MicroCloud Hologram Inc 6-K, filed Aug 10, 2023
MicroCloud Hologram Inc. (HOLO)
About this 6-K
MicroCloud Hologram Inc filed this 6-K on August 10, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of August 2023
Commission File Number:
(Exact name of registrant as specified in its charter)
Yue Xing Sixth Road, Nanshan District,
People’s Republic of
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
EXHIBIT INDEX
| Exhibit No. | Description | |
| 99.1 | Unaudited Interim Consolidated Financial Statements as of June 30, 2023 and December 31, 2022 and for the Six Months Ended June 30, 2023 and 2022 | |
| 99.2 | Management’s Discussion and Analysis of Financial Condition and Results of Operation for The First Half of 2023 | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 10, 2023
| MicroCloud Hologram Inc. | ||
| By: | /s/ Guohui Kang | |
| Name: | Guohui Kang | |
| Title: | Chief Executive Officer | |
2
Exhibit 99.1
MICROCLOUD HOLOGRAM INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
| |
December 31, 2022 |
|
|
June 30, 2023 |
|
|
June 30, 2023 |
| ||||
| RMB | RMB | USD | ||||||||||
| (Audited) | ||||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| Accounts receivable, net | ||||||||||||
| Prepayments and other current assets | ||||||||||||
| Due from related parties | - | |||||||||||
| Inventories, net | ||||||||||||
| Total current assets | ||||||||||||
| NON-CURRENT ASSETS | ||||||||||||
| Prepayment and deposits, net | ||||||||||||
| Property and equipment, net | ||||||||||||
| Intangible assets, net | ||||||||||||
| Investments in unconsolidated entities | ||||||||||||
| Right-of-use assets, net | ||||||||||||
| Goodwill | ||||||||||||
| Total non-current assets | ||||||||||||
| Total assets | ||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| CURRENT LIABILITIES | ||||||||||||
| Accounts payable | ||||||||||||
| Advance from customers | ||||||||||||
| Other payables and accrued liabilities | ||||||||||||
| Due to related parties | - | |||||||||||
| Operating lease liabilities – current | ||||||||||||
| Loan payable | ||||||||||||
| Taxes payable | ||||||||||||
| Total current liabilities | ||||||||||||
| NON-CURRENT LIABILITIES | ||||||||||||
| Operating lease liabilities – non-current | ||||||||||||
| Deferred tax liabilities | ||||||||||||
| Warrant liabilities | ||||||||||||
| Total non-current liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||
| Ordinary shares, $ par value | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated deficit | ( |
) | ( |
) | ( |
) | ||||||
| Statutory reserves | ||||||||||||
| Accumulated other comprehensive loss | ( |
) | ( |
) | ( |
) | ||||||
| Total MICROCLOUD HOLOGRAM INC. shareholders’ equity | ||||||||||||
| NON-CONTROLLING INTERESTS | ( |
) | ( |
) | ||||||||
| Total equity | ||||||||||||
| Total liabilities and shareholders’ equity | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-1
MICROCLOUD HOLOGRAM INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
|
For the Six Months Ending June 30, |
||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| RMB | RMB | USD | ||||||||||
| OPERATING REVENUES | ||||||||||||
| Products | ||||||||||||
| Services | ||||||||||||
| Total operating revenues | ||||||||||||
| COST OF REVENUES | ||||||||||||
| Products | ( |
) | ( |
) | ( |
) | ||||||
| Services | ( |
) | ( |
) | ( |
) | ||||||
| Total Cost of Revenues | ( |
) | ( |
) | ( |
) | ||||||
| GROSS PROFIT | ||||||||||||
| OPERATING EXPENSES | ||||||||||||
| Provision for doubtful accounts | ( |
) | ( |
) | ( |
) | ||||||
| Selling expenses | ( |
) | ( |
) | ( |
) | ||||||
| General and administrative expenses | ( |
) | ( |
) | ( |
) | ||||||
| Research and development expenses | ( |
) | ( |
) | ( |
) | ||||||
| Total operating expenses | ( |
) | ( |
) | ( |
) | ||||||
| INCOME (LOSS) FROM OPERATIONS | ( |
) | ( |
) | ||||||||
| OTHER INCOME | ||||||||||||
| Finance income, net | ||||||||||||
| Other income, net | ||||||||||||
| Total other income, net | ||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( |
) | ( |
) | ||||||||
| Income tax credit | ||||||||||||
| NET INCOME (LOSS) | ( |
) | ( |
) | ||||||||
| Less: Net loss attributable to non-controlling interests | ( |
) | ( |
) | ( |
) | ||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO MICROCLOUD HOLOGRAM INC. ORDINARY SHAREHOLDERS | ( |
) | ( |
) | ||||||||
| OTHER COMPREHENSIVE INCOME | ||||||||||||
| Foreign currency translation adjustment | ||||||||||||
| COMPREHENSIVE INCOME (LOSS) | ( |
) | ( |
) | ||||||||
| Less: Comprehensive loss attributable to non-controlling interests | ( |
) | ( |
) | ( |
) | ||||||
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO MICROCLOUD HOLOGRAM INC. ORDINARY SHAREHOLDERS | ( |
) | ( |
) | ||||||||
| WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES | ||||||||||||
| Basic and diluted | ||||||||||||
| EARNINGS (LOSS) PER SHARE | ||||||||||||
| Basic and diluted | ) | ) | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-2
MICROCLOUD HOLOGRAM INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Ordinary shares | Additional | Retained earnings | Other | Non- | ||||||||||||||||||||||||||||||||
| Shares |
Par Value |
paid-in |
Statutory reserves |
Unrestricted |
comprehensive income |
controlling interests |
Total | Total | ||||||||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | USD | |||||||||||||||||||||||||||||
| BALANCE, December 31, 2021 | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Net income | - | ( |
) | |||||||||||||||||||||||||||||||||
| Statutory reserves | - | ( |
) | |||||||||||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2022 | ( |
) | ||||||||||||||||||||||||||||||||||
| Ordinary shares | Additional | Retained earnings | Other | Non- | ||||||||||||||||||||||||||||||||
| Shares | Par Value |
paid-in capital |
Statutory reserves |
Unrestricted |
comprehensive income |
controlling interests |
Total | Total | ||||||||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | USD | |||||||||||||||||||||||||||||
| BALANCE, December 31, 2022 | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Net income | - | ( |
) | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2023 | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
MICROCLOUD HOLOGRAM INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
For the Six Months Ending June 30, |
||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| RMB | RMB | USD | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income (loss) | ( |
) | ( |
) | ||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Amortization of operating lease right-of-use assets | ||||||||||||
| Provision for doubtful accounts | ||||||||||||
| Deferred tax benefits | ( |
) | ( |
) | ( |
) | ||||||
| Provision for inventory reserve | ( |
) | - | |||||||||
| Loss on disposal fixed assets | - | |||||||||||
| Change in operating assets and liabilities: | ||||||||||||
| Accounts receivable | ( |
) | ( |
) | ( |
) | ||||||
| Prepayment and other current assets | ( |
) | ( |
) | ( |
) | ||||||
| Inventories | ( |
) | ( |
) | ||||||||
| Prepayments and deposits | ( |
) | ||||||||||
| Accounts payable | ||||||||||||
| Operating lease liabilities | ( |
) | ( |
) | ( |
) | ||||||
| Advance from customers | ( |
) | ( |
) | ||||||||
| Other payables and accrued liabilities | ( |
) | ( |
) | ||||||||
| Taxes payable | ( |
) | ||||||||||
| Net cash provided by (used in) operating activities | ( |
) | ( |
) | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Loan to third parties | ( |
) | - | |||||||||
| Loan repayment from third parties | - | |||||||||||
| Purchases of property and equipment | ( |
) | ( |
) | ( |
) | ||||||
| Investments in unconsolidated entities | ( |
) | ( |
) | ||||||||
| Net cash provided by (used in) investing activities | ( |
) | ( |
) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Amounts advanced from related parties | ||||||||||||
| Amounts advanced to related parties | ( |
) | ||||||||||
| Repayments from related parties | ||||||||||||
| Repayments to related parties | ( |
) | ( |
) | ( |
) | ||||||
| Repayments of third party loan | ( |
) | ( |
) | ||||||||
| Proceeds of third party loan | ||||||||||||
| Net cash provided by (used in) financing activities | ( |
) | ( |
) | ||||||||
| EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS | ( |
) | ||||||||||
| CHANGE IN CASH AND CASH EQUIVALENTS | ( |
) | ( |
) | ||||||||
| CASH AND CASH EQUIVALENTS, beginning of period | ||||||||||||
| CASH AND CASH EQUIVALENTS, end of period | ||||||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||
| Cash paid for income taxes | ||||||||||||
| Cash paid for interest | ||||||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
| Initial recognition of right-of-use assets and lease liabilities | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
MICROCLOUD HOLOGRAM INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Nature of business and organization
MicroCloud Hologram Inc. (formerly known as Golden Path Acquisition Corporation (“Golden Path” or “the Company”)), a Cayman Islands exempted company, is a leading holographic digitalization technology service provider in China, which is committed to providing first-class holographic technology services to the customers worldwide.
