844 ) (4,305,028 )

Net income (loss) from continuing operations 939,309 (18,524,477 ) (8,694,760 )
Net income from discontinued operations - - 1,498,971
NET INCOME (LOSS) 939,309 (18,524,477 ) (7,195,789 )
Less: Net (income) loss attributable to thenon-controlling interest 3 (80,704 ) 353,876 (308,473 )
NET INCOME (LOSS) ATTRIBUTABLETO THE COMPANY $ 858,605 $ (18,170,601 ) $ (7,504,262 )

Earnings (loss) per share - Basic and Diluted
CONTINUING OPERATIONS
Basic 5 $ 0.02 $ (0.45 ) $ (0.26 )
Diluted 5 $ 0.02 $ (0.45 ) $ (0.26 )
DISCONTINUED OPERATIONS
Basic 5 $ - $ - $ 0.04
Diluted 5 $ - $ - $ 0.04
NET EARNINGS (LOSS) PER SHAREATTRIBUTABLE TO THE COMPANY
Basic 5 $ 0.02 $ (0.45 ) $ (0.22 )
Diluted 5 $ 0.02 $ (0.45 ) $ (0.22 )


	NOTES	2021			2020			2019
Revenue – Products		$	10,651,928		$	6,591,132		$	3,116,145
Revenue – Products-related parties	6(a)		72,779			375,736			7,352,236
Revenue – Advertising			2,577,712			-			-
Revenue – Software			5,174,422			3,080,152			2,246,497
Revenue – Cryptocurrency mining			5,455,345			-			-
Revenue – Others			837,660			869,635			969,751
Revenue – Others-related parties	6(b)		76,078			146,120			106,674
TOTAL REVENUE			24,845,924			11,062,775			13,791,303

Cost – Products			9,890,346			6,211,647			6,448,965
Cost – Advertising	2(u)		2,193,945			-			-
Cost – Software			582,490			572,054			525,473
Cost – System integration			40,875			-			57,911
Cost – Cryptocurrency mining	2(u)		2,767,186			-			-
Cost – Others			28,469			335,424			156,743
TOTAL COST			15,503,311			7,119,125			7,189,092

GROSS PROFIT			9,342,613			3,943,650			6,602,211

Administrative expenses			12,882,936			16,707,106			6,657,972
Research and development expenses			4,479,045			3,889,126			3,592,843
Selling expenses			694,474			714,147			523,557
LOSS FROM OPERATIONS			(8,713,842	)		(17,366,729	)		(4,172,161	)

Subsidy income			181,620			556,186			431,555
Loss from equity method investment			(814,440	)		-			-
Other income (loss), net			350,836			(578,766	)		238,200
Interest income			4,640			4,798			133,517
Interest expense and debt discounts expense, net of interest income			(928,352	)		(1,018,013	)		(499,852	)

Loss before income taxes			(9,919,538	)		(18,402,524	)		(3,868,741	)

Income tax (expense) benefit	12		(5,321	)		71,316			274,480
NET LOSS			(9,924,859	)		(18,331,208	)		(3,594,261	)
Less: net loss attributable to the non-controlling interest	4		-			636,433			11,929
NET LOSS ATTRIBUTABLE TO THE COMPANY		$	(9,924,859	)	$	(17,694,775	)	$	(3,582,332	)

Loss per share - Basic and Diluted*
Basic ^*	5	$	(0.77	)	$	(2.49	)	$	(0.54	)
Diluted ^*	5	$	(0.77	)	$	(2.49	)	$	(0.54	)
LOSS PER SHARE ATTRIBUTABLE TO THE COMPANY
Basic	5	$	(0.77	)	$	(2.40	)	$	(0.54	)
Diluted	5	$	(0.77	)	$	(2.40	)	$	(0.54	)

*	On July 30, 2020, the Company implemented a one-for-six reverse stock split of the Company’s issued and outstanding ordinary shares. Except shares authorized, all references to number of shares, and to per share information in the consolidated financial statements have been retroactively adjusted.

The accompanying notes are an integral part of these consolidated financial statements

~~F-4~~

F-8

~~CHINA INFORMATION TECHNOLOGY,~~

TAOPING INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

YEARS ENDED DECEMBER 31, ~~2017, 2016~~2021, 2020 AND ~~2015~~2019

2017 2016 2015
Net income (loss) $ 939,309 $ (18,524,477 ) $ (7,195,789 )
Other comprehensive income (loss):
Foreign currency translation gain (loss) 166,625 (514,706 ) 136,007
Comprehensive gain (loss) 1,105,934 (19,039,183 ) (7,059,782 )
Comprehensive (income) loss attributable to the non- controlling interest (39,920 ) 315,632 (327,941 )
Comprehensive income (loss)attributable to the Company $ 1,066,014 $ (18,723,551 ) $ (7,387,723 )


	2021			2020			2019
Net loss	$	(9,924,859	)	$	(18,331,208	)	$	(3,594,261	)
Other comprehensive (loss) income:		-			-			-
Foreign currency translation (loss) gain		150,109			526,321			(189,873	)
Comprehensive loss		(9,774,750	)		(17,804,887	)		(3,784,134	)
Comprehensive loss attributable to the non- controlling interest		37,776			699,680			6,485
Comprehensive loss attributable to the Company	$	(9,736,974	)	$	(17,105,207	)	$	(3,777,649	)

The accompanying notes are an integral part of these consolidated financial statements

~~F-5~~

F-9

~~CHINA~~~~INFORMATION~~~~TECHNOLOGY,~~

TAOPING INC.

CONSOLIDATEDSTATEMENTS OFCHANGES INEQUITY

YEARSENDEDDECEMBER 31, ~~2017, 2016~~2021, 2020 AND ~~2015~~2019

Accumulated

Additional other Non

Ordinary shares Treasury Shares Paid-in Accumulated comprehensive controlling

Shares Amount Shares Amount Capital Reserve deficit income interest Total
BALANCE AS ATJANUARY 1 , 2015
32,961,323 $ 335,271 (717,448 ) $ (4,290,000 ) $ 126,862,049 $ 14,755,946 $ (142,910,476 ) $ 24,755,457 $ 17,645,562 $ 37,153,809
Purchase of treasury stock (Note 19)
- - (685,000 ) (2,827,500 ) - - - - - (2,827,500 )
Reclassification of temporary equity to ordinary shares (Note 19)
- 3,550 - - 1,061,450 - - - - 1,065,000
Stock-based compensation (Note19)
51,875 519 - - 101,763 - - - - 102,282
Issued common stock (Note 19)
2,102,484 21,025 - - 12,765,328 - - - - 12,786,353
Issued warrant liability (Note 16)
- - - - (4,982,694 ) - - - - (4,982,694 )
Issuance of ordinary shares for consulting services (Note 19)
5,000 50 - - 12,600 - - - - 12,650
Common stock issued for warrants exercised (Notes 16 and 19)
5,613,130 56,131 - - 8,885,358 - - - - 8,941,489
Sale of Geo (Notes 1 and 14)
- - - - (705,087 ) (304,002 ) (2,139,719 ) (154,717 ) (8,563,205 ) (11,866,730 )
Sale of Zhongtian (Notes 1 and 14)
- - - - - (639,849 ) (2,061,731 ) (165,572 ) (581 ) (2,867,733 )
Net loss for the year
- - - - - - (7,504,262 ) - 308,473 (7,195,789 )
Foreign currency translation loss
- - - - - - - 116,539 19,468 136,007
Dividend to minority shareholders in Geo (Note 1)
- - - - - - (362,907 ) - - (362,907 )
BALANCE AS ATDECEMBER 31, 2015
40,733,812 $ 416,546 (1,402,448 ) $ (7,117,500 ) $ 144,000,767 $ 13,812,095 $ (154,979,095 ) $ 24,551,707 $ 9,409,717 $ 30,094,237
Common stock issued for warrants exercised (Notes 16 and 19)
899,795 8,998 - - 1,109,494 - - - - 1,118,492
Reclassification of temporary equity to ordinary shares (Note 19)
- 1,200 - - 358,800 - - - - 360,000
Sale of IST DG (Note 4)
- - - - - - - (4,400 ) - (4,400 )
Net loss for the year
- - - - - - (18,170,601 ) - (353,876 ) (18,524,477 )
Foreign currency translation loss
- - - - - - - (552,950 ) 38,244 (514,706 )
Employee Stock Incentive- stock option (Note 19)
- - - - 273,102 - - - - 273,102
BALANCE AS ATDECEMBER 31, 2016
41,633,607 $ 426,744 (1,402,448 ) $ (7,117,500 ) $ 145,742,163 $ 13,812,095 $ (173,149,696 ) $ 23,994,357 $ 9,094,085 $ 12,802,248
Cancellation of treasury stock(Note 19)
(1,402,448 ) (14,024 ) 1,402,448 7,117,500 (6,999,321 ) - (104,155 ) - - -
Stock-based payment for consulting fee
- - - - 121,903 - - - - 121,903
Resolution of no par value (Note 19)
- 123,537,824 - - (123,537,824 ) - - - - -
Net income for the year
- - - - - - 858,605 - 80,704 939,309
Foreign currency translation loss
- - - - - - - 207,409 (40,784 ) 166,625
Employee Stock Incentive- stock option (Note 19)
- - - - 487,407 - - - - 487,407
BALANCE AS ATDECEMBER 31, 2017
40,231,159 $ 123,950,544 - $ - $ 15,814,328 $ 13,812,095 $ (172,395,246 ) $ 24,201,766 $ 9,134,005 $ 14,517,492

			^*
													Accumulated
					Additional								other			Non
	Ordinary shares*				Paid-in					Accumulated			comprehensive			controlling
	Shares		Amount		Capital			Reserve		deficit			income			interest			Total
BALANCE AS AT JANUARY 1, 2019		6,960,027	$	126,146,996	$	15,782,904		$	14,044,269	$	(170,935,437	)	$	23,218,159		$	9,347,036		$	17,603,927
Shares issued for service		40,000		110,160		-			-		-			-			-			110,160
Non-employee Stock options and warrants issued for service		-		-		59,462			-		-			-			-			59,462
Beneficial conversion feature on convertible note (Note 13)		-		-		113,526			-		-			-			-			113,526
Issuance of detachable warrant along with convertible note (Note 13)		-		-		11,126			-		-			-			-			11,126
Net loss for the year		-		-		-			-		(3,582,332	)		-			(11,929	)		(3,594,261	)
Foreign currency translation (loss) gain		-		-		-			-		-			(195,314	)		5,444			(189,870	)
Employee Stock Incentive- stock option (Note 16)		-		-		494,315			-		-			-			-			494,315
BALANCE AS AT DECEMBER 31, 2019		7,000,027	$	126,257,156	$	16,461,333		$	14,044,269	$	(174,517,769	)	$	23,022,845		$	9,340,551		$	14,608,385
Stock-based payment for consulting fee (Note 16)		104,887		327,674		84,586			-		-			-			-			412,260
Exercise of non-employee warrants		18,144		74,539		(74,539	)		-		-			-			-			-
Exercise of Employee Stock Options (Note 16)		72,414		1,305,577		(1,305,577	)		-		-			-			-			-
Conversion of convertible notes (Note 16)		767,527		2,065,693		(217,360	)		-		-			-			-			1,848,333
Insurance of ordinary shares for financing (Note 16)		507,936		1,151,738		-			-		-			-			-			1,151,738
Detachable warrant and beneficial conversion feature in connection with Convertible note (Note 13)		-		-		462,280			-					-			-			462,280
Net loss for the year		-		-		-			-		(17,694,775	)					(636,433	)		(18,331,208	)
Round-up of fractional shares in connection with 6-for-1 reverse stock split		2,911		-		-			-		-			-			-			-
Foreign currency translation gain		-		-		-			-		-			589,568			(63,247	)		526,321
Employee Stock Incentive		13,110		65,410		232,681			-		-			-			-			298,091
BALANCE AS AT DECEMBER 31, 2020		8,486,956	$	131,247,787	$	15,643,404		$	14,044,269	$	(192,212,544	)	$	23,612,413		$	8,640,871		$	976,200
BALANCE		8,486,956	$	131,247,787	$	15,643,404		$	14,044,269	$	(192,212,544	)	$	23,612,413		$	8,640,871		$	976,200
Stock-based payment for consulting fee (Note 19)		62,000		187,390		72,706			-		-			-			-			260,096
Stock-based Compensation (Note 19)		-		-		158,070			-		-			-			-			158,070
Conversion of convertible notes (Note 16)		598,034		1,739,768		(205,810	)		-		-			-			-			1,533,958
Insurance of ordinary shares for financing (Note 19)		4,340,740		17,894,609		-			-		-			-			-			17,894,609
Employee stock incentive (Note 19)		200,000		2,792,000		-			-		-			-			-			2,792,000
Net loss for the year		-		-		-			-		(9,924,859	)		-						(9,924,859	)
Foreign currency translation gain		-		-		-			-		-			187,886			(37,777	)		150,109
Dissolve of variable interest entity and ordinary shares issued for acquisition of a wholly owned subsidiary		612,245		1,800,000		6,778,713			-		-			-			(8,603,094	)		(24,381	)
Ordinary shares issued for business acquisition		1,213,630		5,436,456		-			-		-			-			-			5,436,456
Minority shareholders’ contribution		-		-		-			-		-			-			(1,759	)		(1,759	)

BALANCE AS AT DECEMBER 31, 2021		15,513,605		161,098,010		22,447,083			14,044,269		(202,137,403	)		23,800,299			(1,759	)		19,250,499
BALANCE		15,513,605		161,098,010		22,447,083			14,044,269		(202,137,403	)		23,800,299			(1,759	)		19,250,499

*	On July 30, 2020, the Company implemented a one-for-six reverse stock split of the Company’s issued and outstanding ordinary shares. Except shares authorized, all references to number of shares, and to per share information in the consolidated financial statements have been retroactively adjusted.

The accompanying notes are an integral part of these consolidated financial statements

~~F-6~~

F-10

~~CHINA INFORMATION TECHNOLOGY,~~

TAOPING INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, ~~2017,~~2021, 2020 AND 2019


	2021			2020			2019
OPERATING ACTIVITIES
Net loss	$	(9,924,859	)	$	(18,331,208	)	$	(3,594,261	)
Adjustments to reconcile net (loss) to net cash (used in) provided by operating activities:
Provision for losses on accounts receivable and other current assets		5,541,717			13,521,182			3,628,544
Provision for obsolete inventories		(82,255	)		5,629			115,191
Depreciation		3,704,818			3,206,568			2,842,787
Amortization of intangible assets and other asset		-			273,076			58,164
Amortization of convertible note discount		-			558,690			46,165
Loss (gain) on sale of property and equipment		(655,907	)		435,767			-
Loss from disposal of inventories		-			128,983			62,732
Stock-based payments for consulting services		187,390			445,749			86,326
Stock-based compensation to employees		2,950,070			298,091			494,316
Impairment on cryptocurrencies		493,617			-			-
(Gain) on sales of cryptocurrencies		(410,979	)		-			-
Loss on equity method investment		814,440			-			-
Changes in operating assets and liabilities:
Increase in accounts receivable		(907,826	)		(3,033,406	)		923,873
Decrease (increase) in accounts receivable from related parties		515,334			(292,230	)		(5,262,357	)
Decrease in accounts payable from related party		(70,525	)		-			-
Decrease in inventories		165,566			59,002			207,233
Cryptocurrencies – mining		(5,455,345	)		-			-
Decrease (increase) in other non-current assets		1,885,104			-			(4,343,311	)
Decrease in other receivables and prepaid expenses		-			2,054,954			4,385,133
Increase in advances to suppliers		(6,719,399	)		(2,643,860	)		(598,082	)
Increase in amounts due to/from related parties		(827,901	)		-			(870,859	)
(Decrease) increase in other payables and accrued expenses		(2,263,237	)		691,846			663,584
Increase (decrease) in advances from customers		48,301			(126,515	)		122,720
(Decrease) increase in advances from customers from related parties		(22,705	)		10,247			91,233
Increase in payroll payable		231,673			-			-
Increase in lease liability		91,586			-			-
(Decrease) increase in accounts payable		(5,812,529	)		1,025,912			(503,267	)
Increase (decrease) in income tax payable		374,353			(71,316	)		(237,968	)

Net cash (used in) provided by operating activities		(16,149,498	)		(1,782,839	)		(1,682,104	)

INVESTING ACTIVITIES
Proceeds from sales of cryptocurrencies		4,543,543				-		-
Proceeds from sales of property and equipment		-			25,697			133
Purchases of property, equipment and software		(11,293,962	)		(1,668,363	)		(1,619,325	)
Acquisition of cash in connection with a business acquisition		7,545			-			-
Consideration paid for acquisition		(7,257,394	)		-			-
Disbursement of loan receivable - related party		-			(90,977	)		(400,608	)
Proceeds from loan receivable		-			-			2,171,655
Net cash (used in) provided by investing activities		(14,000,268	)		(1,733,643	)		151,855

FINANCING ACTIVITIES

Proceeds from borrowings under short-term loans		11,937,002			6,285,837			7,817,959
Borrowings from related parties		3,100,520			-			-
Repayment of short-term loans		(10,332,736	)		(7,052,014	)		(7,231,612	)
Proceeds from issuance of convertible note, net of debt issuance costs		-			2,687,387			1,000,000
Proceeds from issuance of ordinary shares in connection with Private placement net of offering costs		28,323,371			1,151,738			-
Net cash provided by financing activities		33,028,157			3,072,948			1,586,347

Effect of exchange rate changes on cash and cash equivalents		555,961			20,782			(189,692	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,434,352			(422,752	)		(133,594	)

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING		1,096,914			1,519,666			1,653,260
CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH, ENDING	$	4,531,266		$	1,096,914		$	1,519,666

Supplemental disclosure of cash flow information:
Cash paid during the year
Interest	$	454,261		$	357,092		$	445,582

F-11

	December 31, 2021		December 31, 2020
Reconciliation to amounts on consolidated balance sheets
Cash and cash equivalents	$	4,531,266	$	882,770
Restricted cash		-		214,144
Total cash, cash equivalents, and restricted cash	$	4,531,266	$	1,096,914

Supplemental disclosure of significant non-cash transactions*:

*	On July 30, 2020, the Company implemented a one-for-six reverse stock split of the Company’s issued and outstanding ordinary shares. Except shares authorized, all references to number of shares, and to per share information in the consolidated financial statements have been retroactively adjusted.

In 2019, the Company issued 40,000 ordinary shares as compensation of approximately $110,000 for a consultant’s service.

In 2019, the Company issued an individual investor warrant to purchase 26,667 ordinary shares of the Company in connection with the issuance of a $1.04 million convertible promissory note.

In 2019, the Company issued warrant to purchase 25,000 ordinary shares of the Company as compensation of approximately $58,000 for a consultant’s service.

In 2019, purchase of software and equipment in an amount of approximately $1.6 million was made by an increase in accounts payable.

During 2020, the Company issued an aggregate of 32,887 restrict ordinary shares, 72,000 non-restricted ordinary shares, and 16,667 warrants as compensation of approximately $0.3 million for consultants’ services.

In March 2020, the Company issued two individual investors warrants with fair value of $11,580 for each to purchase 26,667 ordinary shares of the Company in connection with the issuance of a $1.48 million convertible promissory note.

In July 2020, under the 2016 ~~AND 2015~~Equity Incentive Plan the Company granted options to purchase 333,348 ordinary shares of the Company to the directors and employees rewarding them for their past services and promoting future performance.

In July 2020, under the 2016 Equity Incentive Plan the Company granted options to purchase 57,366 ordinary shares of the Company to certain consultants rewarding them for their past services.

In July and September 2020, under the 2016 Equity Incentive Plan the Company granted 13,110 ordinary shares of the Company to an employee for the individual’s job performance.

In September 2020, the Company issued an investor warrants with fair value of $18,040 to purchase 53,333 ordinary shares of the Company in connection with the issuance of a $1.48 million convertible promissory note.

In September and October 2020, the holder of the Company’s convertible promissory note issued in September 2019 converted in full an amount of $1,089,833 of principal and accrued interest with a conversion price at $2.40 per share into an aggregate of 454,097 ordinary shares of the Company.

In September 2020, each of the two holders of the Company’s convertible promissory notes issued in March 2020 converted an amount of $379,250 of partial principal and accrued interest with a conversion price at $2.42 per share into 156,715 ordinary shares of the Company, respectively.

2017 2016 2015
OPERATING ACTIVITIES
Net income (loss) $ 939,309 $ (18,524,477 ) $ (7,195,789 )
Adjustments to reconcile net income (loss) to netcash provided by (used in) operating activities fromcontinuing operations:
(Income) loss from discontinued operations, net of income taxes - - (1,498,971 )
Provision for losses on accounts receivable and other current assets 422,388 1,995,046 2,659,499
Impairment of intangible assets and goodwill - 4,442,367 8,918,427
Provision for obsolete inventories 176,570 324,581 274,663
Depreciation 2,036,438 1,736,607 1,665,257
Amortization of intangible assets and land use rights 820,468 845,149 876,237
(Gain) loss on sale of property and equipment and land use rights (7,845 ) (8,544 ) (30,005,007 )
Loss on disposal of inventories 138,316 345,963 -
Loss from disposals of consolidated entities - 575,956 -
Loss on disposal of deposit for land use rights - 2,762,033 -
Stock-based payments for consulting services 96,313 - 98,483
Stock-based compensation 487,407 273,102 102,282
Impairment of property, plant and equipment - - 4,616,679
Income tax expense - 365,401 3,761,084
Change in fair value of warrants liability (3,720 ) (34,175 ) 5,657,988
Changes in operating assets and liabilities, net ofeffects of business acquisitions and dispositions:
Accounts receivable (2,145,097 ) (913,486 ) 2,914,918
Accounts receivable from related party and its affiliates (4,694,068 ) - -
Inventories 652,921 (590,274 ) 1,546,570
Other receivables and prepaid expenses 6,962,862 6,222,650 (1,089,481 )
Advances to suppliers (1,423,441 ) 1,981,816 (1,708,552 )
Restricted cash - 848,573 9,566,303
Amounts due to/from related parties - (154,331 ) (1,088,001 )
Other payables and accrued expenses 819,300 (2,344,677 ) (2,736,926 )
Advances from customers (1,442,928 ) (846,599 ) 1,598,944
Advances from customers from related party and its affiliates 2,111,157 - -
Accounts payable and bills payable (239,628 ) (1,811,119 ) (24,134,831 )
Income tax payable (1,166,473 ) (312,615 ) (118,973 )
Net cash provided by (used in) continuingoperations 4,540,249 (2,821,053 ) (25,319,197 )
Net cash used in operating activities fromdiscontinued operations - - (595,404 )
Net cash provided by (used in) operating activities 4,540,249 (2,821,053 ) (25,914,601 )

INVESTING ACTIVITIES
Cash paid for assets held-for sale - - (20,717 )
Proceeds from sale of property and equipment 7,845 299,298 55,101
Consideration paid for acquisition of Biznest - - (1,488,969 )
Investment in Biznest's joint company - (45,179 ) -
Capitalized and purchased software development costs - - (66,870 )
Purchases of property and equipment (3,783,064 ) (3,463,915 ) (3,004,209 )
Cash received from sale of Zhongtian and Geo - 12,312,378 -
Cash received for sale of assets held for sale - - 45,052,000
Net cash (used in) provided by investing activitiesfrom continuing operations (3,775,219 ) 9,102,582 40,526,336
Net cash provided by (used in) investing activitiesfrom discontinued operations - - 1,558,581
Net cash (used in) provided by investing activities (3,775,219 ) 9,102,582 42,084,917

FINANCING ACTIVITIES
Borrowings under short-term loans 8,880,840 10,541,720 44,584,103
Common stock issued for cash - - 12,786,353
Decrease in restricted cash in relation to bank borrowings - - 543,300
Repayment of short-term loans (9,366,326 ) (17,101,230 ) (79,952,564 )
Repurchase of ordinary shares - (379,710 ) (1,310,184 )
Repayment of long-term loans - (214,527 ) (97,751 )
Cash paid to warrant holders - - (542,806 )
Net cash used in financing activities fromcontinuing operations (485,486 ) (7,153,747 ) (23,989,549 )
Net cash used in financing activities fromdiscontinued operations - - (147,237 )
Net cash used in financing activities (485,486 ) (7,153,747 ) (24,136,786 )

Effect of exchange rate changes on cash and cash equivalents (771,111 ) 837,747 564,125

NET DECREASE IN CASH AND CASHEQUIVALENTS (491,567 ) (34,471 ) (7,402,345 )

CASH AND CASH EQUIVALENTS,BEGINNING 3,752,375 3,786,846 11,189,191
CASH AND CASH EQUIVALENTS, ENDING $ 3,260,808 $ 3,752,375 $ 3,786,846
CASH AND CASH EQUIVALENTS FROMCONTINUING OPERATIONS, end of period $ 3,260,808 $ 3,752,375 $ 3,786,846

Supplemental disclosure of cash flow information:
Cash paid during the year
Income taxes $ 3,057 $ 192 $ 188,932
Interest $ 450,024 $ 498,931 $ 3,769,498

F-12

In December 2020, each of the two holders of the Company’s convertible promissory notes issued in March 2020 converted the remaining principal and accrued interest in an amount of $383,875 into 149,659 ordinary shares of the Company, respectively, with a conversion price at $2.565 per share. The total of 299,318 ordinary shares converted were not issued until February 2021, with the amount of $767,750 included in the balance of other payable.

