What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-14 compared with 2022-03-31 · 437 added, 251 removed, 1 unchanged (100% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the

financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the

notes related thereto which are included in “Item 8.

Financial Statements and Supplementary Data” of this Annual Report on

Certain information contained in the discussion and analysis set forth below includes forward-looking statements.

Note Regarding Forward-Looking Statements

statements other than statements of historical fact included in this Form 10-K including, without limitation, statements under “Management’s

Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business

strategy and the plans and objectives of management for future operations, are forward-looking statements.

When used in this Form 10-K,

words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and

similar expressions, as they relate to us or the Company’s management, identify forward-looking statements.

Such forward-looking

statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s

Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors

detailed in our filings with the SEC.

following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial

statements and the notes thereto contained elsewhere in this Report.

Certain information contained in the discussion and analysis set

forth below includes forward-looking statements that involve risks and uncertainties.

blank check company incorporated in the Cayman Islands on May 9, 2018.

We are formed for the purpose of effecting a merger,

share exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more

businesses in a Business Combination.

Although we are not limited to a particular industry or geographic region for purposes

of consummating a Business Combination, we intend to focus on businesses that have a connection to the Asian market.

an early stage and emerging growth company and, as such, we are subject to all of the risks associated with early stage and

emerging growth companies.

We intend to effectuate our initial business combination using cash from the proceeds of the IPO

and the private placement of the private placement units, the proceeds of the sale of our securities in connection with our

initial business combination (pursuant to backstop agreements we may enter into following the consummation of the IPO or

otherwise), our shares, debt or a combination of cash, stock and debt.

issuance of additional shares in a Business Combination:

significantly dilute the equity interest of investors in the IPO;

may subordinate

the rights of holders of ordinary shares if preference shares are issued with rights senior to those afforded our ordinary shares;

could cause a change of

control if a substantial number of our ordinary shares are issued, which may affect, among other things, our ability to use our net

operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;

may have the effect of

delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control

may adversely affect prevailing

market prices for our ordinary shares and/or warrants.

if we issue debt securities, it could result in:

foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations;

acceleration of our obligations

to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require

the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;

our immediate payment of

all principal and accrued interest, if any, if the debt security is payable on demand;

our inability to obtain

necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the

debt security is outstanding;

our inability to pay dividends

on our ordinary shares;

using a substantial portion

of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our ordinary shares

if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;

limitations on our flexibility

in planning for and reacting to changes in our business and in the industry in which we operate;

increased vulnerability

to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;

limitations on our ability

to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy

and other purposes and other disadvantages compared to our competitors who have less debt.]

On September 10, 2021, we,

MC and the Merger Sub, entered into the Merger Agreement.

to the Merger Agreement, upon the terms and subject to the conditions of the Merger Agreement and in accordance with the Cayman Islands

Companies Act (As Revised), the parties intend to effect a business combination transaction whereby the Merger Sub will merge with and

into MC, with MC being the surviving entity and becoming a wholly owned Subsidiary of the Company on the terms and subject to the conditions

set forth in the Merger Agreement and simultaneously with the closing, the Company will change its name to “MicroCloud Hologram

Board of Directors of both the Company and MC and the stockholders of MC have approved the Merger Agreement and the transactions contemplated

to the Merger Agreement, the Merger is structured as a stock for stock transaction and is intended to be qualified as a tax-free reorganization.

The terms of the Merger provide for a valuation of MC and its subsidiaries and businesses of $450,000,000.

Based upon a per share value

of $10.10 per share, the stockholders of MC will receive approximately 44,554,455 ordinary shares of the Company which will represent

approximately 84.07% of the combined outstanding shares following the closing, assuming no redemptions by our stockholders and assuming

conversion of our outstanding rights into 602,050 ordinary shares.

of the transactions contemplated by the Merger Agreement are subject to customary conditions of the respective parties, including the

approval of the Merger Agreement by our shareholders.

Other than as specifically discussed, this report does not assume the closing of

the business combination with MC.

of Operations

entire activity from inception up to June 24, 2021 was in preparation for the initial public offering.

Since the initial public offering,

our activity has been limited to the evaluation of business combination candidates and activities in connection with the proposed acquisition of MC, and we will not be generating any operating revenues

until the closing and completion of our initial business combination.

We expect to incur increased expenses as a result of being a public

company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

We expect our expenses

to increase substantially after this period.

the year ended December 31, 2021, we had a net loss of $740,299, which was comprised of change in fair value of warrant liabilities,

dividend income and general and administrative expenses.

For the year ended December

31, 2020, we had a net loss of $32,267, which consists of formation and operating costs.

and Capital Resources

On June 24, 2021, we consummated

the Initial Public Offering of 5,750,000 ordinary units (the “Public Units”), which includes the full exercise by our underwriter

of its over-allotment option in the amount of 750,000 Public Units, at $10.00 per Public Unit, generating gross proceeds of $57,500,000.

Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 270,500 units (the “Private Units”)

at a price of $10.00 per Private Unit in a private placement to Greenland Asset Management Corporation (the “Sponsor”), generating

gross proceeds of $2,705,000.

costs amounted to $2,887,500, consisting of $1,150,000 of underwriting fees, $1,437,500 of deferred underwriting fees and $300,000 of

other offering costs.

of December 31, 2021, cash of $48,955 was held outside of the Trust Account and is available for the payment of offering costs and for

working capital purposes.

We intend to use the funds held outside the Trust Account primarily to identify and evaluate prospective acquisition

candidates, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations

of prospective target businesses, review corporate documents and material agreements of prospective target businesses, select the target

business to acquire and structure, negotiate and consummate a Business Combination.

Sponsor had previously advanced expenses or loaned the Company the sum of $453,364, evidenced in part by a note dated as of December

19, 2020 which loan was payable upon the earlier of completion of the IPO or December 31, 2021.

In connection with the completion of

the IPO, the note was repaid in full via an offset of certain amounts due under the Private Placement subscription.

addition, in order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate

of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required.

If we complete

our initial business combination, we would repay such loaned amounts out of the proceeds of the trust account released to us.

such loans would be repaid only out of funds held outside the trust account.

In the event that our initial business combination does

not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from

our trust account would be used to repay such loaned amounts.

Up to $1,500,000 of such loans may be convertible into units at a price

of $10.00 per unit at the option of the lender.

of December 31, 2021 and 2020, we had temporary advances of $164,740 and $36,784 from a related party for the payment of costs related

to our business combination transaction and the Initial Public Offering respectively.

The balance is unsecured, interest-free and has

no fixed terms of repayment.

than potential loans from our sponsor we do not believe we will need to raise additional funds following the IPO in order to meet the

expenditures required for operating our business.

However, if our estimates of the costs of identifying a target business, undertaking

in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have

insufficient funds available to operate our business prior to our initial business combination.

Moreover, we may need to obtain additional

financing either to complete our initial business combination or because we become obligated to redeem a significant number of our public

shares upon completion of our initial business combination, in which case we may issue additional securities or incur debt in connection

with such business combination.

If the Company is unable to

raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily

be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses.

The Company cannot

provide any assurance that new financing will be available to it on commercially acceptable terms, if at all.

These conditions raise substantial

doubt about the Company’s ability to continue as a going concern through one year from the date of these financial statements if

a Business Combination is not consummated.

These consolidated financial statements do not include any adjustments relating to the recovery

of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a

going concern.

sheet financing arrangements

have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2021.

participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable

interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements.

We have not entered

into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other

entities, or purchased any non-financial assets.

December 31, 2021, we have long-term liabilities, other than an agreement to pay an affiliate of our sponsor a monthly fee of $10,000

for office space, administrative and support services provided to the Company.

We began incurring these fees on June 24, 2021 and will

continue to incur these fees monthly until the earlier of the completion of the business combination and the Company’s liquidation.

did not have any long-term debt, capital lease obligations or operating lease obligations.

However, we are committed to the below:

to a registration rights agreement entered into on June 24, 2021 the holders of the Founder Shares, Private Units (and their underlying

securities) and any Units that may be issued upon conversion of the Working Capital Loans (and underlying securities) are entitled to

registration rights.

The holders of these securities are entitled to make up to three demands, excluding short form demands, that we

In addition, the holders have certain “piggy-back” registration rights with respect to registration

statements filed subsequent to the consummation of a Business Combination and rights to require us to register for resale such securities

pursuant to Rule 415 under the Securities Act.

We will bear the expenses incurred in connection with the filing of any such registration

have an agreement to pay the underwriters a deferred fee of two and one-half percent (2.5%) of the gross proceeds of the initial public

offering, or $1,437,500.

Accounting Policies

preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United

States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure

of contingent assets and liabilities at the date of the financial statements, and income and expenses during the years reported.

results could materially differ from those estimates.

We have identified the following critical accounting policies:

We account 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 our own ordinary shares and whether the warrant

holders could potentially require “net cash settlement” in a circumstance outside of our 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

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 statements of operations.

We have elected to account

for its Public Warrants as equity and the Private Warrants as liabilities.

shares subject to possible redemption

account for its ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities

from Equity .

Ordinary share subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair

Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the

control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified

as temporary equity.

At all other times, ordinary shares are classified as shareholders’ equity.

As of December 31, 2021, our ordinary

shares feature certain redemption rights that are considered to be outside of our control.

5,750,000 ordinary shares subject to possible

redemption are presented as temporary equity, outside of the shareholders’ equity section of our balance sheet.

loss per share

calculate net loss per share in accordance with ASC Topic 260, Earnings per Share .

In order to determine the net income (loss)

attributable to both the redeemable shares and non-redeemable shares, we first considered the undistributed income (loss) allocable to

both the redeemable ordinary shares and non-redeemable ordinary shares and the undistributed income (loss) is calculated using the total

net loss less any dividends paid.