On September 16, 2022, the Company consummated the previously announced business combination pursuant to the Merger Agreement, by and among Golden Path, Golden Path Merger Sub, and MC Hologram Inc. (“MC”). Pursuant to the Merger Agreement, MC merged with Golden Path Merger Sub, survived the merger and continued as the surviving company and a wholly owned subsidiary of Golden Path (the “Merger”, and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”). Upon the closing of the Business Combination (the “Closing”), Golden Path changed its name to MicroCloud Hologram Inc., pursuant to which Golden Path issued ordinary shares to MC shareholders. Prior to the Closing, the holders of Golden Path ordinary shares had the right to redeem all or a portion of their Golden Path ordinary shares calculated in accordance with Golden Path’s governing documents. At the Closing, each of Golden Path’s public units separated into its components consisting of one ordinary share, one warrant and one right, and as a result, the units no longer trade as a separate security. As a result of the Closing of the Business Combination, after reflecting the actual redemption of shares by Golden Path shareholders, MC owns approximately 87.68% of the outstanding Golden Path ordinary shares, the former shareholders of Golden Path owns approximately 11.57% of the outstanding Golden Path ordinary shares, and Peace Asset Management, a private held entity who facilitated the business combination, owns approximately 0.75% as of June 30, 2023 (not giving effect to any shares issuable to them upon the exercise of any Golden Path warrants). Immediately after giving effect to the Business Combination, MicroCloud has ordinary shares issued and outstanding, and
As a result of the consummation of the Business Combination, MC is now a wholly owned subsidiary of the Company, which has changed its name to MicroCloud Hologram Inc.
Following the Closing, on September 19, 2022, the ordinary shares and public warrants outstanding upon the Closing began trading on the NASDAQ Stock Exchange (the “NASDAQ”) under the symbols “HOLO” and “HOLOW,” respectively.
The transaction was accounted for as a “reverse recapitalization” in accordance with accounting principles generally accepted in the United States (“GAAP”) because the primary assets of Golden Path would be nominal following the close of the Merger. Under this method of accounting, Golden Path was treated as the “acquired” company for financial reporting purposes and MC was determined to be the accounting acquirer based on the terms of the Merger and other factors including: (i) MC’s stockholders have a majority of the voting power of the combined company, (ii) MC comprises a majority of the governing body of the combined company, and MC’s senior management comprises all of the senior management of the combined company, and (iii) MC comprises all of the ongoing operations of the combined entity. Accordingly, for accounting purposes, this transaction was treated as the equivalent of the Company issuing shares for the net assets of Golden Path, accompanied by a recapitalization. The shares and net loss per common share, prior to the Reverse Recapitalization, have been retroactively restated as shares reflecting the Exchange Ratio established in the Reverse Recapitalization (one Golden Path share for one Company share). The net assets of Golden Path were recorded at historical costs, with no goodwill or other intangible assets recorded. Operations prior to the Reverse Recapitalization are those of MC.
F-5
The accompanying unaudited consolidated financial statements reflect the activities of the Company and each of the following entities as of June 30, 2023:
| Schedule of accompanying consolidated financial statements | |||||
| Name | Background | Ownership | |||
|
|
- | A Cayman Islands company | |||
| - | Formed on November 10, 2020 | ||||
| - | Primarily engages in holographic integrated solutions. |
||||
| - | A Hong Kong company | ||||
| - | Formed on November 25, 2020 | ||||
| - | |||||
| - | A holding company | ||||
| - | PRC limited liability company | ||||
| - | Formed on May 11, 2021 | ||||
| - | |||||
| - | A holding company | ||||
| - | A PRC limited liability company | ||||
| - | Formed on March 24, 2016 | ||||
| - | |||||
| - | Primarily engages in holographic integrated solutions. | ||||
| - | A PRC limited liability company | ||||
| - | Formed on March 15, 2016 | ||||
| - | |||||
| - | Primarily engages in holographic integrated solutions. | ||||
| - | A PRC limited liability company | ||||
| - | Formed on August 14, 2014 | ||||
| - | |||||
| - | Primarily engages in holographic content sales and SDK software services. | ||||
| - | A PRC limited liability company | ||||
| - | Formed on September 25, 2008 | ||||
| - | |||||
| - | Primarily engages in holographic content sales and SDK software services. | ||||
F-6
| Name | Background | Ownership | |||
| - | A PRC limited liability company | ||||
| - | Formed on November 2, 2020 | ||||
| - | |||||
| - | Primarily engages in holographic content sales and SDK software services. | ||||
| - | A PRC limited liability company | ||||
| - | Formed on September 6, 2016 | ||||
| - | |||||
| - | Primarily engages in holographic integrated solutions. | ||||
| - | A PRC limited liability company | ||||
| - | Formed on April 12, 2016 | ||||
| - | |||||
| - | Primarily engages in holographic PCBA solutions. | ||||
| - | A Hong Kong company | ||||
| - | Formed on February 2, 2016 | ||||
| - | |||||
| - | Primarily engages in holographic integrated solutions. | ||||
| - | A PRC limited liability company | ||||
| - | Formed on January 6, 2014 | ||||
| - | |||||
| - | Primarily engages in holographic advertising services. | ||||
| - | A PRC limited liability company | ||||
| - | Formed on December 3, 2021 | ||||
| - | |||||
| - | Advertising service | ||||
| - | A Hong Kong company | ||||
| - | Formed on November 5, 2020 | ||||
| - | |||||
| - | No operation | ||||
F-7
| Name | Background | Ownership | |||
| - | A PRC limited liability company | ||||
| - | Formed on November 4, 2020 | ||||
| - | |||||
| - | Primarily engages in holographic PCBA solutions. | ||||
| - | A PRC limited liability company | ||||
| - | Formed on October 23, 2020 | ||||
| - | |||||
| - | Primarily engages in SDK software services. | ||||
| - | A PRC limited liability company | ||||
| - | Formed on March 19, 2021 | ||||
| - | |||||
| - | No operation | ||||
| - | Dissolved on December 10, 2021 | ||||
| - | A PRC limited liability company | ||||
| - | Formed on June 24, 2021 | ||||
| - | |||||
| - | No operation | ||||
| - | Dissolved on September 1, 2021 | ||||
| - | A Hong Kong company | ||||
| - | Formed on November 4, 2021 | ||||
| - | |||||
| - | No operation | ||||
| - | A PRC limited liability company | ||||
| - | Formed on December 3, 2021 | ||||
| - | |||||
| - | No operation | ||||
| - | A PRC limited liability company | ||||
| - | Formed on January 16, 2020 | ||||
| - | Sold on June 30, 2022 | ||||
| - | |||||
| - | Game promotion service | ||||
F-8
| Name | Background | Ownership | |||
| - | A PRC limited liability company | ||||
| - | Formed on January 29, 2022 | ||||
| - | Sold on May 31, 2023 | ||||
| - | |||||
| - | Game promotion and advertising service | ||||
| - | A PRC limited liability company | ||||
| - | Formed on February 18, 2022 | ||||
| - | |||||
| - | Advertising service | ||||
| - | A PRC limited liability company | ||||
| - | Formed on March 22, 2022 | ||||
| - | Sold on June 30, 2022 | ||||
| - | |||||
| - | Game promotion service | ||||
| - | A PRC limited liability company | ||||
| - | Formed on March 17, 2022 | ||||
| - | Sold on May 31, 2023 | ||||
| - | |||||
| - | Advertising service | ||||
| - | A PRC limited liability company | ||||
| - | Formed on March 24, 2022 | ||||
| - | |||||
| - | Advertising service | ||||
| - | A PRC limited liability company | ||||
| - | Formed on May 5, 2016 | ||||
| - | |||||
| - | Primarily engages in holographic content sales and SDK software services. | ||||
F-9
Note 2 — Summary of significant accounting policies
Basis of presentation
The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”), regarding financial reporting, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of results to be expected for any other interim period or for the full year of 2023. Accordingly, these unaudited interim condensed financial statements should be read in conjunction with the Company’s audited financial statements and note thereto as of and for the years ended December 31, 2022.
