Exhibit 99.1
NANO LABS LTD
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| As of December 31, | As of June 30, | |||||||||||
| 2023 | 2024 | |||||||||||
| RMB | RMB | US$ | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| Restricted cash | ||||||||||||
| Accounts receivable, net | ||||||||||||
| Inventories, net | ||||||||||||
| Prepayments | ||||||||||||
| Other current assets | ||||||||||||
| Total current assets | ||||||||||||
| Non-current assets: | ||||||||||||
| Property, plant and equipment, net | ||||||||||||
| Intangible asset, net | ||||||||||||
| Operating lease right-of-use assets | ||||||||||||
| Total non-current assets | ||||||||||||
| TOTAL ASSETS | ||||||||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||||||
| Current liabilities: | ||||||||||||
| Short-term debts | ||||||||||||
| Current portion of long-term debts | ||||||||||||
| Accounts payable | ||||||||||||
| Advance from customers | ||||||||||||
| Operating lease liabilities, current | ||||||||||||
| Other current liabilities | ||||||||||||
| Total current liabilities | ||||||||||||
| Non-current liabilities: | ||||||||||||
| Long-term debts | ||||||||||||
| Operating lease liabilities, non-current | ||||||||||||
| Total non-current liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| Shareholders’ deficit: | ||||||||||||
| Class A ordinary shares ($ | ||||||||||||
| Class B ordinary shares ($ | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Statutory reserves | ||||||||||||
| Accumulated other comprehensive income | ||||||||||||
| Total Nano Labs Ltd shareholders' deficit | ( | ) | ( | ) | ( | ) | ||||||
| Noncontrolling interests | ( | ) | ||||||||||
| Total shareholders’ deficit | ( | ) | ( | ) | ( | ) | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||||||
| * |
The accompanying notes are an integral part of these unaudited consolidated financial statements
F-1
NANO LABS LTD
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
| For the six months ended June 30, | ||||||||||||
| 2023 | 2024 | |||||||||||
| RMB | RMB | US$ | ||||||||||
| Net revenues | ||||||||||||
| Cost of revenues | ||||||||||||
| Gross profit (loss) | ( | ) | ||||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing expenses | ||||||||||||
| General and administrative expenses | ||||||||||||
| Research and development expenses | ||||||||||||
| Total operating expenses | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Other expenses (income): | ||||||||||||
| Finance expense (income) | ( | ) | ( | ) | ||||||||
| Interest expenses | — | |||||||||||
| Interest income | ( | ) | ( | ) | ( | ) | ||||||
| Other income | ( | ) | ( | ) | ( | ) | ||||||
| Total other expenses (income) | ( | ) | ||||||||||
| Loss before income tax provision | ( | ) | ( | ) | ( | ) | ||||||
| Income tax provision | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Less: net loss attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||
| Net loss attributable to Nano Labs Ltd | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive income (loss): | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Other comprehensive income: | ||||||||||||
| Foreign currency translation adjustment | ||||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Comprehensive loss attributable to noncontrolling interests | ( | ) | ( | ) | ||||||||
| Comprehensive loss attributable to Nano Labs Ltd | ( | ) | ( | ) | ( | ) | ||||||
| Net loss per ordinary share: | ||||||||||||
| Basic* | ( | ) | ( | ) | ( | ) | ||||||
| Diluted* | ( | ) | ( | ) | ( | ) | ||||||
| Weighted average number of shares used in per share calculation: | ||||||||||||
| Basic* | ||||||||||||
| Diluted* | ||||||||||||
| * |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-2
NANO LABS LTD
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
| Class A Ordinary Share | Class B Ordinary Shares | Additional | Accumulated Other | Total Shareholders’ | ||||||||||||||||||||||||||||||||||||
| Number
of Shares | Amount | Number
of Shares | Amount | Paid-in Capital | Statutory Reserves | Accumulated Deficit | Comprehensive Income | Noncontrolling Interest | Equity (Deficit) | |||||||||||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | |||||||||||||||||||||||||||||||||
| Balance, January 1, 2023 | ( | ) | — | |||||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ) | — | — | ( | ) | ||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | ( | ) | — | |||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2024 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of ordinary shares and warrants, net of issuance costs | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Cash contribution from a noncontrolling shareholder | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of ordinary shares upon the exercise of stock options | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | ( | ) | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | ( | ) | |||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2024, in US$ | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| * | After giving effect of the reverse stock split, see Note 11. |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-3