We then allocated the undistributed income (loss) ratably based on the weighted average number of shares

outstanding between the redeemable and non-redeemable ordinary shares.

Any remeasurement of the accretion to redemption value of the

ordinary shares subject to possible redemption was considered to be dividends paid to the public stockholders.

As of December 31, 2021,

we have not considered the effect of the warrants sold in the Initial Public Offering to purchase an aggregate of 1,454,000 shares in

the calculation of diluted net loss per share, since the exercise of the warrants is contingent upon the occurrence of future events

and the inclusion of such warrants would be anti-dilutive and we did not have any other dilutive securities and other contracts that

could, potentially, be exercised or converted into ordinary share and then share in our earnings.

As a result, diluted loss per share

is the same as basic loss per share for the years presented.

net loss per share presented in the consolidated statement of operations is based on the following:

For the Years Ended

Accretion of carrying value to redemption value

$ (4,823,363 )

For the Year Ended

December 31, 2021

For the Year Ended

December 31, 2020

Redeemable Ordinary shares

Non-Redeemable Ordinary shares

Redeemable Ordinary shares

Non-Redeemable Ordinary shares

Basic and diluted net loss per share:

Allocation of net loss including carrying value to redemption value

$ (3,158,084 )

$ (1,665,279 )

Accretion of carrying value to redemption value

Allocation of net income (loss)

$ (1,665,279 )

Denominators:

Weighted-average shares outstanding

Basic and diluted net income (loss) per share

accounting pronouncements

does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material

effect on our financial statements.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K.

In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties.

Our actual results could differ materially from those discussed in the forward-looking statements.

Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”

are one of the leading holographic digitalization technology service providers in China in terms of total revenue and the number of total

intellectual property rights.

As of December 31, 2022, we owned 2,218 works of copy right, which represents a significant market leading

position as compared to our competitors in China.

We are committed to providing leading holographic technology services to our customers

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 have 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 have 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

Path Acquisition Corporation (“Golden Path”) was a former blank check company incorporated in Cayman Island on

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.

For additional detail regarding Golden Path’s

initial public offering and related transactions, see Note 1 — “Nature of business and organization” to the

consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional details.

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.

to the Merger Agreement, MC would merge with 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.

As of August 17, 2022, the record date for the Extraordinary General Meeting (“Record Date”), there were 7,458,000 Golden Path ordinary shares issued and outstanding and entitled to vote.

At the Extraordinary General Meeting, a total of 6,106,914 (or 81.88%) of Golden Path’s issued and outstanding ordinary shares, in each case held as of the Record Date, were present either in person or by proxy, which collectively constituted a quorum for the transaction of business.

Golden Path’s shareholders voted on and approved each of the proposals (except on the proposal of adjournment, as explained below), including the business combination proposal.

Detailed descriptions of each proposal are included in Golden Path’s Definitive Proxy Statement filed on Schedule 14A (File No.

001-40519) with the SEC on August 12, 2022.

The proposal to approve the adjournment of the Extraordinary General Meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies was deemed not necessary and not acted upon at the Extraordinary General Meeting.

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.

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.

Please refer to

Note 1 — “Nature of business and organization” to the consolidated financial statements in Item 8 of this

Annual Report on Form 10-K for additional details.

Key Components of Results of Operations

Effective January 1, 2019, we adopted ASC 606, Revenue from Contracts with Customers (“Topic 606”), applying the modified retrospective method to all contracts that were not completed as of January 1, 2019.

Results for the years ended December 31, 2021 and 2022 are presented under Topic 606.

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 we expect to be entitled to receive in exchange for those goods or services.

We generate revenues primarily through (i) sales of product related to holographic solutions services, which include LiDAR and other holographic technology hardware products, licensing and content products, and technology development service, and (ii) services related to holographic technology services, which include holographic technology advertising, software development kit (“SDK”) service, and game promotion services.

The following table presents our revenues disaggregated by revenue sources, both in absolute amount and as a percentage of our revenues, for the periods presented.

For the years ended December 31,

Operating revenues

Total operating revenues

Cost of revenues

Our cost of revenues primarily includes (i) the costs of hardware products sold and cost paid to outsourced content providers, cost of third-party software development, and compensation expenses paid to our professionals related to the product sales and (ii) the costs paid to channel distributors of advertising services and compensation expenses paid to our professionals related to our service revenues.

The table below sets forth a breakdown of our cost of revenues for the periods indicated, both in absolute amount and as a percentage of our revenues:

For the years ended December 31,

Cost of revenues

Total cost of revenues

Selling expenses

As of December 31, 2022, our selling expenses consist primarily of (i) compensation for selling personnel, (ii) travel expenses of our sales representatives, and (iii) advertising and promotion cost, etc.

Our selling expenses as a percentage of revenues were 1.8% and 1.5% for the years ended December 31, 2022 and 2021, respectively.

