UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FormFORM 10-Q

 

(MARK ONE)Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterquarterly period ended June 30, 2022March 31, 2023

or

 

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

 

For the transition period from            to            .

Commission File No. 001-40519

 

GOLDEN PATH ACQUISITION CORPORATIONMicroCloud Hologram Inc.

(Exact name of registrant as specified in its charter)

 

Cayman Islands001-440519n/a 00-0000000Not Applicable

(State or other jurisdiction
of incorporation)

incorporation or organization)

(Commission File Number)

(I.R.S. Employer

Identification No.)

Room 302Building AZhong Ke Na Neng Building,

100 Park AvenueYue Xing Sixth RoadNew YorkNanshan District, New YorkShenzhen10017,

People’s Republic of China518000

(Address of principal executive offices) (Zip Code)

 

+(917)86 (267-456907552291 2036

(Registrant’s telephone number, including area codecode)

 

N/AGolden Path Acquisition Corporation

100 Park Avenue, New York, New York 10017

(Former name, or former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classEach ClassTrading Symbol(s)Name of each exchangeEach Exchange on which registeredWhich Registered
Units, each consisting of one ordinary share,Ordinary Shares, par value $0.0001 one redeemable warrant to purchase one-half ordinaryper share and one right to acquire 1/10 of an ordinary shareGPCOUHOLOThe Nasdaq Stock Market LLC
Ordinary Share, Par value $0.0001GPCOThe Nasdaq Stock Market LLC
Redeemable warrants,Warrants, each warrant exercisable for one-half ordinary share at an exercise price of $11.50 per shareGPCOWThe Nasdaq Stock Market LLC
 HOLOW 
Rights, each right to receive one-tenth (1/10) of one ordinary shareGPCORThe Nasdaq Stock Market LLC

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes    No ☐

 

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

 

Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
 Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes   ☒ No ☐

 

Indicate the number of50,812,035 shares outstanding of each of the registrant’s classes of ordinary, shares,par value $0.0001 per share, outstanding as of the latest practicable date: As of August 10, 2022, there were 7,458,000March 31, 2023. ordinary shares outstanding of the Registrant (assuming all of the units issued in our initial public offering completed on June 24, 2021 were separated on such date).

 

 

 

 

GOLDEN PATH ACQUISITION CORPORATIONMicroCloud Hologram Inc.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022

TABLE OF CONTENTSFor the Quarterly Period Ended March 31, 2023

INDEX

Page
PartPART I. Financial InformationFINANCIAL INFORMATIONF-1
Item 1. Financial Statements (Unaudited)Financial Statements1
Unaudited Condensed Consolidated Balance SheetsF-11
Unaudited Condensed Consolidated Statements of Operations And Comprehensive LossIncome (Loss)F-22
Unaudited Condensed Consolidated Statements ofOf Changes inIn Shareholders’ DeficitEquityF-33
Unaudited Condensed Consolidated Statements of Cash FlowsF-44
Notes to Unaudited Condensed Consolidated Financial StatementsF-55
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations134
Item 3.Quantitative and Qualitative Disclosures RegardingAbout Market Risk546
Item 4.Controls and Procedures646
PartPART II. Other InformationOTHER INFORMATION7
Item 1 1.Legal Proceedings748
Item 1A 1A.Risk Factors748
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds750
Item 3.Defaults Upon Senior Securities750
Item 4.Mine Safety Disclosures750
Item 5.Other Information850
Item 6.Exhibits851
Part III. Signatures952

 

i

 

FORWARD LOOKING STATEMENTSEXPLANATORY NOTE

ThisOn September 16, 2022 (the “Closing Date”), MicroCloud Hologram Inc., a Cayman Islands exempted company (formerly known as Golden Path Acquisition Corporation (“Golden Path”)), consummated (the “Closing”) the previously announced Business Combination (as defined below) pursuant to the Business Combination and Merger Agreement dated September 10, 2021 (as amended on August 5, 2022 and August 10, 2022, the “Merger Agreement”), by and among Golden Path, Golden Path Merger Sub Corporation (“Golden Path Merger Sub”), a Cayman Islands exempted company incorporated for the purpose of effectuating the Business Combination, and MC Hologram Inc. (“MC”), a Cayman Islands exempted company. Please see “Item 1 Financial statements - Note 1 - Nature of Business and Organization” for additional detail regarding the Business Combination.

Unless stated otherwise, this Quarterly Report on Form 10-Q (this “Quarterly Report”) contains information about Golden Path before the Business Combination. References to the “Company,” “we,” “us,” “our,” in this Quarterly Report refer to Golden Path before the consummation of the Business Transaction or MicroCloud Hologram Inc. and/or its consolidated subsidiaries after the Business Combination, as the context suggests.

ii

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain statements related to future results, or states our intentions, beliefs, and expectations or predictions for the future, all of which are forward-looking statements withinas that term is defined in the meaning of Section 27A of thePrivate Securities Litigation Reform Act of 1933, or the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. The1995. Forward-looking statements contained in this report that are not purely historical are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or ourrepresent management’s expectations hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions,events. Forward-looking statements are forward-looking statements. Thetypically identified by words “anticipates,such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,“forecast,” “project,” “intend,” “plan,” “probably,” “potential,” “looking forward,” “continue,” and other similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “plan,” “possible,” “potential,” “predicts,” “project,” “should,” “would”“will,” and similar expressions may“would.” You can also identify forward-looking statements butby the absencefact that they do not relate strictly to historical or current facts. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of these words does not mean that a statement is not forward-looking.factors. Forward-looking statements in this Form 10-Q may include, for example, statements about our:concerning:

abilitychanges in the competitive environment, due to completemacroeconomic conditions or otherwise, or damage to our initial business combination;reputation;

 

successfluctuations in retainingcurrency exchange, interest or recruiting,inflation rates that could impact our financial condition or changes required in, our officers, key employees or directors following our initial business combination;results;

 

officerschanges in our accounting estimates and directors allocating their time to other businesses and potentially having conflicts of interest withassumptions on our business or in approving our initial business combination, as a result of which they would then receive expense reimbursements;financial statements;

 

the impact of, and potential ability to obtain additional financing to complete a business combination;challenges in complying with, laws and regulations of the jurisdictions in which we operate, particularly given the possibility of differing or conflicting laws and regulations, or the application or interpretation thereof, across such jurisdictions;

 

poolfailure to protect intellectual property rights or allegations that we have infringed on the intellectual property rights of prospective target businesses;others;

 

ability of our officersthe failure to retain, attract and directors to generate a number of potential investment opportunities;develop experienced and qualified personnel;

 

potential change in control if we acquire onethe effects of natural or more target businesses for shares;man-made disasters, including the effects of the COVID-19 and other health pandemics and the impacts of climate change;

 

public securities’ potential liquidityany system or network disruption or breach resulting in operational interruption or improper disclosure of confidential, personal, or proprietary data, and trading;resulting liabilities or damage to our reputation;

 

our ability to develop, implement, update and enhance new technology;

the lackactions taken by third parties that perform aspects of a market for our securities;business operations and client services; and

 

expectations regardingour ability to continue, and the time during which we will be an “emerging growth company” under the JOBS Act;

usecosts and risks associated with, growing and developing our business, and entering into new lines of proceeds not held in the trust accountbusiness or available to us from interest income on the trust account balance; or

financial performance following our IPO.products.

 

TheAny or all of our forward-looking statements containedmay turn out to be inaccurate, and there are no guarantees about our performance. The factors identified above are not exhaustive. We operate in this Form 10-Q are baseda dynamic business environment in which new risks may emerge frequently. Accordingly, readers should not place undue reliance on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements, involve a numberwhich speak only as of risks, uncertainties (some ofthe dates on which they are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.made. We undertakeare under no (and expressly disclaim any) obligation to update or revisealter any forward-looking statements,statement that we may make from time to time, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.

iiiii

 

PART I -I. FINANCIAL INFORMATION

Item 1.Financial Statements

 

Item 1. Financial Statements (Unaudited)MICROCLOUD HOLOGRAM INC. AND ITS SUBSIDIARIES

GOLDEN PATH ACQUISITION CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Currency expressed in United States Dollars (“US$”), except for number of shares)

         
  

March 31

2023

  

December 31

2022,

 
ASSETS        
         
CURRENT ASSETS        
Cash and cash equivalents $20,328,906  $21,910,338 
Accounts receivable, net  9,581,046   11,650,012 
Prepayments and other current assets  880,151   894,479 
Due from related parties  -   8,740 
Inventories, net  274,828   254,879 
Total current assets  31,064,931   34,718,448 
         
NON-CURRENT ASSETS        
Property and equipment, net  245,863   238,920 
Prepayment and deposits, net  77,509   60,460 
Intangible assets, net  2,006,803   2,229,386 
Investments in unconsolidated entities  87,367   - 
Right-of-use assets, net  531,765   589,301 
Goodwill  3,080,537   3,067,317 
Total non-current assets  6,029,844   6,185,384 
Total assets $37,094,775  $40,903,832 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
         
CURRENT LIABILITIES        
Accounts payable $8,850,864  $8,874,369 
Advance from customers  374,715   493,539 
Other payables and accrued liabilities  1,969,638   1,964,501 
Due to related parties  -   50,745 
Operating lease liabilities - current  226,213   231,483 
Loan payable  -   59,444 
Taxes payable  82,547   87,319 
Total current liabilities  11,503,977   11,761,400 
         
NON-CURRENT LIABILITIES        
Operating lease liabilities - noncurrent  323,708   373,298 
Deferred tax liabilities  132,777   160,430 
Warrant liabilities  61,709   61,709 
Total other liabilities  518,194   595,437 
Total liabilities  12,022,171   12,356,837 
         
COMMITMENTS AND CONTINGENCIES        
         
SHAREHOLDERS’ EQUITY        
Ordinary shares, $0.0001 par value  5,081   5,081 
Additional paid-in capital  36,701,010   36,701,010 
Retained earnings  (12,619,652)  (9,119,628)
Statutory reserves  1,722,262   1,722,262 
Accumulated other comprehensive loss  (664,865)  (805,112)
Total MICROCLOUD HOLOGRAM INC. shareholders’ equity  25,143,836   28,503,613 
Non-controlling interest  (71,232)  43,382 
Total Equity  25,072,604   28,546,995 
Total liabilities and shareholders’ equity $37,094,775  $40,903,832 

1

 

         
  June 30,
2022
  December 31,
2021
 
       
ASSETS        
Current assets:        
Cash $-  $48,955 
Prepayments, deposit, and other receivables  167   95,167 
         
Total current assets  167   144,122 
Cash and investments held in trust account  58,356,044   58,077,063 
         
TOTAL ASSETS $58,356,211  $58,221,185 
         
LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS’ DEFICIT        
Current liabilities:        
Accrued liabilities $21,000  $41,000 
Note payable – related party  191,667   - 
Amount due to related party  422,111   164,740 
         
Total current liabilities  634,778   205,740 
Warrant liabilities  717,873   639,990 
Deferred underwriting compensation  1,437,500   1,437,500 
         
TOTAL LIABILITIES  2,790,151   2,283,230 
         
Commitments and contingencies        
Ordinary shares, subject to possible redemption: 5,750,000 shares as of June 30, 2022 and December 31, 2021 (at redemption value of $10,15 and $10.10 per share, respectively)  58,356,044   58,077,063 
         
Shareholders’ Deficit:        
Ordinary shares, $0.0001 par value; 500,000,000 shares authorized; 1,708,000 shares issued and outstanding (excluding 5,750,000 and 5,750,000 shares subject to possible redemption)  171   171 
Accumulated other comprehensive income  42,173   421 
Accumulated deficits  (2,832,328)  (2,139,700)
         
Total Shareholders’ deficit  (2,789,984)  (2,139,108)
         
TOTAL LIABILITIES, TEMPORARY EQUITY AND SHAREHOLDERS’ DEFICIT $58,356,211  $58,221,185 

See accompanying notes to unaudited condensed consolidated financial statements.


GOLDEN PATH ACQUISITION CORPORATIONMICROCLOUD HOLOGRAM INC. AND ITS SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSINCOME AND COMPREHENSIVE LOSSINCOME

(Currency expressed in United States Dollars (“US$”), except for number of shares)

         
  

For the

Three months ended,

 
  2023  2022 
OPERATING REVENUES        
Products $1,055,701  $11,678,900 
Services  5,524,030   12,536,311 
Total Operating Revenues  6,579,731   24,215,211 
         
COST OF REVENUES        
Products  (721,648)  (11,090,989)
Services  (1,973,061)  (2,338,023)
Total Cost of Revenues  (2,694,709)  (13,429,012)
         
GROSS PROFIT  3,885,022   10,786,199 
         
OPERATING EXPENSES        
Provision for doubtful accounts  (2,119,725)  (20,534)
Selling expenses  (354,583)  (252,503)
General and administrative expenses  (1,108,925)  (684,577)
Research and development expenses  (4,106,916)  (6,553,058)
Total operating expenses  (7,690,149)  (7,510,672)
         
(LOSS)/INCOME FROM OPERATIONS  (3,805,127)  3,275,527 
         
OTHER INCOME/(EXPENSE)        
Finance income, net  104,183   35,098 
Other income, net  57,855   38,172 
Total other income, net  162,038   73,270 
         
(LOSS)/PROFIT BEFORE INCOME TAXES  (3,643,089)  3,348,797 
BENEFIT FOR INCOME TAX  28,450   56,710 
         
NET (LOSS)/INCOME $(3,614,639) $3,405,507 
LESS: NET INCOME/(LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST  (114,614)  9,523 
NET (LOSS)/INCOME ATTRIBUTABLE TO MICROCLOUD HOLOGRAM INC. ORDINARY SHAREHOLDERS $(3,500,025) $3,395,984 
         
OTHER COMPREHENSIVE INCOME/(LOSS)        
Foreign currency translation adjustment  (1,226)  (8,136)
   -     
COMPREHENSIVE (LOSS)/INCOME $(3,615,865) $3,397,371 
LESS: COMPREHENSIVE INCOME/(LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST  (114,614)  9,523 
COMPREHENSIVE (LOSS)/INCOME ATTRIBUTABLE TO MICROCLOUD HOLOGRAM INC. ORDINARY SHAREHOLDERS $(3,501,251) $3,387,848 
         
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES        
Weighted average number of ordinary shares outstanding-Basic and diluted  20,071,595   132,000,000 
         
EARNINGS PER SHARE ATTRIBUTABLE TO MICROCLOUD HOLOGRAM INC. ORDINARY SHAREHOLDERS        
(Loss)/Earnings per ordinary share - Basic and diluted $(0.17) $0.03 

2

 

                 
  Three months ended June 30,  Six months ended June 30, 
  2022  2021  2022  2021 
             
Formation, general and administrative expenses $(122,893) $(143,280) $(381,326) $(200,059)
                 
Total operating expenses  (122,893)  (143,280)  (381,326)  (200,059)
                 
Other (expense) income                
Change in fair value of warrant liabilities  (25,477)  0   (77,883)  0 
Dividend income  44,569   68   45,562   68 
Total other income (expense), net  19,092   68   (32,321)  68 
                 
Loss before income taxes  (103,801)  (143,212)  (413,647)  (199,991)
                 
Income taxes  -   -   -   - 
                 
NET LOSS $(103,801) $(143,212) $(413,647) $(199,991)
                 
Other comprehensive income:                
Change in unrealized gain on available-for-sales securities  42,173   -   45,920   - 
Change in realized gain on available-for-sales securities  (4,168)  -   (4,168)  - 
                 
COMPREHENSIVE LOSS $(65,796) $(143,212) $(371,895) $(199,991)
                 
Basic and diluted weighted average shares outstanding, ordinary share subject to possible redemption  5,750,000   5,750,000   5,750,000   5,750,000 
Basic and diluted net (loss) income per share, ordinary share subject to possible redemption $(0.00) $0.17  $(0.04) $0.16 
                 
Basic and diluted weighted average shares outstanding, ordinary share attributable to Golden Path Acquisition Corporation  1,708,000   1,455,335   1,708,000   1,446,467 
Basic and diluted net loss per share, ordinary share attributable to Golden Path Acquisition Corporation $(0.05) $(0.76) $(0.09) $(0.77)

See accompanying notes to unaudited condensed consolidated financial statements.