Principles of consolidation
The unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances between the Company and its subsidiaries are eliminated upon consolidation.
Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.
Use of estimates and assumptions
The preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s unaudited interim condensed consolidated financial statements include the useful lives of property and equipment and intangible assets, impairment of long-lived assets and goodwill, allowance for doubtful accounts, provision for contingent liabilities, revenue recognition, deferred taxes and uncertain tax position, the fair value of contingent consideration related to business acquisitions. Actual results could differ from these estimates.
Foreign currency translation and other comprehensive income (loss)
The reporting currency of the audited consolidated financial statements for the December 31, 2022 is USD. The company has also presented USD for the period ended June 30, 2023 as additional information to the reader.
As of June 30, 2023, which was the last business day of the registrant’s second quarter, the Company determined that it would qualify as a foreign private issuer, as that term is defined in Rule 3b-4(c) promulgated under the Securities Exchange Act of 1934, beginning as of July 1, 2023. The Company has therefore changed its reporting currency from US dollars (“USD”) to Renminbi (“RMB”).
The Company uses RMB as its reporting currency. The functional currency of MicroCloud, MC, Mengyun HK, Mcloudvr HK and Broadvision HK is in US dollars and the functional currency of the Company’s other subsidiaries is RMB, as determined based on the criteria of Accounting Standards Codification (“ASC”) 830 “Foreign Currency Matters.”
In the unaudited interim condensed consolidated financial statements, the financial information of the Company and other entities located outside of the PRC has been translated into RMB. Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the average rate for the period. The resulting foreign currency translation adjustment is recorded in other comprehensive income (loss).
The balance sheet amounts, with the exception of shareholders’ equity for MC, Mengyun HK, Mcloudvr HK and Broadvision HK as of June 30, 2023 and December 31, 2022 were translated at
F-10
Convenience translation
Translations of balances in the unaudited interim condensed consolidated balance sheets, unaudited interim condensed consolidated statements of income and unaudited interim condensed consolidated statements of cash flows from RMB into USD as of and for the six months ended June 30, 2023 are solely for the convenience of the reader and were calculated at the rate of
Cash and cash equivalents
Cash and cash equivalents primarily consist of bank deposits with original maturities of three months or less, which are unrestricted as to withdrawal and use. Cash and cash equivalents also consist of funds earned from the Company’s operating revenues which were held at third party platform fund accounts which are unrestricted as to immediate use or withdraw. The Company maintains most of its bank accounts in the PRC and HK.
Accounts receivable, net
Accounts receivable include trade accounts due from customers. Accounts are considered overdue after 90 days. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate and provides allowance when necessary. The allowance is based on management’s best estimates of specific losses on individual customer exposures, as well as the historical trends of collections. Account balances are charged off against the allowance after all means of collection have been exhausted and the likelihood of collection is not probable.
Other receivables and prepaid expenses
Other receivables that are short term in nature include employee advances to pay certain of the Company’s expenses in the normal course of business and certain short-term deposits. Prepaid expenses included utilities or system services. An allowance for doubtful accounts may be established and recorded based on management’s assessment of the likelihood of collection. Management reviews these items on a regular basis to determine if the allowance for doubtful accounts is adequate and adjusts the allowance when necessary. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
Property plant and equipment, net
Property plant and equipment are stated at cost less accumulated depreciation and impairment if applicable. Depreciation is computed using the straight-line method over the estimated useful lives of the assets with 5% residual value. The estimated useful lives are as follows:
| Schedule of estimated useful lives | Useful Life | ||
| Office equipment | |||
| Office furniture and fixtures | |||
| Leasehold improvements |
F-11
Cost method investments
The Company accounts for investments with less than 20% of the voting shares and does not have the ability to exercise significant influence over operating and financial policies of the investee using the cost method. The Company records cost method investments at the historical cost in its condensed consolidated financial statements and subsequently records any dividends received from the net accumulated earnings of the investee as income. Dividends received in excess of earnings are considered a return of investment and are recorded as reduction in the cost of the investments.
Cost method investments are evaluated for impairment when facts or circumstances indicate that the fair value of the long-term investments is less than its carrying value. An impairment is recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near term prospects of the investments; and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.
Intangible assets, net
The Company’s intangible assets with definite useful lives primarily consist of customer relationships, software, and non-competing agreements. Identifiable intangible assets resulting from the acquisitions of subsidiaries accounted for using the purchase method of accounting are estimated by management based on the fair value of assets received. The Company amortizes its intangible assets with definite useful lives over their estimated useful lives and reviews these assets for impairment. The Company typically amortizes its intangible assets with definite useful lives on a straight-line basis over the shorter of the contractual terms or the estimated useful lives of three to ten years.
Goodwill
Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiaries at the date of acquisition. Goodwill is not amortized and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. Goodwill is carried at cost less accumulated impairment losses. If impairment exists, goodwill is immediately written off to its fair value and the loss is recognized in the consolidated statements of operations and comprehensive loss. Impairment losses on goodwill are not reversed.
The Company reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist annually or more frequently if events and circumstances indicate that it is more likely than not that an impairment has occurred. The Company has the option to assess qualitative factors to determine whether it is necessary to perform further impairment testing in accordance with ASC 350-20, as amended by ASU 2017-04. If the Company believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the impairment test described below is required. The Company compares the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired. If the carrying amount of a reporting unit exceeds its fair value, impairment is recognized for the difference, limited to the amount of goodwill recognized for the reporting unit. Estimating fair value is performed by utilizing various valuation techniques, with the primary technique being a discounted cash flow.
F-12
Business combination
The purchase price of an acquired company is allocated between tangible and intangible assets acquired and liabilities assumed from the acquired business based on their estimated fair values, with the residual of the purchase price recorded as goodwill. Transaction costs associated with business combinations are expensed as incurred, and are included in general and administrative expenses in the Company’s consolidated statements of operations. The results of operations of the acquired business are included in the Company’s operating results from the date of acquisition.
Fair value measurement
The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
Warrants liabilities
The Company accounts for warrants (Public Warrants or Private Warrants) as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) ASC 480 and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the consolidated statements of operations. The Company has elected to account for its Public Warrants as equity and the Private Warrants as liabilities.
F-13
Revenue recognition
Effective January 1, 2019, the Company adopted ASC Topic 606 using the modified retrospective adoption method. Based on the requirements of ASC Topic 606, revenue is recognized when control of the promised goods or services is transferred to the customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. Revenue is recognized when the following 5-step revenue recognition criteria are met:
| 1) | Identify the contract with a customer | |
| 2) | Identify the performance obligations in the contract | |
| 3) | Determine the transaction price | |
| 4) | Allocate the transaction price | |
| 5) | Recognize revenue when or as the entity satisfies a performance obligation |
The Company’s revenue recognition policies effective upon the adoption of ASC 606 are as follows:
(i) Holographic Solutions
a. Holographic Technology LiDAR Products
The Company generates light detection and ranging (“LiDAR”) revenue through selling integrated circuit board embedded with holographic software. The Company typically enters into written contracts with its customer where the rights of the parties, including payment terms, are identified and sales prices to the customers are fixed with no separate sales rebate, discount, or other incentive and no right of return exists on sales of inventory. The Company’s performance obligation is to deliver products according to contract specifications. The Company recognizes product revenue at a point in time when the control of products is transferred to customers.
b. Holographic Technology Intelligence Vision software and Technology Development Service
The Company generates revenue by developing advanced driver assistance systems (“ADAS”) software and technology, which are generally on a fixed-priced basis. The Company has no alternative use for the customized software and the Company has an enforceable right to payment for performance completed to date. Revenues from ADAS software development contracts are recognized over time during the contract period based on the Company’s measurement of progress towards completion using input method, which is usually measured by comparing labor hours expended to date to total estimated labor hours needed to satisfy the performance obligation. As of June 30, 2023 and December 31, 2022, the Company’s aggregate amounts of transaction price allocated to unsatisfied performance obligation are RMB
F-14
c. Holographic Technology Licensing and Content Products
The Company provides holographic content products and holographic software for music videos, shows, and commercials on a fixed-price basis. These contents and software are generally pre-developed and exist when made available to the customer. Content products are delivered through its website or offline using hard drive.
