Exhibit 99.1
UCOMMUNE INTERNATIONAL LTD
Index to the unaudited condensed consolidated financial statements
F-1
UCOMMUNE INTERNATIONAL LTD
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data, or otherwise noted)
As
of | As
of | |||||||||||
| 2021 | 2022 | |||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Note 2) | |||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| Restricted cash | ||||||||||||
| Short-term investments | ||||||||||||
| Accounts receivable, net of allowance of RMB | ||||||||||||
| Prepaid expenses and other current assets, net | ||||||||||||
| Amounts due from related parties, current | ||||||||||||
| Total current assets | ||||||||||||
| Non-current assets | ||||||||||||
| Long-term investments | ||||||||||||
| Property and equipment, net | ||||||||||||
| Right-of-use assets, net | ||||||||||||
| Intangible assets, net | ||||||||||||
| Goodwill | ||||||||||||
| Rental deposit | ||||||||||||
| Long-term prepaid expenses | ||||||||||||
| Amounts due from related parties, non-current | ||||||||||||
| Other assets, non-current | ||||||||||||
| Total non-current assets | ||||||||||||
| TOTAL ASSETS | ||||||||||||
F-2
UCOMMUNE INTERNATIONAL LTD
CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)
(Amounts in thousands, except share and per share data, or otherwise noted)
| As of December 31, | As of June 30, | |||||||||||
| 2021 | 2022 | |||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Note 2) | |||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Short-term borrowings | ||||||||||||
| Long-term borrowings, current portion | ||||||||||||
| Accounts payable | ||||||||||||
| Accrued expenses and other current liabilities | ||||||||||||
| Amounts due to related parties, current | ||||||||||||
| Deferred workspace membership fee | ||||||||||||
| Contract liabilities | ||||||||||||
| Income taxes payable | ||||||||||||
| Deferred subsidy income | ||||||||||||
| Convertible bond | ||||||||||||
| Share-based liabilities, current | ||||||||||||
| Put option liabilities | ||||||||||||
| Lease liabilities, current | ||||||||||||
| Total current liabilities | ||||||||||||
F-3
UCOMMUNE INTERNATIONAL LTD
CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)
(Amounts in thousands, except share and per share data, or otherwise noted)
As
of | As
of | |||||||||||
| 2021 | 2022 | |||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Note 2) | |||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| Non-current liabilities: | ||||||||||||
| Long-term borrowings | ||||||||||||
| Refundable deposits from members, non-current | ||||||||||||
| Deferred tax liabilities | ||||||||||||
| Lease liabilities, non-current | ||||||||||||
| Warrant liabilities | ||||||||||||
| Share-based liabilities, non-current | ||||||||||||
| Total non-current liabilities | ||||||||||||
| TOTAL LIABILITIES | ||||||||||||
| Commitments and contingencies (Note 15) | ||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||
| Class A ordinary shares ( | ||||||||||||
| Class B ordinary shares ( | ||||||||||||
| Additional paid-in capital(i) | ||||||||||||
| Statutory reserves | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive income | ||||||||||||
| Total Ucommune International Ltd shareholders’ equity | ||||||||||||
| Noncontrolling interests | ||||||||||||
| TOTAL EQUITY | ||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| (i) |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
UCOMMUNE INTERNATIONAL LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data, or otherwise noted)
| For the Six Months Ended June 30, | ||||||||||||
| 2021 | 2022 | 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Note 2) | ||||||||||||
| Revenue: | ||||||||||||
| Workspace membership revenue | ||||||||||||
| Marketing and branding service revenue (including services provided to a related party of RMB | ||||||||||||
| Other service revenue (including services provided to related parties of RMB | ||||||||||||
| Total revenue | ||||||||||||
| Cost of revenue: | ||||||||||||
| Workspace membership (including services provided by related parties of RMB | ( | ) | ( | ) | ( | ) | ||||||
| Marketing and branding service (including services provided by related parties of RMB | ( | ) | ( | ) | ( | ) | ||||||
| Other services | ( | ) | ( | ) | ( | ) | ||||||
| Total cost of revenue | ( | ) | ( | ) | ( | ) | ||||||
| Operating expenses: | ||||||||||||
| Impairment loss on long-lived assets and long-term prepaid expenses | ( | ) | ( | ) | ( | ) | ||||||
| Impairment loss on goodwill | ( | ) | ( | ) | ||||||||
| Sales and marketing expenses | ( | ) | ( | ) | ( | ) | ||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ( | ) | ||||||
| Change in fair value of put option liability | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Interest expense, net | ( | ) | ( | ) | ( | ) | ||||||
| Subsidy income | ||||||||||||
| Impairment loss on long-term investments | ( | ) | ||||||||||
F-5
UCOMMUNE INTERNATIONAL LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS — (Continued)
(Amounts in thousands, except share and per share data, or otherwise noted)
| For the Six Months Ended June 30, | ||||||||||||
| 2021 | 2022 | 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Note 2) | ||||||||||||
| Loss on disposal of subsidiaries | ( | ) | ( | ) | ( | ) | ||||||
| Other income, net | ||||||||||||
| Loss before income taxes and loss from equity method investments | ( | ) | ( | ) | ( | ) | ||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Loss from equity method investments | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Less: Net income/(loss) attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||
| Net loss attributable to Ucommune International Ltd | ( | ) | ( | ) | ( | ) | ||||||
| Net loss per share attributable to ordinary shareholders of Ucommune International Ltd(i) | ||||||||||||
| ( | ) | ( | ) | ( | ) | |||||||
| Weighted average shares used in calculating net loss per share(i) | ||||||||||||
| (i) |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
UCOMMUNE INTERNATIONAL LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands, except share and per share data, or otherwise noted)
| For the Six Months Ended June 30, | ||||||||||||
| 2021 | 2022 | 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Note 2) | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Other comprehensive loss, net of tax | ||||||||||||
| Foreign currency translation adjustments | ( | ) | ||||||||||
| Total Comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Less: Comprehensive income/(loss) attributable to noncontrolling interest | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to Ucommune International Ltd’s shareholders | ( | ) | ( | ) | ( | ) | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
UCOMMUNE INTERNATIONAL LTD
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Amounts in thousands, except share and per share data, or otherwise noted)
| Ordinary Shares | Additional | Accumulated other | Total Ucommune International Ltd | Total | ||||||||||||||||||||||||||||||||
| Shares(i) | Amount (i) | paid-in capital(i) | Statutory Reserve | Accumulated deficit | comprehensive loss | shareholders’ equity | Noncontrolling interests | shareholders’ equity | ||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | ( | ) | ||||||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Share issuance upon the underwritten public offering, net of issuance costs | ||||||||||||||||||||||||||||||||||||
| Issuance of Earn-out shares to the Founder | ( | ) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||||||
| Capital contribution from noncontrolling shareholders | — | |||||||||||||||||||||||||||||||||||
| Acquisition of noncontrolling interests | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Disposal of subsidiary | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Round-up of fractional shares in connection with share consolidation | ||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 (unaudited) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 in RMB | ( | ) | ||||||||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | |||||||||||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||||||
| Capital contribution from noncontrolling shareholders | — | |||||||||||||||||||||||||||||||||||
| Round-up of fractional shares in connection with share consolidation | ||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 in RMB (unaudited) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 in USD (unaudited) | ( | ) | ||||||||||||||||||||||||||||||||||
| (i) |
The accompanying notes are an integral part of these consolidated financial statements.