GOLDEN PATH ACQUISITION CORPORATIONMICROCLOUD HOLOGRAM INC. AND ITS SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICITEQUITY

(Currency expressed in United States Dollars (“US$”), except for number of shares)

                      
  Ordinary shares   Accumulated other     Total 
  No. of
shares
  Amount   comprehensive
income
  Accumulated
deficit
  shareholders’
deficit
 
                 
Balance as of January 1, 2022  1,708,000  $171  - $421  $(2,139,700) $(2,139,108)
                      
Unrealized holding gain on available-for-sales securities  -   -    3,747   -   3,747 
Accretion of carrying value to redemption value  -   -        (4,740)  (4,740)
Net loss for the period  -   -  -  -   (309,846)  (309,846)
                      
Balance as of March 31, 2022  1,708,000  $171  - $4,168  $(2,454,286) $(2,449,947)
                      
Unrealized holding gain on available-for-sales securities  -   -    42,173   -   42,173 
Realized holding gain on available-for-sales securities  -   -    (4,168)  -   (4,168)
Accretion of carrying value to redemption value  -   -    -   (274,241)  (274,241)
Net loss for the period  -   -  -  -   (103,801)  (103,801)
                      
Balance as of June 30, 2022  1,708,000  $171  - $42,173  $(2,832,328) $(2,789,984)
                                 
           Accumulated       
  Ordinary shares  Additional  Retained earnings  other  Non-    
     Par  paid-in  Statutory     comprehensive  controlling    
  Shares  value  capital  reserves  Unrestricted  (loss)  Interest  Total 
Balance as of December 31, 2022  50,812,035  $5,081  $36,701,010  $1,722,262  $(9,119,628) $(805,112) $43,382  $28,546,995 
Net (loss)/income  -   -   -   -   (3,500,024)  -   (114,614)  (3,614,638)
Foreign currency translation  -   -   -   -   -   140,247   -   140,247 
Balance as of March 31, 2023  50,812,035  $5,081  $36,701,010  $1,722,262  $(12,619,652) $(664,865) $(71,232) $25,072,604 

                         
  Ordinary shares  Additional  Accumulated other     Total 
  No. of
shares
  Amount  paid-in
capital
  comprehensive
income
  Accumulated
deficit
  shareholders’
deficit
 
                   
Balance as of January 1, 2021  10  $-  $-  $          -  $(39,667) $(39,667)
                         
Redemption of ordinary shares  (10)  -   -   -   -   - 
Issuance of ordinary shares  1,437,500   144   24,856   -   -   25,000 
Net loss for the period  -   -   -   -   (56,779)  (56,779)
                         
Balance as of March 31, 2021  1,437,500  $144  $24,856  $-  $(96,446) $(71,446)
                         
Sale of units in initial public offering  5,750,000   575   57,499,425   -   -   57,500,000 
Sale of units to the founder in private placement  270,500   27   2,704,973   -   -   2,705,000 
Offering costs  -   -   (2,887,500)  -   -   (2,887,500)
Warrant liabilities  -   -   (625,000)  -   -   (625,000)
Initial classification of common stock subject to possible redemption  (5,750,000)  (575)  (55,510,464)  -   -   (55,511,039)
Allocation of offering costs to common stock subject to possible redemption  -   -   2,787,620   -   -   2,787,620 
Accretion of carrying value to redemption value  -   -   (3,993,910)  -   (1,357,671)  (5,351,581)
Net loss for the period  -   -   -   -   (143,213)  (143,213)
                         
Balance as of June 30, 2021  1,708,000  $171  $-  $-  $(1,597,330) $(1,597,159)

See accompanying notes to unaudited condensed consolidated financial statements.

F-33

 

GOLDEN PATH ACQUISITION CORPORATIONMICROCLOUD HOLOGRAM INC. AND ITS SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Currency expressed in United States Dollars (“US$”), except for number of shares)

         
  

For the

Three Months Ended

March 31,

 
  2023  2022 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net (loss)/income $(3,614,638) $3,405,507 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  258,286   260,069 
Amortization of operating lease right-of-use assets  60,298   61,210 
Provision for doubtful accounts  2,119,725   20,534 
Deferred tax benefits  (28,449)  (73,309)
Provision for inventory reserve  -   22,753 
Interest income      (39,603)
Loss on disposal of fixed assets      518 
         
Change in operating assets and liabilities:        
Accounts receivable  7,290   (5,042,206)
Prepayment and other current assets  18,250   (779,959)
Inventories  (18,920)  2,187 
Prepayments and deposits  (16,851)  (12,748)
Accounts payable  (61,982)  2,631,067 
Operating lease liabilities  (57,679)  (56,115)
Advance from customers  (121,398)  162,220 
Other payables and accrued liabilities  (3,342)  38,174 
Taxes payable  (5,167)  (328,324)
Net cash (used in)/provided by operating activities  (1,464,577)  271,975 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Short-term investment in time deposit  -   (1,575,746)
Loan to third parties      (1,575,746)
Loan repayment from third parties      2,100,381 
Investments in unconsolidated entities  (87,690)  - 
Purchases of property and equipment  (31,170)  (706)
Net cash provided by/(used in) investing activities  (118,860)  (1,051,817)
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Amounts advanced from related parties  -   63,562 
Amounts advanced to related parties  -   (3,196)
Repayments from related parties  8,810     
Repayments to related parties  (51,152)  (58)
Repayments of third-party loan  (59,921)  - 
Proceeds of third-party loan      78,787 
Net cash provided by/(used in) financing activities  (102,263)  139,095 
         
EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS  104,268   (8,906)
         
CHANGE IN CASH AND CASH EQUIVALENTS  (1,581,432)  (649,653)
CASH AND CASH EQUIVALENTS, beginning of period  21,910,338   7,564,681 
CASH AND CASH EQUIVALENTS, end of period $20,328,906  $6,915,028 
         
SUPPLEMENTAL CASH FLOW INFORMATION:        
Cash paid for income tax $   $287 
Cash paid for interest expense $790  $- 
         
NON-CASH INVESTING AND FINANCING ACTIVITIES        
Initial recognition of right-of-use assets and lease liabilities $826,272  $890,864 

4

 

         
  Six months ended June 30, 
  2022  2021 
       
Cash flows from operating activities        
Net loss $(413,647) $(199,991)
Adjustments to reconcile net loss to net cash used in operating activities        
Dividend income earned in cash and investments held in trust account  -   (68)
Change in fair value of warrant liabilities  77,883   - 
         
Change in operating assets and liabilities:        
Decrease in prepayments, deposit, and other receivables  95,000   (1,601)
Decrease in accrued liabilities  (20,000)  26,966 
         
Net cash used in operating activities  (260,764)  (174,694)
         
Cash flows from investing activities        
Proceeds deposited in Trust Account  -   (58,075,002)
Dividend income  (45,562)  - 
         
Net cash used in investing activities  (45,562)  (58,075,002)
         
Cash flows from financing activities        
Advances from (repayement to) a related party  257,371   (8,853)
Increase in cash held in escrow      (9,000)
Proceeds from issuance of shares to founders      25,000 
Proceeds from public offering      57,500,000 
Proceeds from private placements to a related party      2,705,000 
Payment of offering costs      (1,421,000)
Repayment of promissory note      (50,000)
         
Net cash provided by financing activities  257,371   58,741,147 
         
NET CHANGE IN CASH AND CASH EQUIVALENT  (48,955)  491,451 
         
Cash and cash equivalent, beginning of period  48,955   18,117 
         
Cash and cash equivalent, end of period $-  $509,568 
         
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:        
Initial classification of ordinary shares subject to possible redemption $-  $55,511,039 
Allocation of offering costs to common stock subject to redemption $-  $2,787,620 
Accretion of carrying value to redemption value $(278,981) $(5,351,581)
Initial recognition of warrant liabilities $-  $625,000 
Accrued underwriting compensation $-  $1,437,500 
Unrealized gain on available-for-sales securities $42,173  $- 
Realized gain on available-for-sales securities $4,168  $- 
Proceeds of a promissory note deposited in Trust Account by a founder shareholder $191,687  $- 

See accompanying notes to unaudited condensed consolidated financial statements.


GOLDEN PATH ACQUISITION CORPORATIONMICROCLOUD HOLOGRAM INC. AND ITS SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency expressed in United States Dollars (“US$”), except for number

Note 1 — Nature of shares)business and organization

NOTE 1 – ORGANIZATION AND BUSINESS BACKGROUND

MicroCloud Hologram Inc. (formerly known as Golden Path Acquisition Corporation (“Golden Path” or the “Company”“the Company”)), a Cayman Islands exempted company, is a blank check company incorporatedleading holographic digitalization technology service provider in China, which is committed to providing first-class holographic technology services to the Cayman Islands on May 9, 2018. Thecustomers worldwide.

On September 16, 2022, the Company was formed forconsummated the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization, or similarpreviously announced business combination with one or more businesses (“Business Combination”).

pursuant to the Merger Agreement, by and among Golden Path, Golden Path Merger Sub, Corporation (“Merger Sub”) is a company incorporated in the Cayman Islands for the purpose of effecting the Business Combination and to serve as the vehicle for, and be subsumed by, MC Hologram Inc. (“MC”), pursuantMC. Pursuant to the Merger Agreement, MC merged with MC Hologram Inc.Golden Path Merger Sub, issurvived the merger and continued as the surviving company and a wholly owned bysubsidiary of Golden Path (the “Merger”, and, conducts no activities.

Although the Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination, the Company intends to focus on businesses that have a connection to the Asian market. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.

As of June 30, 2022, the Company had not commenced any operations. All activities through June 30, 2022 related to the Company’s formation and the initial public offering completed on June 24, 2021 and in connectioncollectively with the negotiation and consummation of a business combination with MC Hologram Inc. asother transactions described below. The Company will not generate any operating revenues until after the completion of a Business Combination at the earliest. The Company generates non-operating income in the form of dividend income from investingMerger Agreement, the proceeds derived from the initial public offering and private placement completed on June 24, 2021. The Company has selected December 31 as its fiscal year end.

Financing

The registration statement for the Company’s initial public offering (the “Initial Public Offering” as described in Note 4) was declared effective by the United States Securities and Exchange Commission (the “SEC”“Business Combination”) on June 21, 2021. On June 24, 2021, the Company consummated the Initial Public Offering of 5,750,000 ordinary units (the “Public Units”), which includes the full exercise by the 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, the Company 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, which is described in Note 5.

Transaction 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. In addition, as of June 30, 2022, cash of $0 was held outside of the Trust Account and is available for the payment of offering costs and for working capital purposes.


Trust Account

Upon the closing of the Initial Public Offering and the private placement, $58,075,002 was placed in a trust account (the “Trust Account”) with Wilmington Trust, National Association acting as trustee. The funds held in the Trust Account can be invested in United States government treasury bills, bonds or notes, having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act until the earlier of (i) the consummation of the Company’s initial Business Combination, and (ii) the Company’s failureGolden Path changed its name to consummate a Business Combination within 21 months from the closing of the Public Offering. Placing funds in the Trust Account may not protect those funds from third party claims against the Company. Although the Company will seekMicroCloud Hologram Inc., pursuant to have all vendors, service providers, prospective target businesses or other entities it engages, execute agreements with the Company waiving any claim of any kind in orwhich Golden Path issued 44,554,455 ordinary shares to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. The remaining net proceeds (not held in the Trust Account) may be used to pay for business, legal and accounting due diligence on prospective acquisitions and continuing general and administrative expenses. Additionally, the interest earned on the Trust Account balance may be releasedMC shareholders. Prior to the Company to payTransaction Close, the Company’s tax obligations.

Business Combination

The Company’s management has broad discretion with respect toholders of Golden Path ordinary shares had the specific application of the net proceeds of The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and sale of the Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. NASDAQ rules provide that the Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (as defined below) (less any deferred underwriting commissions and taxes payable on interest earned) at the time of the signing of an agreement to enter into a Business Combination. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). There is no assurance that the Company will be able to successfully effect a Business Combination.

The Company will provide its shareholders with the opportunityright to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. In connection with an Initial Business Combination, the Company may seek shareholder approval of a Business Combination at a meeting called for such purpose at which shareholders may seek to redeem their shares, regardless of whether they vote for or against a Business Combination. The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks shareholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination.

Notwithstanding the foregoing, if the Company seeks shareholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Company’s Amended and Restated Memorandum and Articles of Association provides that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from seeking redemption rights with respect to 15% or more of the Public Shares without the Company’s prior written consent.

If a shareholder vote is not required and the Company does not decide to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Memorandum and Articles of Association, offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”), and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination.

The shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially $10.10 per Public Share, subject to increase of up to an additional $0.30 per Public Share in the event that the Sponsor elects to extend the period of time to consummate a Business Combination (see below), plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The per-share amount to be distributed to shareholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriter (as discussed in Note 10). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s rights or warrants. TheGolden Path ordinary shares will be recorded at redemption value and classified as temporary equity upon the completion of the Initial Public Offering,calculated in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.”


The SponsorGolden 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 any of the Company’s officers or directors that may hold Founder Shares (as defined in Note 6) (the “shareholders”) and the underwriters will agree (a) to vote their Founder Shares, the ordinary shares included in the Private Units (the “Private Shares”) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination, (b) not to propose an amendment to the Company’s Amended and Restated Memorandum and Articles of Association with respect to the Company’s pre-Business Combination activities prior to the consummation of a Business Combination unless the Company provides dissenting public shareholders with the opportunity to redeem their Public Shares in conjunction with any such amendment; (c) not to redeem any shares (including the Founder Shares) and Private Shares into theone right, to receive cash from the Trust Account in connection with a shareholder vote to approve a Business Combination (or to sell any shares in a tender offer in connection with a Business Combination if the Company does not seek shareholder approval in connection therewith) or a vote to amend the provisions of the Amended and Restated Memorandum and Articles of Association relating to shareholders’ rights of pre-Business Combination activity and (d) that the Founder Shares and Private Shares shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the shareholders will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.

On September 10, 2021, Golden Path entered into a merger agreement (the “Merger Agreement”), which provides for a Business Combination between Golden Path and MC Hologram Inc. Pursuant to the Merger Agreement, the Business Combination will be effected as a stock transaction and is intended to be qualifiedresult, the units no longer trade as a tax-free reorganization. The Merger Agreement is by and among Golden Path, Merger Sub, and MC,separate security. As a Cayman Islands limited liability company as the representativeresult of MC’s stockholders. The aggregate consideration for the Acquisition Merger is $450,000,000, payable in the form of 44,554,455 newly issued shares of common stock of Merger Sub (“Merger Sub Common Stock”) valued at $10.10 per share.

Upon the closing of the Business Combination, after reflecting the formeractual redemption of 2,182,470 shares by Golden Path shareholders, will receiveMC owns approximately 87.68% of the consideration specified below andoutstanding Golden Path ordinary shares, the former MC stockholders will receive an aggregateshareholders of 44,554,455 shares of Common StockGolden Path owns approximately 11.57% of the Company.outstanding Golden Path ordinary shares, and Peace Asset Management, a private held entity who facilitated the business combination, owns approximately 0.75 % as of March 31, 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 50,812,035 ordinary shares issued and outstanding, and 6,020,500 warrants outstanding. The proceeds received from the Reverse Recapitalization is $33.2 million, net of certain transaction costs.

