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 December 31, | As of June 30, | |||||||||||
| 2022 | 2023 | |||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Note 2d) | |||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| 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 | ||||||||||||
| 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, | |||||||||||
| 2022 | 2023 | |||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Note 2d) | |||||||||||
| 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 | ||||||||||||
| 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 December 31, | As of June 30, | |||||||||||
| 2022 | 2023 | |||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Note 2d) | |||||||||||
| 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 | ||||||||||||
| Total non-current liabilities | ||||||||||||
| TOTAL LIABILITIES | ||||||||||||
| Commitments and contingencies (Note 16) | ||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||
| Class A ordinary shares ( | ||||||||||||
| Class B ordinary shares ( | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Statutory reserves | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Accumulated other comprehensive income | ||||||||||||
| Total Ucommune International Ltd shareholders’ equity | ||||||||||||
| Noncontrolling interests | ||||||||||||
| TOTAL EQUITY | ||||||||||||
| TOTAL LIABILITIES AND EQUITY | ||||||||||||
The accompanying notes are an integral part of these condensed 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, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Unaudited) | (Note 2d) | ||||||||||
| Revenue: | ||||||||||||
| Workspace membership revenue (including services provided to a related party of RMB | ||||||||||||
| 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, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Unaudited) | (Note 2d) | ||||||||||
| (Loss)/gain on disposal of subsidiaries | ( | ) | ||||||||||
| Other income/(expense), net | ( | ) | ( | ) | ||||||||
| Loss before income taxes and loss from equity method investments | ( | ) | ( | ) | ( | ) | ||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Loss from equity method investment | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Less: Net loss attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ||||||
| Net loss attributable to Ucommune International Ltd | ( | ) | ( | ) | ( | ) | ||||||
| Net loss per share attributable to ordinary shareholders of Ucommune International Ltd | ||||||||||||
| ( | ) | ( | ) | ( | ) | |||||||
| Weighted average shares used in calculating net loss per share | ||||||||||||
The accompanying notes are an integral part of these condensed 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, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Unaudited) | (Note 2d) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Other comprehensive loss, net of tax | ||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||
| Total Comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Less: Comprehensive loss attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive loss attributable to Ucommune International Ltd’s shareholders | ( | ) | ( | ) | ( | ) | ||||||
The accompanying notes are an integral part of these condensed 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 paid-in | Statutory | Accumulated | Accumulated other comprehensive | Total Ucommune International Ltd shareholders’ | Noncontrolling | Total | |||||||||||||||||||||||||||||
| Shares | Amount | capital | Reserve | deficit | loss | equity | interests | equity | ||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||
| 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 (unaudited) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 in RMB | ( | ) | ||||||||||||||||||||||||||||||||||
| Adoption of ASC 326 | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Provision for statutory reserve | — | ( | ) | |||||||||||||||||||||||||||||||||
| Shares issued for conversion of convertible debt | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||||||||||||||
| Disposal of subsidiaries | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 in RMB (unaudited) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 in USD (unaudited) | ( | ) | ||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed 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, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Unaudited) | (Note 2d) | ||||||||||
| Net cash (used in)/provided by operating activities | ( | ) | ||||||||||
| Cash Flows from investing activities | ||||||||||||
| Purchase of short-term investments | ( | ) | ( | ) | ( | ) | ||||||
| Redemption of short-term investments | ||||||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds from disposal of property and equipment | ||||||||||||
| Loan collected from third parties | ||||||||||||
| Cash deduction due to disposal of subsidiaries | ( | ) | ( | ) | ( | ) | ||||||
| Net used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Capital contribution from noncontrolling shareholders | ||||||||||||
| Loan repaid to related parties | — | ( | ) | ( | ) | |||||||
| Loan received from third parties | ||||||||||||
| Loan repaid to third parties | ( | ) | ( | ) | ( | ) | ||||||
| Cash received from issuing convertible bond | ||||||||||||
| Net cash used in financing activities | ( | ) | ( | ) | ( | ) | ||||||
| Effects of exchange rate changes | ( | ) | ( | ) | ||||||||
| Net (decrease)/increase in cash, cash equivalents | ( | ) | ||||||||||
| Cash, cash equivalents – beginning of the period | ||||||||||||
| Cash, cash equivalents – 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 | ||||||||||||
| Conversion of convertible bond’s principle | ||||||||||||
| Disposal of properties and prepaid expenses and other current assets in exchange for long-term investments | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-9
UCOMMUNE INTERNATIONAL LTD
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2022 and 2023
(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. In connection with the closing of the SPAC Transaction, Orisun had been ceased and Ucommune International Ltd continued as the surviving company.
