Annual Report for Fiscal Year Ending December 31, 2025 (Form 20-F)

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with our consolidated financial statements, which have been prepared in accordance with GAAP, included elsewhere in this Annual Report. This discussion contains forward-looking statement that involves risks and uncertainties. Our actual results and timing of events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Item 3.D. Risk Factors" and elsewhere in this annual report.

A.

Operating Results

Overview

We generate revenues primarily through (i) sales of product related to holographic solutions services, which include LiDAR and other holographic technology hardware products, licensing and content products, and technology development service, and (ii) services related to holographic technology services, which include holographic technology advertising, software development kit ("SDK") service, and promotion services.

Our total revenues were RMB 203.5 million, RMB 290.3 million and RMB 403.7 million (USD 56.5 million) for the year ended December 31, 2023, 2024 and 2025, respectively. We recorded a net loss of RMB 81.6 million, RMB 64.2 million and RMB 50.2 million (USD 7.0 million) for the years ended December 31, 2023, 2024 and 2025 respectively.

Key Factors Affecting Results of Operations

Our results of operations are affected by the factors discussed below.

Our ability to increase the number of customers and average revenue for Holographic technology services

Our ability to increase our revenues and enhance our profitability will depend on our ability to continue to increase our customer base and revenue per customer for our Holographic technology services. To achieve this, we strive to increase our marketing efforts and to enhance the quality and capabilities of our technologies.

Investment in technology and talent

Research and development of in-demand technology combined with sustained output and continuous innovation sets the foundation of our market competitiveness. We endeavor to strengthen our market-leading position by further increasing investments in research and development, retaining talented individuals in the field of holographic technology, holographic LiDAR systems, and computer image processing for the purpose of expanding the range of proprietary technology and IP rights. More specifically, we are focused on developing our autonomous driving, 5G, AI, and machine learning technologies for the purpose of building a rich product line, and innovative and technologically leading services. To align with the development of the holographic ADAS industry, we aim to provide strong support for businesses in the field of autonomous driving. Our development report in ADAS includes hardware, software, and solutions upgraded by way of continuously developing new iterations of ADAS products and services through stepping up efforts in research and development. To achieve this end, we intend to further expand research and development capabilities and efforts in holographic digital twin services, software, and holographic content resource library. Our research and development expenses were approximately RMB 78.7 million, RMB 174.4 million and RMB 57.0 million (USD 8.0 million) for the years ended December 31, 2023, 2024 and 2025, respectively.

Our ability to pursue strategic opportunities for growth

We intend to continually pursue strategic acquisitions and investments in selective technologies and businesses to enhance our technology capabilities. We believe that a solid acquisition and investment strategy may be critical for us to accelerate our growth and strengthen its competitive position in the future. our ability to identify and execute strategic acquisitions and investments will likely affect our operating results over time.

Our ability to expand its application fields and to diversify its customer base

Currently, the primary source of our revenue is derived from providing holographic technology, hardware products and holographic solutions for enterprises in the manufacturing and Internet industries. With increasing awareness and acceptance of this holographic technology, we expect that more applications will be identified to magnify the value of this technology, such as the industry of the Internet, finance, local government, and manufacturing industries that have strong demand for data empowerment. Expand the scenario application of holographic services. Our ability to expand its application fields and diversify its customer base may affect our operating results in the future.

Key Components of Our Results of Operations

Revenues

Effective January 1, 2019, we adopted ASC 606, Revenue from Contracts with Customers ("Topic 606"), applying the modified retrospective method to all contracts that were not completed as of January 1, 2019. Results for the years ended December 31, 2023, 2024 and 2025 are presented under Topic 606. Based on the requirements of ASC Topic 606, revenue is recognized when control of the promised goods or services is transferred to the customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services.

We generate revenues primarily through (i) sales of product related to holographic solutions services, which include LiDAR and other holographic technology hardware products, licensing and content products, and technology development service, and (ii) services related to holographic technology services, which include holographic technology advertising, software development kit ("SDK") service, and promotion services.