Liquidation

The Company will have until June 23, 2022 to consummateAs a result of the consummation of the Business Combination. However, ifCombination, MC is now a wholly owned subsidiary of the Company, anticipates that it may notwhich 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 ablenominal 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 consummatebe the accounting acquirer based on the terms of the Merger and other factors including: (i) MC’s stockholders have a Business Combination within 12 months,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 may extend the period of time to consummate a Business Combination up to nine times, each by an additional month (for a total of 21 months to complete a Business Combination (the “Combination Period”). In order to extend the time availableissuing shares for the Company to consummatenet assets of Golden Path, accompanied by a Business Combination, the Sponsor or its affiliate or designees must deposit into the Trust Account $191,667 (approximately $0.033recapitalization. The shares and net loss per Public Share), up to an aggregate of $1,725,000, or $0.30 per Public Share, on orcommon share, prior to the date ofReverse Recapitalization, have been retroactively restated as shares reflecting the applicable deadline, for each one month extension. Any funds which may be provided to extend the time frame will beExchange Ratio established in the formReverse Recapitalization (one Golden Path share for one Company share). The net assets of a loan to us from our sponsor. The terms of any such loan have not been definitely negotiated, provided, however, any loan will be interest free and will be repayable only if we compete a business combination.

If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible butGolden Path were recorded at historical costs, with no more than ten business days thereafter, redeem 100% of the outstanding Public Shares, at a per-share price, payable in cash, equalgoodwill or other intangible assets recorded. Operations prior to the aggregate amount then on deposit in the Trust Account, including interest earned (netReverse Recapitalization are those of taxes payable and less interest to pay dissolution expenses up to $50,000MC.), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable law. The underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00).

 


The Sponsor has agreed that it will be liable toaccompanying consolidated financial statements reflect the activities of the Company if and toeach of the extent any claims by a vendor for services rendered or products sold tofollowing entities as of March 31, 2023:

Schedule of accompanying consolidated financial statements
NameBackgroundOwnership
MC Hologram Inc (“MC”)-A Cayman Islands company100% owned by MicroCloud
-Formed on November 10, 2020
-Registered capital of USD 50,000
Quantum Edge HK Limited (“Mengyun HK”)-A Hong Kong company100% owned by MC
-Formed on November 25, 2020
-Registered capital of HK 10,000 (USD 1,290)
-A holding company
Beijing Xihuiyun Technology Co., Ltd (“Beijing Xihuiyun”)-PRC limited liability company100% owned by Mengyun HK
-Formed on May 11, 2021
-Registered capital of RMB 207,048,000 (USD 30,000,000)
-A holding company
Shanghai Mengyun Holographic Technology Co., Ltd. (“Shanghai Mengyun”)-A PRC limited liability company81.63% owned by Beijing Xihuiyun and 18.37% owned by Mengyun HK
-Formed on March 24, 2016
-Registered capital of RMB 27,000,000 (USD 4,316,665)
-Primarily engages in holographic integrated solutions.
Shenzhen Mengyun Holographic Technology Co., Ltd. (“Shenzhen Mengyun”)-A PRC limited liability company100% owned by Shanghai Mengyun
-Formed on March 15, 2016
-Registered capital of RMB 10,000,000 (USD 1,538,461)
-Primarily engages in holographic integrated solutions.
Shenzhen Qianhai Youshi Technology Co., Ltd. (“Qianhai Youshi”)-A PRC limited liability company100% owned by Shanghai Mengyun
-Formed on August 14, 2014
-Registered capital of RMB 10,000,000 (USD 1,538,461)
-Primarily engages in holographic content sales and SDK software services.
Shenzhen Yijia Network Technology Co., Ltd. (“Yijia Network”)-A PRC limited liability company100% owned by Qianhai Youshi
-Formed on September 25, 2008
-Registered capital of RMB 10,000,000 (USD 1,538,461)
-Primarily engages in holographic content sales and SDK software services.


NameBackgroundOwnership
Horgos Youshi Network Technology Co., Ltd. (“Horgos Youshi”)-A PRC limited liability company100% owned by Qianhai Youshi
-Formed on November 2, 2020
-Registered capital of RMB 1,000,000 (USD 153,846)
-Primarily engages in holographic content sales and SDK software services.
Horgos Weiyi Software Technology Co., Ltd. (“Horgos Weiyi”)-A PRC limited liability company100% owned by Shenzhen Mengyun
-Formed on September 6, 2016
-Registered capital of RMB 10,000,000 (USD 1,538,461)
-Primarily engages in holographic integrated solutions.
Shenzhen BroadVision Technology Co., Ltd. (“Shenzhen Bowei”)-A PRC limited liability company100% owned by Shenzhen Mengyun
-Formed on April 12, 2016
-Registered capital of RMB 10,000,000 (USD 1,538,461)
-Primarily engages in holographic PCBA solutions.
Mcloudvr Software Network Technology HK Co., Limited (“Mcloudvr HK”)-A Hong Kong company100% owned by Shenzhen Mengyun
-Formed on February 2, 2016
-Registered capital of HKD 100,000 (USD 12,882)
-Primarily engages in holographic integrated solutions.
Shenzhen Tianyuemeng Technology Co., Ltd. (“Shenzhen Tianyuemeng”)-A PRC limited liability company100% owned by Shenzhen Mengyun
-Formed on January 6, 2014
-Registered capital of RMB 20,000,000 (USD 3,076,922)
-Primarily engages in holographic advertising services.
Shenzhen Yunao Hongxiang Technology Co., Ltd. (“Shenzhen Yunao”)-A PRC limited liability company100% owned by Shenzhen Mengyun
-Formed on December 3, 2021
-Registered capital of RMB 5,000,000 (USD 784,671)
-Advertising service
Broadvision Intelligence (Hong Kong), Ltd. (“Broadvision HK”)-A Hong Kong company100% owned by Shenzhen Bowei
-Formed on November 5, 2020
-Registered capital of HKD 10,000 (USD 1,288)
-No operation
Horgos BroadVision Technology Co., Ltd. (“Horgos Bowei”)-A PRC limited liability company100% owned by Shenzhen Bowei
-Formed on November 4, 2020
-Registered capital of RMB 1,000,000 (USD 153,846)
-Primarily engages in holographic PCBA solutions.


NameBackgroundOwnership
Horgos Tianyuemeng Technology Co., Ltd. (“Horgos Tianyuemeng”)-A PRC limited liability company100% owned by Shenzhen Tianyuemeng
-Formed on October 23, 2020
-Registered capital of RMB 1,000,000 (USD 153,846)
-Primarily engages in SDK software services.
Horgos Tianyuemeng Technology Co., Ltd.-Shenzhen Branch (“Horgos Tianyuemeng-SZ”)-A PRC limited liability company100% owned by Horgos Tianyuemeng
-Formed on March 19, 2021
-Registered capital of RMB 1,000,000 (USD 153,846)
-No operation
-Dissolved on December 10, 2021
Shanghai Mengyun Quanyou Vision Technology Co., Ltd (“Shanghai Quanyou”)-A PRC limited liability company100% owned by Shanghai Mengyun
-Formed on June 24, 2021
-Registered capital of RMB 1,000,000 (USD 153,846)
-No operation
-Dissolved on September 1, 2021
Ocean Cloud Technology Co., Limited. (“Ocean HK”)-A Hong Kong company56% owned by Mcloudvr HK
-Formed on November 4, 2021
-Registered capital of HKD 10,000 (USD 1,288)
-No operation
Shenzhen Haiyun Xinsheng Technology Co., Ltd. (“Shenzhen Haiyun”)-A PRC limited liability company100% owned by Ocean HK
-Formed on December 3, 2021
-Registered capital of RMB 50,000,000 (USD 7,846,707)
-No operation
Shenzhen Tata Mutual Entertainment Information Technology Co., Ltd. (“Shenzhen Tata”)-A PRC limited liability company100% owned by Shenzhen Haiyun
-Formed on January 16, 2020
-Sold on June 30, 2022
-Registered capital of RMB 5,000,000 (USD 784,671)
-Game promotion service
Shenzhen Youmi Technology Co., Ltd. (“Shenzhen Youmi”)-A PRC limited liability company100% owned by Shenzhen Haiyun
-Formed on March 17, 2022
-Registered capital of RMB 5,000,000 (USD 784,671)
-Game promotion and advertising service
Shenzhen Yushian Technology Co., Ltd. (“Shenzhen Yushi”)-A PRC limited liability company100% owned by Shenzhen Haiyun
-Formed on February 18, 2022
-Registered capital of RMB 5,000,000 (USD 784,671)
-Advertising service


NameBackgroundOwnership
Horgos Tata Mutual Entertainment Information Technology Co., Ltd. (“Horgos Tata”)-A PRC limited liability company100% owned by Shenzhen Tata
-Formed on March 22, 2022
-Sold on June 30, 2022
-Registered capital of RMB 5,000,000 (USD 784,671)
-Game promotion service
Horgos Youmi Technology Co., Ltd. (“Horgos Youmi”)-A PRC limited liability company100% owned by Shenzhen Youmi
-Formed on January 29, 2022
-Registered capital of RMB 5,000,000 (USD 784,671)
-Advertising service
Horgos Yushian Technology Co., Ltd. (“Horgos Yushi”)-A PRC limited liability company100% owned by Shenzhen Yushi
-Formed on March 24, 2022
-Registered capital of RMB 5,000,000 (USD 784,671)
-Advertising service
Kashgar Youshi Information Technology Co., Ltd. (“Kashgar Youshi”)-A PRC limited liability company100% owned by Qianhai Youshi
-Formed on May 5, 2016
-Registered capital of RMB 5,000,000 (USD 769,230)
-Primarily engages in holographic content sales and SDK software services.

9

Note 2 — Summary of significant accounting policies

Liquidity

In assessing the Company’s liquidity, the Company or a prospective target business with whichmonitors and analyses its cash on-hand and its operating and capital expenditure commitments. The Company’s liquidity needs are to meet its 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 the Company has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below (i) $10.10 per share or (ii) such lesser amount per Public Share held in the Trust Account asworking capital requirements of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.

Going concern consideration

Company. As of June 30, 2022,March 31, 2023, the Company had cash of $20.3 million. The Company’s working capital deficitwas approximately $21.5 million as of $634,611 and net loss of $413,647 for the six months ended June 30, 2022.March 31, 2023. The Company has incurredbelieves its revenues and expects tooperations will continue to incur significant costs in pursuitgrow and the current working capital is sufficient to support its operations and debt obligations as they become due one year through report date.

Basis of its financing and acquisition plans. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. presentation

The management’s plan in addressing this uncertainty is through the Initial Public Offering as discussed in Note 4. There is no assurance that the Company’s plans to raise capital or to consummate a business combination will be successful within the Combination Period. In order to finance transaction costs in connection with an intended initial Business Combination, the Sponsor, or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required up to $1,500,000 as discussed in Note 6. Based on the foregoing, the Company believes it will have sufficient cash to meet its needs to execute its intended initial Business Combination in the next twelve months from the date of the issuance of the accompanying unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements do not include any adjustments that might result fromof the outcome of this uncertainty.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

These accompanying unaudited condensed consolidated financial statements are presented in U.S. dollarsCompany have been prepared in accordance with accounting principles generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the accounting and disclosureapplicable rules and regulations of the SEC. The interimSecurities and Exchange Commission, regarding financial information provided is unaudited, but includesreporting, and include all normal and recurring adjustments whichthat management of the Company considers necessary for thea fair presentation of theits financial position and operation results. The results for these periods. Operating resultsof operations for the interim periodthree months ended June 30, 2022March 31, 2023 are not necessarily indicative of the results that mayto be expected for any other three months period or for the fiscalfull year ending December 31, 2022. The information included in this Form 10-Qof 2023. Accordingly, these statements should be read in conjunction with Management’s Discussion and Analysis, and the Company’s audited financial statements and notesnote thereto as of and for the fiscal year ended December 31, 2021 thereto included in the Company’s Form 10-K, filed with the SEC on March 31, 2022.


Principles of consolidation

Principles of consolidation

The unaudited condensed 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.

Emerging growth company

TheSubsidiaries are those entities in which the Company, is an “emerging growth company,” as defined in Section 2(a)directly or indirectly, controls more than one half of the Securities Act, as modified byvoting power; or has the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),power to govern the financial and it may take advantage of certain exemptions from various reporting requirements that are applicableoperating policies, to other public companies that are not emerging growth companies including, but not limited to, not being required to comply withappoint or remove the independent registered public accounting firm attestation requirements of Section 404majority of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Further, Section 102(b)(1)members of the JOBS Act exempts emerging growth companies from being requiredboard of directors, or to comply with new or revised financial accounting standards until private companies (that is, those that have not hadcast a Securities Act registration statement declared effective or do not have a classmajority of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standardvotes at the time private companies adopt the new or revised standard. This may make comparisonmeeting of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted outdirectors.

Use of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.estimates and assumptions

Use of estimates

The preparation of unaudited 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 disclosuredisclosures of contingent assets and liabilities atas of the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s unaudited 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.

Foreign currency translation and transaction

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 are RMB, as determined based on the criteria of Accounting Standards Codification (“ASC”) 830 “Foreign Currency Matters.”

Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange in place at the balance sheet date. Transactions in currencies other than the functional currency during the year are converted into the functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the unaudited consolidated statement of operations.

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In the unaudited consolidated financial statements, the financial information of the Company and other entities located outside of the PRC has been translated into USD. Assets and liabilities of the Company translated from their respective functional currencies to the reporting currency at the exchange rates at the balance sheet dates, equity accounts are translated at historical exchange rates and revenues and expenses are translated at the average exchange rates in effect during the reporting period.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results may differ from those estimates.

Cash and cash equivalents

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. There were 0 cash equivalents as of June 30, 2022 and December 31, 2021.

Cash and investments held in trust account

As of June 30, 2022 and December 31, 2021, the assets held in the Trust Account are held in cash and US Treasury securities. Investment securities in the Company’s Trust Account consisted of $58,356,044 and $58,077,063 in United States Treasury Bills, respectively.

The Company classifies marketable securities as available-for-sale at the time of purchase and re-evaluates such classification as of each balance sheet date. All marketable securities are recorded at their estimated fair value. Unrealized gains and losses for available-for-sale securitiesresulting foreign currency translation adjustment are recorded in other comprehensive loss.income (loss).

The balance sheet amounts, with the exception of shareholders’ equity for MC, Mengyun HK, Mcloudvr HK and Broadvision HK as of March 31, 2023 and December 31, 2022 were translated at RMB 1.00 to USD 0.1456 and to USD 0.1450, respectively. The shareholders’ equity accounts were stated at their historical rate. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.

Convenience translation

Translations of balances in the unaudited consolidated balance sheets, consolidated statements of income and consolidated statements of cash flows from RMB into USD as of and for the three months ended March 31, 2023 are solely for the convenience of the reader and were calculated at the rate of RMB 1.00 to USD 0.1456, representing the noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on March 31, 2023. No representation is made that the RMB amounts represent or could have been, or could be, converted, realized or settled into USD at that rate, or at any other rate.

Cash and cash equivalents

Cash and cash equivalents primarily consist of bank deposits with original maturities of six 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 withdrawal. The Company evaluatesmaintains most of its investmentsbank accounts in the PRC.

Accounts receivable, net

Accounts receivables 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 an 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. As of March 31, 2023, and December 31, 2022, the Company has $2,820,015 and $705,060 of allowance for doubtful accounts for accounts receivable, respectively.

Inventories, net

Inventories are comprised of raw material and finish goods are stated at the lower of cost or net realizable value using the weighted average method. Cost of finished goods comprise direct material and outsourced assembling costs. Management reviews inventories for obsolescence and cost in excess of net realizable value periodically when appropriate and records a reserve against the inventory when the carrying value exceeds net realizable value. As of March 31, 2023 and December 31, 2022, the Company has an allowance of $25,69425,964 and $25,584, respectively.

Prepayments, other current assets and deposits, net

Prepayments and other current assets are mainly payments made to vendors or service providers for purchasing goods or services that have not been received or provided, deposits for rent and utilities and employee advances. This amount is refundable and bears no interest. Prepayment and deposit are classified as either current or non-current based on the terms of the respective agreements. These advances are unsecured and are reviewed periodically to determine whether their carrying value has become impaired. As of March 31, 2023, and December 31, 2022, the Company made $478 and $481 allowance for noncurrent prepayments and deposits, respectively.

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Property and equipment, net

Property 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 a 5% residual value. The estimated useful lives are as follows:

Schedule of estimated useful lives
Useful Life
Office equipment3 years
Mechanical equipment35 years
Electronic equipment35 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives.