Revenues from licensing and content products are recognized at the point in time when the control of products or services is transferred to customers. No upgrades, maintenance, or any other post-contract customer support are provided.
d. Holographic Technology Hardware Sales
The Company is a distributer of holographic hardware and generates revenue through resale. In accordance with ASC 606, revenue recognition: principal agent consideration, an entity is a principal if it controls the specified good or service before that good or service is transferred to a customer. Otherwise, the entity is an agent in the transaction. The Company evaluates three indicators of control in accordance with ASU 2016-08: 1) For hardware sales, the Company is the most visible entity to customers and assumes fulfilment risk and risks related to the acceptability of products, including addressing customer complaints directly and handling of product returns or refunds directly. 2) The Company assumes inventory risk after taking the title from vendors and is responsible for product damage during shipment period prior to acceptance of its customers and is also responsible for product return if the customer is not satisfied with the products. 3) The Company determines the resale price of hardware products. 4) The Company is the party that directs the use of the inventory and can prevent the vendor from transferring the product to a customer or to redirect the products to a different customer. After evaluating the above scenario, the Company considers itself the principal of these arrangements and records hardware sales revenue on a gross basis.
Hardware sales contracts are on a fixed price basis with no separate sales rebate, discount, or other incentive. Revenue is recognized at a point in time when the Company has delivered products and the acceptance by its customer with no future obligation. The Company generally permits returns of products due to deficits; however, returns are historically insignificant.
(ii) Holographic Technology Service
Holographic advertisements are the use of holographic technology integrated into advertisements on media platforms and offline display. The Company enters advertising contracts with advertisers to promote merchandises and services where the price, which is generally based on cost per action (“CPA”), is fixed and determinable. The Company provides its advertising service to channel providers where the amounts cost per action are also fixed and determinable. Revenue is recognized at a point of time when agreed actions are performed. The Company considers itself as provider of the services under the CPA model as it has the control of the services at any time before it is transferred to the customers which is evidenced by 1) having a right to a service to be performed by the other party, which gives the Company the ability to direct that party to provide the service to the customers on the Company’s behalf. 2) having discretion in setting the price for the service 3) billing monthly advertising fee directly to customers by settling valid CPA data with customers. Therefore, the Company acts as the principal of these arrangements and reports revenue earned and costs incurred related to these transactions on a gross basis. The Company also provides advertisement services through influencers on social networks. The Company charges advertisers a fixed rate, which is generally a fixed percentage of total value of merchandise sold over a specific period (“GMV”). Revenue is recognized at a point of time when merchandise is sold through social network.
The Company’s software development kit (“SDK”) service is a collection of software development tools in one installable package that enables customers (usually software developers) to add holographic functionality and run holographic advertisements in their APPs or software. SDK contracts are primarily on a fixed rate basis, or cost per SDK Connection. The Company recognizes SDK service revenue at a point in time when a user completes an SDK connection via a designated portal. Service fees are generally billed monthly based on per-connection basis.
F-15
The Company also provides game promotion services for game developers and licensed game operators. The Company acted as a marketing channel that it will promote the games through in-house or third-party platforms, from which users can download the mobile and purchase virtual currency for in game premium features to enhance their game playing experience. The Company contracts with third party payment platforms for collection services offered to game players who have purchased virtual currency. The game developers, licensed operator, payment platforms and the marketing channels are entitled to profit sharing based on a prescribed percentage of the gross amount charged to the game players. The Company’s obligation in the promotion services is completed at a point in time when the game players made a payment to purchase virtual currency. The Company considered itself an agent in these arrangements since it does not control the services at any time. Accordingly, the Company records the game promotion service revenue on a net basis.
Contract balances
The Company records receivable related to revenue when it has an unconditional right to invoice and receive payment.
Payments received from customers before all of the relevant criteria for revenue recognition met are recorded as deferred revenue.
Cost of revenues
For holographic solutions, the cost of revenue consists primarily of the costs of hardware products sold and outsourced content providers, third party software development costs, and compensation expenses for the Company’s professionals.
For holographic technology service, the cost of revenue consists primarily of costs paid to channel distributors for advertising services and compensation expenses for the Company’s professionals.
Cost allocation
Cost allocation include allocation of certain general and administrative and financial expenses paid by the Parent. General and administrative expenses consist primarily salary and related expenses of senior management and employees, shared management expenses, including accounting, consulting, legal support services, and other expenses to provide operating support to the related businesses. These allocations are made using a proportional cost allocation method by considering the proportion of revenues, headcounts as well as estimates of time spent on the provision of services attributable to the Company and the related expenses resulted from the acquisition of subsidiary.
Research and development
Research and development expenses include salaries and other compensation-related expenses to the Company’s research and product development personnel, outsourced subcontractors, as well as office rental, depreciation and related expenses for the Company’s research and product development team.
Value added taxes (“VAT”)
Revenue represents the invoiced value of service, net of VAT. The VAT is based on gross sales price and VAT rates range up to 13% in China, depending on the type of service provided or product sold. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in tax payable. All of the VAT returns filed by the Company’s subsidiaries in China, have been and remain subject to examination by the tax authorities for five years from the date of filing.
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
F-16
Deferred taxes is accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the condensed consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. No penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. PRC tax returns filed are subject to examination by any applicable tax authorities.
Other Income
Other Income primary includes government subsidies which are amounts granted by local government authorities as an incentive for companies to promote development of the local technology industry. The Company receives government subsidies related to government sponsored projects, and records such government subsidies as a liability when it is received. The Company records government subsidies as other income when there is no further performance obligation.
Leases
The Company adopted FASB ASU 2016-02, “Leases” (Topic 842) for the year ended December 31, 2020, and elected the practical expedients that does not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. For lease terms of twelve months or fewer, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. The Company also adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component.
Operating lease ROU assets and lease liabilities are recognized at the adoption date or the commencement date, whichever is earlier, based on the present value of lease payments over the lease term. Since the implicit rate for the Company’s leases is not readily determinable, the Company use its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments, in a similar economic environment and over a similar term.
Lease terms used to calculate the present value of lease payments generally do not include any options to extend, renew, or terminate the lease, as the Company does not have reasonable certainty at lease inception that these options will be exercised. The Company generally considers the economic life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. The Company has elected the short-term lease exception, therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. Its leases generally do not provide a residual guarantee. The operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term.
The Company reviews the impairment of its ROU assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. The Company has elected to include the carrying amount of operating lease liabilities in any tested asset group and include the associated operating lease payments in the undiscounted future pre-tax cash flows.
F-17
Employee benefit
The full-time employees of the Company are entitled to staff welfare benefits including medical care, housing fund, pension benefits, unemployment insurance and other welfare, which are government mandated defined contribution plans. The Company is required to accrue for these benefits based on certain percentages of the employees’ respective salaries, subject to certain ceilings, in accordance with the relevant PRC regulations, and make cash contributions to the state-sponsored plans out of the amounts accrued.
The Company computes earnings/loss per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income/loss divided by the weighted average ordinary share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential ordinary shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
Statutory reserves
Pursuant to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable “statutory surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC (“PRC GAAP”) at each year-end). For foreign invested enterprises and joint ventures in the PRC, annual appropriations should be made to the “reserve fund”. For foreign invested enterprises, the annual appropriation for the “reserve fund” cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under PRC GAAP at each year-end). If the Company has accumulated loss from prior periods, the Company is able to use the current period net income after tax to offset against the accumulate loss.
Segment reporting
FASB ASC 280, Segment Reporting, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company’s business segments.
The Company uses the management approach to determine reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The Company’s CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company.
F-18
Recently issued accounting pronouncements
In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments — Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments — Credit Losses — Available-for-Sale Debt Securities. The amendments in this Update address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. In November 2019, the FASB issued ASU No. 2019-10, which to update the effective date of ASU No. 2016-02 for private companies, not-for-profit organizations and certain smaller reporting companies applying for credit losses, leases, and hedging standard. The new effective date for these preparers is for fiscal years beginning after December 15, 2022. The adoption of this ASU does not have a material effect on the Company’s condensed consolidated financial statements.