In January 2021, the Company issued 7,000 non-restricted shares with a fair value of $21,840 to a consultant as a compensation for his service.

In March 2021, the Company issued 200,000 restricted ordinary shares under its 2016 Equity Incentive Plan to certain employees with the fair value of approximately $2,792,000 as rewards for their past services.

In April 2021, the Company issued warrants to an investor relationship consultant to purchase 15,000 ordinary shares of the Company as a compensation for its service. The fair value of the warrants was approximately $73,000.

In April 2021, the Company obtained right-of-use assets of approximately $1 million in exchange for lease liabilities.

In June 2021, the Company issued 1,213,630 restricted ordinary shares for the acquisition of Taoping New Media Co., Ltd. The fair value of the restricted ordinary shares was approximately $5,436,000.

In September 2021, the Company issued 612,245 ordinary shares for the acquisition of iASPEC Technology Group Co., Ltd. The fair value of the ordinary shares was approximately $1.8 million.

In November 2021, the Company issued 45,000 restricted ordinary shares with a fair value of $136,350 to a financial intermediary service organization as a compensation for the intermediary service.

In December 2021, the Company issued 10,000 ordinary shares with a fair value of $29,200 to a consultant as a compensation for his service.

In 2021, purchase of software and equipment in an amount of approximately $6.3 million was made by an increase in accounts payable, respectively, and $1.4 million was made by a decrease of advances to suppliers.

In 2021, the Company held cryptocurrencies in an amount of approximately of $830,000 which were noncash transactions received from cryptocurrency mining operations.

The accompanying notes are an integral part of these consolidated financial statements

~~F-7~~

F-13

~~Supplemental disclosure of significant non-cash transactions:~~

In 2015, the Company repurchased a total of 685,000 ordinary shares for $2.8 million. The Company paid $1.3 million in cash, offset other receivables for $1.1 million, and recorded $0.4 million of other payables that was paid in 2016.TAOPING INC.

In 2015, the Company issued a total of 2,102,484 ordinary shares to certain institutional investors at the price of $6.44 per share. Gross proceeds from the Offering were approximately $13.5 million. The Company paid of a total of $0.8 million in placement agency fees, legal fees and other related expenses, and received $12.8 million net proceeds from the Offering.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In 2016, 98,741 Series B warrants were exercised in exchange for 899,795 ordinary shares at the fair value of approximately $1.1 million. No Series B warrant remains outstanding as of the current date.

On May 9, 2016, the Board of Directors of the Company adopted the 2016 Equity Incentive Plan (the 2016 Plan). Pursuant to the 2016 Plan, the Company may offer up to five million 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 changes in the corporate structure of the Company affecting the issuable shares under the 2016 Plan. On May 27, 2016, the Company granted options to purchase an aggregate of 2,712,000 ordinary shares under the 2016 Plan. As a result of employee turnover, the number of options to purchase 2,286,000 ordinary shares remained as of December 31, 2016. The fair value of these options was approximately $1.6 million at the date of the grant, of which approximately $273,000 was recorded as compensation for the services provided in 2016, and $376,000 was amortized and recorded as compensation expenses in 2017.

In 2017, the Company granted options to employees and consultants to purchase an aggregate of 1,210,000 ordinary shares under the 2016 Plan. The fair value of these options was approximately $0.7 million at the date of the grant, of which approximately $208,000 was recorded as compensation and consulting service expense for the services provided in 2017.

~~F-8~~

1. ORGANIZATION, PRINCIPAL ACTIVITIES AND ~~MANAGEMENT'S~~MANAGEMENT’S PLANS

Taoping Inc. (f/k/a China Information Technology, Inc.), together with its subsidiaries (the ~~"Company"~~“Company” or ~~"CNIT"~~“TAOP”), is a leading cloud-based ads display terminal and service provider of ~~integrated Cloud-Application-Terminal (“CAT”) solutions including public information~~digital advertising distribution ~~platform, elevator safety management system, cloud-based~~network and new media ~~terminal, as well as applications and~~resource sharing platform ~~for education~~ in the ~~People’s Republic~~Out-of-Home advertising market in China. The Company provides the integrated end-to-end digital advertising solutions enabling customers to distribute and manage ads on the ads display terminals.

In May 2018, we changed our corporate name from “China Information Technology Inc.” to “Taoping Inc.”, to reflect our current business operations in the new media and IoT industries. In 2021, Information Security Tech. International Co. Ltd. (“IST HK”), one of ~~China ("PRC"). The~~the Company’s ~~total solutions include software licensing, specialized software, hardware, systems integration, and related services.~~Hong Kong subsidiaries, 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 wholly-owned ~~PRC~~People’s Republic of China (PRC) subsidiaries, and Company’s Variable interest entity (“VIE”) and VIE subsidiaries.

In 2021, the Company also 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. With multiple cloud data centers deployed overseas, currently in Hong Kong, the Company continues to improve computing power and create value for the encrypted digital currency industry.

In September 2021, the Company and the Company’s wholly owned subsidiary, Information Security Technology ~~International~~(China) Co., Ltd. ~~("IST"~~(“IST”), TopCloud Software Co., Ltd., ("TopCloud "), and Information Security IoT Tech. Co., Ltd. ("ISIOT ), and through the Company’s variable interest entity ("VIE"), iASPEC Geo Information Technology Co., Ltd. ("iASPEC"), and its subsidiaries, iASPEC Bocom IoT Technology Co. Ltd. ("Bocom"), Shenzhen Taoping Internet Tech. Co., Ltd. (“Taoping”), and Shenzhen Biznest Internet Tech. Co., Ltd. (“Biznest”), and the Company’s wholly-owned Hong Kong subsidiaries Information Security Tech. International Co. Ltd. (“IST HK”), and HPC Electronics (China) Co., Limited (“HPC ”).

December 31, December 31, December 31,
Subsidiaries/ 2017 2016 2015
Entities VIE % owned % owned % owned Location
China Information Technology, Inc (CNIT) British Virgin Islands
China Information Technology Holdings Limited (CITH) Subsidiary 100% 100% 100% British Virgin Islands
Information Security Tech. International Co., Ltd. (ISTIL) Subsidiary 100% 100% 100% Hong Kong, China
Information Security Software Investment Limited (ISSI) (Note 4) Subsidiary 0% 0% 100% Hong Kong, China
HPC Electronics (China) Co., Limited (HPC HK) (Note 4) Subsidiary 0% 100% 100% Hong Kong, China
Information Security Tech. (China) Co., Ltd. (IST) Subsidiary 100% 100% 100% Shenzhen, China
TopCloud Software (China) Co., Ltd. (TopCloud) Subsidiary 100% 100% 100% Shenzhen, China
Information Security IoT Tech. Co., Ltd. (ISIOT) Subsidiary 100% 100% 100% Shenzhen, China
Dongguan Information Security Technology Co., Ltd. (IST DG) (Note 4) Subsidiary 0% 0% 100% Shenzhen, China
iASPEC Technology Group Co., Ltd. (iASPEC) VIE 100% 100% 100% Shenzhen, China
Biznest Internet Tech. Co., Ltd. (Biznest) VIE 100% 100% 100% Shenzhen, China
Shenzhen Taoping Internet Tech. Co., Ltd. (Taoping) VIE 100% 100% 100% Shenzhen, China
iASPEC Bocom IoT Tech. Co., Ltd. (Bocom) VIE 100% 100% 100% Shenzhen, China

~~Strategic Shift and Business Transformation~~

In early 2013, the Company made a strategic decision to transform its business from servicing the public sector to focusing on the private sector. Leveraging the experience and expertise in handling large-scale IT projects for the public sector, the Company started investing in research and development to develop software products for the private sector. In 2014, continuing business transformation, the Company identified four core markets and provided cloud-based ecosystem solutions to new media, healthcare, education, and residential community management. In 2014, the Company predominately sold its cloud-based solutions to the Chinese new media industry. Starting from 2015, the Company further expanded the customer base of cloud-based solutions to education, government and residential community management. In 2016, the Company grew its industry-specific integrated technology platform, resource exchange, and big data services to elevator IoT application for residential community customers. From May 2017, the Company has focused its business to provide products and services in Cloud-App-Terminal (CAT) and Internet of Things (IoT) technology based digital advertising distribution network and new media resource sharing platform in the Out-of-Home adverting market in China.

~~As part of the strategic shift, the company disposed of its equity ownership in Geo and Zhongtian respectively in 2015.~~

~~On November 6, 2015, iASPEC~~ entered into an equity transfer agreement with ~~certain individual and institutional purchasers (the “Transferees”). Pursuant to~~Mr. Jianghuai Lin, the ~~transfer agreement, iASPEC sold all~~sole shareholder of ~~its equity ownership of Wuda Geoinformatics Co., Ltd. ( “Geo”), which constituted 54.89%~~iASPEC. Upon closing of the total capital stock of Geo, for an aggregate purchase price of RMB 91.3 million (approximately $14.7 million) (the “Geo Purchase Price”). Control of Geo was legally transferred to the Transferees on December 4, 2015 (Note 14). Pursuant to the transfer agreement, the Transferees agreed to pay the Geo Purchase Price in four installments by March 30, 2016, which has been paid in full.

~~On November 9, 2015, iASPEC entered into an~~ equity transfer, agreement with a purchaser (the “Transferee”). Pursuant to the transfer agreement, iASPEC sold all of its equity ownership of Shenzhen iASPEC Zhongtian Software Co., Ltd. (“Zhongtian”), which constituted 100% of total capital stock of Zhongtian for an aggregate of RMB 30.0 million (approximately $4.8 million) (the “Zhongtian Purchase Price”). Control of Zhongtian was legally transferred to the Transferee on November 9, 2015, (Note 14). Pursuant to the transfer agreement, the Transferee agreed to pay the Zhongtian Purchase Price in three installments by May 31, 2016, which has been paid in full.

~~Disposals of Geo and Zhongtian represented a strategic shift in~~ the Company’s ~~strategy~~existing variable interest entity structure was dissolved and ~~would have~~iASPEC became a ~~major effect on~~wholly owned indirect subsidiary of the ~~Company’s~~Company.

In September 2021, the Company also strategically relocated its global corporate headquarters to Hong Kong to better implement cryptocurrency mining operations and ~~financial results. Operations~~blockchain related new businesses and streamline its international business development, client communication, and service delivery. The office located in Shenzhen, China becomes the TAOP’s regional headquarters in Mainland China.

SCHEDULE OF SUBSIDIARIES AND VARIABLE INTEREST ENTITY

		December 31,			December 31,			December 31,
		2021			2020			2019
Entities	Subsidiaries	% owned			% owned			% owned			Location
Taoping Inc.											British Virgin Islands
Taoping Holdings Limited (THL)	Subsidiary		100	%		100	%		100	%	British Virgin Islands
Taoping Group (China) Ltd. (IST HK)	Subsidiary		100	%		100	%		100	%	Hong Kong, China
Taoping Digital Assets (Asia) Limited (TDAL)	Subsidiary		100	%		-			-		Hong Kong, China
Taoping Digital Assets (Hong Kong) Limited (TDL)	Subsidiary		100	%		-			-		Hong Kong, China
Taoping Capital Limited (TCL)	Subsidiary		100	%		-			-		Hong Kong, China
Alpha Digital Group Ltd. (ADG)	Subsidiary		100	%		-			-		Cayman, Island
Kazakh Taoping Operation Management Co. Ltd. (KTO)	Subsidiary		100	%		-			-		Kazakhstan
Kazakh Taoping Data Center Co. Ltd. (KTD)	Subsidiary		100	%		-			-		Kazakhstan
Information Security Tech. (China) Co., Ltd. (IST)	Subsidiary		100	%		100	%		100	%	Shenzhen, China
TopCloud Software (China) Co., Ltd. (TopCloud)	Subsidiary		100	%		100	%		100	%	Shenzhen, China
Information Security IoT Tech. Co., Ltd. (ISIOT)	Subsidiary		100	%		100	%		100	%	Shenzhen, China
iASPEC Technology Group Co., Ltd. (iASPEC)	Subsidiary		100	%		VIE			VIE		Shenzhen, China
Biznest Internet Tech. Co., Ltd. (Biznest)	Subsidiary		100	%		VIE			VIE		Shenzhen, China
iASPEC Bocom IoT Tech. Co., Ltd. (Bocom)	Subsidiary		100	%		VIE			VIE		Shenzhen, China
Taoping New Media Co., Ltd. (TNM)	Subsidiary		100	%		-			-		Shenzhen, China
Shenzhen Taoping Education Technology Co., Ltd. (SZTET)	Subsidiary		51	%		-			-		Shenzhen, China
Wuhu Taoping Education Technology Co., Ltd. (WHTET)	Subsidiary		51	%		-			-		Wuhu, China
Taoping Digital Tech. (Dongguan) Co., Ltd. (TDTDG)	Subsidiary		100	%		-			-		Dongguan, China
TopCloud Tech. (Chenzhou) Co., Ltd. (TCTCZ)	Subsidiary		100	%		-			-		Chenzhou, China
Taoping Digital Tech. (Jiangsu) Co., Ltd. (TDTJS)	Subsidiary		100	%		-			-		Jiangsu, China

In January 2022, Alpha Digital Group Ltd. was dissolved as a result of the ~~two companies have been presented as “discontinued operations” in the Company’s consolidated financial statements (Note 14).~~

~~Withdrawal of Going-Private Proposal~~

On June 22, 2015, the Company announced that its Board of Directors received a preliminary, non-binding proposal letter (the “Proposal”), dated June 19, 2015, from Mr. Jiang Huai Lin ("Mr. Lin"), Chairman and Chief Executive Officerbusiness realignment of the Company, Mr. Zhiqiang Zhao (“Mr. Zhao”), Director, Chief Operating Officer, and Interim Financial Officer of the Company, Mr. Junping Sun (“Mr. Sun”), Senior Vice President of the Company, and Mr. Jinzhu Cai (“Mr. Cai”), an individual investor (together with Mr. Lin, Mr. Zhao and Mr. Sun, the "Buyer Group"), proposing a "going-private" transaction (the "Transaction") to acquire all of the outstanding ordinary shares of the Company not already owned by the Buyer Group at a proposed price of $4.43 per ordinary share.Company.

On July 1, 2015, the Board of Directors announced that a special committee, consisting of three independent, disinterested directors of the Company, Mr. Yusen Huang, Mr. Remington Hu, and Dr. Yong Jiang, (the “Special Committee”) was formed to consider the previously announced non-binding "going private" proposal that the Board had received from the Buyer Group.

F-14

On August 19, 2015, the Special Committee announced the engagements of Duff & Phelps Securities, LLC and Duff & Phelps, LLC as its financial advisors and Gibson, Dunn & Crutcher LLP as its legal counsel, to review and evaluate the Proposal.TAOPING INC.

On October 11, 2016, the Buyer Group submitted a letter to the Special Committee which notified the Special Committee that the Buyer Group had unanimously determined to withdraw the Proposal. The withdrawal of the Proposal became effective on October 11, 2016.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

~~F-10~~

Management Service Agreement

iASPEC iswas a VIE of the Company. To comply with PRC laws and regulations that restrict foreign ownership of companies that provide public security information technology and Geographic Information Systems software operating services to certain government and other customers, the Company operates the restricted aspect of its business through iASPEC. 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. Upon closing of the equity transfer, the Company’s existing variable interest entity structure was dissolved and iASPEC became a wholly owned indirect subsidiary of the Company.

Pursuant to the terms of a management service agreement by and among IST, iASPEC and its shareholders, dated July 1, 2007 ~~("MSA"~~(“MSA”), iASPEC granted IST a ten-year, exclusive, royalty-free, transferable worldwide license to use and install certain iASPEC software, along with copies of source and object codes relating to such software. In addition, IST licensed back to iASPEC a royalty-free, limited, non-exclusive license to the software, without right of sub-license, for the sole purpose of permitting iASPEC to carry out its business as presently conducted. IST has the right to designate two Chinese citizens to serve as senior managers of iASPEC, to serve as a majority on iASPEC’s Board of Directors, and to assist managing the business and operations of iASPEC. In addition, both iASPEC and IST will require the affirmative vote of a majority of the Company’s Board of Directors, including at least one non-insider director, for certain material actions, as defined, with respect to iASPEC.

Option Agreement

In connection with the MSA, on July 1, 2007, IST also entered into an immediately exercisable purchase option agreement (the ~~"Option Agreement"~~“Option Agreement”) with iASPEC and its shareholders. Pursuant to the Option Agreement, the iASPEC shareholder granted IST or its designee(s) an exclusive, irrevocable option to purchase, from time to time, all or a part of iASPEC’s shares or iASPEC’s assets from the iASPEC shareholder for ~~$1,800,000~~$1,800,000 in aggregate. The option may not be exercised if the exercise would violate any applicable laws and regulations in PRC or cause any license or permit held by, and necessary for the operation of iASPEC, to be cancelled or invalidated. The Option Agreement will terminate on the date that IST exercises its purchase option and acquires all the shares or assets of iASPEC pursuant to the terms of the Option Agreement. The Option Agreement may be rescinded by IST upon 30 days’ notice without costs to terminate. The Option Agreement does not have renewal provisions.

F-15

TAOPING INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Amended and Restated MSA

The Amended and Restated MSA was entered into on December 13, 2009, by and among IST, iASPEC and iASPEC’s sole shareholder, Mr. ~~Lin.~~Jianghuai Lin (“Mr. Lin”). Pursuant to the Amended and Restated MSA, IST will provide management and consulting services to iASPEC, under the following terms:

	•●	iASPEC agreed that IST will be entitled to receive ninety five percent ~~(95%~~(95%) of the Net Received Profit, as defined, of iASPEC during the term of the Agreement. iASPEC is obligated to calculate and pay the Net Received Profit due to IST no later than the last day of the first month following the end of each fiscal quarter. Mr. Lin, agreed to enter into an agreement with IST to pledge all of his equity interests in iASPEC as security for his and iASPEC’s fulfillment of their respective obligations under the MSA, and to register the pledge agreement with the local AIC (Administration for Industry and Commerce). The Amended and Restated MSA was executed on December 13, 2009. Based on the advice of the Company’s PRC legal counsel, in January 2010 all the parties to the agreement decided not to enter into a pledge agreement.

	•●	Mr. Lin confirmed his status as the sole iASPEC shareholder and his assumption of all of the obligations of the iASPEC shareholder under the agreement, including a confirmation of his continuing obligation under a written guaranty, executed by the then iASPEC shareholders.

	•●	Based on iASPEC’s needs for its development and operation, IST has the right, from time to time, at its sole discretion, to provide iASPEC with capital support.

	•●	IST agreed that it will not interfere with any business of iASPEC covered by iASPEC’s PRC State Secret related Computer Information System Integration Certificate, including but not limited to, seeking access to relevant documents regarding such business. However, iASPEC agreed that it will cooperate with the requests of the Company as necessary to comply with the Company’s reporting obligations to the Securities and Exchange Commission. (“SEC”).

~~F-11~~

The Amended and Restated MSA amended certain terms of the original Management Service Agreement which became effective on July 1, 2007 and has a term of 30 years unless otherwise early termination by the parties by one of the following means:

	•●	Either iASPEC or IST may terminate the Amended and Restated MSA immediately (a) upon the material breach by a party of its obligations and the failure of such party to cure such breach within 30 working days after written notice from the non-breaching party; or (b) upon the filing of a voluntary or involuntary petition in bankruptcy by a party, or of which the party is the subject to insolvency, or the commencement of any proceedings placing the party in a receivership, or of any assignment by a party for the benefit of creditors; or

	•●	The Amended and Restated MSA may be terminated at any time by IST upon 90 calendar days’ written notice delivered to all other parties.

Upon any effective date of any termination of the Amended and Restated MSA: (a) IST will cease providing management services to iASPEC; (ii) IST will deliver to iASPEC all chops and seals of iASPEC; (iii) IST will deliver to iASPEC all of the financial and other books and records of iASPEC, including any and all permits, licenses, certificates and other proprietary and operational documents and instruments; (iv) the senior managers who are recommended by IST and elected as directors of iASPEC will resign from the Board of Directors of iASPEC in a lawful way; and (v) the software license that iASPEC granted to IST according to the Amended and Restated MSA will terminate unless otherwise agreed by the parties. In addition, any amounts owing from any party to any other party on the effective date of any termination under the terms of the Amended and Restated MSA will continue to be due and owing despite such termination.

F-16

TAOPING INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Amended and Restated MSA does not have renewal provisions. We expect that the parties to the Amended and Restated MSA will negotiate to extend the term of the agreement before its expiration.

The substance of the Amended and Restated MSA and the Option Agreement is to:

	•●	Allow the Company to utilize the business licenses, contacts, permits, and other resources of iASPEC in order for the Company to be able to expand its operations and business model;

	•●	Provide the Company with effective control over all of iASPEC’s operations; and provide the shareholders of iASPEC an opportunity to monetize a portion of their investment through the ~~$1.8~~$1.8 million purchase option.

Dissolution of the Variable Interest Entity Structure

In September 2021, we dissolved the variable interest entity structure by exercising the purchase option under the Option Agreement to purchase all of the equity interests in iASPEC at an aggregate exercise price of $1,800,000. On September 18, 2021, Taoping Inc. and IST entered into an equity transfer agreement with iASPEC and iASPEC’s then sole shareholder, Mr. Lin, under which Mr. Lin sold and transferred to IST all of the equity interests in and any and all rights and benefits relating thereto of iASPEC in exchange for 612,245 unregistered ordinary shares of Taoping Inc., as determined by dividing $1,800,000 by the volume-weighted average closing price of ordinary shares for the consecutive five (5) trading days immediately prior to September 18, 2021. The parties thereafter completed the equity transfer through applicable PRC governmental registration(s).

Upon the closing of the equity transfer, the Company’s variable interest entity structure was dissolved and iASPEC became a wholly owned indirect subsidiary of the Company. The amended and restated MSA was automatically terminated.

Going Concern and Management’s Plans

~~For~~

Although the COVID-19 pandemic has largely been contained in China, regional outbreaks of infections persist in various localities. The negative impact from the pandemic to the out-of-home advertising business continued throughout 2021. However, our revenue achieved 124.6% year-over-year increase as a result of the additions of cryptocurrency mining operations and the acquisition of TNM for the year ~~ended December 31, 2017, the~~2021. The Company ~~earned net income of approximately $0.9~~ has significantly improved profitability by $8.4 million ~~from continuing operations, compared to a~~by reducing net loss ~~of approximately $18.5~~ to $9.9 million for the year ended December 31, ~~2016.~~ 2021 from $18.3million a year ago. Cash and cash equivalents held by the Company at Dec 31, 2021 was $4.5 million, compared to cash and cash equivalents of $1.1million a year ago.