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 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.

The Company has the option to assess whether those with unrealized loss positions are other than temporarily impaired. Impairments are considered other than temporary if they are relatedqualitative factors to deterioration in credit risk or ifdetermine whether it is likelynecessary to perform further impairment testing in accordance with ASC 350-20, as amended by ASU 2017-04. If the Company will sell the securities before the recoverybelieves, 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 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.

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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. The Company assesses 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, the Company 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 three months ended March 31, 2023 and 2022, no impairment of long-lived assets was recognized.

Investments in unconsolidated entities

The Company’s investments in unconsolidated entities consist of equity investments without readily determinable fair value.

The Company follows ASC Topic 321, Investments Equity Securities (“ASC 321”) to account for investments that do not have readily determinable fair value and over which the Company does not have significant influence. The Company uses the measurement alternative to measure those investments at cost, basis. Realized gainsless 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.

An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and losses and declines in valuethis condition is determined to be other than temporary are determinedother-than temporary.

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 specific identification methodresidual of the purchase price recorded as goodwill. Transaction costs associated with business combinations are expensed as incurred, and are reportedincluded in other income (expense), netgeneral and administrative expenses in the Company’s consolidated statements of operations.income and comprehensive income. The results of operations of the acquired business are included in the Company’s operating results from the date of acquisition.


Fair value measurement

U.S. 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 the Company.

U.S. 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:

Level 1Deferred offering costsinputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2inputs 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 3inputs to the valuation methodology are unobservable and significant to the fair value.

 

Deferred offering costs consistFinancial instruments included in current assets and current liabilities are reported in the unaudited consolidated balance sheets at face value or cost, which approximate fair value because of underwriting, legal, accountingthe short period of time between the origination of such instruments and other expenses incurred throughtheir expected realization and their current market rates of interest.

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Noncontrolling Interests

The Company’s noncontrolling interests represent the balance sheet date that are directlyminority shareholders’ ownership interests related to the Initial Public OfferingCompany’s subsidiaries, including 44% for Ocean HK and that were chargedits subsidiaries. The noncontrolling interests are presented in the consolidated balance sheets separately from equity attributable to shareholders’ equity upon the completionshareholders of the Initial Public Offering.Company. Noncontrolling interests in the results of the Company are presented on the consolidated statement of income as allocations of the total income or loss for the three months ended March 31, 2023 between noncontrolling interest holders and the shareholders of the Company.

Ordinary share Warrants

The Company accounts for ordinary share 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.

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. The Company primarily sells its products to hospitals and medical equipment companies. Revenue is recognized when the following 5-step revenue recognition criteria are met:

1)Warrant liabilitiesIdentify 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 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 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 March 31, 2023 and December 31, 2022, the Company’s aggregate amount of transaction price allocated to unsatisfied performance obligation is $0 and $384,489. 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. The Company has 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.

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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 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.

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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 revenues.

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.

Advertising costs

Advertising costs amounted to $138,153.67 and $85,937 for the three months ended March 31, 2023 and 2022, respectively. Advertising costs are expensed as incurred and included in selling expenses.

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. VAT is based on the gross sales price. The VAT rate is 6% on services and 13% on goods in China. 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 taxes 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 are accounted 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.

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Deferred taxes are 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 unaudited 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 net deferred tax asset 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 has a 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.

Other income, net

Other income 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 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. Total government subsidies amounted to $12,191 and $6,665 for the three months ended March 31, 2023 and 2022, respectively.

Other income also includes $25,235 and $8,158 for other non-operating income for the three months ended March 31, 2023 and 2022, respectively.

Operating leases

Effective January 1, 2022, the Company adopted ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that does not require the Company 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. On January 1, 2022, the Company recognized approximately USD 0.8 million of right of use (“ROU”) assets and approximately USD 0.8 million of operating lease liabilities based on the present value of the future minimum rental payments of leases, using incremental borrowing rate of7%.

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.

When determining the lease payments for an operating lease transitioning to ASC 842 using the effective date, it’s based on future payments at the transition date, based on the present value of lease payments over the remaining 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.

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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 includes the associated operating lease payments in the undiscounted future pre-tax cash flows.

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.

Earnings per share

The Company computes earnings 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 divided by the weighted average common share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential common 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 common 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.

Segment reporting

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.

Employee benefits

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. Total expenses for the plans were $60,844 and $176,196 the three months ended March 31, 2023 and 2022, respectively.

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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 Company is still evaluating the impact of the adoption of this ASU on the Company’s unaudited 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 the Company 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 Company’s unaudited consolidated financial statements and related disclosures.

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

        
  

March 31,

2023

  

December 31,

2022

 
Accounts receivable $12,401,061  $12,355,072 
Less: allowance for doubtful accounts  (2,820,015)  (705,060 
Accounts receivable, net $9,581,046  $11,650,012 

Movement of allowance for doubtful accounts is as follows:

Schedule of allowance for doubtful accounts

        
  

March 31,

2023

  

December 31,

2022

 
Beginning balance $705,060  $296,051 
Provision for doubtful accounts  2,119,725   442,335 
Exchange difference  (4,770)  (33,326)
Ending balance $2,820,015  $705,060 

Net provision for doubtful accounts for the three months ended March 31, 2023 and 2022 amounted to $2,119,725 and $442,335, respectively.

19

Note 4 — Inventories, net

Schedule of inventories, net

        
  

March 31,

2023

  

December 31,

2022

 
Raw materials $283,532  $263,304 
Finished goods  16,990   17,159 
Total  300,522   280,463 
Less: Inventory allowance  (25,694)  (25,584)
Inventories, net $274,828  $254,879 

As of March 31, 2023 and December 31, 2022, the management of the Company estimated its inventories at the lower of cost or market, determined on a weighted average method, or net realizable value. The Company recognized nil0 and nil0 inventory allowance as of March 31, 2023 and December 31, 2022, respectively.

Movement of inventory reserve is as follows:

Schedule of inventory reserve        
  

March 31,

2023

  

December 31,

2022

 
Beginning balance $25,584  $27,692 
Provision for inventory reserve  -   - 
Exchange difference  110   (2,108)
Ending balance $25,694  $25,584 

Note 5 — Property and equipment, net

Property and equipment, net consist of the following:

Schedule of Property and equipment, net

        
  

March 31,

2023

  

December 31,

2022

 
Office equipment $166,063  $165,351 
Mechanical equipment  154,228   153,566 
Electronic and other equipment  388,465   355,875 
Vehicles  6,404   6,377 
Less: accumulated depreciation  (469,297)  (442,249)
Total $245,863  $238,920 

Depreciation expense for the three months ended March 31, 2023 and December 31, 2022 amounted to $27,048 and $69,104, respectively.

20

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

        
  

March 31

2023

  

December 31

2022

 
Customer relationship $1,936,630  $1,928,318 
Software  2,147,130   2,137,916 
Non-compete agreements  334,906   333,469 
Less: accumulated amortization  (2,411,863)  (2,170,317)
Total $2,006,803  $2,229,386 

The estimated annual amortization expense for each of the five succeeding fiscal years is as follow:

Schedule of estimated annual amortization expense

    
Year ending December 31,   
2023 $686,338 
2024  669,919 
2025  650,457 
2026  89 
Total $2,006,803 

Note 7 — Prepayment, other assets, and deposits

Schedule of current and non-current assets

  

March 31

2023

  

December 31

2022

 
Current:        
Inventory Purchase $298,342  $457,875 
Rent and rent deposits  780   18,776 
VAT  166,598   129,480 
Professional service  345,586   231,066 
Other services  68,846   57,282 
Prepayment and other current assets $880,151  $894,479 
         
Non-current:        
Rent deposits $74,702  $59,144 
Other  3,288   1,794 
Allowance for doubtful accounts  (481)  (478)
Prepayment and deposit $77,509  $60,460 

Movement of allowance for doubtful accounts is as follows:

Schedule of allowance for doubtful accounts

  

March 31,

2023

  

December 31,

2022

 
Beginning balance $478  $518 
Recovery of doubtful accounts  -   - 
Exchange difference  3   (40)
Ending balance $481  $478 

21

Note 8 — 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

  

March 31,

2023

  

December 31,

2022

 
Goodwill from Shenzhen Bowei acquisition* $1,416,665  $1,410,585 
Goodwill from Shenzhen Tianyuemeng acquisition**  1,663,872   1,656,732 
Goodwill $3,080,537  $3,067,317 

*On July 1, 2020, Shenzhen Mengyun entered into acquisition agreement to acquire 100% equity interests of Shenzhen Bowei, a provider of holographic PCBA solutions. The transaction consummated on July 1, 2020. According to the agreement, acquisition consideration is RMB 20,000,000 (approximately USD 3.1 million) to acquire the 100% equity interests of Shenzhen Bowei. Acquired amortizable intangible assets includes customer relationship, software, and non-compete agreements. Approximately RMB 9.7 million (USD 1.5 million) of goodwill arising from the acquisition is mainly attributable to the excess of the consideration paid over the fair value of the net assets acquired that cannot be recognized separately as identifiable assets under U.S. GAAP, and comprise (a) the assembled work force and (b) the expected but unidentifiable business growth as a result of the synergy resulting from the acquisition.
**On October 1, 2020, Shenzhen Mengyun entered into acquisition agreement to acquire 100% equity interests of Shenzhen Tianyuemeng, an entity focused on holographic advertising services. The transaction consummated on October 1, 2020. According to the agreement, acquisition consideration is RMB 30,000,000 (approximately USD 4.6 million) to acquire the 100% equity interests of Shenzhen Tianyuemeng. Acquired amortizable intangible assets includes customer relationship, software, and non-compete agreements. Approximately RMB 11.4 million (USD 1.8 million) of goodwill arising from the acquisition is mainly attributable to the excess of the consideration paid over the fair value of the net assets acquired that cannot be recognized separately as identifiable assets under U.S. GAAP, and comprise (a) the assembled work force and (b) the expected but unidentifiable business growth as a result of the synergy resulting from the acquisition.

The changes in the carrying amount of goodwill allocated to reportable segments as of December 31, 2022 and March 31, 2023 are as follows:

  Holographic solutions  Holographic technology service  Total 
As of December 31, 2022 $1,410,585  $1,656,732  $3,067,317 
As of March 31, 2023 $1,416,665  $1,663,872  $3,080,537 

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Note 9 — Investments in unconsolidated entities

Schedule of investments

  

March 31,

2023

  

December 31,

2022

 
Equity investments without readily determinable fair value:        
19.9% Investment(1) $291,223  $289,973 
4.4% Investment(2)  72,806   72,493 
5% Investment(3)  87,367   86,992 
3% Investment(4)  145,611   144,986 
2% Investment(5)  87,367     
Impairment  (597,006)  (594,444)
Total $87,367  $- 

(1)In August 2016, Shenzhen Mengyun invested RMB 2,000,000 in a company in the technology development and animation design areas for 19.9% equity interest. Due to the continual losses, the Company believes that the probability of recovering the investment is low. Therefore, the Company accrued RMB 2,000,000 (USD 306,645) impairment loss for the investment in 2018.
(2)In November 2015, Shanghai Mengyun invested RMB 500,000 in a company in the database service for 4.44% equity interest. Due to the continual losses, the Company believes that the probability of recovering the investment is low. Therefore, the Company accrued RMB 500,000 (USD 76,661) impairment loss for the investment in 2018
(3)In September 2021, Shenzhen Mengyun invested RMB 600,000 in a company specializing in research and development of smart wearable devices for 5% equity interest. Due to the continual losses, the Company believes that the probability of recovering the investment is low. Therefore, the Company accrued RMB 600,000 (USD 89,166) impairment loss for the investment in 2022.
(4)In October 2021, Shenzhen Mengyun invested RMB 1,000,000 in a company specializing in VR/AR education technology for 3% equity interest. Due to the continual losses, the Company believes that the probability of recovering the investment is low. Therefore, the Company accrued RMB 1,000,000 (USD 148,611) impairment loss for the investment in 2022.
(5)In March 2023, Shenzhen Mengyun invested RMB 600,000 in a company in the technology development and animation design areas for 2% equity interest.

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Note 10 — Other payables and accrued liabilities

Other payables and accrued liabilities consist of the following:

Schedule of Other payables and accrued liabilities

        
  

March 31,

2023

  

December 31,

2022

 
Employee compensation payable $1,004,959  $996,823 
Payable from prior acquisition  565,953   563,524 
Other  398,726   404,154 
  $1,969,638  $1,964,501 

Note 11 — Related party balances and transactions

The amounts due from related parties consist of the following:

Schedule of related parties

RP Name Relationship Nature 

March 31,

2023

  

December 31,

2022

 
Shenzhen Ultimate Holographic Culture Communication Co., Ltd. Shenzhen Mengyun’s 19.9% equity investment Advances for operational purposes, no interest, due on demand $-  $8,740 
      $-  $8,740 

The amounts due to related parties consists of the following:

RP Name Relationship Nature 

March 31,

2023

  

December 31,

2022

 
Yuxiu Han Former shareholder and current legal representative of Shenzhen Bowei Advances for operational purpose, no interest, due on demand  -   50,745 
      $-  $50,745 

Note 12 — Income taxes

Cayman Islands

MC was incorporated in the Cayman Islands and is not subject to tax on income or capital gains under the laws of Cayman Islands. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.

24

Hong Kong

Mengyun HK, Broadvision HK, Ocean HK and Mcloudvr HK are incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. Under Hong Kong tax law, Mengyun HK is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

PRC

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. 13. 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, 2024, 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%). March 26, 2023, MOF and SAT further jointly issued Cai Shui 2023 No. 6 which clarified that from January 1, 2023 to December 31, 2024, 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%).For the three months ended March 31, 2022 and 2023, Shenzhen Tianyuemeng, Yijia Network, and Qianhai Youshi and Shenzhen Yunao were eligible to employ this policy.

Significant components of the income tax expense (benefit) consisted of the following:

Schedule of income tax expense (benefit)

        
  

Three months ended

March 31,

 
  2023  2022 
Current income tax expense $-  $16,599 
Deferred income tax benefit  (28,450)   (73,309)
Total $(28,450)  $(56,710)

Deferred tax assets and liabilities — China

Significant components of deferred tax assets and liabilities were as follows:

Schedule of deferred tax assets and liabilities

  

March 31

2023

  

December 31

2022

 
Deferred tax assets:        
Allowance for doubtful accounts $37,403  $37,242 
Depreciation and amortization  -   - 
Impairment loss for investment  34,947   34,797 
Net operating loss carry forward  496,494   494,364 
Inventory reserve  3,854   3,838 
Right of use  70,711   2,045 
Less: valuation allowance  (513,397)  (442,832)
Deferred tax assets, net  130,012   129,454 
Deferred tax liabilities:        
Recognition of intangible assets arising from business acquisition  (262,789)  (289,884)
Deferred tax liabilities, net  (262,789)  (289,884)
Total deferred tax liabilities, net $(132,777) $(160,430)

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 valuation allowance was increased by $70,565 and $38,311 for the three months ended March 31, 2023 and 2022, respectively.

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 March 31, 2023, the Company had net operating loss carry forwards of approximately $5,538,621, which arose from Shenzhen Mengyun, Qianhai Youshi, Yijia Nework and Shenzhen Bowei, the subsidiaries established in the PRC, and will expire during the period from 2022 to 2026.

Uncertain tax positions

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of December 31, 2022 and March 31, 2023, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest and penalties related to potential underpaid income tax expenses For the three months ended March 31, 2022 and 2023, and also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from March 31, 2023.

26

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

 

March 31,

2023

  

December 31,

2022

 
VAT taxes payable $15,618  $7,199 
Income taxes payable  66,112   68,660 
Other taxes payable  817   11,459 
Totals $82,547  $87,319 

Note 13 — 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 500,000. As of March 31, 2023 and December 31, 2022, cash and time deposit balance of $20,328,906 and $21,910,338 was deposited with financial institutions located in China. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.

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 the 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 the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to the Company.