F-8
UCOMMUNE INTERNATIONAL LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except share and per share data, or otherwise noted)
| For the Six Months Ended June 30, | ||||||||||||
| 2021 | 2022 | 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Note 2) | ||||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash Flows from investing activities | ||||||||||||
| Settlement of term deposits | ||||||||||||
| Purchase of short-term investments | ( | ) | ( | ) | ( | ) | ||||||
| Settlement of short-term investments | ||||||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds from disposal of property and equipment | ||||||||||||
| Purchase of intangible asset | ||||||||||||
| Loan collected from third parties | ||||||||||||
| Payment for long-term investment | ( | ) | ||||||||||
| Cash deduction due to disposal of subsidiaries | ( | ) | ( | ) | ||||||||
| Cash received for business acquisitions, net of cash paid | ||||||||||||
| Proceeds from disposal of subsidiaries | ||||||||||||
| Investment of cash in Trust Account | ( | ) | ||||||||||
| Net used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Capital reduction in a subsidiary | ||||||||||||
| Capital contribution from noncontrolling shareholders | ||||||||||||
| Acquisition of noncontrolling interests | ( | ) | ||||||||||
| Loan repaid to related parties | ( | ) | ||||||||||
| Loan received from third parties | ||||||||||||
| Loan repaid to third parties | ( | ) | ( | ) | ( | ) | ||||||
| Cash received from issuing convertible bond | ||||||||||||
| Underwritten public offering financing, net of listing fee | ||||||||||||
| Net cash provided by/(used in) financing activities | ( | ) | ( | ) | ||||||||
| Effects of exchange rate changes | ( | ) | ||||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ( | ) | ||||||
| Cash, cash equivalents and restricted cash – beginning of the period | ||||||||||||
| Cash, cash equivalents and restricted cash – end of the period | ||||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
| Interest paid | ||||||||||||
| Income taxes paid | ||||||||||||
| Supplemental disclosure of noncash information: | ||||||||||||
| Payable for purchase of property and equipment | ||||||||||||
| Payable for investments and acquisitions | ||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | ||||||||||||
| ROU assets disposed as reduction of operating lease liabilities due to lease termination | ||||||||||||
F-9
UCOMMUNE INTERNATIONAL LTD
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
(Amounts in thousands, except share and per share data, or otherwise noted)
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
| As of December 31, | As of June 30, | |||||||||||
| 2021 | 2022 | 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Note 2) | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| Restricted cash, current | ||||||||||||
| Total cash, cash equivalents and restricted cash | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-10
UCOMMUNE INTERNATIONAL LTD
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2021 and 2022
(Amounts in thousands, except share and per share data, or otherwise noted)
| 1. | ORGANIZATIONS AND PRINCIPAL ACTIVITIES |
Ucommune Group Holdings Limited (“Ucommune Group”) was founded in 2018 and was incorporated in the Cayman Islands. On June 29, 2020, Orisun Acquistion Corp. (“Orisun”), a special purpose acquisition company (“SPAC”), entered into a share exchange agreement (the “Share Exchange Agreement”) with Ucommune Group. Pursuant to the Share Exchange Agreement, Ucommune International Ltd (“the Company”), which is a subsidiary wholly owned by Orisun, acquired all of the issued and outstanding ordinary shares of Ucommune Group from the shareholders of Ucommune Group by newly issuing ordinary shares of Orisun to the shareholders of Ucommune Group (“SPAC Transaction”). The SPAC Transaction was consummated on November 17, 2020. Ucommune Group’s shareholders remains the controlling financial interests of Ucommune Group after the SPAC Transaction, which was accounted for as a reverse recapitalization and fully described below. In connection with the closing of the SPAC Transaction, Orisun had been ceased and Ucommune International Ltd continued as the surviving company.
Ucommune International Ltd, its consolidated subsidiaries, variable interest entities (“VIEs”) and VIEs’ subsidiaries (collectively referred to as the “Group”) is primarily engaged in providing long-term leasing, on-demand and short-term leasing solutions to freelancers, start-up entrepreneurs, small medium enterprises and corporations by delivering well-furnished and fully-serviced space on a flexible basis in the People’s Republic of China (“PRC”). The individuals and enterprises registered on U bazaar, a mobile app of the Group are referred to as members.
| a. | Reverse recapitalization |
On November 17, 2020,
the Company consummated the SPAC Transaction pursuant to the Share Exchange Agreement, where the Company acquired
Ucommune Group was determined
to be the accounting acquirer given Ucommune Group effectively controlled the combined entity after the SPAC Transaction. The transaction
is not a business combination because the Company was not a business. The transaction is accounted for as a reverse recapitalization,
which is equivalent to the issuance of shares by Ucommune Group for the net monetary assets of the Company, accompanied by a recapitalization.
Ucommune Group is determined as the predecessor and the historical financial statements of Ucommune Group became the Company’s historical
financial statements, with retrospective adjustments to give effect of the reverse recapitalization.
The par value of ordinary shares
remained $
Upon the consummation of the
SPAC Transaction, the net assets of the Company were USD
F-11
In addition, 4.0 million earnout shares (“Earnout Shares”) were granted to certain shareholders of Ucommune Group. The shareholders may be entitled to receive Earnout Shares as follows: (a) 2,000,000 Class A Ordinary Shares if (i) the volume weighted average price(“VWAP”)of the Company Class A Ordinary Shares equals or exceeds $16.50 (or any foreign currency equivalent) in any twenty trading days within a thirty trading day period before December 31, 2022 on any securities exchange or securities market on which the Company Ordinary Shares are then traded or (ii) the revenue of Ucommune Group exceeds RMB850,000,000 in the fiscal year of 2020 pursuant to the audited consolidated financial statements of Ucommune Group as of and for the fiscal year ended December 31, 2020; (b) 1,000,000 Class A Ordinary Shares if (i) the VWAP of the Company Class A Ordinary Shares equals or exceeds $22.75 (or any foreign currency equivalent) in any twenty trading days within a thirty trading day period before December 31, 2023 on any securities exchange or securities market on which the Company Ordinary Shares are then traded or (ii) the revenue of Ucommune Group exceeds RMB1,275,000,000 in the fiscal year of 2021 pursuant to the audited consolidated financial statements of Ucommune Group as of and for the fiscal year ended December 31, 2021; and (c) 1,000,000 Class A Ordinary Shares if (i) the VWAP of the Company Class A Ordinary Shares equals or exceeds $30.00 (or any foreign currency equivalent) in any twenty trading days within a thirty trading day period before December 31, 2024 on any securities exchange or securities market on which the Company Ordinary Shares are then traded or (ii) the revenue of Ucommune Group exceeds RMB1,912,000,000 in the fiscal year of 2022 pursuant to the audited consolidated financial statements of Ucommune Group as of and for the fiscal year ended December 31, 2022.
| b. | Reorganization |
Prior to the SPAC Transaction, Ucommune Group undertook a series of steps as follows to restructure its business (the “Reorganization”):
Ucommune (Beijing) Venture Investment Co., Ltd. (“Ucommune Venture”) was established in April 2015, as a limited liability company in the PRC incorporated by Dr. Daqing Mao and other co-founders. After the incorporation, Ucommune Venture completed a series of financing by issuing equity interests with certain preferential rights to investors.