The Company ~~reported positive cash flows from operations~~incurred a net loss of approximately ~~$4.5~~$9.9 million for ~~the~~ year ended December 31, ~~2017,~~2021, which was mainly due to the provision of allowance of credit losses and the expenses of stock-based compensation, compared to ~~negative cash flows~~a net loss of ~~approximately $2.8~~$18.3 million ~~from operations~~ for ~~the year ended December 31, 2016.~~2020. As of December 31, ~~2017 and 2016,~~2021, the Company had a working capital ~~deficiency~~deficit of approximately ~~$1.5~~$6.3 million, ~~and $5.7 million, respectively. Working~~improved from a working capital ~~deficiency in 2017 improved about $4.2 million from 2016. The Company had significant accumulated~~ deficit ~~approximately $172.4 million and $173.1~~of $17.4 million as of December 31, ~~2017~~2020.

~~Continuing~~warrants with aggregate proceeds net of issuance cost of $4.73 million. Proceeds from all financing activities were to increase the Company’s working capital.

F-17

TAOPING INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

If the Company’s ~~days~~execution of ~~sales outstanding; 3) streamline the Company’s purchase order management process~~business strategies is not successful in addressing its current financial concerns, additional capital raise from issuing equity security or debt instrument or additional loan facility may occur to reduce inventory; 4) control the Company’s cost structure; 5) obtain additional government subsidies for developing new and innovative cloud-based software solutions; and 6) reduce the Company’s short-term debt burden. As of December 31, 2016,support required cash flows. However, the Company has further reduced its short-term debt burden to $8.0 million, decreased from $15.3 million at the end of 2015. Starting in April 2016, the Company began receiving an annual rental fee of $380,000 from certain third parties for leasing of its office facility located in Nanshan Industrial Park, Shenzhen. As of December 31, 2016, the Company hadcan make no additional availability under its credit facilities. In 2017, the Company has completed its transformation to a leading products and services provider of CAT and IoT technology based digital advertising distribution network and new media resource sharing platform in the Out-of-Home Advertising Market in China. In 2017, the Company has become profitable as a result of a successful transition of the Company’s business model.

~~F-12~~

~~And the Company strongly believes~~assurances that ~~there~~financing will be ~~a significant financial improvement in 2018 as~~available for the ~~new business model has proven~~amounts we need, or on terms commercially acceptable to ~~be successful and sustainable.~~

~~However,~~us, if at all. If one or all of these events do not occur or ~~the Company’s business strategies are not successful in addressing its current~~subsequent capital raise was insufficient to bridge financial ~~concerns,~~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. To overcome the going concern issue, the Company will actively seek opportunities to achieve revenue growth through strategic acquisitions on digital advertising, new revenue streams development, and significant expansion of computing power for cryptocurrency mining operations. In addition to cash generating from business, the Company has secured at least $8 million revolving bank facility line which provides important capital support for its operation.

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 ~~U.S.~~accounting principles generally accepted ~~accounting principles.~~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, its ~~subsidiaries, and its VIE for which the Company is the primary beneficiary.~~subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Reverse Stock Split: A one (1)-for-six (6) reverse stock split of the Company’s issued and outstanding ordinary shares was effective on July 30, 2020 (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 its accounts receivable, assessment of credit losses, fair value of stock options and warrants, ~~liability, goodwill,~~valuation allowance of deferred tax assets, useful lives of property and equipment, the recoverability of long-lived assets, revenue recognition, valuation of prepayments and other assets and other intangible ~~assets.~~assets, inventories, cryptocurrencies, purchase price allocation of business combination, right-of-use assets, and lease liabilities. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates.

F-18

TAOPING INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

All the Company’s revenue-generating operations are conducted in the PRC. 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 ~~associated with~~pertaining to the companies in North America and Western Europe. These include risks associated with, among others, the political, economic, public health concerns with persistent outbreaks of COVID-19 infections in various regional localities, and legal environments, geopolitical influences, and foreign currency ~~exchange. The~~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~~results.

In September 2021, ten Chinese regulatory authorities collectively promulgated a guidance to further control and monitor cryptocurrency related trading, exchanges, transaction, banking and financial service, initial coin offering, and other intermediary and derivatives transactions, which are considered illegal in accordance with effectuated laws and regulations and may be ~~adversely affected~~subject to penalty criminally. The new guidance also bars foreign cryptocurrency trading platforms and related businesses to provide services to China domestic individuals and business entities, and expands the application of laws and regulations to Chinese employees or contractors of foreign operatives that provide related services to individuals or business entities domiciled in China. The legality of cryptocurrency mining activity may be subject to challenge by Chinese authorities. As a result, the Company has relocated its global headquarters to Hong Kong where cryptocurrency mining, trading, exchange, transaction, and related business activities are lawful.

The functional currency of the Company is 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 social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation.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 no0 cash equivalents as of December 31, ~~2017~~2021 or ~~2016.~~2020.

The Company maintains its cash accounts at credit worthy financial institutions and closely monitors the movements of its cash positions. As of December 31, ~~2017~~2021 and ~~2016,~~2020, approximately ~~$3.0~~ $4.5 million and ~~$3.7~~ $0.9 million of cash, respectively, was held in bank accounts in the ~~PRC.~~PRC and Hong Kong.

(e) Restricted Cash

The Company held restricted cash of $0.2 million as of December 31, 2020. The restricted fund was a time deposit served as collateral to secure a bank loan facility that matures on May 7, 2021. The Company had no restricted cash as of December 31, 2021.

(f) Accounts Receivable, Accounts Receivable –related parties, and Concentration of Risk

The Company has further adjusted allowance for credit losses for the anticipation of future economic condition and credit risk indicators of customers, including the potential impact of the COVID-19 pandemic on its customers’ businesses. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.

~~F-13~~

~~The Company evaluates~~ In the creditworthiness of all of its customers individually before accepting them and continuously monitors the recoverability of accounts receivable. If there are any indicators that a customer may not make payment,event the Company ~~may consider making provision~~recovers amounts previously reserved for, ~~non-collectability for that particular customer. At the same time,~~ the Company ~~may cease further sales or services to such customer.~~will reduce the specific allowance for credit losses. The ~~following are some~~balance of allowance for credit losses for the ~~factors that~~year ended December 31, 2021 has increased approximately $5.5 million from the ~~Company considers in determining whether to discontinue sales or record an allowance:~~year ended December 31, 2020.

•	~~the customer fails to comply with its payment schedule;~~
•	~~the customer is in serious financial difficulty;~~
•	~~a significant dispute with the customer has occurred regarding job progress or other matters;~~
•	~~the customer breaches any of the contractual obligations;~~
•	~~the customer appears to be financially distressed due to economic or legal factors;~~
•	~~the business between the customer and the Company is not active; and~~
•	~~other objective evidence indicates non-collectability of the accounts receivable.~~F-19

~~The Company considers the following factors when determining whether to permit a longer payment period or provide other concessions to customers:~~

•	~~the customer’s past payment history;~~
•	~~the customer’s general risk profile, including factors such as the customer’s size, age, and public or private status;~~
•	~~macroeconomic conditions that may affect a customer’s ability to pay; and~~
•	~~the relative importance of the customer relationship to the Company’s business.~~

Since May 2017, the Company entered into a series of contracts with Shenzhen Taoping New Media, Ltd.(“Shenzhen Taoping”) and its affiliates for the sale of the Company’s Cloud-Application-Terminal based digital ads display terminals, software and technical services. Shenzhen Taoping is a company controlled by Mr. Lin.

TAOPING INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Accounts receivable as at December 31, ~~2017~~2021 and ~~2016~~2020 are as follows:

December 31, December 31,
2017 2016
Accounts Receivable $ 8,249,457 $ 5,645,114
Allowance for doubtful accounts (2,981,705) (2,625,765)
Accounts Receivable – Net $ 5,267,752 $ 3,019,349
Accounts Receivable-related parties $ 4,872,743 $ -

SCHEDULE OF ACCOUNTS RECEIVABLE

	December 31, 2021			December 31, 2020
Accounts Receivable	$	18,340,348		$	12,359,619
Allowance for credit losses		(11,582,186	)		(8,095,362	)
Accounts Receivable, net	$	6,758,162		$	4,264,257
Accounts Receivable - related parties	$	16,032,134		$	12,017,651
Allowance for credit losses		(15,680,662	)		(9,098,436	)
Accounts Receivable - related parties, net	$	351,472		$	2,919,215
Non-current Accounts Receivable	$	-		$	3,013,532
Non-current credit losses		-			(1,174,302	)
Non-current Accounts Receivable, net	$	-		$	1,839,230
Non-current Accounts Receivable - related parties	$	-		$	4,172,502
Non-current Allowance for credit losses - related parties		-			(2,849,306	)
Non-current Accounts Receivable - related parties, net	$	-		$	1,323,196

The normal credit term ranges from 1 month to 3 months after the customers’ acceptance of hardware or software, and completion of services. However, because of various factors of business cycle, the actual collection of outstanding accounts receivable may be beyond the normal credit terms.

The allowance for ~~doubtful accounts~~credit losses at December 31, ~~2017~~2021 and ~~2016,~~2020, totaled approximately ~~$3.0~~$27.3 million and ~~$2.6~~$21.2 million, respectively, representing management’s best estimate. The following table describes the movements ~~in the~~for allowance for ~~doubtful accounts~~credit losses during the years ended December 31, ~~2017~~2021 and ~~2016:~~2020:

~~Balance at January 1, 2016~~	$	~~5,029,107~~
~~Increase in allowance for doubtful accounts~~		~~826,232~~
~~Amounts written off as uncollectible~~		~~(2,900,447~~	)
~~Foreign exchange difference~~		~~(329,127~~	)
~~Balance at December 31, 2016~~	$	~~2,625,765~~
~~Increase in allowance for doubtful accounts~~		~~180,305~~
~~Foreign exchange difference~~		~~175,635~~
~~Balance at December 31, 2017~~	$	~~2,981,705~~

~~(f)~~

SCHEDULE OF ALLOWANCE FOR CREDIT LOSSES

Balance at January 1, 2020	$	7,212,644
Increase in allowance for credit losses		13,528,638
Foreign exchange difference		476,124
Balance at December 31, 2020	$	21,217,406
Addition from acquisition of subsidiaries under common control		314,214
Increase in allowance for credit losses		5,134,350
Foreign exchange difference		596,878
Balance at December 31, 2021	$	27,262,848

(g) Advances to Suppliers

Advances to suppliers ~~represent~~include but are not limited to cash deposits for the purchase of inventory items and super-computing server machines from suppliers.

~~F-14~~

~~(g)~~ (h) Advances from Customers and ~~related parties~~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-20

TAOPING INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(i) Fair Value and Fair Value Measurement of Financial Instruments

Management has estimated that ~~the~~ carrying amounts ~~of non-related~~reported in the consolidated balance sheets for cash, accounts receivable, accounts receivable – related party, ~~financial instruments approximate fair values for all periods presented~~advances to suppliers, loan receivable - related party, other current assets, accounts payable, other payables and accrued expenses, income taxes payable, convertible note payable, net, and due to related parties approximate their fair market value based on the short-term ~~maturities.~~maturity of these instruments.

(j) 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).

~~The following tables present the fair value hierarchy of those assets and liabilities measured at fair value:~~

~~Recurring fair value measurements:~~

Fair Value Measurements Using
Quoted
Prices in
Active Total Gains
Markets Significant (Losses) for
for Other Significant the year
As of Identical Observable Unobservable ended
December Liabilities Inputs Inputs December 31,
31,
2017 (Level 1) (Level 2) (Level 3) 2017
Warrants liability $ - $ - $ - $ - $ 3,719
Total recurring fair value measurements $ 3,719

Fair Value Measurements Using
Quoted
Prices in
Active Total Gains
Markets Significant (Losses) for
As of for Other Significant the year
December Identical Observable Unobservable ended
31, Liabilities Inputs Inputs December 31,
2016 (Level 1) (Level 2) (Level 3) 2016
Warrants liability $ 3,719 $ - $ - $ 3,719 $ 34,175
Total recurring fair value measurements $ 34,175

~~F-15~~

~~As of December 31, 2017 and 2016,~~On January 1, 2020, the Company ~~measured~~adopted ASU 2018-13,” Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the ~~fair value~~Disclosure Requirements for Fair Value Measurement.” The adoption of ~~its derivative liability related to warrants using a binomial or lattice model and Monte-Carlo Simulation~~the disclosure requirements for ~~warrants A and warrants B, respectively. The following tables reflect the quantitative information about recurring Level 3 fair value measurements:~~

Series A Series B
Warrants Warrants
December 31, 2017:
Annual volatility 56.13% -
Risk-free rate 1.46% -
Dividend rate 0.00% -
Contractual term 0.4 years -
Closing price of ordinary shares $ 1.48 $ -
Conversion/exercise price $ 7.73 $ -
December 31, 2016:
Annual volatility 85.43% -
Risk-free rate 0.96% -
Dividend rate 0.00% -
Contractual term 1.4 years -
Closing price of ordinary shares $ 0.72 $ -
Conversion/exercise price $ 7.73 $ -
December 31, 2015:
Annual volatility 89.55% 150.85%
Risk-free rate 1.27% 0.56%
Dividend rate 0.00% 0.00%
Contractual term 2.4 years 0.2 years
Closing price of ordinary shares $ 1.68 $ 1.68
Conversion/exercise price $ 7.73 $ 7.09
Origination:
Annual volatility 88.00% 92.00%
Risk-free rate 1.00% 0.09%
Dividend rate 0.00% 0.00%
Contractual term 3 years 0.5 years
Closing price of ordinary shares $ 3.85 $ 3.85
Conversion/exercise price $ 7.73 $ 7.09

~~The warrants liability is considered a Level 3 liability~~Fair Value Accounting has no material impact on the fair value hierarchy as the determination of fair values includes various assumptions about future activities, stock price, and historical volatility inputs. Significant unobservable inputs for the Level 3 warrants liability include (1) the estimated probability of the occurrence of a down round financing during the term over which the related warrants are exercisable, (2) the estimated magnitude of the down round, and (3) the estimated magnitude of any net cash fractional share settlement. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.Company’s consolidated financial statements.

~~The table below reflects the components effecting the change in fair value for the years ended December 31, 2017, 2016 and 2015, respectively:~~

Level 3 Liabilities
For the Year Ended December 31, 2017
January 1, Change in Fair December 31,
2017 Settlements Value 2017
Warrants liability (see Note 16) $ 3,719 $ - $ (3,719 ) $ -

Level 3 Liabilities
For the Year Ended December 31, 2016
January 1, Change in Fair December 31,
2016 Settlements Value 2016
Warrants liability (see Note 16) $ 1,156,386 $ (1,118,492 ) $ (34,175 ) $ 3,719

~~F-16~~

Level 3 Liabilities
For the Year Ended December 31, 2015
January 1, Change in Fair December 31,
2015 Issuances Settlements Value 2015
Warrants liability (see Note 16) $ - $ 4,982,694 $ (9,484,295 ) $ 5,657,987 $ 1,156,386

~~Non-recurring fair value measurements:~~

Fair Value Measurements Using
Quoted
Prices in
Active Total
Markets Significant Losses from impairment
As of for Other Significant for the year
December Identical Observable Unobservable ended
31, Liabilities Inputs Inputs December 31,
2016 (Level 1) (Level 2) (Level 3) 2016
Goodwill $ - $ - $ - $ - $ (4,442,367 )
Total non-recurring fair value measurements $ (4,442,367 )

As of December 31, 2016, goodwill was measured at fair value on a non-recurring basis using level 3 inputs, which resulted in impairment charges being recorded for the year ended December 31, 2016. Refer to Notes 6 for impairment detail.

~~Quantitative Information about non-recurring Level 3 Fair Value Measurements:~~

~~Fair Value~~

~~as of~~

~~Valuation~~

~~Unobservable~~

~~December 31, 2016~~

~~Techniques~~

~~Inputs~~

~~Range~~

~~Discounted~~

~~Profit after tax~~

~~Goodwill~~

~~cash flow~~

~~Annual Growth~~

~~(125)%-142%~~

~~Discount rate~~

~~22.57%~~

F-21

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.

Property, ~~plant~~equipment and ~~equipment~~software are stated at cost less accumulated amortization and depreciation. Amortization and depreciation is provided over the assets’ estimated useful lives, using the straight-line method. Estimated useful lives of property, ~~plant~~equipment and ~~equipment~~software are as follows:

Expenditures for maintenance and repairs, ~~costs~~which do not materially extend the useful lives of the assets, are ~~expensed~~charged to expense as ~~incurred, whereas significant~~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.

Intangible assets represent technology, ~~and~~ software development costs and trademarks ~~capitalized~~acquired by the ~~Company’s subsidiaries.~~Company through business acquisition.

Intangible assets are stated at acquisition fair value or cost less accumulated amortization, and amortized using the straight-line method over the following estimated useful lives:

Cryptocurrencies held, including Bitcoin and ~~Other Intangible Assets”, requires the testing of goodwill and indefinite-lived~~Ethereum, are accounted for as intangible assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of the cryptocurrency at ~~least annually.~~the time its fair value is being measured. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.

Cryptocurrencies awarded to the Company through its mining activities are included within operating activities in the consolidated statements of cash flows. The sales of cryptocurrencies are included within investing activities in the consolidated statements of cash flows and any realized gains or losses from such sales are included in other income (expense) in the consolidated statements of operations. The Company ~~tests goodwill~~accounts for ~~impairment~~its gains or losses in accordance with the ~~fourth quarter each year or earlier if an indicator~~first in first out (FIFO) method of ~~impairment exists.~~accounting.

In accordance with ASC 805, the ~~goodwill impairment analysis is a two-step test.~~Company applies acquisition method to account for business combination. The ~~first step of the goodwill impairment test involves comparing~~acquisition method requires that the fair value of ~~each reporting unit with its carrying amount including goodwill. If~~ 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 ~~reporting unit exceeds its carrying amount, goodwill~~bargain purchase gain, when the net of fair value of the ~~reporting unit is considered not impaired; however, if~~assets acquired and liabilities assumed exceeds the ~~carrying amount~~purchase consideration, regardless of the percentage ownership in the acquiree or how the acquisition was achieved.

For equity investments that the Company elects to measure at cost, less any impairment, plus or minus changes resulting from observable price changes, the Company makes a qualitative assessment considering impairment indicators to evaluate whether investments are impaired at each reporting ~~unit exceeds~~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.

The Company determines the ~~second step must be performed~~appropriate accounting treatment of its convertible debts in accordance with the terms in relation to ~~measure potential impairment.~~

conversion features. After considering the impact of such features, the Company may account for such instrument as a liability in its entirety, or separate the instrument into debt and equity components following the guidance described under ASC 815 Derivatives and Hedging and ASC 470 Debt. The ~~second step involves calculating an implied fair value of goodwill for each reporting unit for which~~debt discount, if any, together with related issuance cost are subsequently amortized as interest expense over the ~~first step indicated possible impairment. If~~period from the ~~implied fair value of goodwill exceeds the goodwill assigned~~issuance date to the ~~reporting unit, there is no impairment. If~~earliest conversion date or stated redemption date. The Company presented the ~~goodwill assigned to~~issuance cost of debt in the balance sheet as a ~~reporting unit exceeds~~direct deduction from the ~~implied fair value of goodwill, an impairment charge is recorded for the excess.~~related debt.

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 0 impairment charges for the years ended December 31, 2021, 2020 and 2019. Assets held for disposal, if any, are reported at the lower of the carrying amount or fair value less costs to sell.

~~(n) Derivative liability~~(s) Operating leases - ~~Warrants~~Right-of-use assets and lease liabilities

The ~~classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is determined~~Company accounts for lease under ASC 842 “Leases”, and ~~re-assessed at the end of each reporting period,~~also elects practical expedient not to separate non-lease component from lease components in accordance with ~~FASB~~ ASC ~~Topic 815, “Derivatives~~842-10-15-37 and ~~Hedging”. This guidance affects~~instead to account for each separate lease component and the ~~accounting~~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 ~~warrants issued acquiring~~leases with a term of 12 months or less.

The Company recognized a lease liability and corresponding right-to-use asset based on the present value of minimum lease payments discounted at the Company’s ordinary shares that contain provisions to protect warrant holders from a decline in the stock price, referred to as down-round protection. Down-round provisions reduce the exercise price of a warrant, if the company either issues equity shares for a price that is lower than the exercise price of the warrants, or issues convertible instruments with a conversion price per equity share that is less than the exercise price of the warrants, or issues new warrants or options that have a lower exercise price. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value charged to earning or loss.incremental borrowing rate. The Company ~~generally uses~~records amortization and interest expense on a binomial or lattice model and Monte-Carlo simulation to value the warrants at inception and subsequent valuation dates. Derivative instrument liabilities are classified in the balance sheet as current or non-currentstraight-line basis based on ~~whether~~lease terms and reduces lease liabilities upon making lease payments.

In accordance with the ASC 606, the Company recognizes revenues net of applicable taxes, when goods or ~~not net-cash settlement of~~services are transferred to customers in an amount that reflects the ~~derivative instrument could be required within 12 months of~~consideration to which the ~~balance sheet date.~~Company expects to receive in exchange for those goods or services.

The Company generates its revenues primarily from ~~four sources,~~five sources: (1) ~~hardware~~product sales, (2) software ~~subscription,~~sales, (3) ~~software sales,~~advertising, (4) crypto-currency mining, and ~~(4) system integration services. The Company’s revenue recognition policies~~(5) other sales. Revenue is recognized when obligations under the terms of a contract with our customers are ~~in accordance with SEC Staff Accounting Bulletin No. 104, "Revenue Recognition", FASB ASC No. 605-35 "Construction-Type~~satisfied, generally, upon delivery of the goods and ~~Production-Type Contracts" ("FASB ASC 605-35"),~~services and ~~FASB ASC No. 605-25 “Multiple-Element Arrangements” (“FASB ASC 605-25”) , and FASB ASC 985-605 “Software –~~ receipts of cryptocurrencies from cryptocurrency mining pools.

~~Hardware~~Product revenues are generated primarily from the sales of elevator IoT box, Cloud-based ad terminals and display technology products, and are recognized only when persuasive evidence of an arrangement exists, delivery has occurred and upon receipt of customers’ acceptance, the price to the customer is fixed or determinable in accordance with the contract, and collectability is reasonably assured. Hardware products include hardware and software essential to the hardware products’ functionalities. The Company accounts for hardware sales in accordance with FASB ASC 605-25. Accordingly, the Company has identified three deliverables regularly included in arrangements involving the sale of ~~hardware products. The first deliverable, which represents the substantial portion of the allocation sales price, is the hardware and~~Cloud-Application-Terminal based digital ads display terminals with integrated software essential to the functionality of the hardware to our customers (inclusive of related parties) and high-end data storage servers. Although manufacturing of the products ~~delivered at the time of sale. The second deliverable is the embedded right to receive on a when-and-if-available basis, future unspecified software upgrades relating~~has been outsourced to the products essential software. The third deliverable is the non-software services to be provided to the hardware products. The Company allocates revenue among these deliverables using the relative selling price method. BecauseCompany’s Original Equipment Manufacturer (OEM) suppliers, the Company has ~~neither Vendor-Specific Objective Evidence~~acted as the principal of ~~fair value (VSOE) nor Third-Party Evidence of Selling Price (TPE) for these deliverables,~~ the ~~allocation of revenue is based on~~contract. The Company recognized the ~~Company’s Best Estimates of Selling Prices (ESPs). Revenue allocated to the delivered hardware and related essential software is recognized~~product sales at the ~~time~~point of ~~sales provided other conditions for revenue recognition have been met.~~

The Company’s process for determining its EPS for deliverables without VSOE or TPE considers multiple factors that may vary depending on the unique facts and circumstances related to each deliverable, including, where applicable, prices charged by the Company and market trends in the pricing for similar offerings, product specifics business objectives, estimated cost to provide the non-software services and the relative ESP of the upgrade rights and non-software services as compared to the total selling prices of the products.delivery. The Company ~~has indicated it~~ may from time to time provide future unspecified software upgrades to the hardware products’ essential software, ~~and/or non-software services~~which is expected to be infrequent and, free of charge.