Upon the consummation of the SPAC Transaction, the Company changed
the authorized ordinary shares of the Company to
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. | 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, 2022, and June 30, 2023, 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
| As of December 31, | As of June 30, | |||||||||||
| 2022 | 2023 | |||||||||||
| RMB | USD | |||||||||||
| RMB | (Unaudited) | (Note 2d) | ||||||||||
| Cash and cash equivalents | ||||||||||||
| Other current assets | ||||||||||||
| Total current assets | ||||||||||||
| Property and equipment, net | ||||||||||||
| Right-of-use assets, net | ||||||||||||
| 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 | ||||||||||||
F-10
| For the Six Months Ended June 30, | ||||||||||||
| 2022 | 2023 | 2023 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Unaudited) | (Note 2d) | ||||||||||
| Net revenues | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Net cash (used in)/ provided by operating activities | ( | ) | ||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ( | ) | ||||||
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.
| b. | 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, closure of unprofitable spaces in operation during the year 2022 and in the first half of 2023, 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. 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 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.
| b. | Going Concern |
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.
F-11
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 its 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.
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.
| c. | 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 and occupancy rate. The gross yield rate is used as the discount
rate. The Group recorded and impairment losses on its ROU assets, RMB
| d. | 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-12
| e. | Allowance for credit losses |
On January 1, 2023, the Group adopted ASC 326, Credit Losses (“ASC
326”) which replaced previously issued guidance regarding the impairment of financial instruments with an expected loss methodology
that will result in more timely recognition of credit losses. The Group used a modified retrospective approach and did not restate the
comparable prior periods, which resulted in RMB
Upon adoption of ASC 326, the Group maintains an allowance for credit losses in accordance with ASC 326 and records the allowance for credit losses as an offset to assets such as accounts receivable, prepayments and other current assets and due from related parties which are not under common control, etc., and the estimated credit losses charged to the allowance is classified as “General and administrative expenses” in the consolidated statements of comprehensive loss. The Group assesses collectability by reviewing receivables on a collective basis where similar characteristics exist, primarily based on size, nature and on an individual basis when we identify specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Group considers historical collectability based on past due status, the age of the receivable balances, credit quality of the Group’s customer or vendor based on ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Group’s ability to collect from customers. Bad debts are written off as incurred. The Group generally does not require collateral from its customers.
| f. | Long-term investments |
The Group’s long-term investments include equity securities without readily determinable fair values and equity method investments.
Equity securities without readily determinable fair values
For equity securities without readily determinable fair value, the Group elected to use the measurement alternative to measure those investments at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. The adoption did not have a material impact on the Group’s consolidated financial position or results of operations, in accordance with ASC Topic 321, Investments—Equity Securities.
The Group reviews its equity securities without readily determinable fair value for impairment at each reporting period. If a qualitative assessment indicates that the investment is impaired, the Group estimates the investment’s fair value in accordance with the principles of ASC Topic 820—Fair Value Measurement (“ASC 820”). If the fair value is less than the investment’s carrying value, the Group would recognize an impairment loss in the consolidated statements of operations.
Equity method investments
Investee companies over which
the Group has the ability to exercise significant influence, but does not have a controlling interest through investment in common shares
or in-substance common shares, are accounted for using the equity method. Significant influence is generally considered exist when the
Group has an ownership interest in the voting stock of the investee between
Under the equity method, the Group initially records its investment at cost and subsequently recognizes the Group’s proportionate share of each equity investee’s net income or loss after the date of investment into accumulated deficit and accordingly adjusts the carrying amount of the investment. The Group reviews its equity method investments for impairment whenever an event or circumstance indicates that any OTTI has occurred. The Group considers available quantitative and qualitative evidence in evaluating potential impairment of its equity method investment.
An impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary.
Nonmonetary transactions
The Group engages in nonmonetary exchanges of equity interest of certain long-term investments. The transaction price of the nonmonetary consideration is based on the fair values of the assets involved. The cost of equity interest acquired in exchange is initially measured at the fair value of the assets the Group surrendered to obtain them.