General and administrative expenses

As of December 31, 2022, our general and administrative expenses consist primarily of (i) compensation for our management and administrative personnel, (ii) expenses in connection with our operation supporting functions such as legal, accounting, consulting and other professional service fees, and (iii) office rental, depreciation, and other administrative related expenses.

Our general and administrative expenses as a percentage of revenues were 4.7% and 5.6% for the years ended December 31, 2022 and 2021, respectively.

Research and Development Expenses (“R&D expenses”)

Our research and development expenses include salaries and other compensation-related expenses to our research and product development personnel, outsourced subcontractors, as well as office rental, depreciation, and related expenses for our research and product development team.

Our research and development expenses as a percentage of revenues were 67.9% and 40.5% for the years ended December 31, 2022 and 2021, respectively.

Change in Fair Value of Warrant Liabilities

We account for the outstanding warrants in accordance with the guidance contained in ASC 815-40-15-7D and 7F.

We have determined that the Private Warrants do not meet the criteria for equity treatment and is recorded as liabilities.

We classified the Private Warrants as liabilities at their fair value and adjusts the Private Warrants to fair value at each presented period.

We determined that our Public Warrants qualify for equity treatment.

Warrant liability is subject to re-measurement at each audited consolidated Balance Sheet until exercised, and any change in fair value is recognized in our audited consolidated Statements of Income.

The Private Warrants are valued using a Black Scholes model.

Cayman Islands

We are incorporated in the Cayman Islands.

Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gain in the Cayman Islands.

Additionally, no withholding tax will be required on payments of dividends by us to our shareholders.

Quantum Edge HK Limited, our subsidiary incorporated in Hong Kong, is subject to a two-tiered income tax rate for taxable income earned in Hong Kong.

The first HK$2 million of profits earned by a company is subject to be taxed at an income tax rate of 8.25%, while the remaining profits will continue to be taxed at the existing tax rate of 16.5%.

No provision for Hong Kong profits tax has been made in the audited consolidated financial statements as it has no assessable profit for the year ended December 31, 2021 and 2022.

The subsidiaries incorporated in the PRC are governed by the income tax laws of the PRC and the income tax provision for operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof.

Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), domestic enterprises and Foreign Investment Enterprises (the “FIE”) are subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemptions may be granted on a case-by-case basis.

EIT grants preferential tax treatment to certain High and New Technology Enterprises (“HNTEs”).

Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years.

Shanghai Mengyun obtained the “high-tech enterprise” tax status in October 2017 and further renewed in December 2020, which reduced its statutory income tax rate to 15% from January 2017 to December 2023.

Shenzhen Mengyun obtained the “high-tech enterprise” tax status in November 2018 and further renewed in December 2021, which reduced its statutory income tax rate to 15% from January 2018 to December 2024.

Shenzhen Bowei obtained the “high-tech enterprise” tax status in December 2021, which reduced its statutory income tax rate to 15% from December 2021 to December 2024.

Horgos Weiyi, Horgos Youshi, Horgos Bowei and Horgos Tianyuemeng were formed and registered in Horgos in Xinjiang Province, China from 2016 to 2020, and Kashgar Youshi was formed and registered in Kashgar in Xinjiang Provence, China in 2016.

These companies are not subject to income tax for 5 years and can obtain another two years of tax-exempt status and three years at reduced income tax rate of 12.5% after the 5 years due to the local tax policies to attract companies in various industries.

The Ministry of Finance (“MOF”) and State Administration of Taxation (“SAT”) on January 17, 2019 jointly issued Cai Shui 2019 No.

This clarified that from January 1, 2019 to December 31, 2021, eligible small enterprises whose RMB 1,000,000 of annual taxable income is eligible for a 75% reduction on a rate of 20% (i.e., effective rate is 5%) and the income between RMB 1,000,000 and RMB 3,000,000 is eligible for 50% reduction on a rate of 20% (i.e., effective rate is 10%).

On April 2, 2021, MOF and SAT further jointly issued Cai Shui 2021 No.

12, which clarified that from January 1, 2022 to December 31, 2022, eligible small enterprises whose RMB 1,000,000 of annual taxable income is eligible for an extra 50% reduction base on Cai Shui 2019 No.

13 (i.e., effective rate is 2.5%).

On March 14, 2022, MOF and SAT further jointly issued Cai Shui 2022 No.

13, which clarified that from January 1, 2022 to December 31, 2022, eligible small enterprises whose income between RMB 1,000,000 and RMB 3,000,000 is eligible for an extra 50% reduction base on Cai Shui 2019 No.

13 (i.e., effective rate is 5%).