~~In November 2014,~~ Non-software service is mainly the one-time training session provided to the customer to familiarize them with the software operation upon the customer’s initial introduction to the software platform. The costs of providing infrequent software upgrade and training are de minimis. As a result, the Company began outsourcing production of hardware to its OEM partners. The Company also shifted after-sale support of hardware to its original equipment manufacturer (OEM) partners for hardware products sold to its private-sector customers. The Company’s OEM partners are ultimately responsible for support and product warranty of hardware. Therefore, the Company normally does not ~~accrue for potential product warranty liability. Hardware~~allocate transaction price to software upgrade and customer training. Product sales are classified ~~on the “Revenue-products” line~~as “Revenue-Products” on the Company’s consolidated statements of operations.

Customers in the fourth quarter of 2014, the Company began to generate software subscription revenues from the private sector. The basis for the Company’s software subscription revenue recognition is substantially governed by the accounting guidance contained in ASC 985-605, Software-Revenue Recognition.

In the private sector the Company’s customers pay software subscription fee for the right to access and use the Company’s proprietary Cloud-Application-Terminal platform such as Yunfa advertising distribution system and Taoping ad screen sharing platform, which does not require significant customization and modification to the customers’ specifications. For software subscription arrangements that usually do not require customers’ acceptance, the Company’s customers subscribe to the Company’s Cloud-Application-Terminal platform as a service. The Company generates software-as-a-service (SaaS) revenues selling its Cloud-based Technology platform as a monthly subscription service. The Company’s SaaS revenues are generally recognized ratably over the contract ~~term commencing with the date its service is made available to customers and all other revenue recognition criteria have been satisfied, when: (1)~~ the Company enters into a legally binding agreement with a customer for the subscription of software platform; (2) the Company delivers the products; (3) the sale price is fixed or determinable and free of contingencies or significant uncertainties; and (4) collection is probable. Revenues from software subscription contracts are classified on the “Revenue-Software” line on the Company’s consolidated statements of operations. The Company has indicated that it may from time to time provide future unspecified software upgrades to the Company’s Cloud-Application-Terminal platform free of charge.

Non-software element arrangements of training, technical support, and future unspecified software upgrades related to use our Cloud-Application-Terminal platform are included in the monthly subscription fee. The facts of training to use our Cloud-Application-Terminal platform being a one-time event during the first introduction of the platform to the customers, technical support being on a needed basis, and software upgrades being infrequent on the when-and-if-available basis and free of charge, the fair value of these elements is immaterial to overall monthly software subscription based on the Company’s best estimate, and the Company does not allocate any portion of software subscription revenue to the non-software elements and does not defer revenue associated with non-software elements. The Company will continuously monitor the fair value of these elements and see if the cost would be material to allocate the fair value.

Customers typically subscribe to SaaS offerings on a three-to-five-year basis to obtain access to the Company’s display terminals deployed on their premises and to the Company’s cloud-based software hosted on their server via the Internet. Although the duration of some of the Company’s SaaS contracts are longer than 75% of the economic life of the hardware equipment, because in the PRC payment collection beyond any three-year term is highly uncertain, the Company has chosen to recognize its SaaS revenues ratably over the contract term. Revenues from SaaS contracts are classified on the “Revenue-Software” line on the Company’s consolidated statements of operations.

~~Customers pay the Company a fixed price~~ to design and develop software products specifically customized for their ~~needs.~~needs for a fixed price. Software development projects usually include developing software, integrating various isolated software systems into one, and testing the system. The design and build services, together with the integration of the various elements, are generally determined to be essential to the functionality of the delivered ~~software, and accordingly revenue~~software. The contracted price is ~~recognized using the percentage of completion method of accounting~~usually paid in ~~accordance with FASB ASC 985-605. The percentage of completion for each contract is estimated~~installments based on progression of the ~~ratio~~project or at the delivery of ~~direct labor hours incurred~~the software. The Company usually provides non-software services including after-sale support, technical training. The technical training only occurs at the introduction of the software. The software is highly specialized and stable, after-sale support and subsequent upgrade or enhancement are infrequent. The Company has estimated the costs associated with the non-software performance obligations and concludes that these obligations are de minimis to ~~total estimated direct labor hours.~~the overall contract. Therefore, the Company does not further allocate transaction price.

The ~~related technical support~~Company generates revenues primarily from providing advertising slots to customers to promote their businesses by broadcasting advertisements on identifiable digital ads display terminals and ~~maintenance services are generally sold separately as stand-alone contracts. Revenues~~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 transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value using the quoted price of the related cryptocurrency on the date received, which is not materially different than the fair value at the contract inception or at the time the Company has earned the award from the pools. The consideration is variable. Because it is not probable that a significant reversal of cumulative revenue will not occur (ASC 606-10-32-11), the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm), and the rights to receive, on a when-and-if-available basis, future unspecified software upgrades and support and maintenance. Because software is highly specialized and stable, subsequent upgrade or enhancement is infrequent. The fair value of software support and maintenance is immaterial estimating approximately $50,000 per annum. Therefore the Company ~~does not allocate any portion of revenue to future upgrades or support.~~

~~Contract periods are usually less than six months, and typical contract periods for PCS are 12 months.~~

After completion of the ~~Company’s public sector customers,~~business acquisition on June 9, 2021, TNM became a subsidiary of the Company, remains responsible for providing after-sale support due to contractual requirements specific to the public sector. However, the original vendors of hardware are ultimately liable for replacement of defective or non-conforming products. Therefore, the Company normally does not accrue for potential product warranty liability.and is no longer a related party. The rental income from TNM has become an intercompany revenue and been eliminated since June 9, 2021.

Annual minimum rental income to be received ~~for those goods or services.~~in 2022 is $126,850 and NaN thereafter.

The Company ~~repurchases its ordinary shares~~records advances from ~~time to time~~customers when cash payments are received or due in advance of our performance. For the ~~open market and holds such shares as treasury stock. The Company applies the “cost method” and presents the cost to repurchase such shares as a reduction in equity. During the years~~year ended December 31, ~~2017, 2016,~~2021, 2020 and ~~2015,~~2019, the Company ~~repurchased a total~~recognized revenue of ~~-0-~~$141,000, ~~-0-~~$256,000and $335,000, respectively, that was included in the advances from customers balance at the beginning of each reporting period.

~~(q)~~ The Company generally expenses sales commissions if any incurred because the amortization period would have been one year or less. In many cases, the Company is approached by customers for customizing software products for their specific needs without incurring significant selling expenses.

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

The cost of sales for advertising revenue mainly comprises of direct costs of generating advertising revenue including lease expense for the wall space, to where the ads display terminal to be installed, installation costs of ads display terminals, depreciation of display termination, labor, and other related expenses.

The cost of sales for cryptocurrencies revenue consists primarily of direct costs of earning Bitcoin and Ethereum related to mining operations, including mining platform fees, mining pool fees, mining facility rental fees, electric power costs, other utilities, depreciation of mining machines, labor, insurance, and among other ancillary costs.

The Company applies ASC No. 718, “Compensation-Stock Compensation”, which requires that share-based payment transactions with employees, such as share options, be measured based on the grant date fair value of the equity instrument and recognized as compensation expense over the requisite service period, with a corresponding addition to equity. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period.

The Company ~~applies ASC 505-50, “Equity-Based Payments~~adopted ASU 2018-07, Compensation-Stock Compensation (Topic: 718): Improvements to ~~Nonemployee”, which requires that share-based payment transactions with nonemployees, such as share options, be measured at~~Nonemployee Share-Based Payment Accounting on January 1, 2019, to account for stock-based compensation to goods and services provided by the ~~fair value of the consideration received or the fair value of the equity instruments issued, whichever can be more reliably measured.~~third parties. The fair value of the equity ~~instrument is recognized as compensation expense over~~awards to nonemployee are measured on the ~~requisite service period, with a corresponding addition to equity.~~grant day. Under this ~~method,~~guidance, compensation cost related to nonemployee share options or similar equity instruments is ~~measured at the grant date based on the fair value of the award and is~~ recognized ~~over the period specified~~ in the ~~service agreement or the performance conditions being achieved~~same period and in the same manner ~~as of~~(i.e. capitalize or expense) the ~~Company had~~entity would if it paid cash for the goods or services. The Company’s adoption of ASU 2018-07 has no material impact to the Company’s consolidated financial statements, nor requirement for cumulative adjustment in retained earnings or other components of equity or net assets.

During the ~~years~~year ended December 31, ~~2017, 2016,~~2021, 2020, and ~~2015,~~2019, the Company recognized approximately ~~$583,000, $273,000,~~$3,137,000, $744,000 and ~~$201,000,~~$580,000, respectively, of stock-based compensation expense.

The functional currency of the US and BVI companies is the United States dollar. The functional currency of the Company’s Hong Kong subsidiaries is the Hong Kong dollar.

The functional currency of the Company’s wholly-owned PRC subsidiaries ~~and its VIE~~ is the Chinese Renminbi Yuan, (“RMB”). RMB is not freely convertible into foreign currencies. The Company’s PRC subsidiaries’ ~~and their VIE’s~~ financial statements are maintained in the functional currency. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet date. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss for the respective periods.

For financial reporting purposes, the financial statements of the Company have been translated into United States dollars. Assets and liabilities are translated at exchange rates at the balance sheet dates, revenue and expenses are translated at average exchange rates, and equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income but are included in other comprehensive loss, a component of equity.

The average yearly RMB to US$ exchange rate adopted for the year ended December 31, ~~2015~~2019 was ~~6.2150~~6.9072.

No representation is made that the RMB amounts and HKD amounts could have been, or could be, converted into United States dollars at the rates used in translation.

The Company follows the guidance in FASB ASC 985-20, Cost of Software to Be Sold, Leased or Marketed, regarding software development costs to be sold, leased, or otherwise marketed.

FASB ASC 985-20-25 requires research and development costs for software development to be expensed as incurred until the software model is technologically feasible. Technological feasibility is established when the enterprise has completed all planning, designing, coding, testing, and identification of risks activities necessary to establish that the product can be produced to meet its design specifications, features, functions, technical performance requirements. A certain amount of judgment and estimation is required to assess when technological feasibility is established, as well as the ongoing assessment of the recoverability of capitalized costs. The Company’s products reach technological feasibility shortly before the products are released and sold to the public. Therefore research and development costs are generally expensed as incurred.

Subsidy income mainly represents income received from various local governmental agencies in China for developing high technology products in the fields designated by the government as new and highly innovative. ~~We have~~The Company has no continuing obligation under the subsidy provision. The Company recognizes subsidy income upon receipt of official grant notice from local government authorities.

Income taxes are provided on an asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes are recognized for all significant temporary differences at enacted rates and classified as non-current in the financial statements. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion, or all of, the deferred tax assets will not be realized. The Company classifies interest and/or penalties related to unrecognized tax benefits, if any, as a component of income tax expense.

The Company applies the provisions of ASC No. 740 “Income Taxes” (“ASC 740”), which clarifies the accounting for uncertainty in income taxes recognized by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides accounting guidance on de-recognition, classification, interest and penalties, and disclosure.

“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” was effective for the Company during the year ended December 31, 2015. The amendments contained in this update change the criteria for reporting discontinued operations and enhance the reporting requirements for 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. The Company accounted for the sale of Geo and Zhongtian during 2015 as a discontinued operation pursuant to this standard. Refer to Note 14 for additional details.

Segment information is consistent with how management reviews the businesses, makes investing and resource allocation decisions and assesses operating performance. Transfers and sales between reportable segments, if any, are recorded at cost.

The Company reports financial and operating information in the following ~~two~~3 segments:

For more information regarding our operating segments, see Note 20 (Consolidated Segment Data).

In ~~May 2014,~~August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting ~~Standards Update No. 2014-09 (ASU 2014-09),"ASC 606-10-65-1, Revenue from~~for Convertible Instruments and Contracts with Customers (Topic 606)." ASU 2014-09 supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)", and requires entities to recognize revenue when it transfers promised goods or services to customers in an ~~amount~~Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that ~~reflects~~continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the ~~consideration to~~host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the ~~entity expects to be entitled to in exchange for those goods or services.~~premiums are recorded as paid-in capital. ASU ~~2014-09~~2020-06 is effective for ~~annual reporting periods~~public business entities fiscal years beginning after December 15, ~~2017, including~~2021, and interim periods within ~~that reporting period, and~~those fiscal years. The Company is ~~to be applied retrospectively. Early adoption is permitted to~~currently evaluating the effective date of December 31, 2016 using either of two methods: (1) retrospective application of Topic 606 to each prior reporting period presented with the option to elect certain practical expedients as defined within Topic 606 or (2) retrospective application of Topic 606 with the cumulative effect of ~~initially applying Topic 606 recognized~~the adoption of ASU 2020-06 on the consolidated financial statements. The effect will largely depend on the composition and terms of the financial instruments at the ~~date~~time of initial application and providing certain additional disclosures as defined per Topic 606. The Company plan to adopt Topic 606 pursuant to the adoption method (2), and believes that there will not be material impact to the Company’s revenues upon adoption.

In January ~~2016,~~2020, the FASB issued ASU ~~2016-01, “ASC 825-10-65-2, Financial Instruments – Overall (Subtopic 825-10) Recognition~~2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and ~~Measurement of Financial Assets~~Joint Ventures (Topic 323), and ~~Financial Liabilities”.~~Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The guidance ~~requires~~provides clarification of the interaction of rules for equity ~~investments (except those accounted for under~~securities, the equity method of accounting ~~or those~~and forward contracts and purchase options on certain types of securities. ASU 2020-01 is effective for the Company in the first quarter of 2021. The adoption did not have any significant impact on the Company’s condensed consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, Business Combination (Topic 805) “Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. The ASU 2021-08 requires that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The guidance requires to use the exit price notion, when measuring the fair value of financial instruments for disclosure purposesan entity (acquirer) recognizes and ~~separate presentation of financial~~measures contract assets and ~~financial~~contract liabilities ~~by measurement category~~acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The ASU 2021-08 also provides certain practical expedients for acquirers when recognizing and ~~form~~measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. The ASU 2021-08 also applies to contract assets and contract liabilities from other contracts to which the provisions of ~~financial asset (i.e., securities or loans~~Topic 606 apply, such as contract liabilities from the sale of nonfinancial assets within the scope of Subtopic 610-20, Other Income—Gains and ~~receivables). The guidance also eliminates~~Losses from the ~~requirement~~Derecognition of Nonfinancial Assets. For public business entities, the ASU 2021-08 is effective for disclosure of the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The guidance requires prospective application for reporting periodsfiscal years beginning after December 15, ~~2017 and permits adoption in an earlier period. Adoption of ASU 2016-1is not expected to have a material impact on~~2022, including interim periods within those fiscal years. For all other entities, the ~~Company’s consolidated financial statements.~~

In February 2016, the FASB issued ASU 2016-02, “ASC 842-10-65-1, Leases (Topic 842)”. The guidance requires, with the exception of short-term leases, a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified assetamendments are effective for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The guidance requires prospective application for reporting periodsfiscal years beginning after December 15, ~~2018 and~~2023, including interim periods within those fiscal years. The ASU 2021-08 should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. An entity that early ~~adoption is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must~~adopts in an interim period should apply ~~a modified retrospective transition approach~~the amendments (1) retrospectively to all business combinations for ~~leases existing at,~~which the acquisition date occurs on or ~~entered into~~ after the beginning of the ~~earliest comparative~~fiscal year that includes the interim period ~~presented in~~of early application and (2) prospectively to all business combinations that occur on or after the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.date of initial application. Adoption of ASU ~~2016-2~~2021-08 is not expected to have material impact on the consolidated financial statements.

In ~~April 2016,~~November 2021, the FASB issued ASU ~~2016-10, “ASC 606-10-65-1, Revenue from Contracts~~2021-10, Government Assistance (Topic 832), “Disclosures by Business Entities about Government Assistance”. The ASU 2021-10 requires the following annual disclosures about transactions with ~~Customers (Topic 606): identifying Performance Obligation and Licensing.” "The amendments add further guidance on identifying performance obligations and also to improve~~a government that are accounted for by applying a grant or contribution accounting model by analogy: 1. Information about the ~~operability and understandability~~nature of the ~~licensing implementation guidance. Nevertheless,~~transactions and the ~~amendments do not change~~related accounting policy used to account for the ~~core principle~~transactions 2. The line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item 3. Significant terms and conditions of the ~~guidance~~transactions, including commitments and contingencies. The amendments in ~~Topic 606. The guidance is~~this Update are effective for ~~reporting~~all entities within their scope for financial statements issued for annual periods beginning after December 15, ~~2017.~~2021. Early application of the amendments is permitted. An entity should apply the amendments in this Update either (1) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or (2) retrospectively to those transactions. Adoption of ASU ~~2016-10~~2021-10 is not expected to have material impact toon the ~~Company’s~~ consolidated financial statements.

In May 2016, the FASB issued ASU 2016-11, “ASC 606-10-65-1, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting.” The new guidance rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016 Emerging Issues Task Force (EITF) meeting. Specifically, registrants should not rely on the following SEC Staff Observer comments upon adoption of Topic 606: (1) Accounting for Shipping and Handling Fees and Costs, which is codified in paragraph 605-45-S99-1; (2) Accounting for Consideration Given by a Vendor to a Customer (including Reseller of the Vendor’s Products), which is codified in paragraph 605-50-S99-1. The guidance is effective for reporting periods beginning after December 15, 2017. Adoption of ASU 2016-11 is not expected to have material impact to the Company’s consolidated financial statements.

In May 2016, the FASB issued ASU 2016-12, “ASC 606-10-65-1, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” The guidance, among other things: (1) clarifies the objective of the collectability criterion for applying paragraph 606-10-25-7; (2) permits an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specifies that the measurement date for noncash consideration is contract inception; (4) provides a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarifies that an entity that retrospectively applies the guidance in Topic 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption. ASU 2016-12 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and is to be applied retrospectively. Early adoption is permitted to the effective date of adoption of ASU 2014-09. The Company believes that there will not be material impact to the Company’s revenues upon adoption.

In August 2016, the FASB issued ASU 2016-15, “ASC 230-10-65-2, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” These updates provide cash flow statement classification guidance applicable to the Company for: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Contingent Consideration Payments Made after a Business Combination; (3) Proceeds from the Settlement of Insurance Claims; (4) Distributions Received from Equity Method Investees. These updates are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. Adoption of ASU 2016-15 is not expected to have material impact to the Company’s consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, “ASC 740-10-65-5, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” The new guidance requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory, when the transfer occurs. The new guidance eliminates the exception for an intra-entity transfer of an asset other than inventory. Although the new guidance does not require new disclosure, the existing disclosure requirements might be applicable, when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The new guidance should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Adoption of ASU 2016-15 is not expected to have material impact to the Company’s consolidated financial statements..

In November 2016, the FASB issued ASU 2016-18, “ASC 230-10-65-3, Statement of Cash Flows (Topic 230): Restrict Cash.” The new guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. The guidance should be applied using a retrospective transition method to each period presented. Adoption of ASU 2016-18 is not expected to have material impact to the Company’s consolidated financial statements.

In December 2016, the FASB issued ASU 2016-20, “ASC 606-10-65-1, Technical Corrections and Improvements to Topic 606, Revenue from Contract with Customers.” The amendments in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09 applicable to the Company include: (1) Contract Costs, (2) Provisions for Losses on Construction-Type and Production-Type Contracts, (3) Disclosure of Remaining Performance Obligations, (4) Disclosure of Prior Period Performance Obligations, (5) Contract Modifications, (6) Contract Asset vs. Receivable, (7) Refund Liability. The effective date of these amendments are at the same date that Topic 606 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. The Company plans to adopt ASU 2014-09 and ASU 2016-20 in the fiscal year of 2018, and believes that there will not be material impact to the Company’s revenues upon adoption.

In January 2017, the FASB issued 2017-01, “ASC 805-10-65-4, Business Combinations (Topic 805): Clarifying the Definition of a Business.” The new update is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted under certain circumstances, and should be applied prospectively as of the beginning of the period of adoption. Adoption of ASU 2017-01 is not expected to have material impact to the Company’s consolidated financial statements.

In January 2017, the FASB issued 2017-04, “ASC 350-20-65-3, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The new guidance eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The new guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The new update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis. Adoption of ASU 2017-04 is not expected to have material impact to the Company’s consolidated financial statements.

In February 2017, the FASB issued 2017-05, “ASC 606-10-65-1, 'Other Income – Gains and Losses from the De-recognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset De-recognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” "The amendments clarify that a financial asset is within the scope of Subtopic 610-20, if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Subtopic 610-20 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. The amendments also clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. The effective date of these amendments are at the same date that Topic 606 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. The Company plans to adopt ASU 2014-09 and ASU 2017-05 in the fiscal year of 2018, and believes that there will not be material impact to the Company’s revenues upon adoption.

In May 2017, the FASB issued ASU 2017-09, “ASC 718-20-65-1, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. Effective for all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. Adoption of ASU 2017-09 is not expected to have material impact to the Company’s consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11,”Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception.” "These amendments simplify the accounting for certain financial instruments with down round features. The amendments require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity. The amendments also address navigational concerns within the FASB Accounting Standards Codification® related to an indefinite deferral available to private companies with mandatorily redeemable financial instruments and certain non-controlling interests, one that created significant “pending content” in the Codification. The FASB decided to reclassify the indefinite deferral as a scope exception, which does not have an accounting effect. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Adoption of ASU 2017-11 will not have material effect to the Company’s consolidated financial statements.

The Company has considered all other recently issued accounting pronouncements and does not believe that the adoption of such pronouncements will have a material impact on the consolidated financial statements.

On June 9, 2021, the Company and Biznest Internet Technology Co., Ltd. (“Biznest”), a subsidiary of the Company consummated an acquisition of 100% of the equity interests of Taoping New Media Co., Ltd and its subsidiary (“TNM”). Mr. Jianghuai Lin, the Chairman and CEO of the Company, who owns approximately 26.9% of total shares outstanding of the Company, owned approximately 51% of TNM. TNM is a new media operator focusing on digital life scenes and mainly engages in selling out-of-home advertising time slots on its networked smart digital advertising display terminals with artificial intelligence and big data technologies. Acquiring TNM and synergizing its new media network will enhance the Company’s presence in the new media and advertising sectors. After completion of the acquisition, TNM becomes a wholly owned subsidiary of Biznest.

Pursuant to the share purchase agreement, as a consideration of the purchase, the Company issued to the shareholders of TNM a total of 1,213,630 shares of its ordinary shares with no par value, equivalent to the value of approximately $5.4 million.

The Company uses Level 3 inputs of fair value accounting for the identifiable assets and liabilities of TNM. The allocation of the purchase consideration is final, which was determined after the completion of a detailed analysis of the fair value for all assets acquired.

The following table summarizes the purchase price allocation for TNM, and the amounts of the assets acquired, and liabilities assumed which were based on their estimated fair values at the acquisition date:

Due to the negative impact from COVID-19 pandemic and slowdown of the out-of-home advertising industry in China, the total consideration paid by the Company was less than the net amount of identifiable assets acquired and liabilities assumed of TNM, which resulted in a bargain purchase gain of approximately $12,000 on the acquisition date.

The Company’s consolidated statement of operations for the year ended December 31, 2021 included revenue of $1.78 million and net loss of $0.55 million attributable to TNM since June 9, 2021, the acquisition date.

The following unaudited pro forma information shows the combined operations for the periods presented, as if the acquisition of TNM had occurred on January 1, 2020. The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the acquisition taken place on the date indicated, or the future consolidated results of operations of the Company. The pro forma financial information presented below has been derived from the historical condensed consolidated financial statements of the Company and from the historical accounting records of TNM.

The unaudited pro forma results include certain pro forma adjustments to revenue and net loss that were directly attributable to the acquisition, assuming the acquisition had occurred on January 1, 2020, including the followings:

1. Transaction costs of approximately $350,000 are assumed to have occurred on January 1, 2021 and are recognized in the first half of 2021.