F-13
| 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 adoption of ASU 2020-06 since January 1, 2022.
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 consolidated statement of operations on a straight-line basis over the lease term.
F-14
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 consolidated balance sheets.
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.
F-15
| For the six months ended June 30, | ||||||||
| 2022 | 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Operating lease income from fixed payments | ||||||||
| Variable operating lease income | ||||||||
| Total | ||||||||
| RMB | ||||
| (Unaudited) | ||||
| For the period ending December 31, | ||||
| 2023 | ||||
| For the year ending December 31, | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total | ||||
| 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. The Group is the principal in providing the marketing and branding services to customers. The services provided are accounted for as a single performance obligation and revenue is recognized on gross basis over time throughout the contract terms by using both output and input method.
F-16
| (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. The Group identified the services as one single performance obligation.
1) Interior design and construction revenue
Interior design and construction revenue is generated from two subsidiaries acquired in 2018 and one subsidiary acquired in 2021. Revenue is recognized over time based on 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.
2) Co-working space management fees
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.
3) SaaS services and IOT solutions revenue
SaaS service and IOT solution is generated from a subsidiary acquired in 2019 and recognized at a point in time upon the service was completed.
4) Ancillary services revenue
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, 2022 and 2023.
Balance of contract liabilities were RMB
F-17
| j. | 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.
| k. | Recent accounting pronouncements not yet adopted |
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 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
adopted the new credit loss guidance beginning January 1, 2023 on a modified retrospective basis, with a cumulative-effect to
increase the opening balance of accumulated deficit on January 1, 2023 by RMB
F-18
| 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, 2022 and June 30, 2023, substantially all of the Group’s cash and cash equivalents and short-term
investments were deposited in financial institutions located in the PRC. There is one customer individually represent
There are two and one
customers individually represent greater than
There is and
| 4. | ACCOUNTS RECEIVABLE, NET |
As of 2022 | As of June 30, 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| Account receivable | ||||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | ||||
| Total | ||||||||
December 31, 2022 | June 30, 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| Balance at beginning of period | ||||||||
| Adoption of ASC 326 | ||||||||
| Amounts charged to expenses | ||||||||
| Amounts written off | ( | ) | ||||||
| Disposal of a subsidiary | ( | ) | ( | ) | ||||
| Foreign Exchange effect | ||||||||
| Balance at end of period | ||||||||
As of December 31, 2022 and
June 30, 2023, all accounts receivable was due from third party customers. Provision for credit losses for the year ended December 31,
2022 and the six months ended June 30, 2023 was RMB
F-19
Starting from January
1, 2023, the Group adopted ASC 326, which amends previously issued guidance regarding the impairment of financial instruments by
creating an impairment model that is based on expected losses rather than incurred losses. The Group used a modified retrospective
approach with a cumulative-effect of approximately RMB
| 5. | PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET |
As
of | As of June 30, 2023 | |||||||
| 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 credit losses | ( | ) | ( | ) | ||||
| Total | ||||||||
Notes:
| (i) |
| (ii) |
December 31, | June 30, 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| Balance at beginning of period | ||||||||
| Adoption of ASC 326 | ||||||||
| Amounts charged to expenses | ||||||||
| Amounts written off | ( | ) | ( | ) | ||||
| Disposal of a subsidiary | ( | ) | ( | ) | ||||
| Balance at end of period | ||||||||
Provision for credit
losses for prepayment and other current assets for the year ended December 31, 2022 and the six months ended June 30, 2023 were
RMB
F-20
| 6. | PROPERTY AND EQUIPMENT, NET |
As of 2022 | As of June 30, 2023 | |||||||
| 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, 2022 and 2023 were RMB
Impairment loss for the six
months ended June 30, 2022 and 2023 were RMB
Gain on disposal for the six months ended June 30, 2022 and 2023
were RMB
As of June 30, 2023, the Group had no significant outstanding capital commitments.