For the years ended December 30, 2021 and 2022, Shenzhen Tianyuemeng and Shenzhen Yunao were eligible to employ this policy.

savings for those entities in Xinjiang province including Horgos Weiyi, Horgos Youshi, Horgos Bowei, Kashgar Youshi and Horgos

Tianyuemeng and for those entities eligible for small enterprises including Shenzhen Tianyuemeng and Shenzhen Yunao and HNTEs

including Shanghai Mengyun, Shenzhen Mengyun and Shenzhen Bowei for the years ended December 31, 2022 and 2021 amounted to $186,403

and $431,109, respectively.

Our PRC subsidiaries are subject to value added tax, or VAT, at a rate of 6% on services and 13% on

goods in China.

We are also subject to surcharges on VAT payments in accordance with PRC laws.

Critical Accounting Policies and Estimates

Our audited consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods and the related disclosures in the audited consolidated financial statements and accompanying footnotes.

Out of our significant accounting policies, which are described in “Note 2—Summary of principal accounting policies” of our audited consolidated financial statements included under Item 8 of Part II in this Annual Report, certain accounting policies are deemed “critical,” as they require our management’s highest degree of judgment, estimates and assumptions.

While our management believes our judgments, estimates and assumptions are reasonable, they are based on information presently available and actual results may differ significantly from those estimates under different assumptions and conditions.

Principles of consolidation

The audited consolidated financial statements include the financial statements of MicroCloud and its subsidiaries.

All significant intercompany transactions and balances between MicroCloud and its subsidiaries are eliminated upon consolidation.

Subsidiaries are those entities in which MicroCloud, 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

preparation of audited 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 audited consolidated financial statements and the reported amounts of revenues and expenses during the periods presented.

Significant accounting estimates reflected in our audited 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, revenue recognition,

inventory reserve, purchase price allocation for business combination, uncertain tax position, and deferred taxes.

Actual results could

differ from these estimates.

We account for our outstanding Warrants in accordance with the guidance contained in ASC 815-40-15-7D

Management has determined that under the Private Warrants do not meet the criteria for equity treatment and must be recorded

as liabilities.

Accordingly, we classify 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.

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.

The Private Warrants are valued using a Black Scholes model.

Foreign currency translation and transaction

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing on the dates of the transaction.

Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates on the date of the balance sheet.

The resulting exchange differences are recorded in the statement of operations.

The reporting currency of the Company and its subsidiaries is U.S.

dollars (“US$”) and the consolidated financial statements have been expressed in US$.

However, the Company maintains the books and records in its functional currency, Chinese Renminbi (“RMB”), being the functional currency of the economic environment in which its operations are conducted.

In general, for consolidation purposes, assets and liabilities of the Company and its subsidiaries whose functional currency is not the US$, are translated into US$, using the exchange rate on the balance sheet date.

Revenues and expenses are translated at average rates prevailing during the period.

The gains and losses resulting from translation of financial statements of the Company and its subsidiaries and former VIEs are recorded as a separate component of accumulated other comprehensive loss within the consolidated statements of changes in stockholders’ equity.

Translation of amounts from RMB into US$ has been made at the following exchange rates for the respective periods:

Balance sheet items, except for equity accounts

Items in the statements of income and comprehensive income, and statements of cash flows

Goodwill represents the excess of the consideration paid for 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 down to its fair value and the loss is recognized in the consolidated statements of income and comprehensive income.

Impairment losses on goodwill are not reversed.

We have 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 we believe, 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.

We compare the fair values of each reporting unit to its carrying amount, including goodwill.

If the fair value of the 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 discounted cash flows.

Impairment for long-lived assets

Long-lived assets, including property and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable.

We assess the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset.

If an impairment is identified, we would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values.

For the years ended December 31, 2022 and 2021, no impairment of long-lived assets was recognized.

Investments in unconsolidated entities

Our investments in unconsolidated entities consist of equity investments without readily determinable fair value.

We follow ASC Topic 321, Investments Equity Securities (“ASC 321”) to account for investments that do not have readily determinable fair value and over which we do not have significant influence.

We use the measurement alternative to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any.

impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than temporary.

For the years ended of December 31, 2022 and 2021, the Company made $237,777 and nil impairment for investments in unconsolidated

entities, respectively.

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 our consolidated statements of income and comprehensive income.

The results of operations of the acquired business are included in our operating results from the date of acquisition.

Fair value measurement

GAAP 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 us.

GAAP defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures.

The three levels are defined as follow:

inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

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.

inputs to the valuation methodology are unobservable and significant to the fair value.

Financial instruments included in current assets and current liabilities are reported in the audited consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.

Noncontrolling Interests

Our noncontrolling interests represent the minority shareholders’ ownership interests related to our subsidiaries, including 44% for Ocean HK and its subsidiaries.

The noncontrolling interests are presented in the consolidated balance sheets separately from equity attributable to our shareholders.

Noncontrolling interests in the results of us are presented on the consolidated statement of income as allocations of the total income or loss for the year ended December 31, 2022 between noncontrolling interest holders and our shareholders.

Common Stock Warrants

We account for common stock warrants as either equity instruments or liabilities in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), depending on the specific terms of the warrant agreement.