2. Elimination of intercompany sales and purchases, rental income and rent expense.

3. Bargain purchase gain resulted from the transaction is recognized as if it occurred on January 1, 2021.

The Company iswas the primary beneficiary of iASPEC, pursuant to the Amended and Restated MSA. iASPEC iswas qualified as a variable interest entity of the Company and iswas subject to consolidation. Accordingly, the assets and liabilities and revenues and expenses of iASPEC have been included in the accompanying consolidated financial statements. In 2021, Taoping New Media Co., Ltd and its subsidiary, Shenzhen Taoping Education Technology Co., Ltd. and Wuhu Taoping Education Technology Co., Ltd. were newly added VIE subsidiaries or joint ventures. In the opinion of management, (i) the ownership structure of the Company, and the VIEs ~~are~~were in compliance with existing PRC laws and regulations; (ii) the contractual arrangements with the VIEs and its shareholder ~~are~~were valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and (iii) the Company’s business operations ~~are~~were in compliance with existing PRC laws and regulations in all material respects.

~~However, there are substantial uncertainties regarding the interpretation and application of current and future~~ In July 2021, PRC government agencies jointly proposed revisions to laws and ~~regulations. China’s legal system is a civil law system based on written statutes~~regulations to strengthen approval and unlike common law systems. It is a system in which decided legal cases have little value as precedent. As a result, China’s administrative and judicial authorities have significant discretion in interpreting and implementing statutory and contractual terms. Thus, it may be more difficult to evaluatesupervision of VIE corporate structure. Since the ~~outcome of administrative and judicial proceedings and the level of legal protection available than in more developed legal systems. Accordingly, the Company cannot be assured that PRC~~proposed new regulatory ~~authorities will~~requirements for VIE has not ultimately take a contrary view to its opinion with respect to the contractual arrangements with its VIEs. Because all of these contractual arrangements are governed by the PRC laws and provide for the resolution of disputes through arbitration in the PRC, these contracts would be interpreted in accordance with the PRC laws and any dispute would be resolved in accordance with the PRC legal procedures. If the VIEs or their respective shareholders fail to perform their respective obligations under the contractual arrangements, of which they are a party, the Company may have to incur substantial costs and resources to enforce its rights under the contracts and rely on legal remedies under the PRC laws, which may not be sufficient or effective. Under the PRC laws, rulings by arbitrators are final; parties cannot appeal the arbitration results in courts; and the prevailing parties may only enforce the arbitration awards in the PRC courts through arbitration award recognition proceedings, which would cause the Company to incur additional expenses and delays. As a result, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements. In the eventyet been finalized, the Company is unable to ~~enforce these contractual arrangements, it may not be able~~estimate the impact to ~~exert effective control over the VIEs, and~~ its ~~ability to conduct its business may be negatively affected.~~

In addition, if the PRC government determines that the Company is not in compliance with applicable laws, it may revoke the Company’s business and operating licenses, and require the Company to discontinue or restrict its operations, deconsolidate the Company’s interests in the VIEs, restrict its right to collect revenues. The PRC government may require the Company to restructure its operations, impose additional conditions, of which the Company may not be able to comply, impose restrictions on the Company’scorporate structure, business operations, or on its customers, or take other regulatory or enforcement actions against the Company that could be harmful to its business. The Company believes that the contractual arrangements with its VIEs are in compliance with current PRC laws and are legally enforceable. In the opinion of management, the likelihood of loss in respect to the Company’s current ownership structure or the contractual arrangements with VIEs is remote based on current facts and circumstances.

In order to facilitate iASPEC’s expansion and provide financing for iASPEC to complete the acquisition of Geo, the Company advanced RMB38.0 million (approximately $5.4 million) to iASPEC in two installments in 2007 and 2008 for increase of iASPEC’s registered capital. In order to comply with PRC laws and regulations, the advance was made to Mr. Lin, iASPEC’s then majority shareholder, who, then upon the authority and direction of the Board of Directors, forwarded the funds to iASPEC. The Company has recorded the advance of these funds as an interest-free loan to iASPEC, which was eliminated against additional capital of iASPEC in the Company’s consolidated financial ~~statements. The increase in iASPEC’s registered capital does not affect IST’s exclusive option to purchase iASPEC’s assets and shares under the MSA.~~performance.

For the years ended December 31, ~~2017, 2016~~2021, 2020 and ~~2015, net income of $ 80,704,~~2019, net loss of $-0-, $ ~~353,876,~~636,433, and ~~net income of~~ $ ~~308,473~~11,929, respectively, have been attributed to non-controlling interest in the consolidated statements of operations of the Company.

Government licenses, permits and certificates represent substantially all of the unrecognized revenue-producing assets held by the ~~VIEs.~~VIE and its subsidiaries. Recognized revenue-producing assets held by the VIEs consist of property, ~~plant and~~ equipment and ~~intangible assets.~~software.

On September 18, 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. Upon closing of the equity transfer, the Company’s existing variable interest entity structure was dissolved and iASPEC became a wholly owned indirect subsidiary of the Company. As a result, all assets and liabilities of the VIE were incorporated into the Company’s balance sheet as of December 31, 2021.

The VIE’s assets and liabilities were as follows ~~for the years ended~~as of December 31, ~~2017 and 2016:~~2020:

SCHEDULE OF ~~CONDOLIDATED ENTITIES~~VARIABLE INTEREST ENTITY OF ASSETS AND LIABILITIES

On March 31, 2016, the Company disposed of Information Security Software Investment Limited (“ISSI”), a wholly-owned subsidiary, to an unrelated third party. On August 1, 2016, the Company also disposed of Dongguan Information Security Technology (China) Co., Ltd. (“IST DG”) to an unrelated third party. Both IST DG and ISSI were holding companies. The Company divested these two subsidiaries as being determined that they were no longer necessities for the organization. There was no consideration exchanged for the disposals that resulted in a total loss of approximately $0.6 million for the year ended December 31, 2016. In accordance with ASC 810-10-40, Deconsolidation of a Subsidiary, the Company derecognized the net assets associated with ISSI and IST DG on March 31, 2016 and on August 1, 2016, respectively, when the Company ceased to have controlling financial interest in these entities.TAOPING INC.

After various re-organizations by the Company, HPC was no longer affiliating, serving, or controlling any of the Company’s subsidiaries, and dissolved on December 22, 2017. The dissolution of HPC did not result in any gain or loss the year ended December 31, 2017.NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Basic ~~earnings (loss)~~loss per share is computed by dividing ~~earnings (loss)~~loss available to common shareholders by the weighted-average number of ordinary shares outstanding during the period. Diluted ~~earnings (loss)~~loss per share reflects the potential dilution that could occur, if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares, or resulted in the issuance of ordinary shares that shared in the earnings of the entity.

Components of basic and diluted ~~earnings (loss)~~loss per share were as follows for the ~~years~~year ended December 31, ~~2017, 2016,~~2021, 2020, and ~~2015:~~2019:

~~Warrants for the purchase of 525,621 and 1,425,416 shares were not included in the calculations for~~SCHEDULE OF COMPONENTS OF BASIC AND DILUTED EARNINGS PER SHARE

For the years ended December 31, ~~2016~~2021, 2020, and ~~2015 as their effect would have been anti-dilutive. For the year ended December 31, 102,487~~ 2019, there was 0shares ~~were~~ included in the diluted earnings per share ~~calculation. The~~calculation, these incremental shares were added to denominator for the period that stock options were outstanding due to the average market price of the Company’s stock in the period exceeded the exercise prices of the stock options granted to the Company’s employees and various consultants. The incremental shares were computed under the treasury stock method. ~~In January 2018, an aggregate~~The EPS calculation excluded the if-converted shares from the convertible promissory note or exercised shares from detachable warrant associated with the convertible promissory note based on the Company’s recent stock prices, which were significantly below the stated convertible price and among other conversion prices of ~~529,004 ordinary shares~~alternative conversions or exercise price of the warrant. Because the effect would be anti-dilutive, there were ~~issued as a result of exercise of~~ 290,000 stock options ~~granted to~~for employees, 57,366 stock options and ~~consultants.~~

~~As the Company reported income from discontinued operations in 2015, 899,795 shares underlying 98,741 series B~~ 375,000 warrants ~~(Note 16)~~for nonemployees outstanding that were not included in ~~diluted calculation.~~

~~Goodwill by segments~~the computation of dilutive weighted average shares outstanding for the ~~years~~year ended December 31, ~~2017 and 2016 are as follows:~~

~~In accordance~~2021. And, there were warrants associated with ~~FASB ASC Topic 350, management reviews goodwill impairment annually or more frequently, if an event occurs or circumstances change~~the convertible promissory notes for purchase of 106,667 shares that ~~would more likely than~~were not ~~reduce~~included in the ~~fair value~~computation of a reporting unit below its carrying amount. Management used the discounted cash flow method to estimate the fair value of its reporting units. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions, such as revenue growth rate, gross profit rate, and discount rate.

In 2016 and 2015, CBT Segment revenue has grown significantly below what was anticipated, and incurred a substantial loss as research and development of the cloud-based ecosystem just being completed causing delay in marketing the products and services. Based on the impairment test performed in 2016, step one of the test results indicated that the carrying amount of CBT segments exceeded their fair value, and therefore an impairment of goodwill was probable. Management then determined the implied fair value of goodwilldilutive weighted average shares outstanding for the ~~CBT segments. As a result, the Company recognized a goodwill impairment loss of $4.4 million in the CBT segment in 2016.~~

Based on the impairment test performed in 2015, step one of the test results indicated that the carrying amount of the TIT and CBT segments exceeded their fair value, and therefore an impairment of goodwill was probable. Management then determined the implied fair value of goodwill for the TIT and CBT segments. As a result, the Company recognized goodwill impairment losses of $7.9 million and $1.1 million in the TIT and CBT segments in 2015, respectively.

iASPEC and Bocom leased office spaces in a building personally owned by Mr. Lin, Chairman and CEO of the Company. The lease discontinued on December 18, 2015. Consequently, the Company paid Mr. Lin approximately $-0-, $-0-, and $170,000 of rental expenses during the yearsyear ended December 31, ~~2017, 2016,~~2020. Also, 296,900 stock options and ~~2015, respectively.~~

~~Zhongtian leased office space~~warrants for the purchase of 51,667 shares were not included in ~~a building personally owned by Mr. Lin. The lease discontinued on November 9, 2015. Consequently,~~ the ~~Company paid Mr. Lin $-0-, $ -0-, and $ 160,166 of rental expenses during~~calculations for the ~~years~~year ended December 31, ~~2017, 2016, and 2015, respectively. These amounts were included within discontinued operations.~~2019, as their effect would have been anti-dilutive.

The amounts represented the loan balances of $-0- and $144,015 (RMB 1,000,000) to Mr. Sun Jun Ping as of December 31, 2017 and 2016, respectively and was included in other current assets on the Company’s consolidated balance sheets (Note 15(a)). The receivable was related to the sale of the Company’s ordinary shares on November 15, 2013 under 2013 Equity Incentive Plan and included in other current assets, and was fully collected on April 28, 2017.

Since May 2017, the Company has entered into a series of contracts with ~~Shenzhen~~ Taoping New Media Co., Ltd. ~~(Shenzhen Taopin)~~(TNM) and its affiliates for the sale of the Company’s Cloud-Application-Terminal based digital ads display terminals, software and technical services. ~~Shenzhen~~ Taoping isNew Media was a related party company controlled by Mr. ~~Lin.~~Lin, the Company’s Chairman and Chief Executive Officer, until the Company’s completion of the acquisition on June 9, 2021, after which date the related party transactions were eliminated in the Company’s consolidated financial statements. For the ~~year~~years ended December 31, ~~2017,~~2021, 2020 and 2019, revenues from related ~~party~~parties for sales of products were approximately ~~$9.1 million.~~$0.1 million, $0.4 million and $7.4 million, respectively. Accounts receivable from related parties, net of allowance for credit losses, as of December 31, 2021, 2020 and 2019 were approximately $0.4 million, $4.2 million and $12.5 million, respectively. Advances received from related parties were approximately $0.1 million, $0.2 million and $0.1 million as of December 31, 2021, 2020 and 2019, respectively.

On July 1, 2017, the Company entered into a lease agreement with ~~Shenzhen Taoping New Media Co., Ltd.~~TNM for leasing the Company’s office space located at 18th Floor, Education and Technology Building, Zhuzilin, Futian District, Shenzhen City ~~for a period~~which has been renewed on July 1, 2019 and expires on June 30, 2022. Upon completion of ~~12 months. Shenzhen Taoping is a company controlled by Mr. Lin.~~the Company’s acquisition of TNM on June 9, 2021, the related party rental income was eliminated in the Company’s consolidated financial statements thereafter. For the ~~year~~years ended December 31, ~~2017,~~2021, 2020 and 2019, the Company’s rental income from related party were approximately $27,000, $61,000 and $61,000, respectively. Other revenue generated from related parties also includes system maintenance service provided to Taoping affiliate customers, which was ~~approximately $31,000.~~

~~As of December 31, 2017~~$48,949, $85,289 and ~~2016, inventories consist of:~~

~~For~~$44,621, for the years ended December 31, ~~2017, 2016,~~2021, 2020 and ~~2015,~~2019, respectively.

iASPEC and Bocom had a balance of $69,585 payable to TNM as of December 31, 2020 for certain consultation service. Before the acquisition of TNM, the balance was fully repaid to TNM in April 2021.

As of December 31, 2020, the Company recorded a loan receivable of $0.5 million from TNM, which was originally for a nine-month short-term loan without interest and was fully repaid by September 2021. Before the acquisition of TNM, $0.17 million was repaid to the Company. The remaining balance of $0.33 million was eliminated for consolidation purposes as of December 31, 2021.

As of December 31, 2020, the amount due to related party was $0.14 million, which was borrowed from TNM for working capital purpose. Before the acquisition of TNM, the balance was fully repaid to TNM. As of December 31, 2021, the amount due to related parties was $3.15 million, which included a loan of approximately $3,145,000 (RMB20 million) from a related company 100% owned by Mr. Lin for 12-month at the interest of 5.85% per annum, which matures on May 17, 2022.

For the year ended December 31, 2021, there was a reversal of impairments for obsolete inventories ~~were~~in the amount of approximately ~~$177,000, $325,000, and $275,000, respectively.~~$214,000. Impairment charges on inventories are included with general and administrative expenses. For the year ended December 31, 2020, and 2019, impairments expense for obsolete inventories were approximately $6,000 and $115,000, respectively.

As of December 31, ~~2017~~2021 and ~~2016,~~2020, property, ~~plant~~equipment and ~~equipment~~software consist of:

Depreciation ~~expenses~~expense for the ~~years~~year ended December 31, ~~2017, 2016,~~2021, 2020, and ~~2015~~2019 were approximately ~~$2.0~~$3.7 million, ~~$1.7~~$3.2 million and ~~$1.7~~$2.8 million, respectively.

Management regularly evaluates property, ~~plant~~equipment and ~~equipment~~software for impairment, if an event occurs or circumstances change that would potentially indicate that the carrying amount of the property, ~~plant~~equipment and ~~equipment~~software exceeded its fair value. Management utilizes the discounted cash flow method to estimate the fair value of the property, ~~plant~~equipment and ~~equipment.~~software.

Company’s office buildings, with net carry value of ~~recoverability and the estimated fair value, management determined that~~ approximately ~~$-0-, $-0-, and $4.6~~$3.0 million, ~~of property, plant and equipment were impaired~~are used as collateral for ~~the years ended December 31, 2017, 2016, and 2015, respectively.~~its short-term bank loan.

Assets held for sale are reported at the lower of the carrying amount or fair value less costs to sell. Depreciation expense is not recognized on assets held for sale. In November 2014, the Company signed an agreement to sell certain assets to an unrelated third party for RMB375.0 million (approximately US$61.2 million). The following table reflected the assets held for sale on the transaction closing date, November 30, 2015.

As of December 31, ~~2014, the Company had received a $13.0 million deposit under the agreement, which was classified on the balance sheet as a deposit for~~2021 and 2020, intangible assets held for sale as of December 31, 2014. In September 2015, the Company completed the sale and title transferred to the buyer upon payment in full of all amounts due under the contract. The Company recorded a pre-tax gain on the sale of approximately $30.0 millionconsist of:

Amortization expense for the year ended December 31, ~~2015.~~2021, 2020 and 2019 was $nil, $1,510 and $58,164 million, respectively. Intangible assets were fully amortized in 2021.

As of December 31, ~~2017~~2021, cryptocurrencies included Bitcoin and ~~2016, intangible assets consist of:~~Ethereum the Company held which were received from mining activities. Cryptocurrencies are classified as current asset as they are expected to be realized in cash by the Company within one year.

The following table presents the movements of cryptocurrencies for the ~~years~~year ended December 31, ~~2017, 2016, and 2015 was approximately $0.8 million, $0.8 million, and $0.8 million, respectively.~~2021:

~~Based on the impairment test performed, management determined no impairment for the years ended December 31, 2017, 2016 and 2015.~~SCHEDULE OF MOVEMENTS OF CRYPTOCURRENCIES

Detailed information of secured short-term loan balances as of December 31, ~~2017~~2021 and ~~2016~~2020 were as follows:

As of December 31, ~~2017,~~2021 the Company had short-term bank loans of ~~$7.8~~approximately $7.8 million, which mature on various dates from ~~March 16, 2018~~July 9, 2022 to December ~~13, 2018.~~17, 2022. The short-term bank loans ~~can~~may be extended for another year by the banks without additional charges to the Company upon maturity. The bank borrowings are in the form of credit facilities. Amounts available to the Company from the banks are based on the amount of collateral pledged or the amount guaranteed by the Company’s subsidiaries. These borrowings bear interest rates ranging from ~~5.66%~~4.95% to ~~6.74%~~5.40% per annum. The weighted average interest rates on short term ~~debt~~debts were approximately ~~6.38%~~5.38%, ~~6.01%,~~5.59% and ~~6.74%~~6.56% for the ~~years~~year ended December 31, ~~2017, 2016,~~2021, 2020, and ~~2015,~~2019, respectively. The interest expenses were approximately ~~$0.5~~$0.4 million, ~~$0.5~~$0.4 million, and ~~$3.1~~$0.5 million, respectively, for the same ~~periods.~~periods, respectively.

Pre-tax income (loss) from continuing operations for the ~~years~~year ended December 31, ~~2017, 2016,~~2021, 2020, and ~~2015~~2019 were taxable in the following jurisdictions:

Because of the domestication transaction in 2012 by which CNIT BVI became the parent of our group, under Section 7874 of the Internal Revenue Code of 1986, as amended, the Company is treated for U.S. federal tax purposes as a U.S. corporation and, among other consequences, is subject to U.S. federal income tax on its worldwide income. It is management’s intention to reinvest all the income attributable to the Company earned by its operations outside the United States.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”). The Act makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a tax on Global Intangible Low-Taxed Income (“GILTI”) which is a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax ~~("AMT"~~(“AMT”) and changing how existing AMT credits can be realized; (6) creating the base erosion anti-abuse tax ~~("BEAT"~~(“BEAT”), a new minimum tax; (7) creating a new limitation on deductible interest expense; and (8) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

The SEC staff issued Staff Accounting Bulletin 118, which provides guidance on accounting for the tax effects of the Act for which the accounting under ASC 740, Income Taxes (“ASC 740”) is incomplete. To the extent that a ~~company's~~company’s accounting for certain income tax effects of the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before enactment of the Act.

The Company from time to time evaluates the tax effect of GILTI, and determined that there was no impact of GILTI tax to the Company’s consolidated financial statements as of December 31, 2017, the Company has not completed its accounting for the tax effects of the enactment of the Act. The Company operates primarily in PRC. To complete the accounting associated with the Act, the Company will continue to review the technical tax interpretations associated with the underlying law, monitor state legislative changes, and review U.S. federal and state guidance as it is issued. Further the Company will continue to accumulate and refine the relevant data and computational elements needed to finalize its accounting within the measurement period.2021.

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.

Under the current laws of Hong Kong, ~~ISSI,~~ IST HK ~~and HPC are~~is subject to a profit tax rate of ~~16.5%~~ 16.5%.

Income tax (benefit) expense from continuing operations consists of the following:

Current income tax ~~benefit~~(benefit) expense was recorded in ~~2016~~2021, 2020 and ~~2017~~2019 and was related to differences between the book and corporate income tax returns. Income tax expense recorded in 2015 primarily related to utilization of deferred tax assets relating to net operating loss carry forwards offset with taxable income recorded relating to the sale of assets held for sale discussed in Note 10.

The significant components of deferred tax assets and deferred tax liabilities were as follows as of December 31, ~~2017~~2021 and ~~December 31, 2016:~~2020:

The Company has net operating loss carry forwards totaling RMB ~~43.0~~177.2 million ($~~6.4~~27.9 million) as of December 31, ~~2017,~~2021, substantially all of which were from PRC subsidiaries and will expire on various dates through December 31, ~~2022.~~2025. Valuation allowance for deferred tax asset was fully provided. As of December 31, 2021, the Company also has net operating loss of approximately $3.3 million from the parent, Taoping Inc., a BVI company who is treated as a US corporation for the US tax purposes.

IST ~~and Topcloud are all governed by the Income Tax Laws of the PRC. These companies are~~is approved as being high-technology enterprises and subject to PRC enterprise income tax rate (“EIT”) at ~~15%, while~~15%. For Biznest, the income tax starts from the earning year, is tax exempt for the first two years and is subject to ~~a 12.5% of EIT.~~12.5% income tax rate for year 3-5.

The Company recognizes that virtually all tax positions in the PRC are not free of some degree of uncertainty due to tax law and policy changes by the State. However, the Company cannot reasonably quantify political risk factors and thus must depend on guidance issued by current State officials.

Based on all known facts, circumstances, and current tax law, the Company has recorded ~~$-0- and $-0- of~~nil unrecognized tax benefits ~~as of December 31, 2017 and 2016, respectively.~~from year 2018 to 2020. 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 ~~years~~year ended December 31, ~~2017, 2016,~~2021, 2020, and ~~2015.~~2019.

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 earnings.~~deficit. It is impractical to calculate the tax effect of the deficit at this time.

In 2015, the Company disposed of two of iASPEC’s subsidiaries (Zhongtian and Geo) by sale of equity ownership to third parties. As a result, the operations of Zhongtian and Geo were reflected within “discontinued operations” in the Company’s consolidated statements of operations for all periods presented.

~~The significant items included within discontinued operations are as follows:~~

~~Due from sales of Zhongtian and Geo for $13.3 million was recorded in other receivables at December 31, 2015, and was received in 2016.~~

(a) As of December 31, ~~2017~~2021 and ~~2016,~~2020, other current assets consist of:

(b) As of December 31, ~~2017~~2021 and ~~2016, other non-currents~~2020, Other assets, non-current consist of:

During 2019 and 2020, the Company ~~closed~~advanced RMB 30 million (USD $4.3 million) to a vendor, whom the Company has contracted to develop a vehicular IOT smart advertising software (“Internet of Vehicle” or “IOV” software) to interconnect to the Company’s new media advertising sharing platform expanding its advertising capability to people riding in motor vehicles. According to the contract and its subsequent amendment, total commitment of the funding was RMB 30 million (USD $4.3 million). The vendor is solely responsible for hardware and software development and marketing the vehicular terminal. The Company financially supports development cost of IOV software in exchange for advertising revenue generated from the software for four years of the contract term.

Based on the amendment of the contract, if the Company’s new media advertising revenue generated from IOV software does not reach certain threshold during specified period, the contract could be terminated by the Company, and all funding with applicable interest, and less the revenue generated from the IOV software shall be repaid to the Company within one half year after the termination of the contract. Before the full repayment of the funding, the Company owns 100% of the title of the IOV software and related equipment, which will be transferred to the vendor upon its repayment of the total funding plus applicable interest.

Starting in October 2020, IOV software revenue will be divided into eight periods. The first period as specified was from October 1, 2020 to April 30, 2021 with a threshold advertising revenue from IOV software of RMB 3 million (approximately USD $462,000). The revenue is to increase incrementally by 15% in every six months going forward until the contract expires four years after the commencing date of the operation. The first period as specified was from October 1, 2020 to April 30, 2021 with advertising revenue from IOV software of RMB 3 million (approximately USD $462,000). The second period as specified was from May 1, 2021 to November 30, 2021 with advertising revenue from IOV software of RMB 3.3 million (approximately USD $510,000). In 2022, The Company will continue to monitor advertising revenue generation from the IOV software and evaluate for impairment, if an event occurs or circumstance changes that would potentially indicate that the carrying amount of the asset exceeded its fair value. The vendor will own the title of the IOV software upon its fulfillment of the contract obligations after three years.