Our breakdown of revenues for the years ended December 31, 2023, 2024, and 2025, respectively, is summarized below:

		For the Years Ended December 31,
		2023				2024				2025				2025
		RMB				RMB				RMB				USD
Revenues
Holographic solutions			68,345,506				128,892,235				199,259,020				27,896,095
Holographic technology service			135,202,499				161,405,749				204,427,203				28,619,637
Total revenue			203,548,005				290,297,984				403,686,223				56,515,732

Cost of Revenues

Our breakdown of the cost of revenues for the years ended December 31, 2023, 2024, and 2025, respectively, is summarized below:

		For the Years Ended December 31,
		2023				2024				2025				2025
		RMB				RMB				RMB				USD
Cost of revenues
Holographic solutions			59,562,014				106,682,488				160,434,849				22,460,744
Holographic technology service			69,734,292				118,169,173				157,374,663				22,032,321
Total cost of revenues			129,296,306				224,851,661				317,809,512				44,493,065

Selling expenses

Our selling expenses consist primarily of (i) compensation for selling personnel and (ii) travel expenses for its sales representatives.

General and administrative expenses.

Our general and administrative expenses consist primarily of (i) compensation for its management and administrative personnel, (ii) expenses in connection with its operation supporting functions such as legal, accounting, consulting and other professional service fees, and (iii) office rental, depreciation, and other administrative related expenses.

Research and Development Expenses

Our research and development expenses include salaries and other compensation-related expenses to our research and product development personnel, outsourced subcontractors, as well as office rental, depreciation, and related expenses for our research and product development team.

Results of Operations

Revenues

We generate revenues primarily through (i) sales of product related to holographic solutions services, which include LiDAR and other holographic technology hardware products, licensing and content products, and technology development service, and (ii) services related to holographic technology services, which include holographic technology advertising, software development kit ("SDK") service, and promotion services.

Our breakdown of revenues for the years ended December 31, 2023, 2024, and 2025, respectively, is summarized below:

		Year ended December 31,
		2023								2024								2025
		RMB								RMB								RMB
		Amount				Percentage				Amount				Percentage				Amount				Percentage
Revenues:
Holographic solutions			68,345,506				34	%			128,892,235				44	%			199,259,020				49	%
Holographic technology service			135,202,499				66	%			161,405,749				56	%			204,427,203				51	%
Total revenues			203,548,005				100	%			290,297,984				100	%			403,686,223				100	%

Holographic solutions Revenues

Our holographic solutions revenues were RMB 199.3 million (USD27.9 million) for 2025, compared to RMB128.9 million and RMB 68.3 million, respectively, for 2024 and 2023.

Our holographic solutions revenues increased by approximately RMB 60.5 million from approximately RMB 68.3 million for the year ended December 31, 2023 to approximately RMB 128.9million for the year ended December 31, 2024. an increase of 88.6%. The increase was mainly due to the impact of market changes on the demand for our services, as well as the increased demand from customers for holographic solutions.

The revenues of our holographic solutions, which increased by approximately RMB 70.4million, increase of 54.6%, from approximately RMB 128.9 million for the year ended December 31, 2024, compared to approximately RMB 199.3million (USD 27.9 million) for the year ended December 31, 2025. The reason for the increase in revenue is the expanded demand from customers for holographic solutions.

Holographic technology services Revenues

Our holographic technology services revenues was RMB 204.4 million (USD28.6 million) for 2025, compared to RMB 161.4million and RMB 135.2million, respectively, for 2024 and 2023.

Our holographic technology services revenue increased by approximately RMB 26.2 million, or 19.4%, from approximately RMB 135.2 million for the year ended December 31, 2023, to approximately RMB 161.4 million for the year ended December 31, 2024. This increase was mainly attributed to the overall market environment of internet advertising, namely the increase in customer demand.

Our holographic technology services revenue increased by approximately RMB 43.0 million, or 26.7%, from approximately RMB161.4 million for the year ended December 31, 2024, to approximately RMB204.4million (USD 28.6 million) for the year ended December 31, 2025. This increase was mainly attributed to the business merger of Shanghai Kuo Sou in 2025, which had led to an upward trend in revenue.

Ability to retain and attract customers

The Company's management team monitors the number of total customers, number of new customers, number of high paying customers, and customer retention rate as indicators of the growth and condition of the Company's overall business. As to performance metrics, the number of high paying customers reflects the quality of the Company's earnings. The retention rate reflects the Company's service quality, customer loyalty to our services, and the sustainability of the Company's business growth. If the number of new customers, high paying customers, and retention rate fall, the Company may need to re-evaluate its business strategy or evaluate its service efficiency. The quantitative information in number of customers and retention rate provides investors with information to evaluate the Company revenue growth, revenue quality, and concentration risk on a periodic basis. This information also provides investors insights on how the Company measures and monitors its performance.