See Item 8 of Part II “Financial statements—Note 20—Warrant liabilities”.

Revenue recognition

Effective January 1, 2019, we adopted ASC Topic 606 using the modified retrospective adoption method.

We primarily sell our products to hospitals and medical equipment companies.

Revenue is recognized when the following 5-step revenue recognition criteria are met:

Identify the contract with a customer

Identify the performance obligations in the contract

Determine the transaction price

Allocate the transaction price

Recognize revenue when or as the entity satisfies a performance obligation

Our revenue recognition policies effective upon the adoption of ASC 606 are as follows:

(i) Holographic Solutions

Holographic Technology LiDAR Products

We generate LiDAR revenue through selling integrated circuit board embedded with holographic software.

We typically enter 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.

Our performance obligation is to deliver products according to contract specifications.

We recognize product revenues at a point in time when the control of products are transferred to customers.

Holographic Technology Intelligence Vision software and Technology Development Service

We generate revenue by developing ADAS software and technology, which are generally on a fixed-priced basis.

We have no alternative use for the customized software and we have 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 our 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 December 31, 2022 and 2021, our aggregate amount of transaction price allocated to unsatisfied performance obligation is $384,489 and $67,535.

Assumptions, risks and uncertainties inherent in the estimates used to measure progress could affect the amount of revenues, receivables and deferred revenues at each reporting period.

We have a long history of developing various ADAS software resulting in its ability to reasonably estimate the progress toward completion on each fixed price customized contracts.

Holographic Technology Licensing and Content Products

We provide 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.

Holographic Technology Hardware Sales

We are 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.

We evaluate three indicators of control in accordance with ASU 2016-08:

1) for hardware sales, we are 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) we assume inventory risk after taking the title from vendors and are responsible for product damage during shipment period prior to acceptance of its customers and are also responsible for product return if the customer is not satisfied with the products.

3) we determine the resale price of hardware products.

4) we are the party that direct 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, we consider ourselves the principal of these arrangements and record 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 we have delivered products and the acceptance by our customer with no future obligation.

We generally permit 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.

We enter 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.

We provide our 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.

We consider ourselves as provider of the services under the CPA model as we have the control of the services at any time before they are transferred to the customers, which is evidenced by 1) having a right to a service to be performed by the other party, which gives us the ability to direct that party to provide the service to the customers on our 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, we act as the principal of these arrangements and reports revenue earned and costs incurred related to these transactions on a gross basis.

We also provide advertisement services through influencers on social networks.

We charge 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.

Our 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.

We recognize 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.

We also provide game promotion services for game developers and licensed game operators.

We 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.

We contract 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.

Our obligation in the promotion services is completed at a point in time when the game players made a payment to purchase virtual currency.

We considered itself an agent in these arrangements since we do not control the services at any time.

Accordingly, we record the game promotion service revenue on a net basis.

Contract balances:

We record receivable related to revenue when we have 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 revenues.

Our disaggregate revenue streams are summarized and disclosed in “Note 22—Segments” of our audited consolidated financial statements included under Item 8 of Part II in this Annual Report.

Operating leases

Effective January 1, 2022, we adopted ASU No.

2016-02, Leases (Topic 842), as amended, which supersedes the lease accounting guidance under Topic 840.

We elected to apply practical expedients permitted under the transition method that allow them to use the beginning of the period of adoption as the date of initial application, to not recognize lease assets and lease liabilities for leases with a term of twelve months or less, to not separate non-lease components from lease components, and to not reassess lease classification, treatment of initial direct costs, or whether an existing or expired contract contains a lease.

We used modified retrospective method.

Under the new lease standard, we determine if an arrangement is or contains a lease at inception.

Right-of-use assets and liabilities are recognized at lease commencement date based on the present value of remaining lease payments over the lease terms.

We consider only payments that are fixed and determinable at the time of lease commencement.

At the commencement date, the lease liability is recognized at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our incremental borrowing rate for the same term as the underlying lease.

The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred.

All right-of-use assets are reviewed for impairment annually.

There is no impairment for right-of-use lease assets as of December 31, 2022 and 2021.

Upon adoption, we recognized ROU assets of $0.9 million and total lease liabilities (including current and non-current) of $0.9 million for operating leases, based on the present value of the remaining minimum rental payments under existing operating leases.

The impact of adopting ASC 842 on our opening retained earnings, current year net income and current year cash flow was insignificant.

As of December 31, 2022, we recognized operating lease ROU assets of $0.6 million and total lease liabilities of $0.6 million, including current portion of $0.2 million for operating leases.

Valuation allowance of deferred tax assets

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.

We consider positive and negative evidence when determining whether a portion or all of its deferred tax assets will more likely than not be realized.

This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carry-forward periods, its experience with tax attributes expiring unused, and its tax planning strategies.

The ultimate realization of deferred tax assets is dependent upon its ability to generate sufficient future taxable income within the carry-forward periods provided for in the tax law and during the periods in which the temporary differences become deductible.