F-21
| 7. | LONG-TERM INVESTMENTS |
| As of December 31, | As of June 30, | |||||||
| 2022 | 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| Equity method investments: | ||||||||
| Shanghai Youmei Information Consulting Co., Ltd. (Youmei)(a) | ||||||||
| Qingdao Rongzemingzhi Network Technology Co., Ltd. (Rongzemingzhi)(b) | ||||||||
| Other equity method investments(c) | ||||||||
| Equity securities without readily determinable fair values investments: | ||||||||
| Hangzhou Renjunxing Technology Co., Ltd (Renjunxing)(d) | ||||||||
| Green fire Decoration Engineering (Beijing) Co., Ltd. (Green Fire)(e) | ||||||||
| Other equity securities without readily determinable fair values investments(f) | ||||||||
| Less: impairment loss on long-term investments | ( | ) | ( | ) | ||||
| Total | ||||||||
Notes:
| (a) |
| (b) |
| (c) |
| (d) |
| (e) |
| (f) |
F-22
| 8. | 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.
As of 2022 | As of June 30, 2023 | |||||||
| 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, 2022 and 2023 were RMB
| For the six months ended June 30, 2022 | For the six months ended June 30, 2023 | |||||||
| 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, 2022 | For the six months ended June 30, 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows for operating leases | ||||||||
F-23
| For the six months ended June 30, 2022 | For the six months ended June 30, 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Operating lease liabilities arising from obtaining ROU assets | ||||||||
| ROU assets disposed as reduction of operating lease liabilities due to lease termination | ||||||||
| RMB | ||||
| (Unaudited) | ||||
| For the period ending December 31, | ||||
| 2023 | ||||
| For the year ending December 31, | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liabilities | ||||
| 9. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
As of 2022 | As of June 30, 2023 | |||||||
| 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
| 10. | COST OF REVENUE (EXCLUDING IMPAIRMENT LOSS) |
| For the six months ended June 30, 2022 | For the six months ended June 30, 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Lease expenses | ||||||||
| Employee compensation and benefits | ||||||||
| Depreciation and amortization | ||||||||
| Advertising costs | ||||||||
| Other operating costs(i) | ||||||||
| Total | ||||||||
Notes:
| (i) |
| 11. | 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
Singapore
Ucommune Singapore Pte. Ltd.
and Ucommune Technology Pte. Ltd. was established in Singapore and is subject to Singapore corporate income taxes at the rate of
PRC
Effective from January 1,
2008,
F-25
On May 25,2022, the State
Finance and Taxation Department issued the Notice on Preferential Policies for Enterprise Income Tax in Hengqin Guangdong-Macao Deep Cooperation
Zone (hereinafter referred to as “Hengqin Shenhe District” or “Hengqin”) (Caishui [2022] No.19). This new policy
continues the policy of collecting enterprise income tax at a reduced preferential tax rate of
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 the six months ended June 30, 2022 | For the six months ended June 30, 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Current tax expense | ||||||||
| Deferred tax benefit | ( | ) | ( | ) | ||||
| Total | ||||||||
As
of | As of June 30, 2023 | |||||||
| 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
| RMB | ||||
| Net change of valuation allowance of Deferred tax assets | ||||
| Balance at December 31, 2021 | ||||
| Additions-change to tax expense | ||||
| NOL Reductions/expirations | ( | ) | ||
| Balance at December 31, 2022 | ||||
| Additions-change to tax expense | ||||
| NOL Reductions/expirations | ( | ) | ||
| Balance at June 30, 2023 (Unaudited) | ||||
As of 2022 | As of June 30, 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | ||||||||
| Deferred tax liabilities: | ||||||||
| Acquired intangible assets | ||||||||
The aggregate NOLs as of June 30, 2023 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, 2022 and six months ended June 30, 2023. 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
Therefore, the Group is subject to examination by the PRC tax authorities based on the above.
F-27
| For the six months ended June 30, 2022 | For the six months ended June 30, 2023 | |||||||
| 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 | ( | ) | ( | ) | ||||
| Non-deductible expenses related to impairment of goodwill | ||||||||
| Non-deductible expenses related to share-based compensation | ||||||||
| Effect of other 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
| 12. | CONVERTIBLE BOND AND DETACHABLE WARRANTS |
The following paragraphs are presented on a retroactive basis to reflect the Company’s share consolidation on April 21, 2022.