The Company's total customers were 119 and 142, respectively for the years ended December 31, 2023 and 2024, representing a19.3% increase, of which 102 are new customers. The increase in the number of customers led to a grow in total revenue.Total customers were 142 and 128, respectively for the year ended December 31, 2024 and 2025, representing a 9.9% decrease, of which 70 are new customers. Due to by vigorously tapping into the potential of existing customers and increasing the proportion of high-value customers, the total revenue has shown a trend of growth.

The Company considers customers with or over RMB 0.5 million revenue as high paying customers. The numbers of high payment customers are 42 and 69, respectively for the years ended December 31, 2023 and 2024, representing 96.1% and 96.6% of total revenue for each period and a 43.4% increase. The number of high-paying customers both are 69, for the year ended December 31, 2024 and 2025, representing 96.6% and 97.8% of total revenue for each period and a 40.7% increase. the Company's overall customer retention rates are 24% and 34% respectively for the years ended December 31, 2023 and 2024. Retention rates of high paying customer are 29% and 43% respectively for the same period. Retention rates of the Company's top 10 customers are 50% and 30% respectively for the years ended December 31, 2023, and 2024, respectively. Retention rates of the Company's top 20 customers are 55% and 20% for the years ended December 31, 2023, and 2024, respectively.

The Company's overall customer retention rates are 34% and 41% respectively for the year ended December 31, 2024 and 2025. Retention rates of high paying customer are 43% and 41% respectively for the same period. Retention rates of the Company's top 10 customers both are 30% for the year ended December 31, 2024 and 2025. Retention rates of the Company's top 20 customers are 20% and 40% for the year ended December 31, 2024 and 2025, respectively. Retention rate is calculated by first counting the number of customers at the beginning of the period (denominator) and the number of old customers during measurement period (numerator), then dividing the numerator by the denominator. Old customers repeating customer who keeps loyalty to the company's services throughout the measurement periods and calculated as number of total customers at the end of measurement period minus new customers obtained during the measurement period. Customers counted for the purpose of calculating retention rate are based on those that were customers at any point during the period. the Company's total customers decrease from 142 for the year ended December 31, 2024 to 128 for year ended December 31, 2025. The decrease is due to the company actively carried out a customer structure adjustment. Strategically, it abandoned some low-value customers and simultaneously enhanced the business penetration rate of its core major clients. Although the total number of customers slightly decreased, the retention quality of core customers and the average revenue per customer significantly improved, thereby driving a positive growth in total revenue.

The Company's overall customer retention rates are 34% and 41%, for the year ended December 31, 2024 and 2025. This is due to the enhancement of core customer loyalty and the substantial improvement in customer experience. Through deepening business cooperation, improving service quality, and proactive customer success intervention, the company helped core customers achieve greater value, thereby increasing the customers' willingness to renew their contracts.

The table below summarizes the Company's key performance metrics as discussed above.

		Year ended December 31,
		2023				2024				2025
Total Customers			119				142				128
New Customers			76				102				70
High Paying Customers			42				69				69
Customer Retention Rate			24	%			34	%			41	%
High Paying Customer Retention Rate			29	%			43	%			41	%
Top 10 Retention Rate			50	%			30	%			30	%
Top 20 Retention Rate			55	%			20	%			40	%

Cost of Revenues

Our breakdown of cost of revenues for the years ended December 31, 2023, 2024 and 2025, respectively, is summarized below:

		Year ended December 31,
		2023								2024								2025
		RMB								RMB								RMB
		Amount				Percentage				Amount				Percentage				Amount				Percentage
Cost of revenues:
Holographic solutions			59,562,014				46	%			106,682,488				47	%			160,434,849				50	%
Holographic technology service			69,734,292				54	%			118,169,173				53	%			157,374,663				50	%
Total cost of revenues			129,296,306				100	%			224,851,661				100	%			317,809,512				100	%

Cost of Holographic Solutions Revenues

Cost of holographic solutions revenues was RMB 160.4 million (USD 22.5 million) for 2025, compared to RMB 106.7 million and RMB 59.6 million, respectively, for 2024 and 2023.

Our cost of revenues for holographic solutions increased by approximately RMB 47.1 million, or 79.1%, from approximately RMB 59.6 million for the year ended December 31, 2023, to approximately RMB 106.7 million for the year ended December 31, 2024.