Except as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.
Note 3 — Accounts receivable, net
Accounts receivable, net consisted of the following:
| Schedule of Accounts receivable, net | ||||||||||||
|
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
||||||||||
| RMB | RMB | USD | ||||||||||
| (Audited) | ||||||||||||
| Accounts receivable | ||||||||||||
| Less: allowance for doubtful accounts | ( |
) | ( |
) | ( |
) | ||||||
| Accounts receivable, net | ||||||||||||
The following table summarizes the changes in allowance for doubtful accounts:
| Schedule of allowance for doubtful accounts | ||||||||||||
|
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
||||||||||
| RMB | RMB | USD | ||||||||||
| (Audited) | ||||||||||||
| Beginning balance | ||||||||||||
| Provision for doubtful accounts | ||||||||||||
| Exchange rate difference | ( |
) | ||||||||||
| Ending balance | ||||||||||||
F-19
Note 4 — Inventories
Inventories consist of the following:
| Schedule of inventories | ||||||||||||
|
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
||||||||||
| RMB | RMB | USD | ||||||||||
| (Audited) | ||||||||||||
| Raw materials | ||||||||||||
| Finished goods | ||||||||||||
| Total | ||||||||||||
| Less: Inventory allowance | ( |
) | ( |
) | ( |
) | ||||||
| Inventories, net | ||||||||||||
Note 5 — Property and equipment, net
Property and equipment, net consist of the following:
| Schedule of Property and equipment, net | ||||||||||||
|
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
||||||||||
| RMB | RMB | USD | ||||||||||
| (Audited) | ||||||||||||
| Office equipment | ||||||||||||
| Mechanical equipment | ||||||||||||
| Electronic and other equipment | ||||||||||||
| Vehicles | ||||||||||||
| Subtotal | ||||||||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ( |
) | ||||||
| Total | ||||||||||||
Depreciation expense for the six months ended June 30, 2022 and 2023 amounted to RMB
Note 6 — Intangible assets, net
The Company’s intangible assets with definite useful lives primarily consist of accounting software. The following table summarizes acquired intangible asset balances as of:
| Schedule of Intangible assets, net | ||||||||||||
|
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
||||||||||
| RMB | RMB | USD | ||||||||||
| (Audited) | ||||||||||||
| Customer relationships | ||||||||||||
| Software | ||||||||||||
| Non-compete agreement | ||||||||||||
| Subtotal | ||||||||||||
| Less: accumulated amortization | ( |
) | ( |
) | ( |
) | ||||||
| Intangible assets, net | ||||||||||||
F-20
Amortization expense for the six months ended June 30, 2022 and 2023 amounted to RMB
The estimated amortization is as follows:
| Schedule of estimated annual amortization expense | ||||||||
| Twelve months ending June 30, |
Estimated amortization expense |
Estimated amortization expense |
||||||
| RMB | USD | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total | ||||||||
Note 7 — Goodwill
Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiaries at the date of acquisition. Goodwill is not amortized and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. The following table summarizes the components of acquired goodwill balances as of:
| Schedule of Goodwill | ||||||||||||
|
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
||||||||||
| RMB | RMB | USD | ||||||||||
| (Audited) | ||||||||||||
| Goodwill from Shenzhen Bowei acquisition* | ||||||||||||
| Goodwill from Shenzhen Tianyuemeng acquisition** | ||||||||||||
| Goodwill | ||||||||||||
| * | ||
| ** |
F-21
The changes in the carrying amount of goodwill allocated to reportable segments as of December 31, 2022 and June 30, 2023 are as follows:
| Schedule of goodwill reportable segments | ||||||||||||||||
| Holographic solutions | Holographic technology service | Total | Total | |||||||||||||
| RMB | RMB | RMB | USD | |||||||||||||
| As of December 31, 2022 | ||||||||||||||||
| As of June 30, 2023 | ||||||||||||||||
Note 8 — Investments in unconsolidated entities
| Schedule of investments | ||||||||||||
|
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
||||||||||
| RMB | RMB | USD | ||||||||||
| (Audited) | ||||||||||||
| Equity investments without readily determinable fair value: | ||||||||||||
| 19.9% Investment(1) | ||||||||||||
| 4.4% Investment(2) | ||||||||||||
| 5% Investment(3) | ||||||||||||
| 3% Investment(4) | ||||||||||||
| 2% Investment(5) | - | |||||||||||
| Impairment | ( |
) | ( |
) | ( |
) | ||||||
| Total | - | |||||||||||
| (1) | |
| (2) | |
| (3) | |
| (4) | |
| (5) |
Note 9 — Other payables and accrued liabilities
Other payables and accrued liabilities consist of the following:
| Schedule of Other payables and accrued liabilities | ||||||||||||
|
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
||||||||||
| RMB | RMB | USD | ||||||||||
| (Audited) | ||||||||||||
| Salary payables | ||||||||||||
| Other payables and accrued expenses | ||||||||||||
| Total other payables and accrued liabilities | ||||||||||||
F-22
Note 10 — Related party balances and transactions
The amounts due from related parties consist of the following:
| Schedule of related parties | ||||||||||||||||
| Name of Related Parties | Relationship | Nature |
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
|||||||||||
| RMB | RMB | USD | ||||||||||||||
| (Audited) | ||||||||||||||||
| Shenzhen Ultimate Holographic Culture Communication Co., Ltd | Shenzhen Mengyun’s 19.9% equity investment | Advances for operational purposes, no interest, due on demand | - | - | ||||||||||||
| Total: | - | - | ||||||||||||||
The amounts due to related parties consists of the following:
| Name of Related Parties | Relationship | Nature |
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
|||||||||||
| RMB | RMB | USD | ||||||||||||||
| (Audited) | ||||||||||||||||
| Yuxiu Han. | Former shareholder and current legal representative of Shenzhen Bowei | Advances for operational purpose, no interest, due on demand | - | - | ||||||||||||
| Total: | - | - | ||||||||||||||
Note 11 — Taxes
Significant components of the benefit of income taxes are as follows:
| Schedule of income tax expense benefit | ||||||||||||
|
For the June 30, 2022 |
For the June 30, 2023 |
For the June 30, 2023 |
||||||||||
| RMB | RMB | USD | ||||||||||
| Current | ( |
) | ||||||||||
| Deferred | ||||||||||||
| Benefit of income taxes | ||||||||||||
F-23
Deferred tax assets and liabilities
Significant components of deferred tax assets and liabilities were as follows:
| Schedule of deferred tax assets and liabilities | ||||||||||||
|
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
||||||||||
| RMB | RMB | USD | ||||||||||
| (Audited) | ||||||||||||
| Deferred tax assets: | ||||||||||||
| Allowance for doubtful accounts | ||||||||||||
| Impairment loss for investment | ||||||||||||
| Net operating loss carry forward | ||||||||||||
| Inventory reserve | ||||||||||||
| Right of use | ||||||||||||
| Less :valuation allowance | ( |
) | ( |
) | ( |
) | ||||||
| Deferred tax assets, net | ||||||||||||
| Deferred tax liabilities: | ||||||||||||
| Recognition of intangible assets arising from business combinations | ||||||||||||
| Deferred tax liabilities, net | ||||||||||||
| Total deferred tax liabilities, net | ||||||||||||
The Company evaluated the recoverable amounts of deferred tax assets, and provided a valuation allowance to the extent that future taxable profits will be available against which the net operating loss and temporary differences can be utilized. Valuation allowance is provided against deferred tax assets when the Company determines that it is more likely than not that the deferred tax assets will not be utilized in the future. In making such determination, the Company considered factors including future taxable income exclusive of reversing temporary differences and tax loss carry forwards. Valuation allowance was provided for net operating loss carry forward because it was more likely than not that such deferred tax assets would not be realized based on the Company’s estimate of its future taxable income. If events occur in the future that allow the Company to realize more of its deferred income tax than the presently recorded amounts, an adjustment to the valuation allowances will result in a decrease in tax expense when those events occur.
The Company recognized deferred tax liabilities related to the excess of the intangible assets reporting basis over its income tax basis as a result of fair value adjustment from acquisitions in 2020. The deferred tax liabilities will reverse as the intangible assets are amortized for financial statement reporting purposes.
As of June 30, 2023, the Company had net operating loss carry forwards of approximately RMB
Value added taxes (“VAT”)
Revenue represents the invoiced value of service, net of VAT. The VAT are based on gross sales price. VAT rate is 6% on services and 13% on goods in China.