On
January 26, 2022, the Company entered into and closed a private placement pursuant to a securities purchase agreement (the “Securities
Purchase Agreement”) with JAK Opportunities LLC (the “Purchaser”) for the offering of a $
F-28
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 $
On August 29, 2022, the Company
and the Purchaser entered amendment agreements to the Securities Purchase Agreement, Bond, and JAK Warrants to change the floor price
to $
On October 25, 2022, the
Company and the Purchaser entered amendment agreements to the Securities Purchase Agreement, Bond, and JAK Warrants to change the floor
price to $
On January 24, 2023, the
Company and the Purchaser entered amendment agreements to the Securities Purchase Agreement, Bond, and JAK Warrants to change the floor
price to $
On June 7, 2023, the Company
and the Purchaser entered amendment agreements to the Securities Purchase Agreement, Bond, and JAK Warrants to change the floor price
to $
During July 2023, the Company
issued
As of June 30, 2023, there
are outstanding JAK Warrants to purchase an aggregate 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
| 13. | SHARE-BASED COMPENSATION |
The following paragraphs are presented on a retroactive basis to reflect the Company’s share consolidation on April 21, 2022.
| a. | Incentive Plan |
| 2019 Plan |
On September 19, 2019, September
1, 2020 and October 13, 2020, Ucommune Group granted
F-29
For type 1,
For type 2,
For type 3,
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
| For the years ended December 31, | For the six months ended June 30, | |||||||||||||||
| 2019 | 2020 | 2022 | 2023 | |||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Risk-free interest rate | % | % | % | % | ||||||||||||
| Volatility | % | % | % | % | ||||||||||||
| Dividend yield | ||||||||||||||||
| Life of options (in years) | ||||||||||||||||
| Fair value of underlying ordinary shares | ||||||||||||||||
F-30
| (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.
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.
| 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, 2021 | ||||||||||||||||||||
| Granted | ||||||||||||||||||||
| Exercised | ( | ) | ||||||||||||||||||
| Forfeited | ( | ) | ||||||||||||||||||
| Options outstanding at December 31, 2022 | ||||||||||||||||||||
| Granted | ||||||||||||||||||||
| Exercised | ( | ) | ||||||||||||||||||
| Forfeited | ( | ) | ||||||||||||||||||
| Options outstanding at June 30, 2023 | ||||||||||||||||||||
| Options vested and expected to vest as of June 30, 2023 | ||||||||||||||||||||
| Options exercisable as of June 30, 2023 | ||||||||||||||||||||
The aggregate intrinsic value
was calculated as the difference between the exercise price of the underlying awards and the closing stock price of $
F-31
| For the six months ended June 30, 2023 | ||||
| RMB | ||||
| (Unaudited) | ||||
| Weighted average grant date fair value of option per share | ||||
| Aggregate grant date fair value of options* | ||||
| * |
As of June 30, 2023, there
was approximately RMB
| For the six months ended June 30, | ||||||||
| 2022 | 2023 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cost of revenue | ||||||||
| Selling and marketing | ||||||||
| General and administrative | ||||||||
| Total share-based compensation expense | ||||||||
| b. | Earn-out compensation from SPAC Transaction |
| 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) | ||||
The Company reversed RMB
F-32
| c. | Share Incentive |
Due to the unfulfillment of the revenue for the period from acquisition date through December 31, 2021 and during the fiscal year of 2022, the Group reversed RMB3,874 share-based compensation expense of Share Incentive for the year ended December 31, 2022.
| 14. | NET LOSS PER SHARE |
For the six months ended June 30, 2022 and 2023, 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.