Our cost of revenues for holographic solutions increased by approximately RMB 53.8 million, representing a 50.4% growth. The amount grew from approximately RMB 106.7 million for the year ended December 31, 2024, to approximately RMB 160.4 million (USD 22.5 million) for the year ended December 31, 2025. The increase in the cost of revenue is mainly due to increased customer demand. The associated costs related to producing and delivering those holographic solutions also increased, ultimately leading to the observed increased in the cost of revenues.

Cost of Holographic Technology Service Revenues

Cost of holographic technology service revenues was RMB 157.4 (USD 22.0 million) million for 2025, compared to RMB 118.2 million and RMB 69.7 million, respectively, for 2024 and 2023.

Our cost of revenues for services was approximately RMB 69.7 million for the year ended December 31, 2023 compared to approximately RMB 118.2 million for the year ended December 31, 2024.

Our cost of revenues for services increased by approximately RMB 39.2 million, representing a 33.2% growth. The amount grew from approximately RMB 118.2 million for the year ended December 31, 2024, to approximately RMB 157.4 million (USD 22.0 million) for the year ended December 31, 2025. This significant increase was mainly attributable to the business combination of Shanghai Kuo Sou in 2025. As a result of this merger, we expanded our business scope and capabilities, which in turn led to a substantial uptick in our holographic advertisement service activities. This expansion in service activities directly contributed to the rise in our cost of revenues, as more resources were required to support the increased volume of work, such as higher costs for creating and delivering holographic ads, and enhanced marketing efforts to promote these services in the market.

		Year ended December 31,
		2023								2024								2025
		RMB								RMB								RMB
		Amount				Percentage				Amount				Percentage				Amount				Percentage
Operating expenses:
Selling expenses			6,692,316				4	%			3,526,803				2	%			2,694,728				3	%
General and administrative expenses			65,354,201				43	%			23,252,517				11	%			19,238,109				23	%
Research and development expenses			78,655,572				52	%			174,394,747				86	%			56,960,830				69	%
Allowance for expected credit losses			857,713				1	%			2,492,478				1	%			4,378,701				5	%
Change in fair value of warrant liabilities			(372,961	)			-	%			(62,543	)			-	%			-				-	%
Total operating expenses			151,186,841				100	%			203,604,002				100	%			83,272,368				100	%

Selling Expenses

Selling expenses were RMB 2.7 million (USD 0.4 million) for 2025, compared to RMB 3.5 million and RMB 6.7million, respectively, for 2024 and 2023.

The selling expenses decreased by approximately RMB 3.2 million, representing a decline of 47.3%, from around RMB 6.7 million for the year ended December 31, 2023, to approximately RMB 3.5 million for the year ended December 31, 2024. The reason for the reduction is that the company cut down on advertising and promotion expenses in 2024.

The selling expenses decreased by approximately RMB 0.8 million, representing a decline of 23.6%, from around RMB 3.5 million for the year ended December 31, 2024, to approximately RMB 2.7 million (USD 0.4 million) for the year ended December 31, 2025. The reason for the reduction is that the company cut down on advertising and promotion expenses in 2025.

General and administrative expenses

General and administrative expenses were RMB 19.2 million (USD 2.7 million) for 2025, compared to RMB 23.3 million and RMB 65.4 million, respectively, for 2024 and 2023.

General and administrative expenses decreased by approximately RMB 42.1 million, reflecting a substantial 64.4% decline. The amount dropped from approximately RMB 65.4 million in the year ended December 31, 2023, to roughly RMB 23.3 million in the year ended December 31, 2024. The reason for the reduction is that the company implemented employee equity incentive plan in 2023.

General and administrative expenses decreased by approximately RMB 4.0 million, reflecting a substantial 17.3% decline. The amount dropped from approximately RMB 23.3 million in the year ended December 31, 2024, to roughly RMB 19.2 million (USD 2.7 million) in the year ended December 31, 2025. The reason for the reduction is that the company incurred lower service fees in 2025.

Research and development expenses

Research and development expenses were RMB 57.0 million (USD 8.0 million) for 2025, compared to RMB 174.4 million and RMB 78.7 million, respectively, for 2024 and 2023.