During September 2018 to June 2019, Ucommune Venture undertook a series of reorganization transactions to re-domicile its business from the PRC to the Cayman Islands (the “Re-domiciliation”). The Re-domiciliation was executed in the following steps:
| 1) | In September 2018, Ucommune Group was incorporated in the Cayman Islands to be the holding company of the Group. In December 2018, the Company established Ucommune Group Holdings (Hong Kong) Limited (“Ucommune HK”), a wholly owned subsidiary of the Company as an intermediate holding company. In January 2019, Ucommune HK established a wholly foreign owned enterprise, Ucommune (Beijing) Technology Co., Ltd. (“WFOE”), for the purpose of establishing a VIE structure as further described in 3) below. |
| 2) | In May and June 2019, Ucommune Group issued an aggregate
of |
| 3) | In May 2019, a series of VIE agreements were entered into between WFOE, Ucommune Venture and the shareholders of Ucommune Venture. Those arrangements effectively provided control over the operations of Ucommune Venture to WFOE. Upon the completion of step 2) and 3), the Re-domiciliation was completed. |
Prior to the Re-domiciliation, Ucommune Group and Ucommune Venture are under the same ownership. The Re-domiciliation was accounted for as a reorganization of entities under common ownership. As a result, the accompanying financial statements have been prepared on a combined basis using historical cost.
F-12
| c. | The VIE arrangements |
The Company operates substantially all of its business through its VIEs including Ucommune Venture and Beijing U Bazaar. On May 20, 2019, WFOE entered into a series of contractual arrangements with Ucommune Venture, Beijing U Bazaar, and the respective equity interest holders. The series of contractual agreements include exclusive business cooperation agreement, exclusive call option agreement, equity pledge agreement, powers of attorney and spousal consent letters.
The Group believes that these contractual arrangements enable the Company to (1) have power to direct the activities that most significantly affects the economic performance of the VIEs, and (2) receive the economic benefits of the VIEs that could be significant to the VIEs. Accordingly, the Company is considered the primary beneficiary of the VIEs and is able to consolidate the VIEs and VIEs’ subsidiaries.
The Group’s business
has been directly operated by the VIEs and their subsidiaries. As of December 31, 2021, and June 30, 2022, the VIEs and their subsidiaries
accounted for an aggregate of
The following financial information of the Company’s VIEs and VIEs’ subsidiaries after the elimination of inter-company transactions and balances as of December 31, 2021 and June 30, 2022 and for the six months ended June 30, 2021 and 2022 was included in the accompanying condensed consolidated financial statements:
| As of December 31, | As of June 30, | |||||||||||
| 2021 | 2022 | |||||||||||
| RMB | RMB (Unaudited) | USD (Note 2) | ||||||||||
| Cash and cash equivalents | ||||||||||||
| Other current assets | ||||||||||||
| Total current assets | ||||||||||||
| Property and equipment, net | ||||||||||||
| Right-of-use assets, net | ||||||||||||
| Goodwill | ||||||||||||
| Other non-current assets | ||||||||||||
| Total non-current assets | ||||||||||||
| TOTAL ASSETS | ||||||||||||
| Accounts payable | ||||||||||||
| Lease liabilities, current | ||||||||||||
| Other current liabilities | ||||||||||||
| Total current liabilities | ||||||||||||
| Lease liabilities, non-current | ||||||||||||
| Other non-current liabilities | ||||||||||||
| Total non-current liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| For the Six Months Ended June 30, | ||||||||||||
| 2021 | 2022 | 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| Net revenues | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Net cash provided by/(used in) operating activities | ( | ) | ( | ) | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash provided by/(used in) financing activities | ( | ) | ( | ) | ||||||||
F-13
There are no consolidated VIEs’ assets that are collateral for the VIEs’ obligations. No creditors (or beneficial interest holders) of the VIEs have recourse to the general credit of the Company or any of its consolidated subsidiaries. No terms in any arrangements, considering both explicit arrangements and implicit variable interests, require the Company or its subsidiaries to provide financial support to the VIEs. However, if the VIEs ever need financial support, the Company or its subsidiaries may, at its option and subject to statutory limits and restrictions, provide financial support to the VIE through loans to the shareholders of the VIEs or entrustment loans to the VIEs.
| d. | Recent development |
Novel coronavirus (COVID-19) was first found in December of 2019. Subsequently, COVID-l9 spread rapidly around the world. To reduce the impacts of the pandemic, the governments of many countries implemented measures such as quarantines, travel restrictions, and the temporary restrictions of business activities. This has resulted in a material and negative effect on the economy and rental market in China and caused significant loss of our business, decrease in our occupancy rates, particularly in the quarters ended March 31, 2020 and June 30, 2020 until the quarters ended June 30, 2022, which in turn resulted in a decrease in our revenue.
The COVID-19 pandemic has created unique global and industry-wide challenges, including challenges to many aspects of our business. Substantially all of our revenues and workforce are concentrated in China. The extent to which COVID-19 impacts our financial position, results of operations and cash flows in 2022 will depend on the future developments of the outbreak, including new information concerning the global severity of and actions taken to contain the outbreak, which are highly uncertain and unpredictable. In addition, our financial position, results of operations and cash flows could be adversely affected to the extent that the outbreak harms the Chinese economy in general.
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
| a. | Basis of presentation and use of estimates |
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) which include the Company, its subsidiaries, its VIEs and VIEs’ subsidiaries under which they are under common ownership. These accounting principles require management to make certain estimates and assumptions that affect the amounts in the accompanying financial statements. Actual results may differ from those estimates. The Group bases its estimates on past experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Significant accounting estimates reflected in the Group’s financial statements include, but are not limited to, valuation allowance for deferred tax assets, incremental borrowing rate, allowance for doubtful accounts, impairment of right-of-use (“ROU”) assets, other long-lived assets, goodwill and long-term investments, and valuation of the Group’s share-based liabilities, warrant liabilities and put option liabilities. Actual results may differ materially from those estimates.
The accompanying condensed consolidated financial statements have been prepared assuming that the Group will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business is dependent on, among other things, the Group’s ability to generate sufficient cash flows from operations, and the Group’s ability to arrange adequate financing arrangements.
The Group has incurred recurring
operating losses since its inception, including net losses of RMB
Historically, the Group has relied principally on both operational sources of cash and non-operational sources of financing from investors to fund its operations and business development. The Group’s ability to continue as a going concern is dependent on management’s ability to successfully execute its business plan which includes continued business transition from asset-heavy model to asset-light model in order to improve the profitability, continued exploration of new business opportunities that have synergies with our core business, push collection of long term receivables, controlling operating costs and optimizing operational efficiency to improve the Group’s cash flow from operations. The Group also plans to raise additional capital, including among others, obtaining debt financing, to support its future operation.
F-14
The Group continues to explore opportunities to grow its business. However, it has not yet achieved a business scale that is able to generate a sufficient level of revenues to achieve net profit and positive cash flows from operating activities, and the Group expects the operating losses and negative cash flows from operations will continue for the foreseeable future. If it is unable to grow the business to achieve economies of scale in the future, it will become even more difficult for the Group to sustain a sufficient source of cash to cover its operating costs. There can be no assurance, however, that the Group will be able to obtain additional financing on terms acceptable to the Group, in a timely manner, or at all. In the event that financing sources are not available, or that the Group is unsuccessful in increasing its gross profit margin, push collection of long term receivables and reducing operating losses, the Group may be unable to implement its current plans for expansion, repay debt obligations or respond to competitive pressures, any of which would have a material adverse effect on the Group’s business, financial condition and results of operations and would materially adversely affect its ability to continue as a going concern.