Taxes payable consisted of the following:
| Schedule of Taxes payable | ||||||||||||
|
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
||||||||||
| RMB | RMB | USD | ||||||||||
| (Audited) | ||||||||||||
| VAT taxes payable | ||||||||||||
| Income taxes payable | ||||||||||||
| Other taxes payable | ||||||||||||
| Totals | ||||||||||||
F-24
Note 12 — Concentration of risk
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and short-term investments consisting of time deposit. In China, the insurance coverage for cash deposits at each bank is RMB
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the PBOC. Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
To the extent that the Company needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into U.S. dollar for the purpose of making payments for dividends, strategic acquisition or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company.
Customer concentration risk
For the six months ended June 30, 2023, one customer accounted for
As of June 30, 2023, two customers accounted for
Vendor concentration risk
For the six months ended June 30, 2023, two vendors accounted for
As of June 30, 2023, one vendor accounted for
F-25
Note 13 — Leases
Lease commitments
The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All of the Company’s real estate leases are classified as operating leases.
The Company has several offices lease agreements with lease terms ranging from two to six years. Upon adoption of ASU 2016-02 on January 1, 2022, the Company recognized approximately RMB
As of June 30, 2023, the Company’s operating leases had a weighted average remaining lease term of approximately
Operating lease expenses are allocated between the cost of revenue and selling, general, and administrative expenses. Rent expenses for the six months ended June 30, 2023 and 2022 were RMB
The maturity of the Company’s lease obligations is presented below:
| Schedule of lease liabilities | ||||||||
| Twelve Months Ending December 31, |
Operating Lease Amount |
Operating Lease Amount |
||||||
| RMB | USD | |||||||
| 2023(remaining six months) | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Total lease payments | ||||||||
| Less: Interest | ( |
) | ( |
) | ||||
| Present value of lease liabilities | ||||||||
Future amortization of Company’s ROU assets is presented below:
| Schedule of Future amortization of Company’s ROU assets | ||||||||
| Twelve Months Ending December 31, |
Operating Lease Amount |
Operating Lease Amount |
||||||
| RMB | USD | |||||||
| 2023(remaining six months) | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Total | ||||||||
F-26
Note 14 — Warrant liabilities
As of June 30, 2023, the Company had
The Company accounts for its outstanding Warrants in accordance with the guidance contained in ASC 815-40-15-7D and 7F. Management has determined that the Private Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Private Warrants as liabilities at their fair value and adjusts the Private Warrants to fair value at each reporting period. Management has further determined that its Public Warrants qualify for equity treatment. Warrant liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statements of operations.
Public Warrants
On June 24, 2021, the Company sold units at a price of $ per Public Unit in its Initial Public Offering.
No public warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the ordinary shares issuable upon exercise of the warrants and a current prospectus relating to such ordinary shares. It is the Company’s current intention to have an effective and current registration statement covering the ordinary shares issuable upon exercise of the warrants and a current prospectus relating to such ordinary shares in effect promptly following consummation of an initial business combination.
The Public Warrants became exercisable on September 16, 2022, the later of (a) the consummation of a Business Combination, which was September 16, 2022, or (b) 12 months from the effective date of the registration statement relating to the Initial Offering, which was June 21, 2021. No Public Warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the ordinary shares issuable upon exercise of the Public Warrants and a current prospectus relating to such ordinary shares. The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, the Company will use its best efforts to file, and within 60 business days following a Business Combination to have declared effective, a registration statement covering the ordinary shares issuable upon exercise of the warrants. Notwithstanding the foregoing, if a registration statement covering the ordinary shares issuable upon the exercise of the Public Warrants is not effective within 60 days, the holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise the Public Warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their Public Warrants on a cashless basis. The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.
The Company may call the warrants for redemption (excluding the Private Warrants), in whole and not in part, at a price of $0.01 per warrant:
| ● | at any time while the Public Warrants are exercisable, |
| ● | upon not less than 30 days’ prior written notice of redemption to each Public Warrant holder, |
| ● | if, and only if, the reported last sale price of the ordinary shares equals or exceeds $16.50 per share, for any 20 trading days within a 30-trading day period ending on the third trading day prior to the notice of redemption to Public Warrant holders, and |
| ● | if, and only if, there is a current registration statement in effect with respect to the issuance of the ordinary shares underlying such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption. |
F-27
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of ordinary shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such warrants. Accordingly, the warrants may expire worthless.
Private Warrants
Simultaneously with the closing of the Initial Public Offering, the Company consummated a private placement of Private Units at $ per unit, purchased by the sponsor. The Private Units are identical to the units sold in the Initial Public Offering except that the warrants included in the Private Units (the “Private Warrants”) and the ordinary shares issuable upon the exercise of the Private Warrants will not be transferable, assignable or saleable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable on a cashless basis and will be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
Note 15 — Commitments and contingencies
Contingencies
From time to time, the Company is party to certain legal proceedings, as well as certain asserted and un-asserted claims. Amounts accrued, as well as the total amount of reasonably possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the consolidated financial statements.
The Company, along with its shareholder Joyous JD Limited, has initiated litigation in the New York Supreme Court New York County against Greenland Asset Management Corporation, the sponsor of the pre-business combination company, Golden Path Acquisition Corporation (“Sponsor”).
1. Joyous JD Limited is seeking damages in connection with the Sponsor’s breach of certain investment agreements which was executed by and between the Sponsor and Joyous JD Limited;
2. The Company is seeking damages in connection with the Sponsor’s noncompliant misuse of Form S-4 in registering shares during the course of the business combination, which resulted in a forced withdrawal of the Form S-4. The Company has commenced lawsuit seeking damages.
The Court has accepted the complaint filed by the Company and Joyous JD Limited. Due to uncertainty over the process and outcome of the lawsuit, the final ruling of the Court shall prevail.
F-28
Note 16 — Shareholders’ equity
Ordinary shares
The Company was established under the laws of Cayman Islands on November 10, 2020 with authorized shares of ordinary shares and a par value of USD each.
On January 6, 2021, the Company issued an aggregate of founder shares to the Sponsor for an aggregate purchase price of $
On March 26, 2021, the Company issued an additional founder shares to the Sponsor in connection with a recapitalization.
On June 24, 2021, the Company sold units at a price of $ per Public Unit in the Initial Public Offering.
Simultaneously on June 24, 2021, the Company issued ordinary shares under private placement units at $per unit, to the Sponsor.
Due to the Merger, public shareholders redeemed ordinary shares.
At the Closing of the Business Combination, the Company issued ordinary shares to the former shareholders of MC.
As of June 30, 2023, the Company had shares with a par value of USD each.
Restricted assets
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiary. Relevant PRC statutory laws and regulations permit payments of dividends by Beijing Xihuiyun and Shanghai Mengyun (collectively “Mengyun PRC entities”) only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the accompanying unaudited consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Mengyun PRC entities.
Mengyun PRC entities are required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, Mengyun PRC entities may allocate a portion of its after-tax profits based on PRC accounting standards to an enterprise expansion fund and staff bonus and welfare fund at its discretion. Mengyun PRC entities may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by State Administration of Foreign Exchange.
F-29
As a result of the foregoing restrictions, Mengyun PRC entities are restricted in their ability to transfer their assets to the Company. Foreign exchange and other regulations in the PRC may further restrict Mengyun PRC entities from transferring funds to the Company in the form of dividends, loans and advances. As of June 30, 2023, amounts restricted are the paid-in-capital and statutory reserve of Mengyun PRC entities, which amounted to RMB
Statutory reserve
During the six months ended June 30, 2023 and 2022, Mengyun PRC entities collectively attributed RMB
Note 17 — Segments
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for detailing the Company’s business segments.
The Company’s chief operating decision maker is the Chief Executive Officer, who reviews the financial information of the separate operating segments when making decisions about allocating resources and assessing the performance of the group. The Company has determined that it has two operating segments: (1) holographic solutions, and (2) holographic technology service.