When assessing the realization of deferred tax assets, we consider possible sources of taxable income including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry-forwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected within the industry.

Results of Operations

The results of operations presented below should be reviewed in conjunction with the audited consolidated financial statements and notes included elsewhere in this Annual Report.

The following table sets forth our audited consolidated results of operations data and as percentages of total operating revenues for the periods presented:

OPERATING REVENUES

Total Operating Revenues

COST OF REVENUES

Total Cost of Revenues

OPERATING EXPENSES

Provision for doubtful accounts

Selling expenses

General and administrative expenses

Research and development expenses

Total operating expenses

(LOSS)/INCOME FROM OPERATION

CHANGE IN FAIR VALUE OF WARRANT LIABILITY

OTHER INCOME/(EXPENSE)

Finance income, net

Impairment loss for unconsolidated entities

Other income, net

Total other income, net

(LOSS)/INCOME BEFORE INCOME TAXES

BENEFIT FOR INCOME TAX

NET (LOSS)/INCOME

Year Ended December 31, 2022 compared to Fiscal Year Ended December 31, 2021

Operating Revenues .

Our total operating revenues increased by approximately 28.8% from $56.3 million for the year ended December 31, 2021 to $72.5 million for the year ended December 31, 2022.

The products revenues increased by approximately 15.4% from $16.0 million for the year ended December 31, 2021 to $18.5 million for the year ended December 31, 2022, primarily due to the demands increased from our customers on the holographic solutions and our successful business development in 2022.

The services revenues increased by approximately 34.2% from $40.2 million for the year ended December 31, 2021 to $54.0 million for the year ended December 31, 2022, primarily due to the business development on the advertising and promotion services in 2022.

Cost of Revenue .

Our cost of revenue increased by approximately 130.7% from $17.0 million for the year ended December 31, 2021 to $39.3 million for the year ended December 31, 2022.

The cost of products sales increased by approximately 18.7% from $12.9 million for the year ended December 31, 2021 to $15.3 million for the year ended December 31, 2022.

The cost of services increased by approximately 481.6% from $4.1 million for the year ended December 31, 2021 to $24.0 million for the year ended December 31, 2022, primarily due to our significant increased service cost paid to our outsourcing suppliers and content providers as a result of the demand increased from our customers for the advertising and promotion services developed in 2022.

Gross Profit and Gross Margin .

As a result of the factors set out above, our gross profit decreased by approximately 15.4% from $39.2 million for the year ended December 31, 2021 to $33.2 million for the year ended December 31, 2022.

Our gross margin decreased from 69.7% for the year ended December 31, 2021 to 45.8% for the year ended December 31, 2022 as the increase of our outsourcing costs exceeded the increase in revenues on our advertising and promotion business.

Provision for doubtful accounts.

Our provision for doubtful accounts increased by approximately 446.9% from $0.1 million for the year ended December 31, 2021 to $0.4 million for the year ended December 31, 2022, primarily due to the allowance accrued in 2022 based on management’s best estimates of specific losses on individual customer exposures.

Selling Expenses .

Our selling and marketing expenses increased by approximately 58.9% from $0.8 million for the year ended December 31, 2021 to $1.3 million for the year ended December 31, 2022.

This increase was primarily due to the increase of sales and marketing activities for our business development in 2022.

General and Administrative Expenses .

Our general and administrative expenses increased by approximately 8.3% from $3.1 million for the year ended December 31, 2021 to $3.4 million for the year ended December 31, 2022.

This increase was primarily due to the increasing costs for supporting our expanding business in 2022.

Research and Development Expenses.

Our research and development expenses increased by approximately 115.8% from $22.8 million for the year ended December 31, 2021 to $49.2 million for the year ended December 31, 2022.

The increase was primarily due to the continued research and development activities focused on enhancing our holographic LiDAR technology, holographic algorithm architecture, holographic digital twin technology and image processing technology, intelligent hardware technology, and holographic intelligent vision technology to create novel service and product offerings in 2022.

Income/(loss) from Operations .

As a result of the factors set out above, we had approximately $21.1 million operating loss for the year ended December 31, 2022 and $12.4 million operating income for the year ended December 31, 2021.

Change in Fair Value of Warrant Liability.

We recorded change in fair value of warrant liability of $0.7 million and nil for the years ended December 31, 2022 and 2021, respectively.

We classified the Private Warrants as liabilities at their fair value and adjusts the Private Warrants to fair value at each presented period.

Warrant liability is subject to re-measurement at each audited consolidated Balance Sheet until exercised, and any change in fair value is recognized in our audited consolidated Statements of Income.

The Private Warrants are valued using a Black Scholes model.

Interest Income, net .

We had net interest income of approximately $0.2 million and $0.1 million which consisted primarily of interest earned from our cash and cash equivalents for the year ended December 31, 2022 and 2021, respectively.