The Group’s condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of such uncertainties.
| b. | Impairment of ROU assets and other long-lived assets |
The Group reviews its ROU assets
and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
no longer be recoverable. Factors the Group considers to be important which could trigger an impairment review primarily includes (a) Significant
underperformance relative to projected operating results; (b) Significant changes in the overall business strategy; (c) Significant
adverse changes in legal or business environment and (d) Significant competition, unfavorable industry trend, or economic outlook.
When these events occur, the Group measures impairment by comparing the carrying value of the ROU assets and other long-lived assets to
the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposal. If the sum of
the expected undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an impairment loss based
on the fair value of the assets. The Company measured the fair value of impaired space by using discounted cash flow model. The estimates
used in projected future cash flows include rental charges, occupancy rate, operating costs. The weighted average cost of capital is used
as the discount rate. The Group recorded RMB
| c. | Convenience translation |
The Group’s business
is primarily conducted in China and substantially all of the revenues are denominated in Renminbi (“RMB”). However, periodic
reports made to shareholders will include current period amounts translated into US dollars using the exchange rate as of balance sheet
date, for the convenience of the readers.
F-15
| d. | Cash and cash equivalents |
Cash and cash equivalents comprise cash at banks and on hand, which have original maturities of three months or less when purchased and are subject to an insignificant risk of changes in value. The carrying value of cash equivalents approximates market value.
| e. | Property and equipment, net |
Property and equipment is stated at cost and is depreciated using the straight-line method over the estimated useful lives of the assets, as follows:
| Category | Estimated useful life | |
| Leasehold improvement | ||
| Building | ||
| Furniture | ||
| Office equipment | ||
| Vehicles |
Repair and maintenance costs are charged to expenses as incurred, whereas the costs of renewals and betterment that extend the useful lives of property and equipment are capitalized as additions to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from the assets and accumulated depreciation accounts with any resulting gain or loss reflected in the combined and consolidated statements of operations.
| f. | Goodwill |
The excess of the purchase price over the fair value of net assets acquired is recorded on the combined and consolidated balance sheets as goodwill. Goodwill is not amortized, but tested for impairment annually or more frequently if event and circumstances indicate that it might be impaired.
Goodwill is tested for impairment at the reporting unit level on an annual basis (December 31 for the Group) and between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. These events or circumstances include a significant change in stock prices, business environment, legal factors, financial performances, competition, or events affecting the reporting unit. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit.
Management has determined that the Group has three reporting units within the entity at which goodwill is monitored for internal management purposes. Starting from January 1, 2020, the Group adopted ASU 2017-04, which simplifies the accounting for goodwill impairment by eliminating Step 2 from the goodwill impairment test. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, versus determining an implied fair value in Step 2 to measure the impairment loss. Management evaluated the recoverability of goodwill by performing a qualitative assessment before using the quantitative impairment test approach at the reporting unit level. Based on an assessment of the qualitative factors, management determined that it is more-likely-than-not that the fair value of three and one reporting unit are less than its carrying amount as of December 31, 2021 and June 30, 2022.
Therefore, management performed quantitative assessment using the discounted cash flow method and taking into account the market capitalization when determining the fair value of each reporting unit. Key assumptions used to determine the estimated fair value include: (a) internal cash flows forecasts including expected revenue growth, operating margins and estimated capital needs, (b) an estimated terminal value using a terminal year long-term future growth rate determined based on the growth prospects of each reporting unit; (c) a discount rate that reflects the weighted-average cost of capital adjusted for the relevant risk associated with each reporting unit’s operations and the uncertainty inherent in the Group’s internally developed forecasts; and (d) the EBITDA multiples used in the market approach fair value method. The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for the reporting unit.
F-16
Based on the result of the
Group’s goodwill impairment assessment, RMB
| g. | Convertible bond and detachable warrants |
The Group issued convertible bond with detachable warrants in January 2022. The Group has evaluated that the convertible bond with detachable warrants is a bundle of freestanding financial instruments and should be separately accounted. With respect to the convertible bond, the Group has evaluated whether the conversion feature of the bond is considered an embedded derivative instrument subject to bifurcation in accordance with ASC 815 —Accounting for Derivative Instruments and Hedging Activities (“ASC 815”). Based on the Group's evaluation, the conversion feature is not considered to be bifurcated because the conversion feature is either clearly and closely related to the Convertible Bond or meet the scope exception under ASC 815-10-15. The Group has determined that there was no beneficial conversion feature attributable to the convertible bond, as the effective conversion price is not below fair value of the equity interest to be converted on the commitment dates.
The Group has evaluated the embedded put option in accordance with ASC815 has had determined the put option meet the definition of a derivative and need to be bifurcated and measured under the fair value as the convertible bond was issued at a substantial discount and is contingently exercisable. The Group classifies put option in its condensed consolidated balance sheet as a liability which is revalued at each balance sheet date subsequent to the initial issuance.
The Group has evaluated the detachable warrants in accordance with ASC 815 has had determined the detachable warrants meet the definition of a derivative and need to be measured under the fair value. The Group classifies warrants in its condensed consolidated balance sheet as a liability which is revalued at each balance sheet date subsequent to the initial issuance.
| h. | Lease |
After adoption of ASC 842, the Group made an accounting policy election for all lease related asset classes, to account for the lease and non-lease components as a single lease component. The Group has also made an accounting policy election to exempt leases with an initial term of 12 months or less from being recognized on the balance sheet. Short-term leases are not significant in comparison to the Group’s overall lease portfolio. Payments related to those leases continue to be recognized in the combined and consolidated statement of operations on a straight-line basis over the lease term.
From the Perspective of Lessee
The Group leases properties for its co-working space and other locations. At the commencement of each lease, management determines its classification as an operating or finance lease. For leases that qualify as operating leases, the Group recognizes the associated lease expense on a straight-line basis over the term of the lease beginning on the date of initial possession, which is generally when the Group enters the leased premises and begins to make improvements in preparation for its intended use.
At the commencement date of a lease, the Group recognizes a lease liability for future fixed lease payments and a ROU asset representing the right to use the underlying asset during the lease term.
The future fixed lease payments are discounted using the incremental borrowing rate as the rate implicit in the lease is not readily determinable. The incremental borrowing rate is estimated on a portfolio basis and incorporating lease term, currency risk, credit risk and an adjustment for collateral.
For the initial measurement of the lease liabilities for leases commencing after January 1, 2017, the Group uses the discount rate as of the commencement date of the lease, incorporating the entire lease term. Current maturities and long-term portions of operating lease liabilities are classified as lease liabilities, current and lease liabilities, non-current, respectively, in the combined and consolidated balance sheets.
F-17
The ROU asset is measured at the amount of the lease liabilities with adjustments, if applicable, for lease prepayments made prior to or at lease commencement, initial direct costs incurred and lease incentives. Variable lease expenses include rent contingent payments based on percentages of revenue as defined in the lease. It is not included in lease expenses before it incurs or becomes probable.