NANO LABS LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the six months ended June 30, | ||||||||||||
| 2023 | 2024 | |||||||||||
| RMB | RMB | US$ | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Amortization of right-of-use assets | ||||||||||||
| Depreciation and amortization expenses | ||||||||||||
| Loss on lease termination | ||||||||||||
| Share-based compensation | ||||||||||||
| Inventory write-down | ||||||||||||
| Changes in assets and liabilities: | ||||||||||||
| Accounts receivable | ||||||||||||
| Inventories, net | ( | ) | ( | ) | ( | ) | ||||||
| Prepayments | ||||||||||||
| Other current assets | ( | ) | ( | ) | ||||||||
| Accounts payable | ||||||||||||
| Advance from customers | ( | ) | ( | ) | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Other current liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from issuance of ordinary shares | ||||||||||||
| Cash contribution from a noncontrolling shareholder | ||||||||||||
| Proceeds from bank loans | ||||||||||||
| Repayment of bank loans | ( | ) | ( | ) | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||||||
| Effects of exchange rate changes on cash, cash equivalents and restricted cash | ( | ) | ||||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ( | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of the period | ||||||||||||
| Cash, cash equivalents and restricted cash at end of the period | ||||||||||||
| Supplemental cash flow disclosures: | ||||||||||||
| Interest paid | ||||||||||||
| Income taxes paid | — | |||||||||||
| Non-cash investing and financing activities: | ||||||||||||
| Operating lease right-of-use asset obtained in exchange for operating lease liability | ||||||||||||
The accompanying notes are an integral part of these unaudited consolidated financial statement.
F-4
NANO LABS LTD
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in RMB, except share or as otherwise noted)
1. Organization and nature of operations
Nano Labs Ltd (“Nano Labs”), incorporated on January 8, 2021, is a holding company, as an exempted company with limited liability in the Cayman Islands. Nano Labs principally engages in fabless integrated circuit (“IC”) design and sale of product solutions by integrating its self-designed IC products in the People’s Republic of China (“PRC”) and other countries and regions. The Company utilizes third-party suppliers to fabricate, pack and test the IC products.
Prior to the incorporation of the Company, the Company’s business was carried out by Zhejiang Haowei Technology Co., Ltd. (“Zhejiang Haowei”) and its subsidiaries. Zhejiang Haowei was established by Mr. Jianping Kong, the principal shareholder, chairman and chief executive officer, in July 2019. Nano Labs underwent a series of onshore and offshore reorganizations, which were completed in September 2021 (the “Reorganization”).
Immediately before and after the Reorganization, the controlling shareholders of Zhejiang Haowei controlled Zhejiang Haowei and Nano Labs; therefore, for accounting purposes, the Reorganization is accounted for as a transaction of entities under common control. Accordingly, the accompanying unaudited consolidated financial statements have been prepared as if the current corporate structure had been in existence throughout the periods presented.
F-5
The Company does not conduct any substantive operations on its own
but instead conducts its business operations through its subsidiaries.
| Name of subsidiaries | Date of incorporation | Place of incorporation | Ownership percentage | Principal activities | ||||||
| Zhejiang Haowei Technology Co., Ltd. (“Zhejiang Haowei”) | % | |||||||||
| Zhejiang Nanomicro Technology Co., Ltd. (“Zhejiang Nanomicro”) | % | |||||||||
| Zhejiang NanoBlock Technology Co., Ltd. | % | |||||||||
| Zhejiang Ipollo Technology Co., Ltd. | % | |||||||||
| Nano Labs HK Limited | % | |||||||||
| Nano Labs Inc | % | |||||||||
| Zhejiang Weike Technology Co., Ltd. | % | |||||||||
| IPOLLO PTE. LTD. (formerly IPOLLO MINER PTE.LTD.) | % | |||||||||
| Ipollo Tech Inc | % | |||||||||
| Nano Tech Cayman Ltd | % | |||||||||
| Nano Technology HK Limited | % | |||||||||
| Ipollo HK Limited | % | |||||||||
| Zhejiang Metaverse Technology Co., Ltd. | % | |||||||||
| Ipollo Tech Ltd | % | |||||||||
| Haowei Technology (Shaoxing) Co., Ltd. | % | |||||||||
| Shenzhen Matamata Technology Co., Ltd. | % | |||||||||
| Shenzhen Matavos Technology Co., Ltd. | % | |||||||||
| Tsuki Inc | % | |||||||||
| Metaski (Shaoxing) Technology Co., Ltd. | % | |||||||||
| Haoweiverse (Shaoxing) Technology Co., Ltd. | % | |||||||||
| Metameta (Shaoxing) Technology Co., Ltd. | % | |||||||||
| Ipolloverse HK Limited | % | |||||||||
| Metaverse (Shaoxing) Technology Co., Ltd. | % | |||||||||
| Ipolloverse Cayman Ltd | % | |||||||||
| Ipolloverse Tech Inc | % | |||||||||
| Hangzhou Meta Technology Co., Ltd. | % | |||||||||
Nano Labs and its consolidated subsidiaries are collectively referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.
F-6
Liquidity
During the six months ended June 30, 2024, the Company incurred net
loss of RMB
In August and September, 2024, the Company entered into related party
loan agreements with two shareholders to borrow interest-free loans in the total amount of US$
As a result, the Company’s cash flow projections for the period after one year the date that the unaudited consolidated financial statements are issued indicate that the Company’s existing cash and cash equivalents, together with the proceeds from Loans mentioned above, will be sufficient to cover the liquidity needs that become due within one year after the date that the unaudited financial statements are issued. The Company may need additional capital in the future to fund the continued operations of the Company. There can be no assurance that the Company will be successful in acquiring additional financing, that the Company’s projections of its future working capital needs will prove accurate, or that any additional financing would be sufficient to continue operations in future years.
2. Summary of Significant Accounting Policies
Basis of preparation
The unaudited consolidated financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for the complete consolidated financial statements. The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments as necessary for the fair statement of the Company’s financial position as of June 30, 2024, results of operations and cash flows for the six months ended June 30, 2023 and 2024. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes thereto contained in the Company’s most recent consolidated annual financial statements filed with the SEC on Form 20-F. Results for the six months ended June 30, 2024 are not necessarily indicative of the results expected for the full fiscal year or for any future period.
Use of estimates
The preparation of the Company’s unaudited consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant accounting estimates reflected in the Company’s unaudited consolidated financial statements include, but not limited to, inventory write-down, impairment of long-lived assets, valuation allowance for deferred tax assets and share-based compensation.
F-7
Principles of consolidation
The Company’s unaudited consolidated financial statements include the financial statements of the Company and its subsidiaries. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
Functional currency and foreign currency translation
The Company uses Renminbi (“RMB”) as its reporting currency. The functional currency of the Company and its subsidiaries incorporated outside of PRC is the United States dollar (“US$”), while the functional currency of the PRC entities in the Company is RMB as determined based on the criteria of ASC 830, “Foreign Currency Matters”.
Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Financial assets and liabilities denominated in other than the functional currency are re-measured at the balance sheet date exchange rate. The resulting exchange differences are included in the unaudited consolidated statements of operations and comprehensive income (loss).
The financial statements of the Company are translated from the functional currency to the reporting currency, RMB. Assets and liabilities of the Company and its subsidiaries incorporated outside of PRC are translated into RMB at fiscal year-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the fiscal year, representing the index rates stipulated by the People’s Bank of China. Translation adjustments arising from these are reported as foreign currency translation adjustments and are shown as a separate component of shareholders’ equity (deficit) on the unaudited consolidated financial statement.
Convenience translation
The United States dollar (“US$”) amounts disclosed in the
accompanying financial statements are presented solely for the convenience of the readers. Translations of amounts from RMB into US$ were
calculated at the rate of US$1.00=RMB
Concentration of credit risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its cash and cash equivalents with financial institutions with high credit ratings and quality.
Fair value measurement
The Company adopted the guidance of Accounting Standards Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Observable, market-based inputs, other than quoted prices, in active markets for similar assets or liabilities.
Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
F-8
ASC 820 also describes three main approaches to measuring the fair value of assets and liabilities:
(1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
Financial instruments included in current assets and current liabilities are reported in the unaudited consolidated balance sheets at face value or cost, which approximate to fair value because of their short-term maturities.
Related party transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related parties may be individuals or corporate entities.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.
Cash and cash equivalents
Cash and cash equivalents include cash in bank and time deposits placed
with banks or other financial institutions, which have original maturities of three months or less and are readily convertible to known
amounts of cash. As of December 31, 2023 and June 30, 2024, cash and cash equivalents in banks was RMB
Restricted cash
Restricted cash mainly represents the bank deposit frozen by the court
as a result of legal proceedings. As of December 31, 2023 and June 30, 2024, the Company had restricted cash balance of RMB
F-9
Inventories, net
Inventories, consist of raw materials, work in process and finished goods. Inventories are stated at the lower of cost and net realizable value. Cost of inventory is determined using the weighted average cost method. Adjustments are recorded to write down the cost of inventory to the estimated net realizable value due to slow-moving and obsolete inventory, which is dependent upon factors such as historical and forecasted consumer demand, and promotional environment.
Prepayments
Prepayments primarily consist of advances to suppliers for future inventory purchases and prepaid processing fees.
Property, plant and equipment, net
Property, plant and equipment are stated at historical cost less accumulated
depreciation and impairment loss, if any.
| Computers and electronic equipment | ||
| Office furniture | ||
| Transportation equipment | ||
| Buildings |
Leasehold improvements are depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the remaining lease term.
Construction in progress represents assets under construction. All direct costs relating to the construction are capitalized as construction in progress. Construction in progress is not depreciated until the asset is placed in service.
Intangible asset, net
The Company’s intangible asset with definite useful lives primarily
consists of a franchise right and land use right. According to the law of PRC, the government owns all the land in the PRC. Companies
or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government for a specified
period of time.
| Franchise right | ||
| Land use right |
Impairment of long-lived assets
For long-lived assets including property and equipment, right-of-use assets, and intangible assets with finite lives, the Company evaluates for impairment whenever events or changes (triggering events) indicate that the carrying amount of an asset may no longer be recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. For the six months ended June 30, 2023 and 2024, impairment of long-lived assets was recognized.
Revenue from contracts with customers
Consistent with the criteria of ASC 606 “Revenue from Contracts with Customers”, the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to receive in exchange for those goods or services. Revenue consists of the invoiced value for the sales net of value-added tax (“VAT”), business tax and applicable local government levies.
F-10
Product sales revenue
The Company generates revenue primarily from the sale of product solutions by integrating its self-designed IC products (e.g., high throughput computing, or HTC, solutions) directly to a customer, such as a business or individual engaged in mining activities.
The Company recognizes revenue at a point in time when the control of the products has been transferred to customers. The transfer of control is considered complete when products have been picked up by or shipped to customers. The Company’s sales arrangements usually require prepayment before the delivery of products. The advance payment is not considered a significant financing component. The Company elected to account for shipping and handling fees as a fulfillment cost. The product sales contracts generally include product warranty provisions. The Company did not accrue warranty liabilities for the product sales as the financial impacts of the warranty have historically been and are expected to continue to be immaterial. The Company estimates sales return based on historical experiences and there was no allowance for sales return recorded during the six months ended June 30, 2023 and 2024.
Service revenue
The Company also generates revenue from its design and technical services under separate contracts. Revenues from the design and technical service to the customers are recognized at a point in time when services are provided.
Revenue disaggregation
In accordance with ASC 606, the Company disaggregates revenue from
contracts with customers by revenue stream. The Company determined that disaggregating revenue into these categories meets the disclosure
objective in ASC 606 which is to depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional
economic factors.
| For
the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| (Unaudited) RMB | (Unaudited) RMB | |||||||
| Product sales revenue | ||||||||
| Service revenue | ||||||||
| Net revenues | ||||||||
Contract liabilities
Contract liabilities are recorded when consideration is received from
a customer prior to transferring the control of goods or services to the customer. As of December 31, 2023 and June 30, 2024, the Company
recorded contract liabilities of RMB
Cost of revenues
Amounts
recorded as cost of revenue relate to direct expenses incurred in order to generate revenue. Such costs are recorded as incurred. Cost
of revenues consists of product costs and service costs. Product costs include costs of raw material, contract manufacturers for production,
shipping and handling costs, and warehousing costs. Service costs include labor costs and material costs. During the six months ended
June 30, 2023 and 2024, the Company recorded inventory write-down of RMB
Selling and marketing expenses
Selling and marketing expenses consist primarily of advertising and promotion, salaries, and shipping and handling costs incurred during the selling activities. Advertising and transportation expenses are charged to expense as incurred.
Advertising and promotion costs in the amounts of RMB
Shipping and handling costs amounting to RMB
F-11
Research and development expenses
Research and development expenses consist primarily of salary and welfare for research and development personnel, raw materials used, consulting and contractor expenses, testing and processing expenses and other expenses in associated with research and development activities. The Company recognizes research and development expenses as expense when incurred.
Leases
Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option, if any. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, which it calculates based on the credit quality of the Company and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of each lease.
The Company elected not to record assets and liabilities on its unaudited consolidated balance sheet for lease arrangements with terms of 12 months or less. The Company recognizes lease expenses for such leases on a straight-line basis over the lease term.
Employee social security and welfare benefits
Employees of the Company in the PRC are entitled to staff welfare benefits including pension, work-related injury benefits, maternity insurance, medical insurance, unemployment benefit and housing fund plans through a PRC government-mandated multi-employer defined contribution plan. The Company is required to contribute to the plan based on certain percentages of the employees’ salaries, up to a maximum amount specified by the local government.
The PRC government is responsible for the medical benefits and the pension liability to be paid to these employees and the Company’s obligations are limited to the amounts contributed and no legal obligation beyond the contributions made.
Share-based compensation
Restricted shares and options granted to employees and directors are accounted for under ASC Topic 718, “Compensation - Stock compensation” (“ASC 718”). In accordance with ASC 718, the Company determines whether restricted shares or options should be classified and accounted for as an equity award. All grants of restricted shares and options to employees and directors classified as equity awards are recognized in the financial statements based on their grant date fair values. The value of the portion of the award that is ultimately expected to vest is recognized as compensation expense over the requisite service periods in the statements of operations. In addition, compensation expense must be recognized for the change in fair value of any awards modified, repurchased or cancelled after the grant date.
The fair value of stock options granted is estimated on the grant date using the Binomial or Black-Scholes model.
Income taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and income tax bases of assets and liabilities and are measured using the tax income rates that will be in effect when the differences are expected to reverse. A valuation allowance is recorded if it is more likely than not that some portion or all of the deferred income tax assets will not be realized in the foreseeable future.
F-12
In accordance with the provisions of ASC 740, “Income taxes”, the Company recognizes in its financial statements the impact of a tax position if a tax return position or future tax position is “more likely than not” to be sustained upon examination based solely on the technical merits of the position. Tax positions that meet the recognition threshold are measured using a cumulative probability approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. Interest and penalties arising from underpayment of income taxes are computed in accordance with the applicable tax law and is classified in the unaudited consolidated statements of operations as income tax expense.
Noncontrolling interests
For the Company’s consolidated subsidiaries, noncontrolling interests are recognized to reflect the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. Noncontrolling interests are classified as a separate line item in the equity section of the Company’s unaudited consolidated balance sheets and have been separately disclosed in the Company’s unaudited consolidated statements of operations and comprehensive income (loss).
Comprehensive income (loss)
Comprehensive income (loss) is defined as the changes in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments from shareholders and distributions to shareholders. Comprehensive income (loss) for the periods presented includes net income (loss) and foreign currency translation adjustments.
Earnings (loss) per share
The Company computes earnings (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to present basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalents shares outstanding during the period. Dilutive equivalent shares are excluded from the computation of diluted earnings (loss) per share if their effects would be anti-dilutive. Ordinary share equivalents consist of the ordinary shares issuable in connection with the Company’s ordinary shares issuable upon the conversion of the share-based awards, using the treasury stock method.
Segment Reporting
The Company uses the “management approach” in
determining reportable segments. The management approach considers the internal organization and reporting used by the
Company’s chief operating decision maker for making operating decisions and assessing performance as the source for
determining the Company’s reportable segments. The Company’s chief operating decision maker has been identified as the
chief executive officer of the Company who reviews financial information of operating segments based on U.S. GAAP. The chief
operating decision maker now reviews results analyzed by marketing channel. This analysis is only presented at the revenue level
with no allocation of direct or indirect costs. Consequently, the Company has determined that it has only
For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| RMB | RMB | |||||||
| PRC | ||||||||
| The United States | ||||||||
| Singapore | ||||||||
| Others | ||||||||
| Net revenues | ||||||||
Recently adopted or issued accounting pronouncements
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvement to Reportable Segment Disclosures” to improve the disclosures about reportable segments and include more detailed information about a reportable segment’s expenses. This ASU also requires that a public entity with a single reportable segment, like the Company, provide all of the disclosures required as part of the amendments and all existing disclosures required by Topic 280. The ASU should be applied retrospectively to all prior periods presented in the financial statements and is effective for public entities for annual reporting periods beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of this standard on the related disclosures.
F-13
3. Inventories, net
| As of December 31, 2023 | As of June 30, 2024 | |||||||
| (Unaudited) | ||||||||
| RMB | RMB | |||||||
| Raw materials | ||||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Less: write-down of inventories | ( | ) | ( | ) | ||||
| Inventories, net | ||||||||
4. Prepayments
| As of December 31, 2023 | As of June 30, 2024 | |||||||
| (Unaudited) | ||||||||
| RMB | RMB | |||||||
| Prepayments – inventories and processing fee | ||||||||
| Prepayments – design fees | ||||||||
| Prepayments – others | ||||||||
| Prepayments | ||||||||
5. Other current assets
| As of December 31, 2023 | As of June 30, 2024 | |||||||
| (Unaudited) | ||||||||
| RMB | RMB | |||||||
| Value-added tax recoverable | ||||||||
| Deposits | ||||||||
| Others | ||||||||
| Total | ||||||||
6. Property, plant and equipment, net
| As of December 31, 2023 | As of June 30, 2024 | |||||||
| (Unaudited) | ||||||||
| RMB | RMB | |||||||
| Cost: | ||||||||
| Computers and electronic equipment | ||||||||
| Office furniture | ||||||||
| Leasehold improvement | ||||||||
| Transportation equipment | ||||||||
| Buildings | ||||||||
| Construction in progress | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | ||||||||
Depreciation expenses recognized for the six months ended June 30,
2023 and 2024 were RMB
As of December 31, 2023 and June 30, 2024, buildings with net book
value of and RMB
F-14
7. Intangible asset, net
| As of December 31, 2023 | As of June 30, 2024 | |||||||
| (Unaudited) | ||||||||
| RMB | RMB | |||||||
| Cost: | ||||||||
| Land use right | ||||||||
| Franchise right | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible asset, net | ||||||||
Amortization expense for the six months ended June 30, 2023 and 2024
amounted to RMB
As of December 31, 2023 and June 30, 2024, land use right with net
book value of RMB
| Years ended December 31, | Estimated amortization expense | |||
| (Unaudited) | ||||
| RMB | ||||
| Remaining of 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | ||||
8. Operating leases
The Company entered into various operating lease agreements for offices space. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
For the six June 30, | For the six June 30, | |||||||
(Unaudited) RMB | (Unaudited) RMB | |||||||
| Operating lease cost | ||||||||
| Short-term lease cost | ||||||||
| Total lease cost | ||||||||
F-15
For the six June 30, | For the six June 30, | |||||||
(Unaudited) RMB | (Unaudited) RMB | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash flows for operating leases | ||||||||
| As of December 31, 2023 | As of June 30, 2024 | |||||||
| (Unaudited) | ||||||||
| Weighted average remaining lease term of operating leases (years) | ||||||||
| Weighted average discount rate of operating leases | % | % | ||||||
Lease Payment | ||||
| (Unaudited) | ||||
| Years Ended December 31, | RMB | |||
| Remaining of 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Total lease liabilities | ||||
9. Other current liabilities
| As of December 31, 2023 | As of June 30, 2024 | |||||||
| (Unaudited) | ||||||||
| RMB | RMB | |||||||
| Salary accrual | ||||||||
| Deposit | ||||||||
| Accrued construction in progress | ||||||||
| Tax accrual | ||||||||
| Others | ||||||||
| Total | ||||||||
10. Short-term and long-term debts
Short-term debts
On September 21, 2023, the Company entered into a
credit facility (the “Credit Facility”) up to RMB
Long-term debts
On August 11, 2022, the Company entered into a line of credit agreement
with Zhejiang Shaoxing Ruifeng Rural Commercial Bank for a credit line up to RMB
F-16
Years Ended December 31, | Principal Repayment | |||
| (Unaudited) | ||||
| RMB | ||||
| Remaining of 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | ||||
11. Shareholders’ equity (deficit)
On November 13, 2023, the Company issued a total of
On January 25, 2024, the shareholders of the Company approved a 2-for-1
reverse stock split (the “reverse stock split”). After such reverse stock split, the authorized share capital of the Company
were divided into
On April 11, 2024, the Company entered into a Securities Purchase Agreement
(the “Purchase Agreement) with certain investors (collectively, the “Investors”), pursuant to which the Company agreed
to issue and sell to the Investors, in a private placement (the “Offering”), the Company’s Class A ordinary shares at
a purchase price of $
As of December 31, 2023 and June 30, 2024,
12. Share-based compensation
2022 Share Incentive Plan
In June 2022, our shareholders and board of directors adopted our
2022 share incentive plan, or the 2022 Plan, which has become effective upon the completion of our initial public offering, to motivate,
attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the
success of our business. Under the 2022 Plan, the maximum aggregate number of Class A ordinary shares which may be issued pursuant to
all awards under such plan is
Restricted Stock Units (“RSUs”)
On November 1, 2021, the Board of the Company approved the establishment
of an employee benefit trust for the purpose of holding the Company’s ordinary shares to be transferred to the recipient employees
and directors of the share awards granted prior to the establishment of the 2022 Plan. In January 2022, Mr. Jianping Kong and other original
shareholders of Zhejiang Haowei transferred a total of
During the six months ended June 30, 2023 and 2024, share-based compensation
recognized by the Company related to the RSUs were RMB
F-17
| Number of RSUs | Weighted Average Grant Date Fair Value (RMB) | |||||||
| Unvested, January 1, 2024 | ||||||||
| Granted | ||||||||
| Forfeited | ||||||||
| Vested | ||||||||
| Unvested, June 30, 2024 | ||||||||
Options
On January 1, 2022, the Company granted an employee an option to purchase
On April 27, 2023, the Company granted a series of options under the
2022 share incentive plan: 1) the Company granted employees options to purchase a total of
On August 16, 2023, under the 2022 plan, the Company granted an employee
an option to purchase
| Number of Options | Weighted Average Exercise Price (RMB) | Weighted Average Remaining Term (Years) | Weighted Average Grant Date Fair Value (RMB) | Aggregated Intrinsic Value (RMB) | ||||||||||||||||
| Outstanding as of January 1, 2024 | ||||||||||||||||||||
| Granted | ||||||||||||||||||||
| Forfeited | ||||||||||||||||||||
| Exercised | ||||||||||||||||||||
| Outstanding as of June 30, 2024 | ||||||||||||||||||||
| Vested and exercisable as of June 30, 2024 | ||||||||||||||||||||
During the six months ended June 30, 2023 and 2024, share-based compensation
recognized by the Company related to the options were RMB
F-18
13. Statutory Reserves
The Company’s subsidiaries incorporated in the PRC are required on an annual basis to make appropriations of retained earnings set at certain percentage of after-tax profit determined in accordance with PRC accounting standards and regulations (“PRC GAAP”).
Appropriation to the statutory general reserve should be at least
The general reserve fund can only be used for specific purposes, such as offsetting the accumulated losses, enterprise expansion or increasing the registered capital. Appropriations to the general reserve funds are classified in the unaudited consolidated balance sheets as statutory reserves.
There are no legal requirements in the PRC to fund these reserves by transfer of cash to restricted accounts, and the Company has not done so.
Relevant laws and regulations permit payments of dividends by the PRC subsidiaries and affiliated companies only out of their retained earnings, if any, as determined in accordance with respective accounting standards and regulations. Accordingly, the above balances are not allowed to be transferred to the Company in terms of cash dividends, loans or advances.
The Company has made appropriations to statutory reserve for the six months ended June 30, 2023 and 2024.
F-19
14. Income Taxes
Cayman Islands
Under the current tax laws of Cayman Islands, the holding companies incorporated in the Cayman Islands are not subject to income, corporation or capital gains tax, and no withholding tax is imposed upon the payment of dividends.
British Virgin Islands
The holding companies incorporated in the British Virgin Islands are not subject to tax on income or capital gains under current British Virgin Islands law. In addition, upon payments of dividends by these entity to the shareholders, no British Virgin Islands withholding tax will be imposed.
Hong Kong
The Company’ subsidiaries incorporated in Hong Kong are subject
to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant
Hong Kong tax laws. The applicable tax rate is
United States (“US”)
The Company’s subsidiary in the US is subject to profits tax
at
Singapore
The company incorporated in Singapore is subject to Singapore Profits
Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Singapore tax laws. The
applicable tax rate is
F-20
PRC
The Company’s subsidiaries incorporated in the PRC are subject
to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws. A new enterprise
income tax law (the “EIT Law”) in the PRC was enacted and became effective on January 1, 2008. The EIT Law applies a uniform
| For the six months ended June 30, 2023 | For the six months ended June 30, 2024 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| RMB | RMB | |||||||
| Current income tax expense | ||||||||
| Deferred tax expense | ||||||||
| Income tax expense | ||||||||
F-21
The effective tax rate was
15. Concentrations
| For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| RMB | RMB | |||||||
| Customer C | % | |||||||
| Customer E | % | |||||||
| Customer F | % | |||||||
| Customer G | % | |||||||
| Customer H | % | |||||||
| For the six months ended June 30, | ||||||||
| 2023 | 2024 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| RMB | RMB | |||||||
| Supplier A | % | % | ||||||
| Supplier F | % | |||||||
| Supplier G | % | |||||||
| Supplier H | % | |||||||
| Supplier I | % | |||||||
| Supplier J | % | |||||||
F-22
16. Commitments and contingencies
Operating lease commitments
The information of lease commitments is provided in Note 8.
Contingencies
The Company is subject to litigation matters from time to time in the normal cause of business. The Company’s legal counsel and the management routinely assess the likelihood of adverse judgments and outcomes to these matters, as well as ranges of probable losses. Accruals are recorded for these matters to the extent that management concludes a loss is probable and the financial impact, should an adverse outcome occur, is reasonable estimable. The Company has not recorded any material liabilities in this regard as of December 31, 2023 and June 30, 2024.
On September 8, 2023, a customer named one of the Company’s subsidiaries
as the defendant of a claim in the General Division of the High Court of the Republic of Singapore. This customer alleged that the Company
failed to make timely delivery for products purchased and such products did not function as expected, demanding a return of payments of
US$
On December 25, 2023, three of the Company’s subsidiaries were
named as defendants along with others unaffiliated to the Company in a civil action filed at the People’s Court of Yuhuatai District,
Nanjing City. The plaintiff of such civil action alleged that it entered into a sales contract for the Company’s products with one
of the defendants who purportedly purchased the Company’s products for resale and failed to make timely delivery. The plaintiff
seeks to rescind the sales contract with this defendant and demands a return of payments of RMB
On March 5, 2024, a customer filed a civil action against one of the
Company’s subsidiaries at the People’s Court of Shangcheng District, Hangzhou City, for a sales contract dispute, claiming
the contract should be annulled and demanding a return of payment of RMB
The Company believes they have strong arguments against these claims and will defend vigorously.
Two bank accounts of the Company were judicially frozen by the court
as a result of legal proceedings. The frozen amount as of June 30, 2024 and the date of this unaudited consolidated financial statements
was RMB
17. Subsequent events
The following subsequent events were evaluated on September 30, 2024, the date the unaudited financial statements were issued. Except as set forth below, there were no events that occurred subsequent to June 30, 2024 that require adjustment to or disclosure in the unaudited consolidated financial statements.
In July 2024, several employees who hold
options under the 2022 share incentive plan, elected to exercise the vested options to purchase a total of
In August and September, 2024, the Company entered into loan
agreements with Mr. Jianping Kong, the chairman and chief executive officer, and Mr. Qifeng Sun, the vice chairman, to borrow
interest-free loans in the total amount of US$
From July to September 2024, the Company borrowed approximately RMB
F-23