The following tables present summary information by segment for the six months ended June 30, 2023 and 2022:
| Schedule of segments | ||||||||||||||||
|
Holographic solutions |
Holographic technology service |
Total June 30, 2022 |
Total June 30, 2022 |
|||||||||||||
| RMB | RMB |
RMB |
USD | |||||||||||||
| Revenues | ||||||||||||||||
| Cost of revenues | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gross profit | ||||||||||||||||
| Depreciation and amortization | ( |
) | ( |
) | ( |
) | ||||||||||
| Total capital expenditures | ( |
) | ( |
) | ( |
) | ||||||||||
|
Holographic solutions |
Holographic technology service |
Total June 30, 2023 |
Total June 30, 2023 |
|||||||||||||
| RMB | RMB |
RMB |
USD | |||||||||||||
| Revenues | ||||||||||||||||
| Cost of revenues | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Gross profit | ||||||||||||||||
| Depreciation and amortization | ( |
) | ( |
) | ( |
) | ||||||||||
| Total capital expenditures | ( |
) | ( |
) | ( |
) | ||||||||||
F-30
Total assets as of:
|
December 31, 2022 |
June 30, 2023 |
June 30, 2023 |
||||||||||
| RMB |
RMB |
USD |
||||||||||
| (Audited) | ||||||||||||
| Holographic solutions | ||||||||||||
| Holographic technology service | ||||||||||||
| Total assets | ||||||||||||
Disaggregated information of holographic solutions revenues by business lines are as follows:
| Schedule of Disaggregation | ||||||||||||
|
Total for the six months ended June 30, 2022 |
Total for the six months ended June 30, 2023 |
Total for the six months ended June 30, 2023 |
||||||||||
|
RMB |
RMB |
USD |
||||||||||
| Holographic Technology LiDAR Products | ||||||||||||
| Holographic Technology Intelligence Vision software and Technology Development Service | ||||||||||||
| Holographic Technology Licensing and Content Product | ||||||||||||
| Holographic Hardware Sales | ||||||||||||
| Total Holographic Solutions | ||||||||||||
F-31
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes included in Exhibit 99.1. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Report and our Quarterly Report on Form 10-Q and our annual report on Form 10-K for the fiscal year ended December 31, 2022 under Forward-Looking Statements and Item 1A–Risk Factors, filed with the SEC on March 14, 2023.
Overview
We are a leading holographic digitalization technology service provider in China. We are committed to providing first-class holographic technology services to our customers worldwide. Our holographic technology services include high-precision holographic light detection and ranging (“LiDAR”) solutions, based on holographic technology, exclusive holographic LiDAR point cloud algorithms architecture design, breakthrough technical holographic imaging solutions, holographic LiDAR sensor chip design and holographic vehicle intelligent vision technology to service customers that provide reliable holographic advanced driver assistance systems (“ADAS”). We also provide holographic digital twin technology services for customers and has built a proprietary holographic digital twin technology resource library. Our holographic digital twin technology resource library captures shapes and objects in 3D holographic form by utilizing a combination of Our holographic digital twin software, digital content, spatial data-driven data science, holographic digital cloud algorithm, and holographic 3D capture technology. Our holographic digital twin technology and resource library has the potential to become the new norm for the digital twin augmented physical world in the near future. We are also a distributer of holographic hardware and generates revenue through resale.
Business Combination
Golden Path Acquisition Corporation (“Golden Path”) was a former blank check company incorporated in Cayman Island on May 9, 2018. Golden Path was formed for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
MicroCloud Hologram Inc. (formerly known as Golden Path Acquisition Corporation), a Cayman Islands exempted company, entered into the Merger Agreement dated September 10, 2021 (as amended on August 5, 2022 and August 10, 2022), by and among Golden Path, Golden Path Merger Sub, a Cayman Islands exempted company incorporated for the purpose of effectuating the business combination, and MC, a Cayman Islands exempted company.
Pursuant to the Merger Agreement, MC would merge with the Golden Path Merger Sub and survive the merger and continue as the surviving company and a wholly owned subsidiary of Golden Path and continue its business operations (the “Merger”, and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”).
On September 8, 2022, Golden Path held an Extraordinary General Meeting (the “Extraordinary General Meeting”) to approve the Merger and the transactions contemplated by the Merger Agreement.
On September 16, 2022, in accordance with the Merger Agreement, the closing of the Business Combination (the “Closing”) occurred, pursuant to which Golden Path issued 44,554,455 ordinary shares to MC shareholders. As a result of the consummation of the Business Combination, MC became a wholly owned subsidiary of Golden Path which changed its name to MicroCloud Hologram Inc.
Following the Closing, on September 19, 2022, the ordinary shares and public warrants outstanding upon the Closing began trading on the NASDAQ under the symbols “HOLO” and “HOLOW,” respectively.
Immediately after giving effect to the Business Combination, MicroCloud had 50,812,035 ordinary shares issued and outstanding, and 6,020,500 warrants outstanding.
F-1
Results of Operations - Six months ended June 30, 2023 Compared to Six months ended June 30, 2022
Revenues
Our breakdown of revenues by business segment for the six months ended June 30, 2023 and 2022, respectively, is summarized below:
|
For the Six Months Ended June 30, |
||||||||||||||||
| 2022 | 2023 | 2023 | Variance | |||||||||||||
| RMB | RMB | USD | % | |||||||||||||
| Revenues | ||||||||||||||||
| Products | 86,279,003 | 20,639,028 | 2,980,279 | (76.1 | ) | |||||||||||
| Services | 165,867,635 | 77,275,797 | 11,158,638 | (52.8 | ) | |||||||||||
| Total/Overall | 252,146,638 | 97,914,825 | 14,138,917 | (60.9 | ) | |||||||||||
Our total operating revenues decreased by approximately 61.2% from RMB 252.1 million for the six months ended June 30, 2022 to RMB 97.9 million (USD 14.1 million) for the six months ended June 30, 2023. This is due to the current the global economy has not fully recovered, and the industry is still in a weak recovery period. In addition, due to the impact of the customer demand has decreased, and it will take time for market demand to recover.
Products revenues declined by approximately 76.1% from RMB 86.3 million for the six months ended June 30, 2022 to RMB 20.6 million (USD 3.0 million) for the six months ended June 30, 2023, mainly due to reduced demand for holographic solutions from our customers.
The services revenues declined by approximately 53.4% from RMB 165.9 million for the six months ended June 30, 2022 to RMB 77.3 million (USD 11.2 million) for the six months ended June 30, 2023, mainly due to the decrease in customer demand, leading to our lower holographic advertisements service revenues.
Cost of Revenues
Our breakdown of cost of revenues by business segment for the six months ended June 30, 2023 and 2022, respectively, is summarized below:
|
For the Six Months Ended June 30, |
||||||||||||||||
| 2022 | 2023 | 2023 | Variance | |||||||||||||
| RMB | RMB | USD | % | |||||||||||||
| Cost of revenues | ||||||||||||||||
| Products | 79,886,145 | 13,844,925 | 1,999,209 | (82.7 | ) | |||||||||||
| Services | 46,490,124 | 34,109,784 | 4,925,459 | (26.6 | ) | |||||||||||
| Total/Overall | 126,376,269 | 47,954,709 | 6,924,668 | (62.1 | ) | |||||||||||
Our total cost of revenues decreased by approximately RMB 78.4 million, or 62.1%, from approximately RMB 126.3 million for the six months ended June 30, 2022 to approximately RMB 47.9 million (USD 6.9 million) for the six months ended June 30, 2023.
F-2
Our cost of revenues for products decreased by approximately RMB 66.0 million, or 82.7%, from approximately RMB 79.8 million for the six months ended June 30, 2022 to approximately RMB 13.8 million (USD 2.0 million) for the six months ended June 30, 2023, primarily due to the constantly decreasing product sales.
Our cost of revenues for services decreased by approximately RMB 12.4 million, or 2.7%, from approximately RMB 46.5 million for the six months ended June 30, 2022 to RMB 34.1 million (USD 4.9 million) for the six months ended June 30, 2023.