From the Perspective of Lessor
The Group recognizes workspace membership revenue under ASC 842, and all the lease contracts are operating leases. The Group provides various leasing solutions for its members and generates revenues from monthly rent in the form of membership services fees or office desk rental fee. The workspace memberships enable members to access to office space, use of a shared internet connection, access to certain facilities (kitchen, common areas, etc.), as well as fee-based for the use of conference room. The price of each membership varies, based on the basis of the particular characteristics of the office space occupied by the member, the geographic location of the workspace, and the amount of desk space in the contract. The members do not have options to purchase underlying assets at termination. Renewal of memberships are on a negotiation basis before termination. The majority of the Group’s lease contracts are fixed lease payment contracts. The Group’s variable lease payments consist of certain contracts indexed to future sales revenues of the lessees. Variable membership fees are recognized when incurred. Workspace membership revenue consists primarily of fees from members and is recognized ratably, on a monthly basis, over the lease term, as access to office space is provided. The Group applied practical expedients to choose not to separate lease and non-lease components for all lease related asset classes. The consolidated component is accounted for under ASC842. The lease term for most of the membership services is less than one year. The leases do not have renewal options and penalty is imposed if the lessees early terminate the leases. Workspace membership fees are generally collected in advance each quarter. Members are generally required to provide the Group with a deposit which is normally one-month service fee. Pursuant to the term of membership agreement, the amount of deposit may be applied against the member’s unpaid balance.
The residual value of the Group’s lease assets represents the fair value of the leased assets at the end of the lease terms. The Group relies on industry data, historical experience, independent appraisals and the experience of the management team to value lease residuals.
Operating lease income from fixed payments and variable lease income for the six months ended June 30, 2021 and 2022 were as follows:
| For the six months ended June 30, | ||||||||
| 2021 | 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Operating lease income from fixed payments | ||||||||
| Variable operating lease income | ||||||||
| Total | ||||||||
Lease payments receivable for the following five years as of June 30, 2022 were as follows:
| As of June 30, 2022 | ||||
| RMB | ||||
| (Unaudited) | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | ||||
F-18
| i. | Revenue recognition |
Revenue is recognized when control of promised goods or services is transferred to the Group’s customers in an amount of consideration to which the Group expects to be entitled to in exchange for those goods or services. The Group follows the five steps approach for revenue recognition under Topic 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the Group satisfies a performance obligation.
The primary sources of the Group’s revenues are as follows:
| (i) | Workspace membership revenue |
As set out in Note 2 “Lease, from the perspective of lessor”, workspace membership revenue is recognized under ASC 842.
| (ii) | Marketing and branding services revenue |
Marketing and branding services revenue primarily consists of advertising services revenue, generated by a subsidiary acquired in 2018. The service provided is accounted for as a single performance obligation and revenue is recognized over the service period by using the advertisement placed as output method.
| (iii) | Other services revenue |
Other services revenue primarily consists of 1) interior design and construction revenue, 2) co-working space management fees, 3) SaaS services and IOT solutions revenue and 4) charges to members for ancillary services including printing copying, etc. Design and construction revenue is generated from two subsidiaries acquired in 2018 and one subsidiary acquired in 2021. Design revenue is recognized over time based on the basis of direct measurements of the value to the customer of the services transferred to date relative to the remaining services promised under the contract. Construction revenue is recognized over time based on a percentage of contract costs incurred to date compared to the total estimated contract cost. Co-working space management fees is derived from managing branded co-working space locations for leased property owners. The fee generally consists of a monthly base amount plus revenue sharing. Revenue is recognized over time when service is provided. Variable consideration is estimated as the most likely amount to which the Group expects to be entitled. SaaS service and IOT solution is generated from a subsidiary acquired in 2019 and recognized upon the service was completed. Revenue from ancillary services to members is recorded upon performance obligation delivered per contracts.
Contract liabilities primarily result from the timing difference between the Group’s satisfaction of performance obligation and the customers’ payment. Substantial all marketing and branding revenue, and other services revenue is recognized over time during the six months ended June 30, 2021 and 2022.
| j. | Share-based compensation |
Share-based compensation expense arises from the Company’s share-based awards granted to its employees and non-employees.
In determining the fair value of share options granted, a binomial option pricing model is applied.
Share-based compensation expense for share options granted is recognized on a tranche-by-tranche method over the requisite service period. The Company elected to not estimate the forfeiture rate, but to account for the forfeiture when forfeitures occur.
A change in any of the terms or conditions of share awards is accounted for as a modification. The Company calculates the incremental compensation cost of modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified, measured based on the share price and other pertinent factors at the modification date. The Company recognizes, over the remaining requisite service period of the modified awards, the sum of the incremental compensation cost and the remaining unrecognized compensation cost, if any, for the original award on the modification date.
F-19
| k. | Warrant liability |
In connection with the issuances of ordinary shares, the Group may issue options or warrants to purchase ordinary shares. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity.
Warrants classified as equity are initially recorded at fair value and subsequent changes in fair value are not recognized as long as the warrants continue to be classified as equity. Warrants classified as liabilities are initially recorded at fair value with gains and losses arising from changes in fair value recognized in the consolidated statements of operations during the period in which such instruments are outstanding.
| l. | Recent accounting pronouncements not yet adopted |
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss methodology with an expected credit loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019, excluding entities eligible to be smaller reporting companies as defined by the SEC. For all other entities, ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Group is an emerging-growth company and has elected to adopt the new standard as of the effective date applicable to nonissuers. The Group is evaluating the impact of the adoption of this standard on its consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805) (“ASU 2021-08”), which requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for public business entities. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Group is evaluating the impact of the adoption of this standard on its consolidated financial statements
Recently adopted accounting pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which focuses on amending the legacy guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity. ASU 2020-06 simplifies an issuer’s accounting for convertible instruments by reducing the number of accounting models that require separate accounting for embedded conversion features. ASU 2020-06 also simplifies the settlement assessment that entities are required to perform to determine whether a contract qualifies for equity classification. Further, ASU 2020-06 enhances information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance, i.e., aligning the diluted EPS calculation for convertible instruments by requiring that an entity use the if-converted method and that the effect of potential share settlement be included in the diluted EPS calculation when an instrument may be settled in cash or shares, adding information about events or conditions that occur during the reporting period that cause conversion contingencies to be met or conversion terms to be significantly changed. The Group adopted this guidance on January 1, 2022 with no material impact on its condensed consolidated financial statements and related disclosures as a result of adopting new standard.
F-20
| 3. | RISKS AND CONCENTRATION |
Foreign currency risk
The RMB is not a freely convertible
currency. The State Administration for Foreign Exchange, under the authority of the Peoples Bank of China, controls the conversion of
RMB into other currencies. The value of the RMB is subject to changes in central government policies, international economic and political
developments affecting supply and demand in the China Foreign Exchange Trading System market. The Group’s cash and cash equivalents
denominated in RMB amounted to RMB
Concentration risks
Financial instruments that
potentially expose the Group to significant concentration of credit risk primarily consist of cash and cash equivalents and short-term
investments. As of December 31, 2021 and June 30, 2022, substantially all of the Group’s cash and cash equivalents and short-term
investments were deposited in financial institutions located in the PRC. There are
There are
| 4. | PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET |
Prepaid expenses and other current assets consisted of the following:
As of 2021 | As of June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| Advances to suppliers(i) | ||||||||
| Prepaid VAT | ||||||||
| Rental deposit, current | ||||||||
| Staff advances | ||||||||
| Prepaid consulting expenses | ||||||||
| Short-term construction deposits | ||||||||
| Prepaid short-term rent | ||||||||
| Interest receivable | ||||||||
| Receivables from third-party payment platform | ||||||||
| Others(ii) | ||||||||
| Total | ||||||||
| Less: Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Total | ||||||||
The Group recognized bad debt
loss for prepayment and other current assets of RMB
Notes:
| (i) |
| (ii) |
F-21
| 5. | PROPERTY AND EQUIPMENT, NET |
Property and equipment, net, consisted of the following:
As of 2021 | As of June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| Leasehold improvement | ||||||||
| Buildings | ||||||||
| Furniture | ||||||||
| Office equipment | ||||||||
| Vehicles | ||||||||
| Total cost of property and equipment | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Impairment loss | ( | ) | ( | ) | ||||
| Add: Foreign exchange differences | ||||||||
| Construction in progress | ||||||||
| Total | ||||||||
Depreciation expenses for the six
months ended June 30, 2021 and 2022 were RMB
Loss on disposal for the six
months ended June 30, 2021 was RMB
The building located in Kaifeng,
Henan Province, with carrying amount of RMB
The building located in Ningbo,
Zhejiang Province, with carrying amount of RMB
As of June 30, 2022, the Group had no significant outstanding capital commitments.