The development of IOV software was completed by September 30, 2020. Since Company has the right to use the IOV software in the contract term, software was capitalized as “other assets, non-current, net” and started to amortize from October 1, 2020 over the four-year contract term. As of December 31, 2021 and December 31, 2020, the balance of “other assets, non-current, net” was $2,948,681and $4,302,000, Respectively. The reduction of the amount receivable was approximately $1.4 million for the year ended December 31, 2021.

If full repayment is achieved within the contract term, the Company might be charged to continue using the software and related equipment, depending on both parties’ future agreement.

In addition to the lease with a related party for computing server room in Dongguan City, in April 2021, the Company leased an office space, two server rooms, and a dormitory in Hong Kong for executing the Blockchain business strategy. The fixed monthly lease payment for the office space is $21,972 (HKD 170,775) (all inclusive of rental, property management fee, utility, and applicable tax) with a lease term of three yearsending April 18, 2024. The fixed monthly lease payment for the server rooms is $7,462 (HKD 58,000) (all inclusive of rental, management fee, utility, and applicable tax) with a lease term of three yearsending May 16, 2024. The fixed monthly lease payment for the dormitory is $4,374 (HKD 34,000) including rental and management fee with a lease term of two yearsending April 19, 2023. All lease agreements have 0variable lease payment nor option to purchase the underlying assets. There was 0initial direct cost associated with the office space lease agreement. The initial direct costs associated with the lease for server rooms and dormitory are $7,462 (HKD 58,000), and $2,187 (HKD 17,000), respectively.

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 yearto three years, and the rental costs vary depending on the number of spots where the display terminals are installed and the duration of the leases.

The Company incurred rent expenses of approximately $335,000 whereas rent expenses for short-term lease were approximately $1,100for the year ended December 31, 2021. As of December 31, 2021, lease liabilities also included unpaid rent for expired long-term leases of approximately $78,000.

The Company has elected to apply the short-term lease exception to all leases with a term of one year or less. The future short-term lease costs are $nil for the year subsequent to December 31, 2021.

Weighted-average remaining lease term as of December 31, 2021, and discount rate for its operating leases are as follows:

The weighted-average discount rate was based on the three-year interest rate of People’s Bank of China.

The following table outlines maturities of operating lease liabilities as of December, 2021:

As of December 31, 2021, the carrying value of the Company’s equity ~~offering~~investments were $679,807, which consisted of the followings:

As of December 31, 2021, the Company’s equity method investments had a carrying value of $285,137 which were as follows:

The Company’s initial investments in the above equity method investments were approximately $1.9 million. The Company recognized losses from equity method investments of approximately $0.8 million and no impairment on equity method investments from the acquisition date June 9, 2021 to December 31, 2021.

(2) Equity investments without readily determinable fair value that is not accounted for under equity method accounting:

In accordance with ASC 321, the Company elected to use the measurement alternative to measure such investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any.

As of December 31, 2021, the carrying value for the equity investments without readily determinable fair value was $394,670. The total initial investments to the equity investments without readily determinable fair value were approximately $710,786. Impairment of approximately $0.09 million was recognized for year ended December 31, 2021.

In October 2019, March 2020, and September 2020, the Company issued ~~2,102,484~~Convertible Promissory Notes with principal amount of $1.04 million, $1,48 million and $1.48 million, respectively (Note-1, Note-2, and Note-3, collectively “Notes”). All three Notes mature in 12 months from the issue dates of the Notes (the “Maturity Dates”), carrying an interest rate of 5% per annum and an original issue discount (OID) to cover investors’ transaction costs of the Notes. In September and October 2020, the principal balance and the accrued interest of Note-1 was fully converted to 454,097 ordinary shares ~~to certain institutional investors~~of the Company with no par value at a conversion price of ~~$6.44 per share. At~~$2.4. In September and December 2020, the ~~same time,~~principal balance and the accrued interest of Note-2 was fully converted to 612,748 ordinary shares of the Company with no par value at a conversion price of $2.42 and 2.57, respectively. The total amount of principal and accrued interest converted of Note-1 and Note-2 was approximately $2.6 Million. As of December 31, 2020, there was 0 outstanding balance and unamortized debt issuance cost of Note-1 and Note-2, and the outstanding balance of Note-3 was $1,180,908 net of unamortized debt discount of $299,695. As of December 31, 2021, there was 0 outstanding balance and unamortized debt issuance cost of Note-3.

In conjunction with issuance of the Notes, the Company also issued ~~Series A and Series B~~the holders of the Notes warrants to purchase ~~an aggregate of 1,576,863~~26,667, 53,334, and 53,334 ordinary shares toof the ~~same investors under the equity offering.~~

~~The following table outlines the number of warrants outstanding and exercisable as of December 31, 2017 and 2016, respectively:~~

~~Series A warrants were issued to purchase an aggregate of 525,621 ordinary shares~~Company, at an exercise price of ~~$7.73 per share.~~$9 with a cashless-exercise option. The ~~Series A~~ warrants ~~have a term of~~will expire in three years ~~and are exercisable by~~from the ~~holders at any time after the date~~dates of issuance, ~~before~~respectively.

In June 2021, the ~~expiration date. A holder~~investor of Note-3 converted $740,000 of principal amount of the ~~Series A warrants has the right to exercise warrants on a cashless basis, if a registration statement or prospectus is not available for the issuance~~convertible note along with accrued interest of $26,208 into 298,716 ordinary shares of the ~~ordinary shares upon exercise~~Company with no par value at a conversion price of $2.565. In October 2021, a total of $777,000 including outstanding principal amount of $740,000 and accrued interest of $37,000 of Note-3 was repaid to the ~~warrants. None~~investor. As a result, the outstanding balance of ~~the Series A warrants has been exercised~~Note-3 was $nil as of December 31, ~~2017.~~ 2021.

The ~~Series A warrants are classified as liabilities with~~Company recognized interest expense of approximately $160,216 for Note-1, $244,871 for Note-2, and $119,648 for Note-3 for the ~~amount of its fair value $0 and $3,719 at~~year ended December 31, ~~2017~~2020 including interest relating to contractual interest obligation approximately of $37,000 and ~~2016, respectively.~~

Series B warrants were issued to purchase an aggregate of 1,051,242 ordinary shares at an exercise price of $7.09 per share. The Series B warrants are exercisable by the holders at any time after the date of issuance, and expired six months after the date on which they are first exercisable. A holderamortization of the ~~Series B warrants also has~~discounts and debt issuance cost approximately of $124,000 for Note-1 and interest relating to contractual interest obligation approximately of $46,000 and amortization of the ~~right~~discounts and debt issuance cost approximately of $199,000 for Note-2, and interest relating to ~~exercise its warrants on a cashless basis, if a registration statement or prospectus is not available~~ contractual interest obligation approximately of $19,000 and amortization of the discounts and debt issuance cost approximately of $101,000 for Note-3. The Company recognized interest expense of approximately $354,000for Note-3 including interest relating to contractual interest obligation of $55,000 and amortization of debt discount of $299,000 for the issuance of the ordinary shares upon exercise of the warrants. In addition, commencing on the 40th day after the issuance date of the Series B warrants, holders may exercise the Series B warrants in whole or in part and, in lieu of making cash payment, upon such exercise and in lieu of making a cashless exercise, elect to receive upon such exercise the net number of ordinary shares determined according the formula specified in the Series B warrant agreement. If the applicable market price of the ordinary shares is less than $4.00 per share (as adjusted for share splits, share distributions, recapitalizations or similar events), and the Company has previously delivered a Net Cash Settlement Notice (as defined in the Series B warrant agreement) to the holders that has not been withdrawn, the Company will pay the holders a certain amount of cash in addition to such number of ordinary shares according to a formula specified in the Series B warrant agreement. Subsequent to the issuance of the Series B warrants, the Company extended the expiration date of the Series B warrants through March 15, 2016. A total of 952,501 Series B warrants were exercised in exchange for 5,613,130 ordinary shares in 2015 and 98,741 Series B warrants were exercised in exchange for 899,795 ordinary shares subsequent toyear ended December 31, ~~2015.No Series B warrant remains outstanding as of December 31, 2017 and 2016.~~2021.

Series B warrants contain down-round protection upon the issuance of any ordinary shares, securities convertible into ordinary shares, or certain other issuances at a price below the then-existing exercise price of the warrants, with certain exceptions. In addition, the Series B warrants contain provisions that could require cash payments to the holders of the warrants or payment in additional ordinary shares.

The Company recognizes the warrants liability at their respective fair values at inception and on each reporting date. The Company utilized a binomial option pricing model (“BOPM”) and a Monte-Carlo simulation to develop its assumptions for determining the fair value of the warrants A and B, respectively. Changes in the fair value of the derivative warrant liabilities and key assumptions at the issue date and each reporting date are as follows:

As of December 31, ~~2017~~2021 and ~~2016,~~2020, other payables and accrued expenses consist of:

In accordance with relevant PRC regulations and the Articles of Association of our PRC subsidiaries, our PRC subsidiaries are required to allocate at least ~~10%~~10% of their annual after-tax profits determined in accordance with PRC statutory financial statements to a statutory general reserve fund until the amounts in said fund reaches ~~50%~~50% of their registered capital. As of December 31, ~~2017,~~2021 and 2020, the balance of general reserve ~~is $13.8 million.~~was $14.0 million, respectively.

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. As the statutory reserve funds can only be used for specific purposes under the PRC laws and regulations. The general reserves are not distributable as cash dividends.

Our after-tax profits or losses with respect to the payment of dividends out of accumulated profits and the annual appropriation of after-tax profits as calculated pursuant to the PRC accounting standards and regulations do not result in significant differences as compared to after-tax earnings as presented in our consolidated financial statements. However, there are certain differences between the PRC accounting standards and regulations and the U.S. generally accepted accounting principles, arising from different treatment of items such as amortization of intangible assets and change in fair value of contingent consideration arising from business combinations.

In ~~2015,~~March 2020, the Company issued a total of ~~2,102,484~~285,714 ordinary shares to certain ~~institutional~~individual investors at ~~the price of $6.44~~$2.1 per ~~share. Gross proceeds from the offering were~~share, which generated approximately ~~$13.5 million. The Company paid a total of $0.7 million in placement agency fees, legal fees, and other related expenses. As a result, the Company received $12.8 million of~~$576,000 net proceeds ~~from~~for the ~~equity offering.~~Company.

In ~~2016 and 2015,~~the first half of 2020, the Company issued a total of ~~899,795 and 5,613,130~~30,000 ordinary shares ~~respectively, resulting from~~as compensation of investor relations service, fair value of which was approximately $144,000 and was amortized over the ~~Series B warrants exercise. Refer~~service period until July 21, 2020.

In April 2020, the Company issued 16,667 restricted shares to ~~Note 16 above.~~a consultant as its service compensation. The fair value of the restricted shares was approximately $16,185, which was amortized over the service period until April 1, 2021.

In July 2020, the Company issued 42,000 ordinary shares to a consultant as service compensation. The fair value of issued shares was approximately $101,000, which is amortized over the service period for the service period until January ~~2018,~~20, 2021.

In July and September 2020, the Company issued an aggregate of ~~529,004~~13,110 ordinary shares ~~were~~to an employee for the individual’s job performance. The fair value of issued shares was approximately $65,000.

In September 2020, the Company issued 16,220 restricted shares to a consultant as a ~~result~~part of ~~exercise~~finder fees for the financing services, the fair value of ~~stock options granted~~which was approximately $41,000.

In September, October, and December 2020, the holders of the convertible notes issued in September 2019, and March 2020 converted all principal balance of the notes and accrued interests to ~~employees and consultants. Refer to Note 19 (d) and (e) below.~~

On October 4, 2013, the Company announced a $9.0 million share repurchase program. Repurchases may be made in open-market transactions or through privately negotiated transactions. The timing and extent of any repurchase will depend upon market conditions, the trading price of the Company’s ordinary shares in an aggregate of 1,066,845 ordinary shares of which 299,318 shares converted on December 30, 2020 were not issued until February 2021 (see Note 16). The total amount of principal and ~~other factors, and are subject to~~accrued interest converted was approximately $2.6 million, of which $1.8 million was converted into the ~~restrictions relating to volume, price and timing under the applicable laws, including but not limited to, Rule 10b-18 promulgated under the Securities Exchange Act~~ordinary shares as of ~~1934, as amended. The Company’s Board of Directors will review the share repurchase program periodically, and may authorize adjustment of its terms and size accordingly. During the years ended~~ December 31, ~~2017, 2016,~~2020, and ~~2015,~~$0.8 million was converted into the ordinary shares in the first half of 2021.

In January 2021, the Company issued a total of ~~0, 0, and 685,000~~740,740 ordinary shares ~~were repurchased~~to certain individual investors at $2.7 per share, which generated approximately $1.99 million net proceeds for the Company.

In January 2021, the Company issued 7,000 ordinary shares with fair value of approximately $21,840 to a consultant as compensation for the consulting service.

In February 2021, the Company issued a total of 1.9 million ordinary shares to certain institutional and individual investors at $4.08 per share, resulting in ~~accordance~~approximately $7.74 millionmill net proceeds for the Company.

In March 2021, the Company issued 200,000 ordinary shares with fair value of approximately $2,792,000 to certain employees for their job performance.

In March 2021, the ~~program~~Company issued 500,000 ordinary shares in the registered direct offering at the offering price of $6.70 per share resulting in approximately $3.34 million net proceeds for the Company.

In June 2021, the Company issued 1,213,630 ordinary shares with 6 months restricted period upon the closing of acquisition of Taoping New Media Co., Ltd (“TNM”), at unit price of $5.27 per share with discounts for lack of marketability as the consideration equivalent to approximately $5.4 million for acquiring 100% equity interest of TNM.

In June 2021, the holder of the convertible note issued in September 2020 converted 50% principal balance of the note and accrued interests to the Company’s ordinary shares in an aggregate of 298,716 ordinary shares (see Note 16).

In July 2021, the Company issued a total of 1,200,000 ordinary shares in a registered direct offering at $4.15 per share, which generated approximately $4.7 million net proceeds for the Company.

In September 2021, the Company issued 612,245 ordinary shares at a ~~cost~~price of ~~$-0-, $-0-, and $2,827,500, respectively. On June 7,~~$2.6 per share with discounts for lack of marketability, as the ~~aggregate~~consideration of ~~1,402,448~~approximately $1.8 million for acquiring 100% equity interest of iASPEC.

In November 2021, the Company issued 45,000 restricted shares with a fair value of $136,350 to a financial intermediary service organization as a compensation for the intermediary service.

In December 2021, the Company issued 10,000 ordinary shares ~~held in the Company’s treasury stock was canceled. As~~with a ~~result, the excess~~fair value of ~~the cost of those shares over the par value was allocated~~$29,200 to ~~additional paid-in capital and retained earnings in the amount of approximately $7.0 million and $104,000, respectively.~~a consultant as a compensation for his service.

The following table provides the details of the ~~approximate total share based~~share-based payments expense during the ~~years~~year ended December 31, ~~2017, 2016,~~2021, 2020, and ~~2015:~~

On September 11, 2013, the Board of Directors of the Company adopted the 2013 Equity Incentive Plan, or the 2013 Plan, pursuant to which, the Company may offer up to five million 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 shares issuable under the 2013 Plan. As of December 31, 2015, the Company had issued an aggregate of 4,467,135 shares of restricted stock, to our officers and employees under the 2013 Plan. There was no additional issuance of restricted shares during the years ended December 31, 2016 and 2017.2019:

On November 15, 2013, the Company granted eligible employees a total of 3,000,000 ordinary shares as compensation under the 2013 Equity Incentive Plan. The fair value of these shares was approximately $15.9 million at the date of the grant, based on the quoted market price of the Company’s ordinary shares. The employees paid the Company $9.0 million in cash resulting in approximately $6.9 million being recorded as the compensation for services provided in 2013.SCHEDULE OF SHARE BASED PAYMENTS EXPENSE

For the purpose of acquiring the ordinary shares from the Company, certain employees had entered into loan contracts with local banks. The Company had agreed to guarantee the employees’ repayment of these bank loans in the event of default. Of the 3,000,000 shares issued to employees, a total of 725,000 shares were purchased from the Company using the proceeds from these guaranteed bank loans. In December 2014, the Company loaned a total of approximately $1.5 million to these employees in order to for them to repay their respective bank loans. Since the Company has guaranteed these loans, the Company classified $2.2 million, of the total proceeds received as “temporary equity” in the accompanying balance sheet. In May 2015, the liability of these employees to the Company was repaid through either selling a certain numbers of their shares back to the Company or through repayment of cash to the Company. As a result, $1.1 million and $0.8 million were reclassified to “permanent equity” in 2015 and 2014, respectively. In 2016, additional $360,000 of temporary equity was reclassified to permanent equity as a result of a promise to repay the outstanding balance of the loan for purchasing ordinary shares executed by Mr. Sun Jun Ping, who was then the Chief Investment Officer of the Company.

On April 30, 2014, the Company granted eligible employees a total of 920,757 restricted shares as compensation under the 2013 Equity Incentive Plan. The fair value of these shares was approximately $3.8 million at the date of the grant, based on the quoted market price. The employees paid the Company approximately $3.7 million in cash, resulting in approximately $0.1 million being recorded as the compensation for services provided in 2014.

~~On April 30, 2014, the Company issued an aggregate of 439,503 shares of restrict CNIT ordinary shares to various minority shareholders to acquire additional ownership in Geo and Zhongtian.~~

On June 25, 2014, the Company issued 50,000 restricted shares as payable in a lump sum for one year consulting fee from June 2014 to June 2015. The fair value of these shares was approximately $206,000 at the date of the grant, based on the quoted market price of the ordinary shares, resulting in approximately $120,000 being recorded as consulting expense in 2014, and approximately $86,000 being recorded as prepaid expenses as of December 31, 2014, which was fully amortized in 2015.

In 2015, the Company granted eligible employees a total of 51,875 shares of ordinary shares under the Company’s Equity Incentive Plan as compensation. The fair value of these shares was approximately $102,000, based on the quoted market price. The amount was recorded as the compensation for services provided in 2015.

In 2015, the Company issued 5,000 restricted shares of ordinary shares in exchange for a consulting fee. The fair value of these shares was approximately $13,000 at the date of the grant, based on the quoted market price, resulting in approximately $13,000 being recorded as consulting fee in 2015.

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, the Company may offer up to ~~five million~~833,334 ordinary shares as equity incentives to its directors, employees and consultants. Such number of shares is subject to adjustment in the event of certain reorganizations, mergers, business combinations, recapitalizations, stock splits, stock dividends, or other change in the corporate structure of the Company affecting the issuable shares under the 2016 Plan. The Company accounts for its stock option awards to employees and directors pursuant to the provisions of ASC 718, Compensation – Stock Compensation. The fair value of each option award is estimated on the date of grant using the Black-Scholes Merton valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line attribution method over the service period, which is generally the vesting period.

On May 27, 2016, the Company granted options to purchase an aggregate of ~~2,712,000~~452,000 ordinary shares under the 2016 Plan. The fair value of these options was approximately ~~$1.6~~$1.6 million at the date of the grant, which was fully amortized as of ~~which approximately $273,000~~December 31, 2019. Approximately $365,000 was recorded as compensation and included in administrative expenses in the consolidated statements of operations for the services provided for the year ended December 31, ~~2016, and $376,000 was amortized and recorded as compensation expenses in 2017 period.~~ 2019.

On May 17, 2017, the Company granted options to employees and directors to purchase an aggregate of ~~960,000~~160,000 ordinary shares under the 2016 Plan. The fair value of these options was approximately ~~$0.5~~$0.5 million at the date of the grant, which was fully vested and amortized as of ~~which approximately $111,000~~December 31, 2020. Approximately $92,000, and $129,000 was recorded as compensation and included in administrative expenses in the consolidated statements of operations for the services provided ~~in 2017.~~for the year ended December 31, 2020, and 2019, respectively.

On July 24, 2020, the Company granted options to employees and directors to purchase an aggregate of 333,348 ordinary shares under the 2016 Plan. The ~~following table summarizes~~fair value of these options was approximately $0.3 million at the ~~inputs and assumptions used to estimate the fair values~~date of the ~~share~~grant, of which approximately $160,000 and $140,000 was recorded as compensation and included in administrative expenses in the consolidated statements of operations for the services provided for the year ended December 31, 2021, and 2020 respectively.

On July 31, 2020, the stock options granted ~~for the years ended~~to employees and directors in 2016 and 2017 were fully exercised on a cashless method, and 72,414 ordinary shares were issued, as ~~follows:~~a result.

Stock option activity for the ~~years~~year ended December 31, ~~2017~~2021, 2020 and ~~2016~~2019 is summarized as follows:

~~The weighted average grant-date fair value of~~SUMMARY OF STOCK OPTION ACTIVITY

There were 0 stock options granted to employees granted to employees during the ~~years~~year ended December 31, ~~2016 and 2017, was $0.78 and $0.59, respectively.~~2021. There were 333,348 stock options granted to employees during the year ended December 31, 2020. NaN options were granted to employees during the year ended December 31, 2019. There was no0 option exercised during the year ended December 31, 2021.The total intrinsic value of stock options exercised during the years ended December 31, ~~2016~~2020 was approximately and ~~2017.~~$637,000, and there was 0 option exercised during the year ended December 31, 2019. The Company did 0t receive any proceeds related to the cashless exercise of stock options from employees for the years ended December 31, 2021, 2020 and 2019.

The following table summarizes the status of options which contain vesting provisions:

As of December 31, ~~2017,~~2021 and 2020, approximately ~~$1.2~~$0.2 million and $0.2 million of total unrecognized compensation expense related to non-vested share options is expected to be recognized over a weighted average remaining vesting period of approximately ~~1.35 years.~~0 year and 0.3 year respectively. The total fair value of options vested during the ~~years~~year ended December 31, ~~2017,~~2021, 2020 and ~~2016~~2019 was approximately ~~$0.6~~$0.2 million, $0.1 million and ~~$0,~~$0.6 million, respectively. To the extent the actual forfeiture rate is different from what the Company has ~~anticipated,~~anticipated; stock-based compensation related to these awards will be different from its expectations.

Pursuant to the Company’s 2016 Equity Incentive Plan, ~~in 2017~~for the year ended December 31, 2018, the Company issued ~~250,000~~ 33,333 stock options to consultants ~~and 250,000~~ with 20,833 options vested ~~during~~in 2018 and 12,500 options vested in 2019. The stock options issued to non-employees would be forfeited either three months after the ~~period.~~expiration of the service agreement or upon the expiry of contractual life of the options. On February 20, 2019, the Company issued warrants to the Consultant to purchase 25,000 of the Company’s ordinary shares with exercise price at $6.60 per share, which was fully exercised in cashless for 6,250 ordinary shares on July 31, 2020. On April 2, 2020, the Company issued warrants to the Consultant to purchase 16,667 of the Company’s ordinary shares, no par value with an exercise price at $2.52 per share, which was fully exercised in cashless for 11,894 ordinary shares on July 31, 2020. In July 2020, the Company granted options to certain consultants to purchase an aggregate of 57,366 ordinary shares of the Company with an exercise price at $2.64 per share. The options were fully vested at the grant date as a rewarding for the past service of the consultants. Before the adoption of ASU2018-07, the fair value of the options and warrants issued to consultants was estimated on the measurement date using the Black-Scholes Merton valuation ~~model. We~~model, after the adoption on January 1, 2019, the fair value of the equity awards to consultants was measured on the grant date. In February, 2021 and April, 2021, the Company issued 1,915,000 warrants to the consultants. The Company expensed to administrative expense ~~$96,000 during~~approximately $77,000, $89,000, and $67,000 for the ~~year~~years ended December 31, ~~2017.~~2021, 2020 and 2019, respectively.

The issuance of warrants to purchase up to 1,000,000 ordinary shares to certain consultants in February 2021 has been expired as of December 31, 2021. The issuance of warrants to purchase up to 900,000 ordinary shares to certain consultants in April 2021 has been cancelled as of December 31, 2021.