Gross Profit
|
For the Six Months Ended June 30, |
||||||||||||||||
| 2022 | 2023 | 2023 | Variance | |||||||||||||
| RMB | RMB | USD | RMB | |||||||||||||
| Products | ||||||||||||||||
| Gross profit | 6,392,858 | 6,794,103 | 981,070 | 401,245 | ||||||||||||
| Gross margin (%) | 7.4 | 32.9 | 32.9 | 344.6 | ||||||||||||
| Services | ||||||||||||||||
| Gross profit | 119,377,511 | 43,166,013 | 6,233,179 | (76,211,498 | ) | |||||||||||
| Gross margin (%) | 72.0 | 55.9 | 55.9 | (22.4 | ) | |||||||||||
| Total/Overall | ||||||||||||||||
| Gross profit | 125,770,369 | 49,960,116 | 7,214,249 | (75,810,253 | ) | |||||||||||
| Gross margin (%) | 49.9 | 51.0 | 51.0 | 2.2 | ||||||||||||
Our gross profit decreased by approximately RMB 75.8 million, from approximately RMB 125.8 million for the six months ended June 30, 2022 to approximately RMB 50.0 million (USD 7.2 million) for the six months ended June 30, 2023. For the six months ended June 30, 2022 and 2023, our overall gross margin was 49.9% and 51.0%, respectively.
Operating Expenses
For the six months ended June 30, 2023, we incurred approximately RMB 81.9 million (USD 11.8 million) in operating expenses, representing a decrease of approximately RMB 9.7 million, or 10.6%, from approximately RMB 91.6 million for the six months ended June 30, 2022 as a result of the decrease in revenues.
Selling expenses increased by approximately RMB 1.4 million, or 42.5%, from approximately RMB 3.4 million for the six months ended June 30, 2022 to approximately RMB 4.8 million (USD 0.7 million) for the six months ended June 30, 2023. This increase was primarily due to the increase of sales and marketing activities for our business development.
General and administrative expenses increased by approximately RMB 0.7 million, or 6.5%, from RMB 11.2 million for the six months ended June 30, 2022 to approximately RMB 11.9 million (USD 1.7 million) for the six months ended June 30, 2023. This increase was primarily due to the increase of administrative costs.
Research and development expenses decreased by approximately RMB 26.3 million, or 34.7%, from approximately RMB 75.8 million for the six months ended June 30, 2022 to approximately RMB 49.5 million (USD 7.1 million) for the six months ended June 30, 2023. The decrease was primarily due to that the volume of research and development activities has decreased.
F-3
Other income (expenses), net
Total net other income was approximately RMB 0.9 million for the six months ended June 30, 2022 compared to other expenses, net of approximately RMB 1.9 million (USD 0.3 million) for the six months ended June 30, 2023.
Financial Income, net. We had net financial Income of approximately RMB 0.3 million and RMB 1.8 million (USD 0.3 million) which consisted primarily of bank charges and interest income for the six months ended June 30, 2022 and 2023, respectively. The increase was due to an increase in bank term deposits for the six months ended June 30, 2023.
Other income, net. We had net other income of approximately RMB 0.6 million and RMB 0.1 million for the six months ended June 30, 2022 and 2023, respectively.
Benefit of income taxes
Our benefit of income taxes amounted to approximately RMB 1.7 million for the six months ended June 30, 2022. Our benefit of income taxes amounted to approximately RMB 1.0 million (USD 0.1 million) for the six months ended June 30, 2023.
Our benefit of deferred income tax decreased by approximately RMB 0.8 million from approximately RMB 1.7 million for the six months ended June 30, 2022 to approximately RMB 0.9 million (USD 0.1 million) for the six months ended June 30, 2023, and the decrease was mainly due to the fact that we incurred less amortization expenses as the intangible assets were amortized.
Net income
As a result of the combination of factors discussed above, our net income decreased from approximately RMB 36.7 million for the six months ended June 30, 2022 to approximately RMB 29.0 million (USD 4.2 million) of net loss for the six months ended June 30, 2023.
Net income attributable to MicroCloud Hologram Inc.
After deducting non-controlling interest of approximately RMB 0.3 million (USD 50,386), net income attributable to holding company decreased from approximately RMB 36.7 million for the six months ended June 30, 2022 to net loss of approximately RMB 28.7 million (USD 4.1 million) for the six months ended June 30, 2023.
Basic and diluted earnings per share
Basic and diluted earnings per share was RMB 0.28 for the six months ended June 30, 2022, compared to basic and diluted loss per share of RMB 1.43 (USD 0.21) for the six months ended June 30, 2023. There was no dilution effect of unvested stock compensation due to net loss.
Liquidity and Capital Resources
As of June 30, 2023, we had cash of RMB 136.3 million (USD 18.9 million). Our working capital was approximately RMB 134.2 million (USD 18.6 million) as of June 30, 2023. In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. To date, we have financed our working capital requirements through cash flow generated from operations, debt and equity financings.
Following the approval of the Business Combination, on September 16, 2022, we received net cash proceeds of USD 33.2 million from the closing of the Business Combination, net of certain transaction costs.
F-4
We are subject to risks and uncertainties frequently encountered by early-stage companies including, but not limited to, the uncertainty of successfully developing products, securing certain contracts, building a customer base, successfully executing business and marketing strategies, and hiring appropriate personnel.
To date, we have been funded primarily by cash flow generated from operations, interest-free advances by from MC shareholders prior to the closing of the Business Combination, and the net proceeds we received through the Business Combination. Failure to generate sufficient revenues, achieve planned gross margins and operating profitability, control operating costs, or secure additional funding may require us to modify, delay, or abandon some of our planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on our business, operating results, financial condition, and ability to achieve our intended business objectives.
The following table provides summary information about our net cash flow for financial statement periods presented in this report:
| For the Six Month Ended June 30 | ||||||||||||
| 2022 RMB | 2023 RMB | 2023 USD | ||||||||||
| Net cash provided by (used in) operating activities | 20,476,716 | (16,315,431 | ) | (2,355,952 | ) | |||||||
| Net cash provided by (used in) investing activities | 11,517,307 | (945,488 | ) | (136,529 | ) | |||||||
| Net cash provided by (used in) financing activities | 841,009 | (674,259 | ) | (97,363 | ) | |||||||
| Effect of exchange rate on cash and cash equivalents | 721,682 | 3,088,321 | (461,250 | ) | ||||||||
| Change in cash and cash equivalents | 33,556,714 | (14,846,857 | ) | (3,051,094 | ) | |||||||
| Cash and cash equivalents, beginning of period | 48,006,979 | 151,119,985 | 21,910,338 | |||||||||
| Cash and cash equivalents, end of period | 81,563,693 | 136,273,128 | 18,859,244 | |||||||||
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2023 was primarily attributable to net loss of approximately RMB 29.0 million (USD 4.2 million) adjusted by various non-cash items such as depreciation and amortization expenses, bad debt allowance of approximately RMB 19.1 million (USD 2.8 million) resulting in cash outflow of approximately RMB 9.9 million (USD 1.4 million) from net loss. Cash outflow was also attributable to the increase in accounts receivable of approximately RMB 0.7 million (USD 0.1 million) and prepayment of approximately RMB 4.1 million (USD 0.6 million) for professional services. Cash outflow was offset by inflow of approximately 1.8 million (USD 0.3 million) in accounts payable.
Net cash provided by operating activities for the six months ended June 30, 2022 was primarily attributable to net income of approximately RMB 36.7 million adjusted by various non-cash items such as depreciation and amortization expenses, bad debt allowance and deferred tax benefits of approximately RMB 3.6 million resulting in cash inflow of approximately RMB 40.3 million from net income. Cash inflow was also attributable to the increase in accounts payable approximately RMB 8.5 million and advance from customers approximately RMB 1.9 million with the expansion of business operation. Cash inflow was primarily offset by increase in accounts receivable approximately RMB 19.7 million along with along with the company’s increase in revenue, increase in prepayment approximately RMB 8.6 million for professional services, the increase in payment of various business tax RMB 1.9 million along with the expansion of business operation.
Investing Activities
Net cash used in investing activities was RMB 0.9 million (USD 0.1 million) for the six months ended June 30, 2023, primarily due to the investments in unconsolidated entities of RMB 0.6 million (USD 0.1 million).
Net cash provided by investing activities was RMB 11.5 million for the six months ended June 30, 2022, primarily due to the loan proceeds to third parties RMB 10.3 million and loan repayment from third parties RMB 23.7 million and purchased approximately RMB 1.8 million of property and equipment for our operations.
Financing Activities
Net cash used in financing activities for the six months ended June 30, 2023 was RMB 0.7 million (USD 0.1 million), primarily due to the repayments of third party loan of RMB 0.4 million (USD 0.1 million) and due to the repayments to related party of RMB 0.4 million (USD 0.1 million).
Net cash provided by financing activities for the six months ended June 30, 2022 was RMB 0.8 million, primarily due to the proceeds of a short term bank loan of RMB 0.5 million.
F-5