| 6. | GOODWILL |
Goodwill consisted of the following:
As of 2021 | As of June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| Beginning Balance | ||||||||
| Acquisitions | — | |||||||
| Impairment loss | ( | ) | ( | ) | ||||
| Ending Balance | — | |||||||
During the six months ended June 30, 2022, goodwill was from the others reporting unit. The Group performed qualitative assessment for the others reporting unit and considers primary factors such as the impact of COVID-19, overall financial performance of the reporting unit, continuous decrease in the Group’s share price and other specific information related to the operations.
Based on the quantitative goodwill
impairment test, the Group recorded goodwill impairment loss of RMB
F-22
| 7. | LEASE |
From the Perspective of Lessee
The Group leases real estate
for terms between
The Group sub-leased the leased premises to provide various lease solutions. All of the Group’s leases are operating leases under ASC 842.
Supplemental balance sheet information related to the leases were as follows:
As of 2021 | As of June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| ROU assets | ||||||||
| Operating lease liabilities – current | ( | ) | ( | ) | ||||
| Operating lease liabilities – non-current | ( | ) | ( | ) | ||||
| Weighted average remaining lease terms | ||||||||
| Weighted average incremental borrowing rate | % | % | ||||||
The loss from termination of
leases for the six months ended June 30, 2021 and 2022 were RMB
The components of lease expenses for the six months ended June 30, 2021 and 2022 were as follows:
| For the six months ended June 30, 2021 | For the six months ended June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Operating lease expenses for variable payments | ||||||||
| Operating lease expenses for fixed payments | ||||||||
| Short-term lease expenses | ||||||||
| Total | ||||||||
| For the six months ended June 30, 2021 | For the six months ended June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows for operating leases | ||||||||
F-23
Supplemental noncash information:
| For the six months ended June 30, 2021 | For the six months ended June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Operating lease liabilities arising from obtaining ROU assets | ||||||||
The future lease payments as of June 30, 2022 were as follows:
As of June 30, | ||||
| RMB | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liabilities | ||||
| 8. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities consisted of the following:
As of 2021 | As of June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| Penalty payable | ||||||||
| Refundable deposits from members, current | ||||||||
| Payable for investments and acquisitions | ||||||||
| Payable to former shareholders of acquirees | ||||||||
| Accrued payroll | ||||||||
| VAT payable | ||||||||
| Other taxes payable | ||||||||
| Interests payable | ||||||||
| Others | ||||||||
| Third-party loans | ||||||||
| Amounts reimbursable to employees | ||||||||
| Total | ||||||||
F-24
| 9. | COST OF REVENUE (EXCLUDING IMPAIRMENT LOSS) |
Cost of revenue (excluding impairment loss) consisted of the following:
| For the six months ended June 30, 2021 | For the six months ended June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Lease expenses | ||||||||
| Employee compensation and benefits | ||||||||
| Depreciation and amortization | ||||||||
| Advertising costs | ||||||||
| Other operating costs(i) | ||||||||
| Total | ||||||||
Notes:
| (i) |
| 10. | INCOME TAXES |
Cayman Islands& BVI
The Company and Ucommune Group are tax-exempted companies incorporated in the Cayman Islands. A subsidiary, Ucommune International Limited, is incorporated in BVI. The foregoing companies are not subject to income tax.
United States (“U.S.”)
Ucommune N.Y. Corp. is
incorporated in the U.S. and is subject to the U.S. federal income taxes. According to U.S. tax reform, a flat corporate
income tax rate of
Hong Kong
Ucommune HK was established
in Hong Kong and is subject to a two-tiered income tax rate for taxable income earned in Hong Kong effectively since April 1,
2018. The first
F-25
Singapore
Ucommune Singapore Pte. Ltd.
was established in Singapore and is subject to Singapore corporate income taxes at the rate of
PRC
Effective from
According to Caishui [2019]
No. 13, Caishui [2021] No. 12 and Caishui [2022] No.13, small and low-profit enterprises have updated their preferential tax conditions.
The entity should meet the three conditions: 1. The annual taxable income does not exceed RMB
For small, low-profit enterprises
whose annual taxable income does not exceed RMB
| For the six months ended June 30, 2021 | For the six months ended June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Current tax expense | ||||||||
| Deferred tax benefit | ( | ) | ( | ) | ||||
| Total | ||||||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Group’s deferred tax assets were as follows:
As of 2021 | As of June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| Deferred tax assets: | ||||||||
| Allowance for doubtful accounts | ||||||||
| Impairment loss on long-lived assets and long-term prepaid expenses | ||||||||
| Impairment loss on long-term investments | ||||||||
| Accrued Liabilities | ||||||||
| Deductible temporary difference related to advertising expenses | ||||||||
| Deferred subsidy income | ||||||||
| Net operating loss carrying forwards | ||||||||
| Total deferred tax assets | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | ||||||||
F-26
Net change in the valuation allowance of deferred tax assets are summarized as follows:
| RMB | ||||
| Net change of valuation allowance of Deferred tax assets | ||||
| Balance at December 31, 2020 | ||||
| Additions-change to tax expense | ||||
| NOL Reductions/expirations | ( | ) | ||
| Balance at December 31, 2021 | ||||
| Additions-change to tax expense | ||||
| NOL Reductions/expirations | ( | ) | ||
| Balance at June 30, 2022 | ||||
The significant components of deferred taxes liability were as follows:
As of 2021 | As of June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| Deferred tax liabilities: | ||||||||
| Acquired intangible assets | ||||||||
The aggregate NOLs as of June
30, 2022 was RMB
The Group does not file combined
or consolidated tax returns, therefore, losses from individual subsidiaries of the Group may not be used to offset other subsidiaries’
earnings within the Group. Valuation allowance is considered on each individual subsidiary basis. Valuation allowance of RMB
The impact of an uncertain
income tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit
by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a
The Group has concluded that there are no significant uncertain tax positions requiring recognition in financial statements for the year ended December 31, 2021 and six months ended June 30, 2022. The Group did not incur any significant interest and penalties related to potential underpaid income tax expenses and also does not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months. The Group has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future years.
According to the PRC Tax Administration
and Collection Law, the tax authority may require the taxpayer or the withholding agent to make delinquent tax payment within three years
if the underpayment of taxes is resulted from the tax authority’s act or error. No late payment surcharge will be assessed under
such circumstances. The statute of limitation will be three years if the underpayment of taxes is due to the computational errors
made by the taxpayer or the withholding agent. Late payment surcharge will be assessed in such case. The statute of limitation will be
extended to five years under special circumstances which are not clearly defined (but an underpayment of tax liability exceeding
RMB
F-27
Therefore, the Group is subject to examination by the PRC tax authorities based on the above.