As of December 31, ~~2017,~~2021, the ~~weighted average~~ exercise price for the stock options issued to non-employee for service was ~~$1.27~~ $3.40 and ~~the weighted average~~ remaining life was ~~3.11~~ 1.26 years. The stock options granted to non-employees were expired in three years after the grant date. The following table outlines the options outstanding and exercisable as of December 31, ~~2017:~~

On September 19, 2017, at the Company’s 2017 Annual Meeting of Members, the shareholders of the Company approved an amendment to the Company’s Memorandum and Articles of Association to remove the par value of the Company’s ordinary shares. On October 12, 2017, the Company filed an amended and restated Memorandum and Articles of Association (the “Amended and Restated M&A”) with the Registrar of Corporate Affairs in the British Virgin Islands to remove par value per share of the Company’s ordinary shares. As a result, additional-paid-in capital resulted from cash received in excess of par value for the Company’s issuance of ordinary shares was reclassified to ordinary shares at December 31, 2017.SCHEDULE OF WARRANT OUTSTANDING AND EXERCISABLE

The Company reports financial and operating information in ~~China since our revenue-generating operations are located in China.~~the following three segments:

Selected information by segment is presented in the following tables for the ~~years~~year ended December 31, ~~2017, 2016,~~2021, 2020, and ~~2015.~~

⁽²⁾~~Includes non-cash compensation, professional fees and consultancy fees for the Company.~~2019.

Non-cash employee compensation by segment ~~as of~~for the year ended December 31, ~~2017, 2016,~~2021, 2020, and ~~2015~~2019 are as follows:

Depreciation and amortization by segment for the ~~years~~year ended December 31, ~~2017, 2016,~~2021, 2020, and ~~2015~~2019 are as follows:

Total assets by segment as at December 31, ~~2017~~2021 and ~~2016~~2020 are as follows:

iASPEC and Bocom lease offices, employee dormitories, and factory space in Shenzhen , China. Lease agreements expired on various dates through December 2017. Afterwards only Biznest has a month-to-month based lease agreement without long term commitment. For the years ended December 31, 2017, 2016, and 2015, the rental expense was approximately $81,000, $95,000, and $219,000, respectively.

WeThe Company may from time to time be subject to legal proceedings, investigations, and claims incidental to conduct of our ~~business from time to time. We are~~business. The Company is currently subject to a legal ~~or arbitration proceedings~~proceeding with ~~customers pertaining~~the bankruptcy receiver (the Receiver) for Shenzhen Kejian Information Technology Co., Ltd. (Kejian). The Receiver was appointed by the bankruptcy court to ~~our performance~~liquidate Kejian that filed bankruptcy on December 6, 2016. On July 28, 2016, the Company received a payment in the amount of RMB 550,000 (approximately $89,000) from Kejian, which was considered as a preferential payment within 6 months from Kejian’s bankruptcy filing according to China bankruptcy laws and requested to return the amount to the Receiver. The Company has anticipated an unfavorable outcome from the lawsuit and accrued a contingent liability of $89,000 for the probable loss. On August 2, 2021, the Company received the initial judgment issued by Shenzhen Intermediate People’s Court, which supported the claims of the ~~sales contracts.~~plaintiff. The Company ~~estimates, with 50%~~filed an appeal within 15 days of ~~probability, a possible loss ranging~~the conclusion of the case. On October 20, 2021, the Higher People’s Court of Guangdong Province accepted the appeal. The Company is waiting for the hearing, and there is no court notice yet.

Although the COVID-19 pandemic has largely been contained in China, regional outbreaks of the infections persist in various localities. The negative impact from ~~approximately $ 0~~the pandemic to ~~$300,000, if~~ the ~~proceedings are ruled by arbitration.~~out-of-home advertising business sector continues throughout 2021. The China government continues asserted efforts to vaccinate general population, social distancing, mandate mask wearing in the public places and public transportation, prohibit large gatherings, control travels to and from high-risk infectious areas, and track the source of infections. The COVID-19 pandemic may continue to adversely affect the Company’s business and results of operations.

For the year ended December 31, ~~2017, one~~2021, 2020 and 2019, no customer accounted for greater than 10% of revenue. For the year ended December 31, 2016, three customers each accounted for greater than 10% of revenue. For the years ended December 31, 2015, no customer accounted for greater than 10% of revenue. However, for the years ended December 31, 2017, 2016,2021, 2020, and ~~2015,~~2019, the Company’s top five customers accounted for ~~47%~~19%, ~~72%,~~25% and ~~21%~~24% of the Company’s revenues, ~~from continuing operations,~~ respectively.

The Company’s top five ~~customers~~accounts receivable accounted for ~~46%~~19% and 25% of accounts receivable as of December 31, ~~2017, of which two customers~~2021 and 2020, respectively. No customer each accounted for greater than 10% or more of accounts ~~receivable. The Company’s top five customers accounted for 95% of accounts~~ receivable as of December 31, ~~2016, of which three customers each accounted for greater than 10% or more of accounts receivable.~~2021 and 2020.

For the year ended December 31, ~~2017, 2016~~2021, 2020 and ~~2015,~~2019, approximately ~~98%~~69%, ~~79%,~~62% and ~~63%~~97%, respectively, of total inventory purchases were from five unrelated suppliers. ~~Five~~Three suppliers each accounted for greater than 10% of total inventory purchases in ~~2017,~~2021, three and ~~four~~two suppliers each accounted for greater than 10% of total inventory purchases in ~~2016~~2020 and ~~2015.~~2019.

On January 19, 2022, the Company entered into a share purchase agreement to acquire 95.56% equity interest in Zhenjiang Taoping IoT Technology Limited (“Zhenjiang Taoping”), aiming to accelerate the Company’s smart charging pile and digital new media businesses in East China. Pursuant to the share purchase agreement, the Company has agreed to issue to the shareholders of Zhenjiang Taoping a total of 201,552 restricted ordinary shares, calculated as $391,011 being divided by the average closing price of the Company’s ordinary shares over the 20 trading days prior to the execution of the share purchase agreement, which was $1.94 per share. According to the share purchase agreement, the shares are expected to be issued in three phases. The first phase will issue 67,184 shares within 20 days after closing of the transaction; the second phase will issue 67,184 shares before May 31, 2023; the third phase will issue 67,184 shares before May 31, 2024. Issuance of shares during the second and third phases will be conditioned upon the satisfaction of certain performance targets of Zhenjiang Taoping as set forth in the share purchase agreement. Specifically, the second phase issuance of restricted ordinary shares requires from the closing date to December 31, 2022, Zhenjiang Taoping have at least 2.5 million RMB of audited revenue and 0.5 million RMB of audited net income that may be consolidated into the Company’s consolidated financial statements; and to be eligible for the third phase issuance, Zhenjiang Taoping shall have at least 2.6 million RMB of revenue and 0.55 million RMB of net income that may be consolidated into the Company’s consolidated financial statements during the fiscal year 2023. Mr. Huan Li, the Chief Marketing Officer of the Company, is one of the shareholders of Zhenjiang Taoping and has agreed to transfer all of his 46% equity interest in Zhenjiang Taoping to the Company. The acquisition was closed on February 24, 2022. Upon the completion of the acquisition, the Company currently owns 100% equity interest in Zhenjiang Taoping.

On January 27, 2022, the Company entered into a strategic cooperation agreement with three other companies (BOE Yiyun Technology Co., Ltd.; Sichuan Lvfa Environmental Technology Co., Ltd.; and Wuxi Centennial Ronghua Technology Development Co., Ltd.) to cooperate on naked-eye 3D iGallery and “Smart Station” projects. Pursuant to the agreement, which has a term of five years, the Company is responsible for the market development of naked-eye 3D iGallery and “Smart Station” projects through its Taoping Alliance network and the overall operation of the new media advertising of Smart Station. The three partners are responsible to integrate and leverage their respective resources in brand, technology, channel, content, and operation to promote the development of naked-eye 3D iGallery and “Smart Station” projects in the market. The innovative iGallery digital art display offers a new way to show and share art. It provides a full range of solutions for different environments such as museums, schools, hotels and restaurants, office buildings, and homes. With the newly released naked-eye 3D iGallery, the audience can enjoy the cool visual impact without wearing 3D glasses. “Smart Station” is a modular smart portable public toilet. Based on the Internet of Things and biotechnology, the Smart Station does not need to connect with the sewage pipeline and can stay clean and stinky-free. The Smart Station also includes billboards, iGallery, shared power banks, and vending machines that help make the project sustainable. The booth-like Smart Station can be established in populated areas such as thoroughfares, parks, and tourist attractions. At present, the Smart Station project has been deployed and put into operation in Chengdu, Changsha, Chongqing, Shenzhen, and several other cities in China.

On February 17, 2022, the Company entered into a letter of intent (the “LOI”) with the shareholders of Fujian Taoping IoT Technology Limited (“Fujian Taoping”) to acquire at least 51% of the ownership of Fujian Taoping. Pursuant to the LOI, the purchase price, to be determined by the parties after the completion of due diligence of Fujian Taoping, will be paid in the form of ordinary shares of the Company. The LOI will be automatically terminated if no definitive agreements are entered into among the parties before December 31, 2022. Established in May 2017, Fujian Taoping has served over 2,000 customers so far. As of February 2022, Fujian Taoping’s self-operated and investment areas cover seven major cities in Fujian Province, including Fuzhou, Quanzhou, Zhangzhou, Nanping, Putian, Sanming, and Longyan. Currently, Fujian Taoping’s network has a total of 8,899 smart screen locations, covering more than 700 high-end residential areas, commercial centers, and office buildings. It laid a good foundation for the subsequent expansion of the smart community service in the local area. The proposed acquisition is expected to further strengthen the Company’s position in the new media and smart community service business in East China market,”

On March 2, 2022, the Company entered into a strategic cooperation agreement (“Agreement”) with Shenzhen Zhihui Yunti IoT Co., Ltd. (“Zhihui Yunti”) to jointly address the market needs of the elevator modernization and maintenance. Pursuant to the Agreement, which has a term of three years, the Company is responsible for the market development of the elevator modernization and maintenance project through its Taoping Alliance network. Zhihui Yunti is responsible for providing elevator cloud, elevator IoT and elevator ecosystem products and technical support, as well as for the operation and management after product installation. According to Research, the total number of elevators in operation in China reached nearly six million by the end of 2021. The market size of elevator modernization and maintenance is expected to reach $8.2 billion by the end of 2022. Through this collaboration, the Company and Zhihui Yunti can leverage respective resources to promote smart elevator management projects and seize the market opportunity.

Title of Each Class		Trading Symbol(s)		Name of Each Exchange On Which Registered
Ordinary Shares, no par value		TAOP		NASDAQ Capital Market

U.S. GAAP ~~[X]~~☒	International Financial Reporting ~~[ ]~~☐	Other ~~[ ]~~☐
	Standards as issued by the International
	Accounting Standards Board

PART I					~~Page~~2

~~PART I~~			2

ITEM 1.		IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	2

	A. Directors and Senior Management		2
	~~B. Advisors~~		2
	~~C. Auditors~~		2
		B. Advisors	2
		C. Auditors	2

	ITEM 2.		OFFER STATISTICS AND EXPECTED TIMETABLE	2

	A. Offer Statistics		2
		B. Method and Expected Timetable	2

~~ITEM 3.~~		~~KEY INFORMATION~~	2
	ITEM 3. KEY INFORMATION		2

	A. Selected Financial Data	26
		B. Capitalization and Indebtedness	36
		C. Reasons for the Offer and Use of Proceeds	3
	~~D. Risk Factors~~		36
		D. Risk Factors	6

	ITEM 4.		INFORMATION ON THE COMPANY	2239

	A. History and Development of the Company		22
	~~B. Business Overview~~		29
	~~C. Organizational Structure~~		39
	~~D. Property, Plants and Equipment~~		39
		B. Business Overview
~~ITEM 4A.~~		~~UNRESOLVED STAFF COMMENTS~~	3942
		C. Organizational Structure	62
		D. Property, Plant and Equipment	62

	ITEM 4A. UNRESOLVED STAFF COMMENTS		62

	ITEM 5.		OPERATING AND FINANCIAL REVIEW AND PROSPECTS	62
		40A. Operating Results	63
		B. Liquidity and Capital Resources	70

	~~A. Operating Results~~C. Research and Development, Patents and Licenses, Etc.		40
			46
	~~B. Liquidity and Capital Resources~~		5074

~~ITEM 6.~~D. Trend Information		~~DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES~~	5474
		E. Critical Accounting Estimates.	74

	ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		79
		A. Directors and Senior Management	54
	~~B. Compensation~~		55
	~~C. Board Practices~~		57
	~~D. Employees~~		58
	~~E. Share Ownership~~		5979
		B. Compensation	81
		C. Board Practices	83
		D. Employees	85
		E. Share Ownership	86

	ITEM 7.		MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	6087

	A. Major Shareholders		6087
		B. Related Party Transactions	6087
		C. Interests of Experts and Counsel	6188

	ITEM 8. FINANCIAL INFORMATION		6188

	A. Consolidated Statements and Other Financial Information		61
	~~B. Significant Changes~~		6188
		B. Significant Changes	88

	ITEM 9.		THE OFFER AND LISTING	6188

	A. Offer and Listing Details		6188
		B. Plan of Distribution	6289
		C. Markets	6289
		D. Selling Shareholders	6289
		E. Dilution	6289
		F. Expenses of the Issue	6289

~~ITEM 10.~~		~~ADDITIONAL INFORMATION~~	62
	ITEM 10. ADDITIONAL INFORMATION		89

	A. Share Capital	6289
		B. Memorandum and Articles of Association	6289
		C. Material Contracts	6895
		D. Exchange Controls	6895
		E. Taxation	6997
		F. Dividends and Paying Agents	74101
		G. Statement by Experts	74101
		H. Documents on Display	74
	~~I. Subsidiary Information~~		74102
		I. Subsidiary Information	102

	ITEM 11.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	74102


ITEM 12.		DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	75103

	A. Debt Securities		75103
		B. Warrants and Rights	75103
		C. Other Securities	75103
		D. American Depositary Shares	75103

PART II				76104


ITEM 13.		DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	76104


ITEM 14.		MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USEOF PROCEEDS	76

~~ITEM 15.~~104		~~CONTROLS AND PROCEDURES~~	76

	ITEM 15. CONTROLS AND PROCEDURES		104

	ITEM 16A.		AUDIT COMMITTEE FINANCIAL EXPERT	77105

~~ITEM 16B.~~		~~CODE OF ETHICS~~	77
	ITEM 16B. CODE OF ETHICS		105

	ITEM 16C.		PRINCIPAL ACCOUNTANT FEES AND SERVICES	77106


ITEM 16D.		EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	78106


ITEM 16E.		PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS~~PURCHASERS~~	78106


ITEM 16F.		CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	106

	78ITEM 16G. CORPORATE GOVERNANCE		107


ITEM ~~16G.~~16H. MINE SAFETY DISCLOSURE		~~CORPORATE GOVERNANCE~~	78107

	ITEM 16L. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS		107

PART III			108

	80ITEM 17. FINANCIAL STATEMENTS		108


ITEM ~~17.~~		18. FINANCIAL STATEMENTS	80108

~~ITEM 18.~~		~~FINANCIAL STATEMENTS~~	80

ITEM 19. EXHIBITS		~~EXHIBITS~~108	80

	•●	“~~CNIT,” “we,~~Taoping” or “the Company” are to Taoping Inc., a British Virgin Islands holding company, which has no business operations of its own;

	●	“We,” “us,” “our” and ~~the “Company”~~“our company” are to the combined business of ~~China Information Technology, Inc.,~~Taoping and its ~~subsidiaries and other consolidated entities;~~ subsidiaries;

	•●	“~~CITH”~~Taoping Holdings” are to ~~China Information Technology Holding Ltd.,~~Taoping Holdings Limited, a BVI ~~company;~~subsidiary of Taoping;

	•●	“~~IST~~Taoping Group” and “IST HK” are to ~~Information Security Tech. International Co.,~~Taoping Group (China) Ltd., a Hong Kong company;

	• ●	“TopCloud” are to TopCloud Software Co., Ltd., a PRC company;

	• ●	“IST” are to Information Security ~~Technology~~Tech. (China) Co., Ltd., a PRC company;

	• ●	“ISIOT” are to Information Security IoT ~~Technology~~Tech. Co., Ltd., a PRC company;

	• ●	“iASPEC” are to iASPEC ~~Geo Information~~ Technology Co., Ltd, a PRC company;

	• ●	“Geo” are to Wuda Geoinformatics Co., Ltd., a PRC company;

	• ●	“Biznest” are to Biznest Internet Technology Co., Ltd., a PRC company;

	• ●	“Bocom” are to iASPEC Bocom IoT Technology Co. Ltd., a PRC company;

	• ●	~~“Taoping” are to Shenzhen Taoping Internet Technology Co., Ltd., a PRC company;~~

	•	“BVI” are to the British Virgin Islands;

	• ●	“Hong Kong” are to the Hong Kong Special Administrative Region of the People’s Republic of China;

	• ●	“PRC” and “China” are to the People’s Republic of China;

	• ●	“SEC” are to the Securities and Exchange Commission;

	• ●	“Exchange Act” are to the Securities Exchange Act of 1934, as amended;

	• ●	“Securities Act” are to the Securities Act of 1933, as amended;

	• ●	“Renminbi” and “RMB” are to the legal currency of China; and

	• ●	“U.S. dollars,” “dollars” and “$” are to the legal currency of the United States.

~~ITEM 3.~~	~~KEY INFORMATION~~●	Our equity structure is a direct holding structure, that is, Taoping, the British Virgin Islands entity listed in the U.S., controls its operating subsidiaries in Hong Kong, mainland China and Kazakhstan, through Taoping Holdings, a British Virgin Islands subsidiary of Taoping. See Item 4. “Information of the Company – A. History and Development of the Company – Corporate Structure” for more details.

	●	As of the date of this report, neither Taoping nor any of its subsidiaries have paid dividends or made distributions to U.S. investors.

	●	As a holding company, Taoping relies on dividends and other distributions on equity paid by its operating subsidiaries in Hong Kong, mainland China and Kazakhstan for cash requirements, including the funds necessary to pay dividends and other cash distributions to its shareholders or to any service expenses it may incur. For operating subsidiaries in mainland China, they will first transfer funds to Taoping Group in accordance with applicable laws and regulations of Hong Kong and mainland China, and then to Taoping through Taoping Holdings. Taoping will then distribute dividends to its shareholders in proportion to their respective shareholding, regardless of whether the shareholders are U.S. investors or investors in other countries or regions. As of the date of this report, none of our subsidiaries has made any transfers, dividends or other distributions to Taoping, the holding company. We intend to retain most, if not all, of our available funds and any future earnings to the development and growth of our business in China and do not expect to pay dividends in the foreseeable future.

	●	The ability of our subsidiaries in mainland China to distribute dividends is based upon their distributable earnings. Current PRC regulations permit these subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our subsidiaries in mainland China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. These reserves are not distributable as cash dividends. In addition, if any of our operating subsidiaries incurs debt on its own behalf in the future, the instruments governing such debt may restrict its ability to pay dividends to Taoping. We believe, other than above, current PRC regulations do not prohibit or limit using cash generated from one subsidiary to fund another subsidiary’s operations. We currently do not have our own cash management policy and procedures that dictate how funds are transferred.

		Years Ended December 31,
		2017			2016			2015			2014			2013
Statement of Income Data
Total revenue	$	18,189,274		$	10,193,590		$	10,284,868		$	38,634,747		$	55,419,831
Total cost of revenue	$	9,867,508		$	7,607,190		$	6,381,205		$	28,146,390		$	45,867,163
Gross profit	$	8,321,766		$	2,586,400		$	3,903,663		$	10,488,357		$	9,552,668
(Loss) income from operations	$	(450,703	)	$	(14,577,928	)	$	(26,963,357	)	$	(23,909,213	)	$	(118,215,368	)
Net income (loss) attributable to CNIT- continuing operations	$	858,605		$	(18,170,601	)	$	(7,504,262	)	$	(24,087,098	)	$	(118,511,760	)
Net income (loss) per share-continuing operations - basic	$	0.02		$	(0.45	)	$	(0.26	)	$	(0.79	)	$	(4.33	)
Net income (loss) per share-continuing operations - diluted	$	0.02		$	(0.45	)	$	(0.26	)	$	(0.79	)	$	(4.33	)
Balance Sheet Data
Cash and cash equivalents	$	3,260,808		$	3,752,375		$	3,786,846		$	6,689,848		$	6,044,692
Working (deficiency) capital	$	(1,494,326	)	$	(5,739,129	)	$	(1,649,728	)	$	(56,043,116	)	$	(46,779,407	)
Total assets	$	37,639,430		$	34,286,999		$	66,091,704		$	179,405,809		$	189,238,990
Total liabilities	$	23,121,938		$	21,484,751		$	35,637,467		$	140,827,000		$	129,059,540
Temporary equity	$	-		$	-		$	360,000		$	1,425,000		$	2,175,000
Total equity	$	14,517,492		$	12,802,248		$	30,094,237		$	37,153,809		$	58,004,450

	Exchange rate
Period	Period End	Average(1)	Low	High
	(RMB Per US$1.00)
2013	6.0537	6.1478	6.0537	6.2438
2014	6.2046	6.1620	6.0402	6.2591
2015	6.4778	6.2827	6.1870	6.4896
2016	6.9430	6.6549	6.4480	6.9580
2017	6.5063	6.7350	6.4773	6.9575
September	6.6533	6.5690	6.4773	6.6591
October	6.6328	6.6254	6.5712	6.6533
November	6.6090	6.6200	6.5967	6.6385
December	6.5063	6.5932	6.5063	6.6210
2018
January	6.2841	6.4233	6.2841	6.5263
February	6.3280	6.3183	6.2649	6.3471
March (through March 23, 2018)	6.3110	6.3283	6.3093	6.3491

	●	There are significant legal and operational risks associated with having significant business operations in China, including that changes in the legal, political and economic policies of the Chinese government, the relations between China and the United States, or Chinese or United States regulations may materially and adversely affect our business, financial condition, results of operations and the value of the Company’s securities. Any such changes may take place quickly and with very little notice and as a result, could significantly limit or completely hinder our ability to offer or continue to offer Taoping’s securities to investors, and could cause the value of Taoping’s securities to significantly decline or become worthless. Recent statements made and regulatory actions undertaken by China’s government, such as those related to data security or anti-monopoly concerns and any other future laws and regulations may require us to incur significant expenses and could materially affect our ability to conduct our business or accept foreign investments.

	●	The increased regulatory scrutiny focusing on U.S.-listed companies with significant operations in China in the U.S. could add uncertainties to our business operations, share price and reputation. In recent years, as part of increased regulatory focus in the United States on access to audit information, the United States enacted the HFCA Act in December 2020. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to the PCAOB inspections for two consecutive years instead of three. Pursuant to the HFCA Act, the PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in such jurisdictions. In addition, the PCAOB’s report identified specific registered public accounting firms which are subject to these determinations. Our current registered public accounting firm, PKF, or our former registered public accounting firm, UHY LLP, is not headquartered in mainland China or Hong Kong and was not identified in this report as a firm subject to the PCAOB’s determination. They both are subject to full inspection by the PCAOB and the PCAOB is able to inspect the audit workpapers of our China subsidiaries, as such workpapers are electronic files possessed by our registered public accounting firms. However, if the PCAOB determines in the future that it cannot inspect or fully investigate our auditor at such future time, trading in the Company’s securities would be prohibited under the HFCA Act.

	●	The Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and in the value of the Company’s securities. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

	●	There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.

	●	The cryptocurrency mining market is highly competitive and fragmented with low barriers to entry. We face uncertainties and challenges as we enter into the new blockchain technology business.

	●	If the market for cryptocurrency ceases to exist or diminishes significantly, our business, results of operations and financial condition would be materially harmed.

	●	Any failure to obtain or renew any required approvals, licenses, permits or certifications for our cryptocurrency mining business could materially and adversely affect our business and results of operations.