Customer concentration risk

For the three months ended March 31, 2023, one customer accounted for 25.7% of the Company’s total revenues. For the three months ended March 31, 2022, one customer accounted for 38.8% of the Company’s total revenues.

As of March 31, 2023, two customers accounted for 31.1%, and 21.1% of the Company’s accounts receivable, respectively. As of December 31, 2022, two customers accounted for 26.4% and 15.8% of the Company’s accounts receivable, respectively.

Vendor concentration risk

For the three months ended March 31, 2023, two vendors accounted for 59.0% and 12.7% of the Company’s total purchases, respectively. For the three months ended March 31, 2022, two vendors accounted for 45.6% and 23.5% of the Company’s total purchases.

As of March 31, 2023, one vendor accounted for 68.2% of the Company’s accounts payable. As of December 31, 2022, two vendors accounted for 63.6% and 10.0% of the Company’s accounts payable, respectively.


Note 14 — Shareholders’ equity

Ordinary shares

The Company was established under the laws of Cayman Islands on November 10, 2020 with authorized share of 500,000,000 ordinary Shares with a par value of USD 0.0001 each, 132,000,000 of which have been issued and are outstanding.

At the closing of the Business Combination, the issued and outstanding shares in MC held by the former MC shareholders were cancelled and ceased to exist, in exchange for the issuance of an aggregate of 44,554,455 Golden Path ordinary shares.

The number of shares of ordinary issued immediately following the consummation of the Merger was 50,812,035 shares with a par value of USD 0.0001 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.

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 March 31, 2023 and December 31, 2022, amounts restricted are the paid-in-capital and statutory reserve of Mengyun PRC entities, which amounted to $6,121,025 and $6,121,025.

Statutory reserve

During the three months ended March 31, 2023 and 2022, Mengyun PRC entities collectively attributed $0 and $126,416, of retained earnings for their statutory reserves, respectively

28

Note 15 — 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 5.7 million (USD 0.9 million) of right of use (“ROU”) assets and approximately RMB 5.7 million (USD 0.9 million) of operating lease liabilities based on the present value of the future minimum rental payments of leases, using incremental borrowing rate of 7.0%.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The leases generally do not contain options to extend at the time of expiration.

As of March 31, 2023, the Company’s operating leases had a weighted average remaining lease term of approximately 2.75 years.

For the three months ended March 31, 2023, rent expenses for the operating leases and short-term lease (less than one year) were $70,168 and $ 25,408, respectively.

For the three months ended March 31, 2022, rent expenses for the operating leases and short term lease (less than one year) were $ 72,563 and $ 21,955, respectively.

The five-year maturity of the Company’s lease obligations is presented below:

Schedule of lease liabilities

Years ending December 31,   
2023(remaining nine months) $198,806 
2024  182,351 
2025  140,147 
2026  84,424 
Total lease payments  605,728 
Less: Interest  (55,809)
Present value of lease liabilities $549,921 

Future amortization of Company’s ROU assets is presented below:

Schedule of Future amortization of Company’s ROU assets

    
Twelve months ending December 31,   
2023(remaining nine months) $177,353 
2024  159,780 
2025  120,249 
2026  74,383 
Total $531,765 

Note 16 — Warrant liabilities

As of March 31, 2023, the Company had 5,750,000 public warrants and 270,500 private warrants.

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 under 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. The Private Warrants are valued using a Black Scholes model.

29

 

Ordinary shares subject to possible redemption

The Company accounts for its ordinary shares subject to possible redemption in accordance with the guidance in ASC 480. Ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. 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 the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. As of June 30, 2022 and December 31, 2021, 5,750,000Public Warrants ordinary shares subject to possible redemption which are subject to occurrence of uncertain future events and considered to be outside of the Company’s control are presented as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.

Offering costs

The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A – “Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the Initial Public Offering and that were charged to shareholders’ equity upon the completion of the Initial Public Offering.

Fair value of financial instruments

FASB ASC Topic 820 “Fair Value Measurements and Disclosures” defines fair value, the methods used to measure fair value and the expanded disclosures about fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between the buyer and the seller at the measurement date. In determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value. FASB ASC Topic 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances.


The fair value hierarchy is categorized into three levels based on the inputs as follows:

Level 1 —

Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

Level 2 —

Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means.

Level 3 —Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The fair value of the Company’s certain assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet. The fair values of cash and cash equivalents, and other current assets, accrued expenses, due to sponsor are estimated to approximate the carrying values as of June 30, 2022 and December 31, 2021 due to the short maturities of such instruments. See Note 9 for the disclosure of the Company’s assets and liabilities that were measured at fair value on a recurring basis.

Concentration of credit risk

Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and trust accounts in a financial institution which, at times may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.

Income taxes

Income taxes are determined in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. The Company’s management determined that the British Virgin Islands is the Company’s major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were 0 unrecognized tax benefits and 0 amounts accrued for interest and penalties as of June 30, 2022 or December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.

The Company may be subject to potential examination by foreign taxing authorities in the area of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with foreign tax laws.


The Company’s tax provision is zero for the six months ended June 30, 2022 and 2021.

The Company is considered to be an exempted Cayman Islands Company, and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States.

Net loss per share

The Company calculates 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, the Company 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. The Company 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 June 30, 2022, the Company has 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 the Company did not have any other dilutive securities and other contracts that could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. As a result, diluted loss per share is the same as basic loss per share for the period presented.

The net income (loss) per share presented in the unaudited condensed consolidated statements of operations is based on the following:

 Schedule of unaudited condensed consolidated statement of operations        
  For the
Six Months Ended
June 30,
 
  2022  2021 
Net loss $(413,647) $(199,991)
Accretion of carrying value to redemption value  (278,981)  (5,351,581)
Net loss including accretion of carrying value to redemption value $(692,628) $(5,551,572)

         
  For the
Three Months Ended
June 30,
 
  2022  2021 
Net loss $(103,801) $(143,212)
Accretion of carrying value to redemption value  (274,241)  (5,351,581)
Net loss including accretion of carrying value to redemption value $(378,042) $(5,494,793)

  For the six months
ended June 30, 2022
  For the six months
ended June 30, 2021
 
  Redeemable
ordinary shares
  Non-Redeemable
ordinary shares
  Redeemable
ordinary shares
  Non-Redeemable
ordinary
shares
 
Basic and diluted net loss per share:                
Numerators:                
Allocation of net loss including carrying value to redemption value $(534,005) $(158,623) $(4,435,724) $(1,115,848)
Accretion of carrying value to redemption value  278,981   -   5,351,581   - 
Allocation of net (loss) income $(255,024) $(158,623) $915,857  $(1,115,848)
Denominators:                
Weighted-average shares outstanding  5,750,000   1,708,000   5,750,000   1,446,467 
Basic and diluted net income (loss) per share $(0.04) $(0.09) $0.16  $(0.77)


  For the three months ended
June 30, 2022
  For the three months
ended June 30, 2021
 
  Redeemable
ordinary shares
  Non-Redeemable
 ordinary shares
  Redeemable
ordinary shares
  Non-Redeemable
ordinary
shares
 
Basic and diluted net loss per share:                
Numerators:                
Allocation of net income (loss) including carrying value to redemption value $(291,464) $(86,578) $(4,384,954) $(1,109,839)
Accretion of carrying value to redemption value  274,241   -   5,351,581   - 
Allocation of net income (loss) $(17,223) $(86,578) $966,627  $(1,109,839)
Denominators:                
Weighted-average shares outstanding  5,750,000   1,708,000   5,750,000   1,455,335 
Basic and diluted net income (loss) per share $(0.00) $(0.05) $0.17  $(0.76)

Related parties

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

Recent accounting pronouncements

The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on the results of operations, financial condition, or cash flows, based on the current information.

NOTE 3 — CASH AND INVESTMENT HELD IN TRUST ACCOUNT

As of June 30, 2022, investment securities in the Company’s Trust Account consisted of $58,356,044 in United States Treasury Bills and $0 in cash. The Company classifies its United States Treasury securities as available-for-sale. Available-for-sale marketable securities are recorded at their estimated fair value on the accompanying June 30, 2022 balance sheet. The carrying value, including gross unrealized holding gain as other comprehensive income and fair value of held to marketable securities on June 30, 2022 and December 31, 2021 is as follows:

 Schedule of including gross unrealized holding gain as other comprehensive income and fair value         
  Carrying Value as of
June 30,
2022
(Unaudited)
  Gross Unrealized Holding Gain  Fair Value as of
June 30,
2022
(unaudited)
 
          
Available-for-sale marketable securities:            
U.S. Treasury Securities $58,313,871  $42,173  $58,356,044 


  Carrying Value as of
December 31,
2021
  Gross Unrealized Holding Gain  Fair Value as of
December 31,
2021
 
          
Available-for-sale marketable securities:            
U.S. Treasury Securities $58,077,063  $             -  $58,077,063 

NOTE 4 — PUBLIC OFFERING

On June 24, 2021, the Company sold 5,750,000 units at a price of $10.00 per Public Unit in theits Initial Public Offering. Each Public Unit consists of one ordinary share of the Company, $0.0001$0.0001 par value per share, (the “Public Shares”), one right (the “Public Rights”) and one redeemable warrant (the “Public Warrant”). Each Public Right entitles the holder to receive one-tenth (1/10) of an ordinary share upon consummation of an initial Business Combination. Each Public Warrant entitles the holder to purchase one-half (1/2) of an ordinary share at an exercise price of $11.50$11.50 per whole share (see Note 8).

The Company paid an upfront underwriting discount of $1,150,000, equal to 2% of the gross offering proceeds to the underwriter at the closing of the Initial Public Offering, with an additional fee of $1,437,500 (the “Deferred Underwriting Discount”) or 2.5% of the gross offering proceeds payable upon the Company’s completion of the Business Combination. The Deferred Underwriting Discount will become payable to the underwriter from the amounts held in the Trust Account solely in the event the Company completes its Business Combination. In the event that the Company does not close the Business Combination, the underwriter has waived its right to receive the Deferred Underwriting Discount. The underwriter is not entitled to any interest accrued on the Deferred Underwriting Discount.

NOTE 5 – PRIVATE PLACEMENT

Simultaneously with the closing of the Initial Public Offering, the Company consummated a private placement of 270,500 Private Units at $10.00 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”) are non-redeemable and may be exercised on a cashless basis so long as the Private Warrants continue to be held by the initial purchasers of the Placement Units or their permitted transferees.

NOTE 6 – RELATED PARTY TRANSACTIONS

Founder Shares

In May 2018, the Company issued one ordinary share to the Sponsor for no consideration. In January 2021, the Company effected a 10 for 1 share split, resulting in an aggregate of 10 ordinary shares outstanding. All share and per-share amounts have been retroactively restated to reflect the share split. On January 6, 2021, the Sponsor purchased an aggregate of 1,150,000 founder shares for an aggregate purchase price of $25,000, or approximately $0.02 per share. On March 26, 2021, the Company issued an additional 287,500 founder shares to the Sponsor in connection with a recapitalization.


The founders and our officers and directors have agreed not to transfer, assign or sell any of the Founder Shares (except to certain permitted transferees) until, with respect to 50% of the Founder Shares, the earlier of (i) six months after the date of the consummation of a Business Combination, or (ii) the date on which the closing price of the Company’s ordinary shares equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after a Business Combination, with respect to the remaining 50% of the Founder Shares, upon six months after the date of the consummation of a Business Combination, or earlier, in each case, if, subsequent to a Business Combination, the Company consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s shareholders having the right to exchange their ordinary shares for cash, securities or other property.

Administrative Services Agreement

An affiliate of the Sponsor agreed, commencing on June 24, 2021 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to make available to the Company certain general and administrative services, including office space, utilities and administrative services, as the Company may require from time to time. The Company has agreed to pay the affiliate of the Sponsor $10,000 per month for these services.

Related Party Loan

In order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor, or the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,000,000 of notes may be converted upon consummation of a Business Combination into additional Private Units at a price of $10.00 per Unit. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. As of June 30, 2022 and December 31, 2021, the Company owed a balance of $422,111 and $164,740 to Greenland Asset Management Corporation.

Related Party Extensions Loan

As discussed in Note 1, the Company may extend the period of time to consummate a Business Combination up to nine times, each by an additional month (for a total of 21 months to complete a Business Combination). In order to extend the time available for the Company to consummate a Business Combination, the Sponsor or its affiliates or designees must deposit into the Trust Account $191,667 (approximately $0.033 per Public Share), up to an aggregate of $1,725,000, or $0.30 per Public Share, on or prior to the date of the applicable deadline, for each one-month extension. Any such payments would be made in the form of a loan. The terms of the promissory note to be issued in connection with any such loans have not yet been negotiated. If the Company completes a Business Combination, the Company would repay such loaned amounts out of the proceeds of the Trust Account released to the Company. If the Company does not complete a Business Combination, the Company will not repay such loans. Furthermore, the letter agreement with the shareholders contains a provision pursuant to which the Sponsor has agreed to waive its right to be repaid for such loans in the event that the Company does not complete a Business Combination. The Sponsor and its affiliates or designees are not obligated to fund the Trust Account to extend the time for the Company to complete a Business Combination.

On June 14, 2022 and July 18, 2022, the Company issued an unsecured promissory note, each in an amount of $191,667 to the Sponsor, pursuant to which such amount had been deposited into the Trust Account in order to extend the amount of available time to complete a business combination until August 24, 2022. The Note is non-interest bearing and are payable upon the closing of a Business Combination. As of June 30, 2022 and December 31, 2021, the note payable balance of $191,667 and $0, respectively.


NOTE 7 – SHAREHOLDERS’ DEFICIT

Ordinary Shares

The Company is authorized to issue 500,000,000 ordinary shares, with a par value of $0.0001 per share. Holders of the ordinary shares are entitled to one vote for each ordinary share.

In January 2021, the Company effected a 10 for 1 share split, resulting in an aggregate of 10 ordinary shares outstanding. All share and per-share amounts have been retroactively restated to reflect the share split.

On January 6, 2021, the Company issued an aggregate of 1,150,000 founder shares to the Sponsor for an aggregate purchase price of $25,000 in cash.

On March 26, 2021, the Company issued an additional 287,500 founder shares to the Sponsor in connection with a recapitalization.

On June 24, 2021, the Company sold 5,750,000 units at a price of $10.00 per Public Unit in the Initial Public Offering.

Simultaneously on June 24, 2021, the Company issued 270,500 ordinary shares under the private placement of 270,500 private units at $10 per unit, to the Sponsor.

As of June 30, 2022 and December 31, 2021, 1,708,000 ordinary shares issued and outstanding excluding 5,750,000 shares are subject to possible redemption.

Rights

Each holder of a right will receive one-tenth (1/10) of one ordinary share upon consummation of a Business Combination, even if the holder of such right redeemed all shares held by it in connection with a Business Combination. No fractional shares will be issued upon exchange of the rights. No additional consideration will be required to be paid by a holder of rights in order to receive its additional shares upon consummation of a Business Combination as the consideration related thereto has been included in the Unit purchase price paid for by investors in the Initial Public Offering. If the Company enters into a definitive agreement for a Business Combination in which the Company will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the ordinary shares will receive in the transaction on an as-converted into ordinary share basis and each holder of a right will be required to affirmatively convert its rights in order to receive 1/10 share underlying each right (without paying additional consideration). The shares issuable upon exchange of the rights will be freely tradable (except to the extent held by affiliates of the Company).

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 rights will not receive any of such funds with respect to their rights, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure to deliver securities to the holders of the rights upon consummation of a Business Combination. Additionally, in no event will the Company be required to net cash settle the rights. Accordingly, the rights may expire worthless.


NOTE 8 – WARRANT LIABILITIES

Each public warrant entitles the holder thereof to purchase one-half (1/2) of one ordinary share at a price of $11.50 per full share, subject to adjustment as described in Form S-1 Amendment No. 2 filed on June 11, 2021. Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares. This means that only an even number of warrants may be exercised at any given time by a warrant holder.

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 will becomebecame 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.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$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 trading30-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.

 

The Private Warrants will be identical to the Public Warrants underlying the Units being sold in the Initial Public Offering, except that 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.

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.