The reconciliation of the effective tax rate and the statutory income tax rate applicable to PRC operations was as follow:
| For the six months ended June 30, 2021 | For the six months ended June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Loss before provision for income taxes and loss from equity method investment | ( | ) | ( | ) | ||||
| Income tax expense computed at an applicable tax rate of | ( | ) | ( | ) | ||||
| Effect of non-deductible items | ||||||||
| Effect of preferential tax rate | ( | ) | ||||||
| Effect of income tax rate difference in other jurisdictions | ||||||||
| Change in valuation allowance | ||||||||
| Total | ||||||||
New EIT Law includes a provision
specifying that legal entities organized outside of the PRC will be considered residents for Chinese Income tax purposes if the place
of effective management or control is within the PRC. The implementation rules to the New EIT Law provide that non-resident legal
entities will be considered PRC residents if substantial and overall management and control over the manufacturing and business operations,
personnel, accounting, properties, etc. occurs within the PRC. Despite the present uncertainties resulting from the limited PRC tax
guidance on the issue, the Group does not believe that the legal entities organized outside of the PRC within the Group should be treated
as residents for EIT law purposes. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered
outside the PRC should be deemed a resident enterprise, the Company and its subsidiaries registered outside the PRC will be subject to
the PRC income tax at a rate of
If the Company were to be a non-resident for PRC tax purpose, dividends paid to it out of profits earned by PRC subsidiaries after January 1, 2008 would be subject to 10% withholding tax, if no tax treaty is applicable. In addition, under tax treaty between the PRC and Hong Kong, if the foreign investor is incorporated in Hong Kong and qualifies as the beneficial owner, the applicable withholding tax rate may be reduced to 5%, if the investor holds at least 25% in the Foreign Invested Enterprise (“FIE”); or 10%, if the investor holds less than 25% in the FIE.
| 11. | CONVERTIBLE BOND AND DETACHABLE WARRANTS |
On
January 26, 2022,
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The Bond matures on January 25, 2023 and pays interest in cash at the rate of 8.0% per annum, payable quarterly on January 1, April 1, July 1 and October 1, beginning on April 1, 2022. The Company may also elect to pay accrued interest in Class A ordinary shares, at a rate of 12.0% per annum, assuming a conversion rate equal to the lesser of (a) the conversion price then in effect or (b) the average of the volume weighted average price of Class A ordinary shares for the five consecutive trading days ending on the applicable interest payment date. The Bond is convertible at the option of the purchaser into Class A ordinary shares equal to 125% of the principal amount of the Bond at an initial conversion price equal to the lesser of (i) $1.00 ($20 retrospectively restated for effect of share consolidation on April 21, 2022), subject to certain adjustments, and (ii) 100% of the lowest daily volume weighted average price of Class A ordinary shares during the ten consecutive trading days prior to the conversion date.
On March 1, 2022, the
Company and the Purchaser entered amendment agreements to the Securities Purchase Agreement, Bond, and JAK Warrants to set a floor price
of $
No fractional shares will be issued upon exercise of the new warrant. No new warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the shares of common stock issuable upon exercise of the new warrants and a current prospectus relating to such shares of common stock.
The JAK Warrants are classified
as a liability. The Company uses the binomial lattice model to value JAK Warrants and the fair value allocated to the JAK Warrants at
the date of issuance was RMB
| 12. | SHARE-BASED COMPENSATION |
| a. | Incentive Plan |
| 2019 Plan |
On September 19, 2019,
September 1, 2020 and October 13, 2020, Ucommune Group granted
For type 1,
For type 2,
For type 3,
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For type 4,
On September 1,2020, The
vesting schedule of the award options for certain employees and non-employees has been changed from “
2020 Plan
In connection with the SPAC Transaction, the Company adopted the 2020 Plan on November 17, 2020 (the “Replacement Date”), which is also the effective date of the SAPC Transaction to assume and replace the 2019 Plan. The Company rolled over options granted under the 2019 Plan with nearly the same terms. One option granted under the 2019 Plan was assumed and replaced by 0.4783 option under the 2020 Plan and the exercise price of the options was increased from $0.0001 per share to $0.00021 (0.0001 divided by 0.4783) per share (from $0.002 per share to $0.00418 retrospectively restated for effect of share consolidation on April 21, 2022). The 2020 Plan provides for the issuance of up to an aggregate of 7,188,661 of Class A ordinary shares (359,433 of its share options retrospectively restated for effect of share consolidation on April 21, 2022).
The fair value of option granted was estimated on the date of grant using the binominal option- pricing model with the following assumptions used for grants during the applicable periods:
| For the years ended December 31, | For the six months ended June 30, | |||||||||||
| 2019 | 2020 | 2022 | ||||||||||
| RMB | RMB | RMB | ||||||||||
| Risk-free interest rate | % | % | % | |||||||||
| Volatility | % | % | % | |||||||||
| Dividend yield | ||||||||||||
| Life of options (in years) | ||||||||||||
| Fair value of underlying ordinary shares* | ||||||||||||
| * |
| (1) | Risk-free interest rate |
Risk-free interest rate was estimated based on the daily treasury long term rate of the U.S. Treasury Department with a maturity period close to the expected term of the options, plus the country default spread of China.
| (2) | Volatility |
The volatility of the underlying ordinary shares during the lives of the options was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the expected term of the options.
| (3) | Dividend yield |
The dividend yield was estimated by the Group based on its expected dividend policy over the expected term of the options.
| (4) | Life of options |
Life of options is extracted from option agreements.
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Prior to the consummation of the SPAC Transaction, the estimated fair value of the ordinary shares underlying the options as of the valuation date was determined based on a contemporaneous valuation. When estimating the fair value of the ordinary shares on the valuation dates, management has considered a number of factors, including the result of a third party appraisal of the Company, while taking into account standard valuation methods and the achievement of certain events. The fair value of the ordinary shares in connection with the option grants on the valuation date was determined with the assistance of an independent third-party appraiser. The fair values of the underlying ordinary shares on each date of the grant after November 17, 2020, were the closing prices of the Company’s ordinary shares traded in the stock exchange.
A summary of options activities during the six months ended June 30, 2022 is presented below:
| Number of options* | Weighted average exercise price USD* | Weighted average grant date fair value RMB* | Weighted average remaining contractual term (years) | Aggregate intrinsic value | ||||||||||||||||
| Options outstanding at December 31, 2020 | ||||||||||||||||||||
| Granted | ||||||||||||||||||||
| Exercised | ( | ) | ||||||||||||||||||
| Forfeited | ( | ) | ||||||||||||||||||
| Options outstanding at December 31, 2021 | ||||||||||||||||||||
| Granted | ||||||||||||||||||||
| Exercised | ( | ) | ||||||||||||||||||
| Forfeited | ||||||||||||||||||||
| Options outstanding at June 30, 2022 | ||||||||||||||||||||
| Options vested and expected to vest as of June 30, 2022 | ||||||||||||||||||||
| Options exercisable as of June 30, 2022 | ||||||||||||||||||||
| * |
The aggregate intrinsic value
was calculated as the difference between the exercise price of the underlying awards and the closing stock price of $
The fair values of the options granted for the six months ended June 30, 2022 are as follows:
| For the six months ended June 30, 2022 | ||||
| RMB | ||||
| Weighted average grant date fair value of option per share* | ||||
| Aggregate grant date fair value of options** | ||||
| * |
| ** | In |
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As of June 30, 2022, there
was approximately RMB
Total share-based compensation expense for the six months ended June 30, 2022 were as follows:
| For the six months ended June 30, | ||||||||
| 2021 | 2022 | |||||||
| Cost of revenue | ||||||||
| Selling and marketing | ||||||||
| General and administrative | ||||||||
| Total share-based compensation expense | ||||||||
| b. | Earn-out compensation from SPAC Transaction |
In connection with SPAC Transaction, 4,000,000 Earnout Shares (200,000 of its earnout shares retrospectively restated for effect of share consolidation on April 21, 2022) were granted to certain shareholders of Ucommune Group as disclosed in Note 1 (b).