	●	We have a limited operating history of selling cloud-based products and services and may be unable to achieve or sustain profitability or reasonably predict our future results.

	●	Our independent registered auditors have expressed substantial doubt about our ability to continue as a going concern.

	●	If we fail to comply with the continued listing requirements of NASDAQ, we would face possible delisting, which would result in a limited public market for our shares and make obtaining future debt or equity financing more difficult for us.

	●	The trading price of Taoping’s ordinary shares has been and likely continue to be highly volatile, which could result in significant losses to holders of the ordinary shares.

	●	Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of your shares for return on your investment.

	●	You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under British Virgin Islands law and a significant majority of our current business operations are conducted in the PRC.

	●	Taoping is a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.

	●	As a foreign private issuer, Taoping is permitted to rely on exemptions from certain Nasdaq corporate governance standards applicable to domestic U.S. issuers. This may afford less protection to holders of Taoping’s securities.

	•●	difficulties in the integration of acquired operations and retention of personnel,
	•●	unforeseen or hidden liabilities,
	•●	relevant tax, regulatory and accounting ~~subject~~ matters, and
	•●	inability to generate sufficient revenues to offset acquisition costs.

	●	tightening oversight of data security, cross-border data flow and administration of classified information, as well as amendments to relevant regulation to specify responsibilities of overseas listed Chinese companies with respect to data security and information security;

	●	enhanced oversight of overseas listed companies as well as overseas equity fundraising and listing by Chinese companies; and

	●	extraterritorial application of China’s securities laws.

	•●	our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors;
	• ●	changes in financial estimates by us or by any securities analysts who might cover ~~our~~the Company’s shares;
	• ●	~~speculation~~speculations about our business in the press or the investment community;
	• ●	significant developments relating to our relationships with our customers or suppliers;
	• ●	stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in ~~the~~ our industries;
	• ●	customer demand for our products;
	• ●	investor perceptions of ~~the~~ our industry in general and our company in particular;
	• ●	the operating and stock performance of comparable companies;
	• ●	general economic conditions and trends;
	• ●	major catastrophic events;
	• ●	announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;
	• ●	changes in accounting standards, policies, guidance, interpretation or principles;
	• ●	loss of external funding sources;
	• ●	sales of ~~our~~the Company’s ordinary shares, including sales by our directors, officers or significant shareholders; and
	• ●	additions or departures of key personnel.

	•●	have a majority of the board be independent (although all of the members of the audit committee must be independent under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act);

	•●	have a compensation committee and a nominating committee to be comprised solely of ~~"independent directors;~~“independent directors”; and

	•●	hold an annual meeting of shareholders no later than one year after the end of the ~~Company's~~Company’s fiscal year-end.

	•	iASPEC agreed that IST will be entitled to receive ninety five percent (95%) of the modified net profit of iASPEC during the term of the agreement, to be calculated as follows: accrued accounts receivable plus net turnover (revenue), minus cost of sales, minus operating expenses, and minus accrued but not collected accounts receivable, but only if the result is a positive number. iASPEC is obligated to calculate and pay the modified net profit due to IST no later than the last day of the first month following the end of each fiscal quarter;

	•	Mr. Lin agreed to enter into a pledge agreement with IST to pledge all his equity interests in iASPEC as security for his and iASPEC’s fulfillment of their respective obligations under the MSA, and to register the pledge agreement with the local Administration for Industry and Commerce;

	•	Mr. Lin confirmed his status as the sole shareholder of iASPEC and his assumption of all the obligations of the iASPEC under the agreement, including a confirmation of his continuing obligation under a written guaranty, dated August 1, 2007, executed by the iASPEC shareholder in connection with the MSA;

	•	Based on iASPEC’s needs for its development and operation, IST has the right, from time to time and at its sole discretion, to provide iASPEC with capital support either as an entrustment of funds to iASPEC, or as an advance to Mr. Lin, as iASPEC’s shareholder, for the sole purpose of making a capital contribution to iASPEC for use in the business of iASPEC. Any advance for capital contribution will be evidenced by an “advance agreement” in the form attached to the amended and restated MSA; and

	•	IST agreed that it will not interfere in any business of iASPEC covered by iASPEC’s State Secret related Computer Information System Integration Certificate, including but not limited to, seeking access to relevant documents regarding such business. Nevertheless, iASPEC agreed to cooperate with the requests of the Company as necessary to comply with the Company’s reporting obligations to the SEC. 40

	•	Either iASPEC or IST may terminate the amended MSA immediately (a) upon a material breach by the party of its obligations and the failure of such party to cure such breach within 30 working days after written notice from the non-breaching party; or (b) upon the filing of a voluntary or involuntary petition of bankruptcy by the party or of which the party is the subject to or insolvency of the party, or the commencement of any proceedings placing the party in receivership, or of any assignment by the party for the benefit of creditors; or

	•	~~The amended MSA may be terminated at any time by IST upon 90 calendar days’ written notice delivered to all other parties.~~

	~~(1)~~(1)	Cloud-based Technology (CBT) segment — ~~The CBT segment is our current and future focus of corporate development.~~ It includes ~~our~~the Company’s cloud-based products, high-end data storage servers and related services ~~offered~~sold to ~~customers in the~~ private ~~sector~~sectors including new media, healthcare, education and residential community ~~management.~~management, and among other industries and applications. In this segment, ~~we generate~~the Company generates revenues from the sales of hardware and software total solutions ~~of interactive advertisement display terminals integrated~~ with proprietary software ~~Out-of-Home digital~~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 ~~distribution and~~services complements the Company’s out-of-home advertising ~~time slot programmed trading transactions. We also generate revenue from monthly software subscription and Software-as-a Service (SaaS) fees.~~business strategy.

	(2)	Blockchain Technology (BT) segment — The BT segment is the Company’s newly formed business sector. Cryptocurrency mining is the first initiative implemented in the BT segment.
	(3)
	~~(2)~~	Traditional Information Technology (TIT) segment ~~— The~~—The TIT segment includes ~~our~~the Company’s project-based technology products and services ~~offered~~sold to the public ~~sector, including~~sector. The solutions the Company has sold primarily include Geographic Information Systems (GIS), Digital Public Security Technology (DPST), and ~~Multi-screen~~ Digital ~~Display~~Hospital Information Systems ~~(MDDS)~~(DHIS). In this segment, ~~we generate~~the Company generates revenues from ~~the~~ sales of ~~software~~hardware and ~~systems~~system integration services. As a result of the business transformation, the TIT segment is gradually being phased out in 2021.

	•●	New Media Elevator Management – Our New Media Elevator Management solution integrates advertisement placement with safety supervision into one single technology unit. The built-in LED screen of the unit delivers ~~high definition~~high-definition digital advertisement, while its safety sensors and data collectors transmit operational and technical data of the elevator to the appropriate property managers, safety supervisors, and maintenance crew, so that ~~the latter~~such staff can efficiently maintain operational safety of the elevator, and instantaneously respond to emergencies. ~~Because~~Since our New Media Elevator Management solution combines public safety with media display, property managers view our products as of strategic importance to their daily operations, and they welcome our products better than the ones that are pure advertisement display terminals without safety devices. As a result, we are able to help advertising agencies that purchase our products to attain customers more easily and enter into new markets more cost effectively. In addition, the Elevator Management platform could be sold as a separate product depending on customer needs ~~facilitating~~to facilitate digital elevator maintenance, big data solution for elevator maintenance company, residential management, and government authorities.

	•●	New Media Transportation Management – Our New Media Transportation Management solution remotely uploads advertisement content together with critical transportation information --— such as arrival and departure schedules, delay or cancellation notifications, gate assignments, and station announcements – into our cloud infrastructure and displays the content on our large-screen terminals strategically placed at high-traffic transportation hubs, including high-speed railway stations, subway stations, airports, and onboard public buses. Because our Transportation New Media Application combines advertisement display with transportation information crucial to commuters, we enable advertising agencies that purchase our products to attain large and attentive audiences at prime locations, which in turn help them achieve good advertisement placement rates and generate high revenue ~~dollars.~~ amounts.

	•●	New Media Community Management – Our New Media Community Management solution combines advertisement display with dissemination of community information. Placed within various high-rise residential communities, our large screen display terminals serve as a window of information into various resources available to community residents, including community maps, news updates, emergency announcements, safety precautions, health tips, recreational activities, and local commercial promotions.

		Revenues	% of
		(Thousands)	Revenues
Shenzhen Taoping New Media Co., Ltd.	$	3,769	21%
Haojing (Xiamen) Media Co., Ltd		1,612	9%
Xiamen Shenghuan Technology Co., Ltd.		1,225	7%
Fujian Taoping IoT Technology Co., Ltd		1,012	6%
Zhejiang Taoping IoT Technology Co., Ltd.		784	4%
TOTAL	$	8,402	47%

	•●	We provide integrated ecosystem solutions that combine technology platform, resource exchange and sharing, and big data services. Our solution not only helps our customers improve their operational efficiency and reduce their labor cost, more importantly, ~~helps~~help them maximize their asset utilization rate and increase their revenue. For example, by utilizing our solution, an advertising agency can upload its advertisement content from a centralized location to geographically dispersed display terminals, ~~keeping~~saving its maintenance staff from traveling to each terminal and updating media content manually. In addition, the advertising agency can list its idle terminal assets on Taoping, our resource exchange platform, and lease display terminals to other agencies by location and time slot, generating additional revenue from their existing assets.

	•●	Our solution has high scalability, availability, and flexibility. Because our technology solution is architected from ground up using the latest cloud-computing technology, our system can easily scale up to handle a rapidly increasing amount of data. In addition, as the number of display terminals connected to our network continues to grow, our system is able to handle additional workload and workflows to ensure high availability of each terminal. More importantly, because we own our cloud infrastructure and platform, we have the flexibility of changing or upgrading our software anytime without any constraints.

	●
	•	Our solution has a high level of security guarantee. Because we own the entire stack of technology infrastructure and terminals, we have a solid security fortress to prevent hackers from breaking into our system. In addition, because we have over 10 years of experience providing large-scale information systems to the public entities, such as police stations and public security bureaus, we have a track record of protecting our network from security intrusions or breaches. Lastly, to protect ourselves from national security concerns, we have an operational agreement with China’s Internet Oversight Board to inspect and filter all of our advertisement contents before uploading itthem onto our display network.

	•●	Our solution combines digital network with physical assets, establishing a high barrier to entry than other internet related companies. Our proprietary Cloud-Application-Terminal platform has integrated three layers of technology: cloud storage, application software, and display terminals. Although it is relatively easy for potential competitors to develop software application with technology advancement nowadays, it will take them a considerable amount of time and capital to replicate our nationwide physical network of cloud-based display terminals.

Name		Expiration Date		Company
~~ISO 9001:2000 Certification~~	~~Valid until July 18, 2019~~	~~IST~~
~~Environment Management System Certificate~~	~~Valid until July 12, 2018~~	~~IST~~
National High-tech Enterprise		Valid ~~until November 1, 2018~~till December 22, 2024, subject to renewal every three years.		IST
National High-tech Enterprise		Valid ~~until January 30, 2020~~	~~TopCloud~~
~~National High-tech Enterprise~~	~~Valid until November 2, 2018~~	~~Biznest~~
~~Design, Implementation and Repair Qualification PRC Telecom Value-added Business License~~	~~Valid until October 17, 2018~~	~~Biznest~~
~~Shenzhen Software Enterprise~~	~~Valid until June 30, 2018,~~till December 22, 2024, subject to ~~annual renew~~renewal every three years.	~~Biznest~~
~~ISO 9001 Certification~~	~~Valid until November 25, 2019~~	~~Bocom~~
~~ISO 14001 Certification~~	~~Valid until August 9, 2019~~	~~Bocom~~
~~ROHS Certification~~	~~Valid until July 14, 2019~~	~~Bocom~~Biznest

	(1)	Cloud-based Technology ~~(“CBT”)~~(CBT) segment — ~~The CBT segment is our current and future focus of corporate development.~~ It includes ~~our~~the Company’s cloud-based products, high-end data storage servers and related services ~~offered~~sold to private sectors including new media, healthcare, education and residential community ~~management.~~management, and among other industries and applications. In this segment, ~~we generate~~the Company generates revenues from the sales of hardware and software total solutions ~~consisting of integrated hardware and~~with proprietary software ~~along with platform content. Starting~~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 ~~fourth quarter~~CBT segment. Advertising services is included in the CBT segment, after the Company consummated the acquisition of ~~2014, we also began~~TNM. Advertisements are delivered to ~~generate additional revenues from monthly software licensing~~the ads display terminals and ~~Software-as-a Service (“SaaS”) fees.~~ vehicular ads display terminals through the Company’s cloud-based new media sharing platform. Incorporation of advertising services complements the Company’s out-of-home advertising business strategy.

	(2)	Blockchain Technology (BT) segment — The BT segment is the Company’s newly formed business sector. Cryptocurrency mining is the first initiative implemented in the BT segment.

		December 31, 2017					December 31, 2016
									% of
		Amount		% of Revenue			Amount		% of Revenue
Revenue	$	18,189,274		100.00%		$	10,193,590		100.00%
Costs of revenue		9,867,508		54.25%			7,607,190		74.63%
Gross profit		8,321,766		45.75%			2,586,400		25.37%
Administrative expenses		(3,621,570	)	(19.91%	)		(8,342,842	)	(81.84%	)
Research and development expenses		(4,031,313	)	(22.16%	)		(3,044,972	)	(29.87%	)
Selling expenses		(1,119,586	)	(6.16%	)		(1,334,147	)	(13.09%	)
Impairment of intangible assets and goodwill		-		-			(4,442,367	)	(43.58%	)
Loss from operations		(450,703	)	(2.48%	)		(14,577,928	)	(143.01%	)
Subsidy income		476,517		2.62%			223,166		2.19%
Loss on disposal of consolidated entities		-		-			(575,956	)	(5.65%	)
Loss on sale of deposits for land use right		-		-			(2,762,033	)	(27.10%	)
Other income (loss), net		281,556		1.55%			(326,546	)	(3.20%	)
Interest income		7,900		0.04%			17,420		0.17%
Interest expense		(450,024	)	(2.47%	)		(498,931	)	(4.89%	)
Change in fair value of warrants liability		3,720		0.02%			34,175		0.34%
Loss before income taxes		(131,034	)	(0.72%	)		(18,466,633	)	(181.16%	)
Income tax benefit (expense)		1,070,343		5.88%			(57,844	)	(0.57%	)
Income (loss)		939,309		5.16%			(18,524,477	)	(181.73%	)
Less: net (income) loss attributable to non- controlling interest		(80,704	)	(0.44%	)		353,876		3.47%
Net income (loss) attributable to Company	$	858,605		4.72%		$	(18,170,601	)	(178.26%	)

	December 31, 2021						December 31, 2020
	Amount			% of Revenue			Amount			% of Revenue
Revenue	$	24,845,924			100.00	%	$	11,062,775			100.00	%
Costs of revenue		15,503,311			62.40	%		7,119,125			64.35	%
Gross profit		9,342,613			37.60	%		3,943,650			35.65	%
Administrative expenses		(12,882,936	)		(51.85	)%		(16,707,106	)		(151.02	)%
Research and development expenses		(4,479,045	)		(18.03	)%		(3,889,126	)		(35.16	)%
Selling expenses		(694,474	)		(2.80	)%		(714,147	)		(6.46	)%
(Loss) from operations		(8,713,842	)		(35.07	)%		(17,366,729	)		(156.98	)%
Subsidy income		181,620			0.73	%		556,186			5.03	%
(Loss) from equity method investment		(814,440	)		(3.28	)%		-				-
Other income (loss), net		350,836			1.41	%		(578,766	)		(5.23	)%
Interest income		4,640			0.02	%		4,798			0.04	%
Interest expense		(928,352	)		(3.74	)%		(1,018,013	)		(9.20	)%
(Loss) before income taxes		(9,919,538	)		(39.92	)%		(18,402,524	)		(166.35	)%
Income tax (expense) benefit		(5,321	)		(0.02	)%		71,316			0.64	%
Net (loss)		(9,924,859	)		(39.95	)%		(18,331,208	)		(165.70	)%
Less: Net loss attributable to non- controlling interest		-			-			636,433			5.75	%
Net (loss) attributable to Company	$	(9,924,859	)		(39.95	)%	$	(17,694,775	)		(159.95	)%

	Year Ended December 31, 2021										Year Ended December 31, 2020
			% of			Cost of		Gross					% of			Cost of		Gross
	Revenue		Revenue			Revenue		Margin			Revenue		Revenue			Revenue		Margin
Products	$	10,724,707		43.16	%		9,890,346		7.78	%	$	6,966,868		62.98	%		6,211,647		10.84	%
Software		5,174,422		20.83	%		582,490		88.74	%		3,080,152		27.84	%		572,054		81.43	%
Advertising		2,577,712		10.37	%		2,193,945		14.89	%		-		-			-		-
Cryptocurrency		5,455,345		21.96	%		2,767,186		49.28	%		-		-			-		-
Others		913,738		3.68	%		69,344		92.41	%		1,015,755		9.18	%		335,424		66.98	%
Total	$	24,845,924		100.00	%		15,503,311		37.60	%	$	11,062,775		100.00	%		7,119,125		35.65	%

		Year Ended December 31, 2017					Year Ended December 31, 2016
			% of	Cost of	Gross			% of		Cost of	Gross
		Revenue	Revenue	Revenue	Margin		Revenue	Revenue		Revenue	Margin
Products	$	13,415,270	73.75%	8,973,539	33.11%	$	6,553,090	64.29%	$	5,512,305	15.88%
Software		3,441,582	18.92%	733,617	78.68%		2,347,197	23.03%		921,432	60.74%
System Integration		390,465	2.15%	135,224	65.37%		628,880	6.17%		1,078,103	(71.43%	)
Others		941,957	5.18%	25,128	97.33%		664,423	6.51%		95,350	85.65%
Total	$	18,189,274	100.00%	9,867,508	45.75%	$	10,193,590	100.00%	$	7,607,190	25.37%

		December 31, 2016					December 31, 2015
									% of
		Amount		% of Revenue			Amount		% of Revenue
Revenue	$	10,193,590		100.00%		$	10,284,868		100.00%
Costs of revenue		7,607,190		74.63%			6,381,205		62.04%
Gross profit		2,586,400		25.37%			3,903,663		37.96%
Administrative expenses		(8,342,842	)	(81.84%	)		(11,223,502	)	(109.13%)
Research and development expenses		(3,044,972	)	(29.87%	)		(3,446,867	)	(33.51%)
Selling expenses		(1,334,147	)	(13.09%	)		(2,661,545	)	(25.88%)
Impairment of intangible assets and goodwill		(4,442,367	)	(43.58%	)		(8,918,427	)	(86.71%)
Impairment of property, plant and equipment		-		-			(4,616,679	)	(44.89%)
Loss from operations		(14,577,928	)	(143.01%	)		(26,963,357	)	(262.16%)
Subsidy income		223,166		2.19%			501,404		4.88%
Gain on sale of assets		-		-			29,994,037		291.63%
Loss on disposal of consolidated entities		(575,956	)	(5.65%	)		-		-
Loss on sale of deposits for land use right		(2,762,033	)	(27.10%	)		-		-
Other (loss) income, net		(326,546	)	(3.20%	)		776,233		7.55%
Interest income		17,420		0.17%			76,716		0.75%
Interest expense		(498,931	)	(4.89%	)		(3,116,777	)	(30.30%)
Change in fair value of warrants liability		34,175		0.34%			(5,657,988	)	(55.01%)
Loss before income taxes		(18,466,633	)	(181.16%	)		(4,389,732	)	(42.66%)
Income tax expense		(57,844	)	(0.57%	)		(4,305,028	)	(41.86%)
Loss from continuing operations		(18,524,477	)	(181.73%	)		(8,694,760	)	(84.52%)
Less: net loss (income) attributable to non-controlling interest		353,876		3.47%			(308,473	)	(3.00%)
Net loss from continuing operations attributable to Company		(18,170,601	)	(178.26%	)		(9,003,233	)	(87.52%)
Income from discontinued Operations		-		-			1,667,853		16.22%
Income tax benefit		-		-			(168,882	)	(1.64%)
Net income from discontinued operations							1,498,971		14.58
Net loss attributable to Company	$	(18,170,601	)	(178.26%	)	$	(7,504,262	)	(72.94%)

		Year Ended December 31, 2016						Year Ended December 31, 2015
			% of	Cost of	Gross				% of		Cost of	Gross
		Revenue	Revenue	Revenue	Margin			Revenue	Revenue		Revenue	Margin
Products	$	6,553,090	64.29%	5,512,305	15.88%		$	4,953,139	48.16%	$	2,910,334	41.24%
Software		2,347,197	23.03%	921,432	60.74%			3,200,905	31.12%		1,267,834	60.39%
System Integration		628,880	6.17%	1,078,103	(71.43%	)		1,012,088	9.84%		1,745,647	(72.48%)
Others		664,423	6.51%	95,350	85.65%			1,118,736	10.88%		457,390	59.12%
Total	$	10,193,590	100.00%	7,607,190	25.37%		$	10,284,868	100.00%	$	6,381,205	37.96%

	December 31, 2020						December 31, 2019
	Amount			% of Revenue			Amount			% of Revenue
Revenue	$	11,062,775			100.00	%	$	13,791,303			100.00	%
Costs of revenue		7,119,125			64.35	%		7,189,092			52.13	%
Gross profit		3,943,650			35.65	%		6,602,211			47.87	%
Administrative expenses		(16,707,106	)		(151.02	)%		(6,657,972	)		(48.28	)%
Research and development expenses		(3,889,126	)		(35.16	)%		(3,592,843	)		(26.05	)%
Selling expenses		(714,147	)		(6.46	)%		(523,557	)		(3.80	)%
(Loss) from operations		(17,366,729	)		(156.98	)%		(4,172,161	)		(30.25	)%
Subsidy income		556,186			5.03	%		431,555			3.13	%
Other (loss) income, net		(578,766	)		(5.23	)%		238,200			1.73	%
Interest income		4,798			0.04	%		133,517			0.97	%
Interest expense		(1,018,013	)		(9.20	)%		(499,852	)		(3.62	)%
(Loss) before income taxes		(18,402,524	)		(166.35	)%		(3,868,741	)		(28.05	)%
Income tax benefit		71,316			0.64	%		274,480			1.99	%
Net (loss)		(18,331,208	)		(165.70	)%		(3,594,261	)		(26.06	)%
Less: Net loss attributable to non- controlling interest		636,433			5.75	%		11,929			0.09	%
Net (loss) attributable to Company	$	(17,694,775	)		(159.95	)%	$	(3,582,332	)		(25.98	)%

	Year Ended December 31, 2020										Year Ended December 31, 2019
			% of			Cost of		Gross					% of			Cost of		Gross
	Revenue		Revenue			Revenue		Margin			Revenue		Revenue			Revenue		Margin
Products	$	6,966,868		62.98	%		6,211,647		10.84	%	$	10,468,382		75.91	%		6,448,965		38.40	%
Software		3,080,152		27.84	%		572,054		81.43	%		2,246,497		16.29	%		525,473		76.61	%
System Integration		-		-	%		-		-			-		-	%		74,494		-
Others		1,015,755		9.18	%		335,424		66.98	%		1,076,424		7.80	%		140,160		86.98	%
Total	$	11,062,775		100.00	%		7,119,125		35.65	%	$	13,791,303		100.00	%		7,189,092		47.87	%

●	the customer’s past payment history;
●	the customer’s general risk profile, including factors such as the customer’s size, age, and public or private status;
●	macroeconomic conditions that may affect a customer’s ability to pay; and
●	the relative importance of the customer relationship to the Company’s business.

Balance at January 1, 2021	$	21,217,406
Addition from acquisition of subsidiaries under common control		314,214
Increase in allowance for credit losses		5,134,350
Foreign exchange difference		596,878
Balance at December 31, 2021	$	27,262,848

~~Balance at January 1, 2017~~	$	~~2,625,765~~
~~Increase in allowance for doubtful accounts~~		~~180,305~~
~~Foreign exchange difference~~		~~175,635~~
~~Balance at December 31, 2017~~	$	~~2,981,705~~