| For the six months ended June 30, 2022 | For the six months ended June 30, 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Numerator: | ||||||||
| Net loss attributable to Ucommune International Ltd’s shareholders | ( | ) | ( | ) | ||||
| Denominator: | ||||||||
| Weighted average ordinary shares used in computing basic and diluted loss per share* | ||||||||
| ( | ) | ( | ) | |||||
| * |
F-33
| 15. | 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. |
| I. | Balances: |
| Relationship | Notes | As of December 31, 2022 | As of June 30, 2023 | |||||||||
| RMB | RMB | |||||||||||
| (Unaudited) | ||||||||||||
| Amounts due from related parties: | ||||||||||||
| Guangdong Advertising Co., Ltd. | (d) | (i) | ||||||||||
| Guangdong Marketing Advertising Group | (e) | (i) | ||||||||||
| Youxiang Group | (c) | (ii) | ||||||||||
| Others | (iii) | |||||||||||
| Relationship | Notes | As of December 31, 2022 | As of June 30, 2023 | |||||||||
| RMB | RMB | |||||||||||
| (Unaudited) | ||||||||||||
| Amounts due to related parties: | ||||||||||||
| Youxiang Group | (c) | (iv) | ||||||||||
| Angela Bai | (a) | (v) | ||||||||||
| Guangdong Advertising Co., Ltd. | (d) | (vi) | ||||||||||
| Guangdong Marketing Advertising Group | (e) | (vi) | ||||||||||
| Others | (vii) | |||||||||||
Notes:
| (i) |
F-34
| (ii) |
| (iii) |
| (iv) |
| (v) |
| (vi) |
| (vii) |
| II. | Transactions: |
Lease expenses
| Six months Ended June 30, 2022 | Six months Ended June 30, 2023 | |||||||||||
| Relationship | Notes | RMB | RMB | |||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Youxiang Group | (c) | (i) | ||||||||||
| Guangdong Advertising Co., Ltd. | (d) | (i) | ||||||||||
Revenues
| Six months Ended June 30, 2022 | Six months Ended June 30, 2023 | |||||||||||
| Relationship | Notes | RMB | RMB | |||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Youxiang Group | (c) | (ii) | ||||||||||
| Guangdong Advertising Co., Ltd. | (d) | (iii) | ||||||||||
Property management expense
| Six months Ended June 30, 2022 | Six months Ended June 30, 2023 | |||||||||||
| Relationship | Notes | RMB | RMB | |||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Youxiang Group | (c) | (iv) | ||||||||||
F-35
Purchase of advertisement distribution resources
| Six months Ended June 30, 2022 | Six months Ended June 30, 2023 | |||||||||||
| Relationship | Notes | RMB | RMB | |||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Guangdong Advertising Co., Ltd. | (d) | (v) | ||||||||||
| Guangdong Advertising Marketing Group | (e) | (v) | ||||||||||
Notes:
| (i) |
| (ii) |
| (iii) |
| (iv) |
| (v) |
| 16. | COMMITMENTS AND CONTINGENCIES |
Capital commitment
As of June 30, 2023, the Group had no significant outstanding capital commitments.
Contingencies
The Group is involved in various legal or administrative proceedings.
During the six months ended June 30, 2023, legal fees in connection with two legal or administrative proceedings that closed due to court
or arbitration’s adjudication, have not been negotiated and determined with the third-party legal counsel, the estimated amount
of such legal fees is expected to be ranged from approximately RMB
Except as described above, the Group is not a party to any material legal or administrative proceedings. 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.
| 17. | SEGMENT INFORMATION |
Operating segments are defined as components of an enterprise engaging in business activities for which separate financial information is available that is regularly evaluated by the Group’s chief operating decision makers (“CODM”) in deciding how to allocate resources and assess performance.
The Group’s CODM has been identified as the CEO. For the six months ended June 30, 2022 and 2023, there are three operating segments identified including workspace membership, marketing and branding, and others.
F-36
| For the six months ended June 30, 2022 | For the six months ended June 30, 2023 | |||||||
| RMB | RMB | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Revenue: | ||||||||
| Workspace membership | ||||||||
| Marketing and branding services | ||||||||
| Other services | ||||||||
| Total revenue | ||||||||
| Cost of revenue (excluding impairment loss) | ||||||||
| Workspace membership | ( | ) | ( | ) | ||||
| Marketing and branding services | ( | ) | ( | ) | ||||
| Other services | ( | ) | ( | ) | ||||
| Total cost of revenue (excluding impairment loss) | ( | ) | ( | ) | ||||
The Group’s CODM does not review the financial position by operating segment, thus total assets by operating segment is not presented.
| 18. | LONG-TERM PREPAID EXPENSES |
In April, 2023, pursuant
to the agreement with the transferee, the Group disposed two of its creditor’s rights on the long-term prepaid expenses with carrying
value of RMB
| 19. | DISPOSAL OF SUBSIDIARIES |
During the six months ended June 30, 2023, the Group disposed several
subsidiaries with nil consideration to third parties or former shareholder of the subsidiaries. The Group recorded RMB
| 20. | SUBSEQUENT EVENTS |
In September 2023, the Group
entered into an agreement with Hunan Longxi as settlement of the creditor’s rights on the non-current assets. The payment contains
RMB
F-37