The Company accounted for the Earnout Shares as share-based compensation under ASC 718. The Company determined the fair value of the earn-out shares using binomial model, which includes significant unobservable inputs that are classified as level 3 in the fair value hierarchy. Assumptions used to estimate the fair values of the share options granted or modified were as follows:
| For the years ended December 31, 2020 | ||||
| RMB | ||||
| Risk-free interest rate | % | |||
| Volatility | % | |||
| Dividend yield | ||||
| Life (in years) | ||||
| Fair value of the underlying ordinary shares (USD)* | ||||
| * |
Total share-based compensation expense of earn-out shares for the six months ended June 30, 2022 were as follows:
| For the six months ended June 30, | ||||||||
| 2021 | 2022 | |||||||
| General and administrative | ||||||||
| c. | Share Incentive |
In May 2021, the Group acquired 100% equity interests of Guangdong Wanhe Green Technology Co., Ltd (“Guangdong Wanhe”) and Share Incentive in term of the Group’s share of RMB 29.0 million were awarded to certain management of Guangdong Wanhe. The management may be entitled to receive the Share Incentive as follows: (a) 40% of the Share Incentive and an additional share award of RMB 1.15 million if the revenue of Guangdong Wanhe exceeds RMB30,000,000 for the period from acquisition date through December 31, 2021 pursuant to the audited consolidated financial statements of Guangdong Wanhe; (b) 40% of the Share Incentive if the revenue of Guangdong Wanhe exceeds RMB55,000,000 in the fiscal year of 2022 pursuant to the audited consolidated financial statements of Guangdong Wanhe as of and for the fiscal year ended December 31, 2022; (c) 20% of the Share Incentive if the revenue of Guangdong Wanhe exceeds RMB65,000,000 in the fiscal year of 2023 pursuant to the audited consolidated financial statements of Guangdong Wanhe as of and for the fiscal year ended December 31, 2023. In addition, shares valued at 5% of the overfulfilled revenue should be awarded for each performance evaluation period. The Share Incentive should be automatically forfeited if the employment terminates during the performance evaluation period.
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Total share-based compensation expense of Share Incentive for the six months ended June 30, 2022 were as follows:
| For the six months ended June 30, 2022 | ||||
| General and administrative | ||||
| 13. | NET LOSS PER SHARE |
For the six months ended June 30, 2021 and 2022, for the purpose of calculating net loss per share as a result of the reorganization as described in Note 1, the number of shares used in the calculation reflects the outstanding shares of the Company as if the reorganization took place at the beginning of the period presented.
Basic and diluted net loss per share for each of the year presented were calculated as follows:
| For the six months ended June 30, 2021 | For the six months ended June 30, 2022 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Numerator: | ||||||||
| Net loss attributable to Ucommune International Ltd’s shareholders | ( | ) | ( | ) | ||||
| Denominator: | ||||||||
| ( | ) | ( | ) | |||||
| * |
| ** |
| 14. | RELATED PARTIES BALANCES AND TRANSACTIONS |
The Group had the following related parities:
| a. | Executive Officers and companies controlled by executive officers |
| b. | Equity method investees |
| c. | Companies controlled by the same controlling shareholders. |
| d. | The |
| e. | The wholly owned subsidiary of d. |
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| I. | Balances: |
The Group had the following related party balances:
| Relationship | Notes | As of December 31, 2021 | As of June 30, 2022 | |||||||||||||
| RMB | RMB | |||||||||||||||
| (Unaudited) | ||||||||||||||||
| Amounts due from related parties: | ||||||||||||||||
| Guangdong Advertising Co., Ltd. | (d) | (i) | ||||||||||||||
| Youxiang Group | (c) | (ii) | ||||||||||||||
| Others | (iii) | |||||||||||||||
| Relationship | Notes | As of December 31, 2021 | As of June 30, 2022 | |||||||||||||
| RMB | RMB | |||||||||||||||
| (Unaudited) | ||||||||||||||||
| Amounts due to related parties: | ||||||||||||||||
| Youxiang Group | (c) | (iv) | ||||||||||||||
| Guangdong Marketing Advertising Group | (e) | (v) | ||||||||||||||
| Others | ||||||||||||||||
Notes:
| (i) |
| (ii) |
| (iii) |
| (iv) |
| (v) |
| II. | Transactions: |
Lease expenses
| Six months Ended June 30, 2021 | Six months Ended June 30, 2022 | |||||||||||||||
| Relationship | Notes | RMB | RMB | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Youxiang Group | (c) | (i) | ||||||||||||||
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Revenues
| Six months Ended June 30, 2021 | Six months Ended June 30, 2022 | |||||||||||
| Relationship | Notes | RMB | RMB | |||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Youxiang Group | (c) | (ii) | ||||||||||
| Guangdong Advertising Co., Ltd. | (d) | (iii) | ||||||||||
Property management expense
| Six months Ended June 30, 2021 | Six months Ended June 30, 2022 | |||||||||||
| Relationship | Notes | RMB | RMB | |||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Youxiang Group | (c) | (iv) | ||||||||||
Purchase of advertisement distribution resources
| Six months Ended June 30, 2021 | Six months Ended June 30, 2022 | |||||||||||||||
| Relationship | Notes | RMB | RMB | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Guangdong Advertising Co., Ltd. | (d) | (v) | ||||||||||||||
| Guangdong Advertising Marketing Group | (e) | (v) | ||||||||||||||
Other income from lease expense waivers
| Six months Ended June 30, 2021 | Six months Ended June 30, 2022 | |||||||||||||||
| Relationship | Notes | RMB | RMB | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||
| Youxiang Group | (c) | (vi) | ||||||||||||||
Notes:
| (i) |
| (ii) |
| (iii) |
| (iv) |
| (v) |
| (vi) |
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| 15. | COMMITMENTS AND CONTINGENCIES |
Capital commitment
As of June 30, 2022, the Group had no significant outstanding capital commitments.
Contingencies
From time to time, the Group is involved in various other legal and regulatory proceedings arising in the normal course of business. While the Group cannot predict the occurrence or outcome of these proceedings with certainty, it does not believe that an adverse result in any pending legal or regulatory proceeding, individually or in the aggregate, would be material to the Group’s consolidated financial condition or cash flows.
| 16. | SUBSEQUENT EVENTS |
In July 2022, the Company disposed
of one of its buildings located in Kaifeng, Henan Province to Youxiang Group with a total consideration of RMB
On August 29, 2022, the Company and the Purchaser entered into amendment agreements (“Amendment”) to the Securities Purchase Agreement, Bond, and JAK Warrants to change the floor price to $4.50 per Ordinary Share from $6.0 per Ordinary Share as amended on March 1, 2022 for the conversion price of the Bond and exercise price of the Warrants. The Company has evaluated the accounting impact on private placement and determined that the amendment has no impact on the condensed consolidated financial statements.
The Company has evaluated subsequent events through the issuance of the condensed consolidated financial statements and no other subsequent event is identified that would have required adjustment or disclosure in the condensed consolidated financial statements.
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