NOTE 9 – FAIR VALUE MEASUREMENTS

Private Warrants

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection

Simultaneously with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Level 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.

The following table presents information about the Company’s assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

 Schedule of fair value hierarchy of valuation techniques                
  June 30, 2022  Quoted Prices In Active Markets  Significant Other Observable Inputs  Significant Other Unobservable Inputs 
Description (Unaudited)  (Level 1)  (Level 2)  (Level 3) 
Assets:                
U.S. Treasury Securities held in Trust Account* $58,356,044  $58,356,044  $         -  $- 
                 
Liabilities:                
Warrant liabilities – Private Warrant $717,873  $-  $-  $717,873 

  December 31,  Quoted Prices In Active Markets  Significant Other Observable Inputs  Significant Other Unobservable Inputs 
Description 2021  (Level 1)  (Level 2)  (Level 3) 
Assets:                
U.S. Treasury Securities held in Trust Account* $58,077,063  $58,077,063  $          -  $- 
                 
Liabilities:                
Warrant liabilities – Private Warrant $639,990  $-  $-  $639,990 

*included in cash and investments held in trust account on the Company’s balance sheet.


The private warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the balance sheets.

The Company established the initial fair value for the private warrants at $625,000 on June 24, 2021, the date of the Company’s Initial Public Offering, using a Black-Scholes model. The Company allocated the proceeds received from the sale of Private Units, first to the private warrants based on their fair values as determined at initial measurement, with the remaining proceeds recorded as ordinary shares subject to possible redemption, and ordinary shares based on their relative fair values recorded at the initial measurement date. The warrants were classified as Level 3 at the initial measurement date due to the use of unobservable inputs.

The key inputs into the binomial model and Black-Scholes model were as follows at their measurement dates:

Schedule of binomial model and Black-Scholes model            
  June 30,
2022
  December 31,
2021
  June 24,
2021
(Initial
measurement)
 
Input            
Share price $9.91   9.96  $10.00 
Risk-free interest rate  3.01%  1.26%  0.90%
Volatility  63.20%  59.80%  58.40%
Exercise price $11.50   11.50  $11.50 
Warrant life  5 years   5 years   5 years 

As of June 30, 2022, the aggregate value of the private warrants was $0.718 million. The change in fair value from December 31, 2021 to June 30, 2022 was approximately $77,883. The change in fair value from March 31, 2022 to June 30, 2022 was approximately $25,477. The change in fair value from June 24, 2021 to June 30, 2021 was approximately $0.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the investments existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for investments categorized in Level 3. Level 3 financial liabilities consist of the Warrant liability for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.


NOTE 10 – COMMITMENTS AND CONTINGENCIES

Risks and Uncertainties

Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s future financial position, results of its operations and/or search for a target company, there has been a significant impact as of the date of these financial statements. The financial statements do not include any adjustments that might result from the future outcome of this uncertainty.

Registration Rights

Pursuant 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 the Company register such securities. 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 the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

Underwriting Agreement

The underwriters are entitled to a deferred fee of two and one-half percent (2.5%) of the gross proceedsclosing of the Initial Public Offering, or $1,437,500, of which the Company will have the right to pay up to 40%consummated a private placement of such amount to other advisors retained270,500 Private Units at $10.0 per unit, purchased by the Companysponsor. The Private Units are identical to assist itthe units sold in connection with a Business Combination. The deferred fee will be paidthe Initial Public Offering except that the warrants included in cashthe Private Units (the “Private Warrants”) and the ordinary shares issuable upon the closingexercise of the Private Warrants will not be transferable, assignable or saleable until after the completion of a Business Combination, fromsubject to certain limited exceptions. Additionally, the amountsPrivate 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.

30

Note 17 — 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 Trust Account, subjectaggregate, are not deemed to be material to the termsunaudited consolidated financial statements.

Note 18 — 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 underwriting agreement.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.

31

The summary information by segment are as follows:

Schedule of segments
  

Holographic

solutions

  

Holographic

technology

service

  

Total

March 31

2022

 
Revenues $13,514,868   10,700,343  $24,215,211 
Cost of revenues  (12,129,157)  (1,299,855)  (13,429,012)
Gross profit  1,385,711   9,400,488   10,786,199 
Depreciation and amortization  (99,202)  (160,867)  (260,069)
Total capital expenditures $(706)  -  $(706)

  

Holographic

solutions

  

Holographic

technology

service

  

Total

March 31

2023

 
Revenues $1,231,097  $5,348,634  $6,579,731 
Cost of revenues  (824,440)  (1,870,269)  (2,694,709)
Gross profit  406,657   3,478,365   3,885,022 
Depreciation and amortization  (258,286)  -   (258,286)
Total capital expenditures $(31,170) $-  $(31,170)

Total assets as of:

 

  

 

March 31,

 

 

December 31,

 
  2023  2022 
Holographic solutions $26,773,929  $29,063,408 
Holographic technology service  10,320,846   11,840,424 
Total Assets $37,094,775  $40,903,832 

Merger Agreement

Disaggregated information of holographic solutions revenues by business lines are as follows:

 

Schedule of Disaggregation        
  

Three months ended

March 31,

 
  2023  2022 
Holographic Technology LiDAR Products $818,578  $1,742,815 
Holographic Technology Intelligence Vision software and Technology Development Service  171,530   875,580 
Holographic Technology Licensing and Content Product  240,989   1,490,123 
Holographic Hardware Sales  -   9,406,350 
Total Holographic Solutions $1,231,097  $13,514,868 

On September 10, 2021,

32

Note 19 — Subsequent events

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 a Cayman Islands exempted company (the “(“Sponsor”).

Purchaser” or “Golden Path”), MC Algorithm Inc., a Cayman Islands exempted company (“MC” or

1. Joyous JD Limited is seeking damages in connection with the Company”), Golden Path Merger Sub Corp., a Cayman Islands exempted companySponsor’s breach of certain investment agreements which was executed by and wholly-owned subsidiarybetween 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 Purchaser (the “Merger Sub”) entered intobusiness combination, which resulted in a Merger Agreement (the forced withdrawal of the Form S-4. The Company has commenced lawsuit seeking damages.

Merger Agreement).

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.

 

Pursuant 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 “33

Cayman Companies Act”), the parties intend to effect a business combination transaction whereby the Merger Sub will merge with and into the Company, with the Company being the surviving entity (the Company is hereinafter referred to for the periods from and after the Merger Effective Time as the “Surviving Corporation”) and becoming a wholly owned Subsidiary of Golden Path (the “Merger”) on the terms and subject to the conditions set forth in this Agreement and simultaneously with the Closing Purchaser will change its name to “MicroCloud Hologram Inc.”

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Merger Agreement Amendment No. 1

On August 5, 2022, Golden Path, Golden Path Merger Sub and MC entered into an amendment toYou should read the Merger Agreement (the “Amendment”). The purposes of the amendment were to:

1. extend the outside termination date of the proposed merger to December 31, 2022;

2. include as a closing condition the requirement that the requisite vote of the shareholders of MC has been obtained;

3. include the requirement of the audited financial statement of MC for the year ended 2021 and reviewed financial statement of MC for the periods ended June 30, 2022 and March 31, 2022; and

4. make conforming changes to reflect that Purchaser will file a proxy statement with the Securities and Exchange Commission following the execution of the Amendment relating to the approval of the Purchaser’s shareholders of the Merger and the transactions contemplated by the Merger Agreement.

Merger Agreement Amendment No. 2

On August 10, 2022, Golden Path, Golden Path Merger Sub and MC entered into a second amendment to the Merger Agreement (the “Amendment”). The purposes of the Amendment were to change the requirement of MC’s delivering to Golden Path the quarterly reviewed financial statements for the period ended June 30, 2022 from a representation and warranty to a covenant with such financial statements to be delivered no later than September 15, 2022, and to make certain other conforming changes regarding the current status.

NOTE 11 – SUBSEQUENT EVENTS

In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before this unaudited condensed consolidated financial statements are issued, the Company has evaluated all events or transactions that occurred after June 30, 2022, up through August 15, 2022 the Company issued the unaudited condensed consolidated financial statements.


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

References in this report on form 10-Q (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Golden Path Acquisition Corporation. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to Greenland Asset Management Corporation. The following discussion and analysis of the Company’sour financial condition and results of operations should be read in conjunction with theour consolidated financial statements and therelated notes thereto contained elsewhereincluded in Part I, Item 1 of this Quarterly Report. Certain information contained in theThis discussion and analysis set forth below includesother parts of this report contain forward-looking statements that involve risks and uncertainties.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 Part II, Item 1A “Risk Factors” of this Quarterly Report and our Quarterly Report on Form 10-Q.

BackgroundOverview

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 Overviewranging (“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.

Prior to completion of its initial public offering on June 24, 2021, Business Combination

Golden Path Acquisition Corporation a Cayman Islands exempt company (the “Company”(“Golden Path”), was a privateformer blank check company incorporated in Cayman Island on May 9, 2018. Golden Path is a blank check company incorporated as a Cayman Islands exempted company andwas formed for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

Our efforts in identifying prospective target businesses will not be limited to a particular geographic region, although we intend to focus on businesses that have a connection to the Asian market. We believe that we will add value to these businesses primarily by providing them with access to the U.S. capital markets.

We presently have no revenue, have had losses since inception from incurring formation costs and have had no operations other than completing our initial public offering and since its completion the active solicitation of a target business with which to complete a business combination. Prior to our initial public offeringMicroCloud Hologram Inc. (formerly known as described below, we had relied upon the sale of our securities to our Sponsor and loans from our Sponsor to fund our operations.

On June 21, 2021, the Company’s registration statement (File No. 333-255297) (the “Registration Statement”) relating to the initial public offering (“IPO”) was declared effective by the Securities and Exchange Commission.

On June 24, 2021, the Company consummated the IPO of 5,000,000 units (the “Units”). In addition, the underwriters exercised in full the over-allotment option for an additional 750,000 Units, resulting in the issuance and sale of an aggregate of 5,750,000 Units. Each Unit consists of one ordinary share, par value $0.0001 per ordinary share (“Share”), one redeemable warrant (“Warrant”) entitling its holder to purchase one-half of one Share at a price of $11.50 per Share, and one right to receive one-tenth (1/10) of one Share upon the consummation of the Company’s initial business combination.

Simultaneously with the closing of the IPO, the Company consummated a private placement exempt from registration under the Securities Act of 1933, as amended (“Private Placement”) with its sponsor, Greenland Asset Management Corporation, a British Virgin Islands company (“Sponsor”) for the purchase of 270,500 Units (the “Private Units”) at a price of $10.00 per Private Unit, generating total proceeds of $2,705,000, pursuant to the Private Placement Unit Purchase Agreement dated June 17, 2021.

The 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.

As of June 24, 2021, an aggregate total of $58,075,000 of the net proceeds from the IPO and the Private Placement Unit Purchase Agreement transaction completed with the Sponsor (as described in Item 3.02 below), Greenland Asset Management Corporation, a British Virgin Islands company, were deposited in a trust account (“Trust Account”) established for the benefit of the Company’s public shareholders, established with Wilmington Trust, National Association acting as trustee.


Transaction costs for the IPO 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. In addition, at June 30, 2022, cash of $0 was held outside of the Trust Account established at the time of our IPO and is available for the payment of offering costs and for working capital purposes. An audited balance sheet as of June 24, 2021 reflecting receipt of the proceeds received by the Company in connection with the consummation of the IPO and the Private Placement Unit Purchase Agreement was previously filed by the Company on a Current Report on Form 8-K filed by the Company on June 30, 2021.

On September 10, 2021, Golden Path entered into a merger agreement (the “Merger Agreement”), which provides for a Business Combination between Golden Path and MC Hologram Inc. Pursuant to the Merger Agreement, the Business Combination will be effected as a stock for stock transaction and is intended to be qualified as a tax-free reorganization. The Merger Agreement is by and among Golden Path, Merger Sub, and MC Hologram Inc.Acquisition Corporation), a Cayman Islands exempted company, (“MC Hologram”). The aggregate considerationentered 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 is $450,000,000, payablepurpose 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 form of 44,554,455 newly issued ordinary shares ofMerger Agreement, the Company valued at $10.10 per share.“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.

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Upon

On September 16, 2022, in accordance with the Merger Agreement, the closing of the Business Combination the former(the “Closing”) occurred, pursuant to which Golden Path issued 44,554,455 ordinary shares to MC Hologram stockholders will receive an aggregate of 44,554,455 sharesshareholders. As a result of the Company’s Ordinary Shares.

We are an “emerging growth company,” as defined in Section 2(a)consummation of the Securities ActBusiness Combination, MC became a wholly owned subsidiary of 1933,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.

Key Components

Operating Revenues

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 amended, orof January 1, 2019. Results for the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, wethree months ended March 31, 2022 and 2023 are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions frompresented under Topic 606. Based on the requirements of holding a non-binding advisory vote on executive compensationASC 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 shareholder approval of any golden parachute payments not previously approved. If some investors findother 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 securities less attractiverevenues disaggregated by revenue sources, both in absolute amount and as a result, there may be a less active trading market for our securities and the pricespercentage of our securities may be more volatile.revenues, for the periods presented.

  

For the three months ended March 31,

 
  2023  2022 
  US$  %  US$  % 
  (Unaudited) 
Operating revenues                
Products  1,055,701   16.0   11,678,900   48.2 
Services  5,524,030   84.0   12,536,311   51.8 
Total operating revenues  6,579,731   100.0   24,215,211   100.0 

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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:

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.

  For the Three Months Ended March 31, 
  2023  2022 
  US$  %  US$  % 
  (Unaudited) 
Cost of revenues            
Products  721,648   11.0   11,090,989   45.8 
Services  1,973,061   30.0   2,338,023   9.7 
Total cost of revenues  2,694,709   41.0   13,429,012   55.5 

 

We will remain an emerging growth company until the earlierSelling Expenses

As of (1) the last dayMarch 31, 2023, our selling expenses consist primarily of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value(i) compensation for selling personnel, (ii) travel expenses of our ordinary shares that is held by non-affiliates exceeds $700 million as of the prior June 30th,sales representatives, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” shall have the meaning associated with it in the JOBS Act.

We will have until 12 months from the closing of our IPO to consummate our initial business combination. However, if we anticipate that we may not be able to consummate our initial business combination within 12 months, we may, by resolution of our board if requested by our sponsor, extend the period of time to consummate a business combination up to nine times, each by an additional one month (for a total of up to 21 months to complete a business combination), subject to the sponsor depositing additional funds into the trust account as set out below. Pursuant to the terms of our memorandum(iii) advertising and articles of association and the trust agreement entered into between us, Wilmington Trust National Association and Vstock Transfer LLC on the closing of our IPO, in order for the time available for us to consummate our initial business combination to be extended, our sponsor or its affiliates or designees, upon five days advance notice prior to the applicable deadline, must deposit into the trust account $166,667, or $191,667 if the underwriters’ over-allotment option is exercised in full (approximately $0.033 per public share in either case), up to an aggregate of $1,500,000 (or $1,725,000 if the underwriters’ over-allotment option is exercised in full), or $0.30 per public share (for an aggregate of 9 months), on or prior to the date of the applicable deadline, for each extension. In the event that we receive notice from our sponsor five days prior to the applicable deadline of its wish for us to effect an extension, we intend to issue a press release announcing such intention at least three days prior to the applicable deadline. In addition, we intend to issue a press release the day after the applicable deadline announcing whether or not the funds had been timely deposited.promotion cost, etc. Our sponsor and its affiliates or designees are not obligated to fund the trust account to extend the time for us to complete our initial business combination. If we are unable to consummate our initial business combination within the applicable time period, we will, as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares for a pro rata portion of the funds held in the trust account and as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. In such event, the warrants and rights will be worthless.


Results of Operations

From our incorporation until late 2020 we were essentially dormant. In late 2020, we commenced preparing for the initial public offering which was completed in June 2021. Since the initial public offering, our activity has been limited to the evaluation of business combination candidates and activities in connection with consummating the proposed business combination with MC Hologram, and we will not be generating any operating revenues until the closing and completion of our initial business combination. We expect to incur increasedselling expenses as a resultpercentage of being a public company (for legal, financial reporting, accountingrevenues were 5.4% and auditing compliance), as well as1.0% for due diligencethe three months ended March 31, 2023 and 2022, respectively.

General and Administrative Expenses

As of March 31, 2023, our general and administrative expenses consist primarily of (i) compensation for our management and administrative personnel, (ii) expenses in connection with our efforts to source a business combination.

We presently have no revenue, have had losses since inception from incurring formation costsoperation supporting functions such as legal, accounting, consulting and have had no operations other than completing our initial public offeringprofessional service fees, and since its completion the active solicitation of a target business with which to complete a business combination(iii) office rental, depreciation, and activities in connection with consummating the proposed business combination with MC Hologram. For the six months ended June 30, 2022 and 2021, we incurred $381,326 and $200,059 in formation,other administrative related expenses. Our general and administrative expenses respectively. Foras a percentage of revenues were 16.9% and 2.8% for the sixthree months ended June 30,March 31, 2023 and 2022, respectively.

Research and 2021,Development Expenses (“R&D expenses”)

As of March 31, 2023, our R&D 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. Our R&D expenses as a percentage of revenues were 62.4% and 27.1% for the three months ended March 31, 2023 and 2022, respectively.

Change in Fair Value of Warrant Liabilities

We account for our 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 unaudited consolidated Balance Sheet until exercised, and any change in fair value is recognized in our unaudited consolidated Statements of Income.

Taxation

Cayman Islands

We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we had net lossesare not subject to tax on income or capital gain in the Cayman Islands. Additionally, no withholding tax will be required on payments of $413,647 and $199,991, respectively.dividends by us to our shareholders.

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Hong Kong

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 unaudited consolidated financial statements as it has no assessable profit for the three months ended March 31, 2023 and 2022.

PRC

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. 13. This clarified that from January 1, 2019 to December 31, 2022, 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 March 14, 2022, MOF and SAT further jointly issued Cai Shui 2022 No. 13, which clarified that from January 1, 2022 to December 31, 2024, eligible small enterprises whose income between RMB 1,000,000 and RMB 3,000,000 is eligible for 75% reduction on a rate of 20% (i.e. effective rate is 5%). On March 26, 2023, MOF and SAT further jointly issued Cai Shui 2023 No. 6 which clarified that from January 1, 2023 to December 31, 2024, 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%). For the three months ended June 30,March 31, 2023 and 2022, Shenzhen Tianyuemeng, Yijia Network, and 2021, we incurred $122,893Qianhai Youshi and $143,280 in formation, general and administrative expenses, respectively. For the three months ended June 30, 2022 and 2021, we had net losses of $103,801 and $143,212, respectively.

For the six months ended June 30, 2022 and 2021, we had net losses per share of $0.09 and $0.77, respectively.

For the three months ended June 30, 2022 and 2021, we had net losses per share of $0.05 and $0.76, respectively.

Liquidity and Capital Resources

As of June 24, 2021, an aggregate total of $58,075,000 of the net proceeds from the IPO and the Private Placement Unit Purchase Agreement transaction completed with the Sponsor (as described in Item 3.02 below), Greenland Asset Management Corporation, a British Virgin Islands company,Shenzhen Yunao were deposited in a trust account established for the benefit of the Company’s public shareholders, established with Wilmington Trust, National Association acting as trustee.

Transaction costs for the IPO amountedeligible 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. There was no cash balance as of June 30, 2022, cash of $0 was held outside of the Trust Account and is available for the payment of offering costs and for working capital purposes.

As of June 30, 2022, we had cash and marketable securities of $58,356,044 held in the trust account. We intend to use substantially all of the net proceeds of the initial public offering, including the funds held in the Trust Account, to acquire a target business or businesses and to pay our expenses relating thereto. To the extent that our capital stock is used in whole or in part as consideration to effect our business combination, the remaining proceeds held in the Trust Account, as well as any other net proceeds not expended, will be used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our business combination if the funds available to us outside of the Trust Account were insufficient to cover such expenses.

For the six months ended June 30, 2022, cash used in operating activities was $260,764, consisting primarily of a net loss of $413,647 and change in fair value of warrant liabilities of $77,883. Changes in our operating assets and liabilities provided cash of $75,000.

For the six months ended June 30, 2021, cash used in operating activities was $174,694, consisting primarily of a net loss of $199,991 and changes in our operating assets and liabilities provided cash of $25,365.

At June 30, 2022, we had cash of $0 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.


As of May 9, 2022, we have an outstanding working capital loan balance from the Sponsor in the aggregate amount of $385,000 in order to finance transaction costs in connection with the Business Combination. On May 9, 2022, we issued a promissory note of $1,000,000 to our Sponsor for our Sponsor to provide any additional working capital loan to the Company on an as-needed basis towards the consummation of a Business Combination. Outstanding working capital loans, if any, underemploy this promissory note will be paid off by applying the proceeds from the Trust Account after the redemption upon the closing. As of June 30, 2022, we have a balance of $422,111 loan from our sponsor.policy.

 

Other than as described above,Tax savings for those entities in orderXinjiang province includes Horgos Weiyi, Horgos Youshi, Horgos Bowei, Kashgar Youshi and Horgos Tianyuemeng and for those entities eligible for small enterprises includes Shenzhen Tianyuemeng, Yijia Network, Qianhai Youshi, and HNTEs includes Shanghai Mengyun and Shenzhen Mengyun.

Our PRC subsidiaries are subject to fund working capital deficienciesvalue added tax, or finance transaction costs in connection with a 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 a Business Combination, we would repay such loaned amounts. In the event that a 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 for such repayment. Up to $1,500,000 of such loans may be convertible into Private Units,VAT, at a pricerate of $10.00 per unit at the option of the lender.6% on services and 13% on goods in China. We are also subject to surcharges on VAT payments in accordance with PRC laws.

Going concern considerationCritical Accounting Policies and Estimates

As of June 30, 2022, the Company had working capital deficit of $634,611 and net loss of $413,647 for the six months ended June 30, 2022. The Company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The management’s plan in addressing this uncertainty is through the Initial Public Offering as discussed in Note 4. There is no assurance that the Company’s plans to raise capital or to consummate a business combination will be successful within the Combination Period. In order to finance transaction costs in connection with an intended initial Business Combination, the Sponsor, or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required up to $1,500,000 as discussed in Note 6. Based on the foregoing, the Company believes it will have sufficient cash to meet its needs to execute its intended initial Business Combination in the next twelve months from the date of the issuance of the accompanyingOur unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

Off-balance sheet financing arrangements

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements as of June 30, 2022. We do not participateare prepared 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.

Contractual obligations

As of June 30, 2022 we do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than an agreement to pay our Sponsor a monthly fee of $10,000 for general and administrative services, including office space, utilities and administrative services 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.

Critical Accounting Policies

Use of Estimates

The preparation of financial statements and related disclosures in conformityaccordance with accounting principles generally accepted in the United States of America, (“GAAP”)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 unaudited 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 unaudited consolidated financial statements included under Item 1 of Part I in this Quarterly 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.

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Principles of consolidation

The unaudited 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

The preparation of unaudited 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 disclosureand disclosures of contingent assets and liabilities atas of the date of the unaudited consolidated financial statements and incomethe reported amounts of revenues and expenses during the periods reported.presented. Significant accounting estimates reflected in our unaudited 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 materially differ from thosethese estimates.

Foreign currency translation and transaction

The Company has not identified any significant accounting policies.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 are Renminbi (“RMB”), as determined based on the criteria of Accounting Standards Codification (“ASC”) 830 “Foreign Currency Matters”.


CashMonetary assets and Investments

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents as of June 30, 2022 and December 31, 2021. The Company classifies marketable securities as available-for-saleliabilities denominated in currencies other than the functional currency are translated into the functional currency at the timerates of purchase and re-evaluates such classification as of eachexchange in place at the balance sheet date. All marketable securitiesTransactions in currencies other than the functional currency during the year are recordedconverted into the functional currency at their estimated fair value. Unrealizedthe applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses for available-for-sale securitiesare recognized in the unaudited consolidated statement of operations.

In the unaudited consolidated financial statements, the financial information of MicroCloud and other entities located outside of the PRC has been translated into RMB. Our assets and liabilities translated from their respective functional currencies to the reporting currency at the exchange rates at the balance sheet dates, equity accounts are translated at historical exchange rates and revenues and expenses are translated at the average exchange rates in effect during the reporting period. The resulting foreign currency translation adjustment are recorded in other comprehensive loss. The Company evaluatesincome (loss).

Convenience translation

Translations of balances in the unaudited consolidated balance sheets, consolidated statements of income and consolidated statements of cash flows from RMB into USD as of and for the three months ended March 31, 2023 are solely for the convenience of the reader and were calculated at the rate of RMB 1.00 to USD 0.1456, representing the mid-point reference rate set by Peoples’ Bank of China on March 31, 2023. No representation is made that the RMB amounts represent or could have been, or could be, converted, realized or settled into USD at that rate, or at any other rate.

Goodwill

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 investmentsfair 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 whether those with unrealized loss positions are other than temporarily impaired. Impairments are considered other than temporary if they are relatedqualitative factors to deterioration in credit risk or ifdetermine whether it is likely the Company will sell the securities before the recoverynecessary 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.

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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 three months ended March 31, 2022 and 2023, 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, basis. Realized gainsless 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.

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

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

U.S. 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.

U.S. 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:

Level 1inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2inputs 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 3inputs 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 unaudited 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.

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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 three months ended March 31, 2023 between noncontrolling interest holders and our shareholders.

Ordinary share Warrants

We account for ordinary share 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 1 of Part I “Financial statements—Note 20—Warrant liabilities”.

Revenue recognition

Effective January 1, 2019, we 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 we expect to be entitled to receive in exchange for those goods or services. We primarily sell our products to hospitals and medical equipment companies. 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

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

(i) Holographic Solutions

a. 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 than temporaryincentive 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 is transferred to customers.

b. Holographic Technology Intelligence Vision software and Technology Development Service

We generate revenue by developing ADAS software and technology, which are determinedgenerally 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 March 31, 2023 and December 31, 2022, the Company’s aggregate amount of transaction price allocated to unsatisfied performance obligation is $0 and $384,489, respectively. 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.

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c. 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.

d. 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 four 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; and 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.

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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 18—Segments” of our unaudited consolidated financial statements included under Item 1 of Part I in this Quarterly Report.

Operating leases

Effective January 1, 2022, we adopted ASU 2016-02, “Leases” (Topic 842), 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. We also adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. On January 1, 2022, we recognized approximately RMB 5.7 million (USD 0.8 million) of right of use (“ROU”) assets and approximately RMB 5.7 million (USD 0.8 million) of operating lease liabilities based on the specific identification methodpresent value of the future minimum rental payments of leases, using incremental borrowing rate of 7%.

We determine if a contract contains a lease at inception. US GAAP requires that our leases be evaluated and are reported in other income (expense), netclassified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the statementsevaluation includes the non-cancellable period for which we have 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 our real estate leases are classified as operating leases.

When determining the lease payments for an operating lease transitioning to ASC 842 using the effective date, it’s based on future payments at the transition date, based on the present value of lease payments over the remaining lease term. Since the implicit rate for our leases is not readily determinable, we use our 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 we 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 we do not have reasonable certainty at lease inception that these options will be exercised. We generally consider the economic life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. We have 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.

We review the impairment of its ROU assets consistent with the approach applied for its other long-lived assets. We review 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. We have 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.

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Results of Operations

The Three Months Ended March 31, 2023 Compared To The Three Months Ended March 31, 2022

Operating Revenues

Our total operating revenue decreased by approximately 70.7% from $24.2 million for the three months ended March 31, 2022 to $6.6 million for the three months ended March 31, 2023. Product revenue declined by approximately 91% from $11.7 million in the three months ended March 31, 2022 to $1.1 million for the three months ended March 31, 2023. The service revenue declined by approximately 56% from $12.5 million in the three months ended March 31, 2022 to $5.5 million in the three months ended March 31, 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 Spring Festival holiday, customer demand has decreased, and it will take time for market demand to recover.

 

Warrant Related Accounting PoliciesCost of Revenue

Our cost of revenue decreased by approximately 78% from $13.4 million for the three months ended March 31, 2022 to $2.7 million for the three months ended March 31, 2023. The cost of products sales decreased by approximately 93% from $11.1 million for the three months ended March 31, 2022 to $0.7 million for the three months ended March 31, 2023. The cost of services decreased by approximately 0.1% from $2.3 million for the three months ended March 31, 2022 to $1.9 million for the three months ended March 31, 2023, primarily due to Product sales business is constantly decreasing, and expanding our service business.

Gross Profit and Gross Margin

As a result of the factors, our gross profit decreased by approximately 64.0% from $10.8 million for the three months ended March 31, 2022 to $3.9 million for the three months ended March 31, 2023. However, our gross margin increased from 44.5% ended March 31, 2022 to 59% for the three months ended March 31, 2023, as a decrease in our outsourcing costs enabled an increase in gross margin for our advertising and promotion business revenue.

Provision for doubtful accounts

 

The Company

Our provision for doubtful accounts increased by approximately 10223% from $0.1 million for warrants as liability-classified instrumentsthree months ended March 31, 2022 to $2.1 million for the three months ended March 31, 2023, primarily due to the allowance accrued in 2022 based on an assessmentmanagement’s best estimates of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity” (“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. Certain terms and conditions of the public warrants and private warrants result in the classification of these financial instruments as a liability as opposed to equity. The classification of these financial instruments as a liability results in the application of derivative liability accounting, which entails a quarterly valuation of these liabilities with any change in value required to be reflected in our quarterly and annual financial statements. The determination by us to classify the public warrants and private warrants as a liability results in us having to incur significant expense in valuing such liabilitieslosses on a quarterly and annual basis, and the resulting liability is and will be reflected on our financial statements, and such classification and ongoing expense may make it more difficult for us to complete an initial business combination. customer exposures.

 

Ordinary Shares as Temporary EquitySelling Expenses

Our selling and marketing expenses increased by approximately 40.4% from $0.3 million for the three months ended March 31, 2022 to $0.4 million for the three months ended March 31, 2023. This increase was primarily due to the increase of sales and marketing activities for our business development.

General and Administrative Expenses

Our general and administrative expenses increased by approximately 62.0% from $0.7 million for the three months ended March 31, 2022 to $1.1 million for the three months ended March 31, 2023. This increase was primarily due to the administrative costs and audit service fees.


Research and Development Expenses

 

Our research and development expenses decreased by approximately 37.3% from $6.6 million for the three months ended March 31, 2022 to $4.1 million for the three months ended March 31, 2023. The Company accountsdecrease was primarily due to the volume of research and development activities decreased

Income/(loss) from Operations

As a result of the factors set out above, we had approximately $3.8 million operating loss for its ordinary shares subjectthe three months ended March 31, 2023 and $3.3 million operating income for the three months ended March 31, 2022.

Financial (Expenses) Income, net

We had net financial expenses of approximately $0.1 million and $0.1 million which consisted primarily of bank charges and interest expenses for the three months ended March 31, 2023 and 2022, respectively

Other Income, net

We recorded other income of approximately $0.1 million and other net income of $0.1 million for the three months ended March 31, 2023 and 2022, respectively. Other income was mainly attributable to possible redemptiongovernment 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 (Expenses) for Income Tax

Our income tax benefit was approximately $0.1 million for the three months ended March 31, 2023. Our income tax expense was approximately $0.1 million for the three months ended March 31, 2022 primarily due to the decrease of taxable income generated from operations in our subsidiaries in PRC.

Net Income

As a result of the foregoing, we had net loss of approximately $3.6 million and net income of $3.4 million for the three months ended March 31, 2023 and 2022, respectively. 

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 guidance in ASC 480. Ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and arefair value option for certain financial assets previously measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights thatamortized 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 either withinstill evaluating the controlimpact of the holderadoption of this ASU on our unaudited consolidated financial statements.

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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 subjectnewly 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 Company’s unaudited consolidated financial statements and related disclosures.

Except 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 redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity.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 June 30,March 31, 2023, we had cash of $20.3 million. Our working capital was approximately $21.5 million as of March 31, 2023. 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, and December 31, 2021, 5,750,000 ordinary shares subject to possible redemption whichwe received net cash proceeds of $33.2 million from then closing of the Business Combination, net of certain transaction costs.

We are subject to occurrencerisks and uncertainties frequently encountered by early-stage companies including, but not limited to, the uncertainty of uncertain future eventssuccessfully developing products, securing certain contracts, building a customer base, successfully executing business and consideredmarketing 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 be outsidethe closing of the Company’sBusiness Combination, and the net proceeds we received through the Business Combination. Failure to generate sufficient revenues, achieve planned gross margins and operating profitability, control are presentedoperating 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.

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.

We recorded net cash provided by operating activities of $1.5 million for the three months ended March 31, 2023. The difference between our net income of $3.6 million and the net cash provided by operating activities was primarily due to an adjustment of $2.4 million in non-cash items, which mainly consisted of depreciation and amortization of $0.3 million, provision for doubtful accounts of $2.1 million.

Net cash generated from operating activities for the three months ended March 31, 2022 was primarily attributable to net income of approximately $3.4 million, and non-cash depreciation and amortization expenses of approximately $0.3 million. Cash inflow was also attributable to the increase in accounts payable approximately $2.6 million and advance from customers approximately $0.2 million with the expansion of business operation. Cash inflow was primarily offset by increase in accounts receivable approximately $5.0 million along with along with MC’s increase in revenue, increase in prepayment approximately $0.7 million for professional services, the increase in payment of various business tax $0.4 million along with the expansion of business operation.


Investing Activities

Net cash used in investing activities was $0.1 million for the three months ended March 31, 2023, primarily due to the investments in unconsolidated entities of $0.1 million.

Net cash used in investing activities was $1.1 million for the three months ended March 31, 2022, primarily due to the loan proceeds to third parties $1.6 million and loan repayment from third parties $2.1 million and investment in time deposit $1.6 million.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2023 was $0.1 million, primarily due to the repayments of third party loan $0.1 million.

Net cash used in financing activities for the three months ended March 31, 2022 was $0.1 million, primarily due to a short term bank loan proceeds $ 0.1 million.

Off-Balance Sheet Arrangements

As of March 31, 2023, we had no off-balance sheet arrangements as temporary equity, outsidedefined in Instruction 8 to Item 303(b) of the shareholders’ equity section of the Company’s balance sheet.Regulation S-K.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

 

Item 3. QuantitativeWe are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Qualitative Disclosures About Market Riskare not required to provide the information otherwise required under this item.

As of June 30, 2022, we were not subject to any market or interest rate risk. Following the consummation of our Initial Public Offering, the net proceeds of our Initial Public Offering, including amounts in the Trust Account, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 180 days or less or in certain money market funds that invest solely in U.S. treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.


Item 4. Controls and Procedures

Item 4.Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed with the objective of ensuringto ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act such as this Report, is recorded, processed, summarized and reported within the time periodperiods specified in the SEC’s rules and forms. Disclosure controls are alsoand procedures include, without limitation, controls and procedures designed withto ensure that information required to be disclosed in our reports filed or submitted under the objective of ensuring that such informationExchange Act is accumulated and communicated to our management, including the chief executive officerour Chief Executive Officer and chief financial officer, as appropriateChief Financial Officer, to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

Our management evaluated,Under the supervision and with the participation of our principal executive officermanagement, including our Chief Executive Officer and principal financial and accounting officer (our “Certifying Officers”),Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2022, pursuant to Rule 13a-15(b)such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.Act as of the end of the fiscal quarter ended March 31, 2023. Based upon thaton this evaluation, our Certifying OfficersChief Executive Officer and Chief Financial Officer have concluded that solely due to the events that led to the Company’s restatementas of its financial statements to reclassify the Company’s Public Warrants, as well as the revision for the temporary equity subject to possible redemption, as described in the Company's Form 8-K filed on January 20, 2022,March 31, 2023, our disclosure controls and procedures were not effective.

Aseffective because of the material weaknesses identified in our internal control: (i) we did not maintain an effective control environment; and (ii) we lacked formal policies and procedures to establish a risk assessment process and internal control framework and lacked an audit committee and the internal audit function to establish formal risk assessment process and internal control framework. The material weakness could result we performed additional analysis as deemed necessaryin misstatements to ensureour account balances or disclosures that ourwould result in a material misstatement to the annual or interim consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly,that would not be prevented or detected. See Item 1A of Part II “Risk Factors—Risks Factors Relating to Finance and Accounting” for more details.

Our management believes that the financial statements included in this Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented. 

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relativehas implemented remediation steps to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Our internal control over financial reporting did not result in the proper classification of our warrants. To remediate this material weakness, we developed a remediation plan with assistance from our accounting advisors and have dedicated significant resources and efforts to the remediation and improvement ofimprove our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements,Specifically, we plan to enhance our system of evaluating(i) hire personnel expertized in technical accounting and implementing the complex accounting standards that applyfinancial reporting and provide internal training to our accounting team on U.S. GAAP knowledge; (ii) improve our accounting and financial statements. Our plans at this time include providing enhancedreporting procedures and provide access to accounting literature, research materialsthird-party professionals; (iii) adopt various reporting systems to ensure the completeness, timeliness and documentsaccuracy our financial reporting; (iv) identify and increasedevaluating risks we face; (v) adopting control activities to be taken to mitigate risks with written policies and procedures; (vi) ensure efficient internal and external communication among our personnelenvironment and third-party professionals with whomall parts we consultare adhering to standard practices; and (vii) monitor regularly to verify that internal controls are functioning properly.

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Management’s Quarterly Report on Internal Control over Financial Reporting

This Quarterly Report does not include a report of management’s assessment regarding complex accounting applications. The elementsinternal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or an attestation report of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately haveindependent registered public accounting firm due to a transition period established by rules of the intended effects.SEC for newly public companies.

Changes in Internal Control Overover Financial Reporting

Other thanDuring the remedial activities undertaken following the restatement of our financial statements, as described above,most recent fiscal quarter, there were no changeshas not occurred any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.


PART II -II. OTHER INFORMATION

Item 1.Legal Proceedings

Item 1A Legal Proceedings

The Company is not partyWe may be subject from time to anytime to various claims, lawsuits, and other legal and administrative proceedings asarising in the ordinary course of the filing date of this Form 10-Q.

Item 1A. Risk Factors.

Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our annual report on the Form 10K for the fiscal year ended December 31, 2021 under Forward-Looking Statements and Item 1A – Risk Factors, filed with the SEC on March 31, 2022. Anybusiness. Some of these factorsclaims, lawsuits, and other proceedings may involve highly complex issues that are subject to substantial uncertainties, and could result in a significantdamages, fines, and penalties, non-monetary sanctions, or material adverse effect on our resultsrelief. We intend to recognize provisions for claims or pending litigation when we determine that an unfavorable outcome is probable, and the amount of operationsloss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or financial condition. Additionalactual cost of settlement may materially vary from estimates.

Item 1A.Risk Factors

Other than the following updated risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report,factor, there have been no material changes toin the risk factors disclosed in Part I, Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.2022.

We have material customer concentration, with a limited number of customers accounting for a material portion of our revenues for the three months ended March 31, 2023 and 2022.

For the three months ended March 31, 2023, our five largest customers in aggregate accounted for approximately 75.2% of our revenues, and our largest customer accounted for approximately 25.7% of our revenues. There are inherent risks whenever a large percentage of total revenues are concentrated with a limited number of customers. It is not possible for us to predict the future level of demand for our products and services that will be generated by these customers, or to predict the future demand for the products and services of these customers in the end-user marketplace. In addition, revenues from these customers may fluctuate from time to time, which may be affected by market conditions or other factors, some of which may be outside of our control. Further, we may not be able to maintain and solidify our relationships with these major customers on commercially reasonable terms, or at all. As such, any declines in revenues from our major customers could have an adverse effect on our business, results of operations and financial condition.

Our PRC subsidiaries may face uncertainties relating to special preferential income tax rate in connection with PRC high and new technology enterprise and tax exempt status.

Three of our subsidiaries, Shanghai Mengyun, and Shenzhen Mengyun have received the High and New Technology Enterprise Certification. 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. Under PRC laws, Shanghai Mengyun, and Shenzhen Mengyun shall satisfy all the conditions stipulated under the Administrative Measures for Recognition of High and New Technology Enterprises and relevant guidance, including relevant financial, research and development thresholds, manufacturing and otherwise requirements during the three-year period. We cannot assure that Shanghai Mengyun, and Shenzhen Mengyun may maintain the High and New Technology Enterprise Certification during the next three-year period and such preferential income tax treatment could be revoked if Shanghai Mengyun, and Shenzhen Mengyun are deemed unqualified to receive such tax benefits. There is also no guarantee that Shanghai Mengyun, and Shenzhen Mengyun will receive a new High and New Technology Enterprise Certification upon expiration of the three-year preferential treatment period. Accordingly, our financial condition and operation may be adversely affected due to such changes.

 

Item 2. Unregistered SalesBesides, certain of Equity Securities.our subsidiaries, 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. However, there is a possibility that the local tax bureaus may change their policy and these subsidiaries may be subject to PRC income tax going forward.

The Ministry of Finance (“MOF”) and State Administration of Taxation (“SAT”) on January 17, 2019 jointly issued Cai Shui 2019 No. 13. 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, 2024, 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%). March 26, 2023, MOF and SAT further jointly issued Cai Shui 2023 No. 6 which clarified that from January 1, 2023 to December 31, 2024, 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%).For the three months ended March 31, 2022 and 2023, Shenzhen Tianyuemeng, Yijia Network, and Qianhai Youshi and Shenzhen Yunao were eligible to employ this policy.

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The approval, filing or other requirements of the CSRC, the CAC or other PRC government authorities may be required under PRC law in connection with our future offshore securities offering (including equity securities and debt securities), and, if required, we cannot predict whether or for how long we will be able to obtain such approval.

 

SimultaneouslyOn February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Overseas Listing Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. According to the Overseas Listing Trial Measures, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevant information to the CSRC; if a domestic company fails to complete the filing procedure or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to administrative penalties, such as order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines; (2) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) any of the total assets, net assets, revenues or profits of the domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (ii) its major operational activities are carried out in China or its main places of business are located in China, or the senior managers in charge of operation and management of the issuer are mostly Chinese citizens or are domiciled in China; and (3) where a domestic company seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity responsible for all filing procedures with the closingCSRC, and where an issuer makes an application for listing in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is submitted.

On the same day, the CSRC also held a press conference for the release of the IPO,Overseas Listing Trial Measures and issued the Company consummated the private placement (“Private Placement”) with its sponsor, Greenland Asset Management Corporation, a British Virgin Islands company (“Sponsor”)Notice on Administration for the purchaseFiling of 270,500 Units (the “Private Units”) at a priceOverseas Offering and Listing by Domestic Companies, which, among others, clarifies that the domestic companies that have already been listed overseas on or before the effective date of $10.00 per Private Unit, generating total proceeds of $2,705,000, pursuantthe Overseas Listing Trial Measures (i.e. March 31, 2023) shall be deemed as existing issuers, or the Existing Issuers. Existing Issuers are not required to complete the filling procedures, and they shall be required to file with the CSRC when subsequent matters such as refinancing are involved.

According to the Private Placement Unit Purchase Agreement dated June 17, 2021, a form of which was filed asOverseas Listing Trial Measures, an exhibit to the Registration Statement as Exhibit 10.5 to the Registration Statement as filedoverseas listed company shall file with the Commission and an executed copy of which is annexed hereto as Exhibit 10.4.

The Sponsor has previously advanced expenses or loaned the Company the sum of $453,364, evidenced in part by a note dated as of December 19, 2020 (as previously filed as Exhibit 10.1 to the Registration Statement) which loan was payable upon the earlier of completion of the IPO or December 31, 2021. In connection withCSRC within three business days after the completion of its subsequent securities offering on the IPO,same market, and an overseas listed company shall file with the note was repaidCSRC within three business days after its application of its offering and listing on a different market. If an overseas listed company purchase PRC domestic assets through a single or multiple acquisitions, share swaps, shares transfers or other means, and such purchase constitutes direct or indirect listing of PRC domestic assets, a filing with the CSRC is also required. In addition, an overseas listed company is required to report to the CSRC the occurrence of any of the following material events within three business days after the occurrence and announcement thereof: (i) a change of control of the listed company; (ii) the investigation, sanction or other measures undertaken by any foreign securities regulatory agencies or relevant competent authorities in full.respect of the listed company; (iii) a change of listing status or transfer of listing segment; and (iv) the voluntary or mandatory delisting of the listed company. If there is any material change of the principal business of the listed company after the overseas offering and listing so that the listed company is no longer required to file with the CSRC, it shall file a specific report and a legal opinion issued by a domestic law firm to the CSRC within three business days after the occurrence hereof.

 

Each Private Unit purchasedIf we fail to obtain the relevant approval or complete the filings and other relevant regulatory procedures of other PRC government authorities for our future follow on offerings, we may face adverse actions or sanctions, which may include fines and penalties on our operations in China, limitations on our operating privileges in China, delays in or restrictions on the repatriation of the proceeds from any such offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in China, or other actions that could have a material and adverse effect on our business, reputation, financial condition, results of operations, prospects, as well as the Sponsor consists of one Shares, one right to receive one-tenth (1/10) of a Share upon the consummation of a business combination and one private placement warrant exercisable to purchase one-half of one Share at atrading price of $11.50 per whole share.the ordinary shares. The CSRC or other PRC authorities also may take actions requiring us, or making it advisable for us, to halt our offerings before settlement and delivery of the shares offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlement and delivery may not occur. Any uncertainties and/or negative publicity regarding such an approval or other requirements could have a material adverse effect on the trading price of the ordinary shares.

 

The Sponsor was granted certain demand and piggyback registration rights in connection with the purchase of the Private Units and the original Shares (1,437,500 Ordinary Shares) acquired by it. The Sponsor, as holder of the 1,437,500 ordinary shares and the Private Units, and units that may be issued on conversion of working capital loans which may be obtained by the Company in the future (and any securities underlying the private placement units and the working capital loans) will be entitled to registration rights pursuant to the registration rights agreement. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities for resale under the Securities Act of 1933, as amended. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the Company’s completion of a business combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statement.49

 

The Private Units were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as the transactions did not involve a public offering.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.Defaults Upon Senior Securities

None.Item 3. Defaults Upon Senior Securities.

None

Item 4.Mine Safety Disclosures

Not applicable.Item 4. Mine Safety Disclosures.

Not Applicable.


Item 5.Other Information

Item 5. Other Information.

Not applicable.

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On May 9, 2022, we issued a promissory note of up to $1,000,000 to the Sponsor. The note was non-interest bearing and payable on the consummation of the Business Combination.

Item 6.Exhibits

Item 6. Exhibits

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q for the quarterthree months ended June 30, 2022.March 31, 2023.

Exhibit No.Number

Description

10.1*Promissory note dated May 9, 2022.

31.1*Certification of PrincipalChief Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*Certification of PrincipalChief Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**Certification of PrincipalChief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted Pursuantpursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**Certification of PrincipalChief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted Pursuantpursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*Cover Page Interactive Data File (formatted as Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, includedand contained in the Exhibit 101 Inline XBRL Document Set.101).

 

*Filed herewith.

**Furnished herewith. This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing.


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SIGNATURES

In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, the registrantRegistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

August 15, 2022GOLDEN PATH ACQUISITION CORPORATIONMicroCloud Hologram Inc. (REGISTRANT)
Dated: April 28, 2023By:/s/ Shaosen ChengGuohui Kang
Shaosen Cheng

Guohui Kang

Chief Executive Officer and

(Principal Executive OfficerOfficer)
Dated: April 28, 2023By:/s/ Teddy ZhengBei Zhen
Teddy Zheng

Bei Zhen

Chief Financial Officer

(Principal Financial and Principal Accounting OfficerOfficer)


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