Impairment loss for unconsolidated entities .

We recorded impairment loss for unconsolidated entities of $0.2 million and nil for the years ended December 31, 2022 and 2021, respectively.

Other Income/(loss), net .

We recorded net other income of approximately $0.1 million and $0.2 million for the year ended December 31, 2022 and 2021, respectively.

Other income was mainly attributable to government subsidies in the form of cash and taxation award during COVID-19 pandemic period .

However, government subsidies in the form of cash and taxation award are discretionary in nature and we do not believe that the increase in government subsidies during the referenced period is reflective of a known trend.

Benefit for Income Tax .

Our income tax benefit was approximately $0.1 million and $0.1 million for the year ended December 31, 2022 and 2021, respectively, primarily due to the decrease of taxable income generated from operations in our subsidiaries in PRC for the year ended December 31, 2022 compared with for the year ended December 31, 2021.

As a result of the foregoing, we had net loss of approximately $20.3 million and net income of $12.8 million for the year ended December 31, 2022 and 2021, respectively.

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):

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.

We are still evaluating the impact of the adoption of this ASU on

our consolidated financial statements.

In October 2020, the FASB

issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables — Nonrefundable Fees and Other Costs”.

The amendments in this Update represent changes to clarify the Codification.

The amendments make the Codification easier to understand

and easier to apply by eliminating inconsistencies and providing clarifications.

ASU 2020-08 is effective for us for annual

and interim reporting periods beginning July 1, 2021.

Early application is not permitted.

All entities should apply the amendments

in this Update on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities.

These amendments do not change the effective dates for Update 2017-08.

The adoption of this new standard does not have material impact

on our consolidated financial statements and related disclosures.

as mentioned above, we do not believe other recently issued but not yet effective accounting standards, if currently adopted,

would have a material effect on our consolidated balance sheets, statements of income and comprehensive income and statements

of cash flows.

Liquidity and Capital Resources

In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments.

Our liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations.

Cash flow from operations, advance from shareholders, and proceeds from third party loan have been utilized to finance our working capital requirements.

As of December 31, 2022, we had cash of $21.9 million.

Our working capital was approximately $23.0 million as of December 31, 2022.

We believe our revenues and operations will continue to grow and the current working capital is sufficient to support our operations and debt obligations as they become due one year through report date.

Following the approval of the Business Combination, on September 16, 2022, we received net cash proceeds of $33.2 million from then closing of the Business Combination, net of certain transaction costs.

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 our 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 sets forth a summary of our cash flows for the periods presented:

Net cash (used in)/provided by operating activities

Net cash provided by/(used in) investing activities

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, at the beginning of the period

Cash and cash equivalents, at the end of the period

Operating Activities

Historically, we have financed our operations primarily through cash generated from operations and borrowings from banks.

We currently anticipate that we will be able to meet our needs to fund operations in the next twelve months with operating cash flow and existing cash balances.

recorded net cash used in operating activities of $20.0 million for the year ended December 31, 2022.

The difference between our

net loss of $20.3 million and the net cash used in operating activities was primarily due to (i) an adjustment of $1.1 million in non-cash

items, which mainly consisted of depreciation and amortization of $1.3 million, provision for doubtful accounts of $0.4 million, deferred

tax benefits of $0.1 million and change in fair value of warrant liabilities of $0.7 million, (ii) an increase of accounts receivable

of $2.2 million, and (iii) an increase of prepayments and other current assets of $0.8 million, and was partially offset by an increase

of accounts payable of $2.1 million and advances from customers of $0.4 million.

Net cash provided by operating activities for the year ended December 31, 2021 was $16.2 million.

The difference between our net income of $12.8 million and the net cash generated from operating activities was primarily due to (i) an adjustment of $1.0 million in non-cash items, which mainly consisted of depreciation and amortization of $1.0 million, (ii) a decrease of accounts receivable of $1.8 million and a decrease of prepayment and other current assets of $0.7 million, (iii) a decrease of inventory of $0.4 million, and was partially offset by a decrease of accounts payable of $0.9 million.

Investing Activities

Net cash provided by investing activities was $1.7 million for the year ended December 31, 2022, primarily due to the loan repayment from third parties of $3.5 million, partially offset by the loan proceeds to third parties of $1.5 million and purchase of property and equipment of $0.3 million.

Net cash used in investing activities was $13.2 million for the year ended December 31, 2021, primarily due to (i) payments to related parties for the business acquisition of $7.8 million, (ii) loan proceeds to third parties of $14.2 million, partially offset by loan repayment from third parties of $9.1 million.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022 was $33.3 million, primarily due to an increase in the proceeds from capital contribution in reverse capitalization of $33.2 million.

cash used in financing activities for the year ended December 31, 2021 was $0.2 million, primarily due to the repayments to related parties

of $1.7 million offset by the repayments from related parties of $1.4 million.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are currently material or reasonably likely to be material to our financial position or results of operations.

Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis