Revenue and Cost Breakdown - Total operating revenues for 2022 were $72.51 million, with services contributing $53.99 million (74.5%) and products contributing $18.52 million (25.5%)[374] - Cost of revenues for 2022 was $39.33 million, with services accounting for $24.00 million (61.0%) and products accounting for $15.33 million (39.0%)[375] - Total operating revenues increased by 28.8% from $56.3 million in 2021 to $72.5 million in 2022[427] - Products revenues grew by 15.4% from $16.0 million in 2021 to $18.5 million in 2022, driven by demand for holographic solutions[427] - Services revenues increased by 34.2% from $40.2 million in 2021 to $54.0 million in 2022, due to advertising and promotion services[427] - Cost of revenue increased by 130.7% from $17.0 million in 2021 to $39.3 million in 2022, driven by a 481.6% increase in service costs to $24.0 million[428] - Gross profit decreased by 15.4% from $39.2 million in 2021 to $33.2 million in 2022, with gross margin dropping from 69.7% to 45.8%[429] Expenses and Profitability - Selling expenses as a percentage of revenues were 1.8% for 2022, compared to 1.5% in 2021[376] - General and administrative expenses as a percentage of revenues decreased to 4.7% in 2022 from 5.6% in 2021[377] - Research and development expenses as a percentage of revenues increased significantly to 67.9% in 2022 from 40.5% in 2021[378] - Research and development expenses surged to $49.2 million in 2022, up from $22.8 million in 2021[426] - Research and development expenses increased by 115.8% from $22.8 million in 2021 to $49.2 million in 2022, driven by advancements in holographic LiDAR technology, holographic algorithm architecture, and other innovative technologies[433] - Selling and marketing expenses rose by 58.9% from $0.8 million in 2021 to $1.3 million in 2022, reflecting expanded business development efforts[431] - General and administrative expenses increased by 8.3% from $3.1 million in 2021 to $3.4 million in 2022, supporting business expansion[432] - Net loss of $20.3 million in 2022 compared to a net income of $12.8 million in 2021[426] - The company reported an operating loss of $21.1 million in 2022, compared to an operating income of $12.4 million in 2021[434] - Net loss for 2022 was $20.3 million, a significant decline from the net income of $12.8 million in 2021[439] Tax and Regulatory Environment - The company's subsidiaries in China benefit from preferential tax rates, with some entities enjoying a reduced income tax rate of 15% due to high-tech enterprise status[382] - Tax savings for entities in Xinjiang province and those eligible for small enterprise and high-tech enterprise status amounted to $186,403 for 2022[385] - Three subsidiaries (Shanghai Mengyun, Shenzhen Mengyun, Shenzhen Bowei) benefit from a reduced income tax rate of 15% due to High and New Technology Enterprise Certification[284] - Subsidiaries in Horgos and Kashgar enjoy a 5-year income tax exemption, followed by a reduced rate of 12.5% for an additional 3 years[285] - Eligible small enterprises benefit from reduced tax rates, with effective rates of 2.5% for income up to RMB 1,000,000 and 5% for income between RMB 1,000,000 and RMB 3,000,000[286] - Potential PRC tax resident enterprise classification could subject the company to a 25% worldwide income tax rate, impacting net income[278] - Non-PRC resident shareholders may face a 10% withholding tax on dividends and a 20% tax on gains from share sales if income is sourced within the PRC[280] - The company is not currently subject to cybersecurity review by the CAC due to limited personal information handling and no national security impact[267] - The company has not been identified as a "critical information infrastructure operator" or "data processing operator" by Chinese authorities[268] - The company’s operations fall within MOFCOM-permitted activities and are not subject to foreign investment restrictions[271] Revenue Recognition Policies - The company's revenue recognition for Holographic Technology LiDAR products is recognized at the point in time when control of products is transferred to customers, with no right of return on sales of inventory[408] - Revenue from ADAS software development contracts is recognized over time based on progress towards completion, with $384,489 and $67,535 allocated to unsatisfied performance obligations as of December 31, 2022 and 2021, respectively[409] - Holographic Technology Licensing and Content Products revenue is recognized at the point in time when control of products or services is transferred to customers, with no post-contract customer support provided[412] - Hardware sales revenue is recognized on a gross basis as the company acts as the principal, with revenue recognized at the point in time when products are delivered and accepted by customers[413][414] - Holographic advertisements revenue is recognized at the point in time when agreed actions are performed, with the company acting as the principal under the CPA model[415] - SDK service revenue is recognized at the point in time when a user completes an SDK connection, with service fees billed monthly on a per-connection basis[416] - Game promotion service revenue is recorded on a net basis as the company acts as an agent, with revenue recognized at the point in time when game players make a payment to purchase virtual currency[417] - The company adopted ASC Topic 606 for revenue recognition effective January 1, 2019, using the modified retrospective adoption method[407] Cash Flow and Financial Position - Cash and cash equivalents stood at $21.9 million as of December 31, 2022, with working capital of approximately $23.0 million[444] - Net cash used in operating activities was $20.0 million in 2022, compared to net cash provided by operating activities of $16.2 million in 2021[448] - Net cash provided by financing activities in 2022 was $33.3 million, primarily due to proceeds from capital contribution in reverse capitalization[455] - The company received net cash proceeds of $33.2 million from the Business Combination in September 2022[445] - Net cash provided by investing activities in 2022 was $1.7 million, primarily due to loan repayments from third parties[453] - Net interest income was $0.2 million in 2022, up from $0.1 million in 2021[436] Technology and Intellectual Property - The company owns 2,218 works of copyright as of December 31, 2022, maintaining a significant market-leading position in China[362] - The company's holographic digital twin technology and resource library have the potential to become the new norm for the digital twin augmented physical world in the near future[362] - The company's holographic technology services include high-precision holographic LiDAR solutions, holographic LiDAR sensor chip design, and holographic vehicle intelligent vision technology[362] Impairments and Investments - The company recorded $237,777 in impairment for investments in unconsolidated entities for the year ended December 31, 2022, compared to nil in 2021[401] - The company recorded a change in fair value of warrant liability of $0.7 million in 2022, compared to nil in 2021[435] Noncontrolling Interests and Leases - The company's noncontrolling interests represent 44% ownership in Ocean HK and its subsidiaries, with allocations of total income or loss presented in the consolidated statement of income[404] - Operating lease ROU assets recognized at $0.6 million and total lease liabilities of $0.6 million as of December 31, 2022[423] Allowances and Provisions - Provision for doubtful accounts surged by 446.9% from $0.1 million in 2021 to $0.4 million in 2022 due to increased allowances for customer exposures[430] - Valuation allowance for deferred tax assets is assessed based on forecasts of future profitability and tax planning strategies[425]
MicroCloud Hologram (HOLO) - 2022 Q4 - Annual Report