Research and development expenses increased from RMB 78.7million for the year ended December 31, 2023 to approximately RMB 174.4 million for the year ended December 31, 2024, an increase of approximately RMB 95.7 million, or approximately 121.7%. The increase was primarily due to the continued research and development activities focused on enhancing our holographic LiDAR technology, holographic algorithm architecture, holographic digital twin technology and image processing technology, intelligent hardware technology, and holographic intelligent vision technology to create novel service and product offerings in 2024.

Research and development expenses decreased from RMB 174.4 million for the year ended December 31, 2024 to approximately RMB 57.0 million (USD 8.0 million) for the year ended December 31, 2025, a decrease of approximately RMB 117.4 million, or approximately 67.3%. The decrease was primarily due to the company's comprehensive review and optimization of its research and development projects in 2025. Some projects with uncertain market prospects were terminated, thereby reducing the corresponding research and development investment.

Allowance for expected credit losses

Allowance for expected credit losses was RMB 4.4 million (USD 0.6 million) for 2025, compared to RMB 2.5 million and RMB 0.9 million, respectively, for 2024 and 2023.

Finance income, net

Finance income was RMB 44.4 million (USD 6.2 million) for 2025, compared to RMB 23.3 million and RMB 3.4million, respectively, for 2024 and 2023 which consisted primarily of interest earned from our cash and cash equivalents.

Investment gain/(loss)

Investment loss was RMB 98.4 million (USD 13.8 million) for 2025, compared to investment gain of RMB 42.3 million and nil, respectively, for 2024 and 2023. The decrease is from loss recognized from the fair value change in short-term investments in 2025.

(Loss) gain on disposal of subsidiaries

Gain on disposal of subsidiaries was RMB 0.3 million (USD 43,591) for 2025, compared to RMB 5.9 million and loss on disposal of subsidiaries of RMB 15.3 million, respectively, for 2024 and 2023.

Other Income, net

Other income was RMB 0.9 million (USD 0.1 million) for 2025, compared to RMB 5.0 million and RMB 3.1 million, respectively, for 2024 and 2023.

Income tax credit (expense)

Income tax expense was nil for 2025, compared to RMB 2.5 million and income tax credit of RMB 4.1 million, respectively, for 2024 and 2023. Based on the management's expectation, the deferred tax asset is probably not able to be realized as a tax benefit for future periods due to the expected loss. Therefore, the deferred income tax assets decreased to zero and the income tax expense increased by RMB 2.9 million in 2024.

Net loss

As a result of the combination of factors discussed above, we had a net loss of RMB 50.2 million (USD 7.0 million) for 2025, compared to RMB 64.2 million and RMB 81.6 million, respectively, for 2024 and 2023.

B.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2025, we had cash and short-term investments of approximately RMB 2,742.5 million (USD 390.2 million). Our working capital was approximately RMB 2,693.7 million (USD 383.2 million) as of December 31, 2025. In our opinion, our working capital is sufficient for our present requirements. In assessing our liquidity, we monitor and analysis our cash on-hand and our operating and capital expenditure commitments. To date, we have financed our working capital requirements through cash flow generated from operations, debt and equity financings.

We are subject to risks and uncertainties frequently encountered by early-stage companies including, but not limited to, the uncertainty of successfully developing products, securing certain contracts, building a customer base, successfully executing business and marketing strategies, and hiring appropriate personnel.

To date, we have been funded primarily by cash flow generated from operations, interest-free advances by from our shareholders prior to the closing of the Business Combination, and the net proceeds we received through the Business Combination. Failure to generate sufficient revenues, achieve planned gross margins and operating profitability, control operating costs, or secure additional funding may require us to modify, delay, or abandon some of our planned future expansion or development, or to otherwise enact operating cost reductions available to management, which could have a material adverse effect on our business, operating results, financial condition, and ability to achieve our intended business objectives.

The following table summarizes the key components of our cash flows for the years ended December 31, 2023, 2024, and 2025.

		For the Years Ended December 31,
		2023				2024				2025				2025
		RMB				RMB				RMB				USD
Net cash (used in) provided by operating activities			(27,738,609	)			(98,619,387	)			56,371,190				7,891,917
Net cash used in investing activities			(1,374,615	)			(682,981,811	)			(285,557,644	)			(40,653,353	)
Net cash provided by financing activities			2,204,176				1,506,897,224				1,239,925,789				176,410,199
Effect of exchange rate change on cash and cash equivalents			1,826,601				136,872				(18,820,901	)			162,862
Net change in cash and cash equivalents			(25,082,447	)			725,432,898				991,918,434				143,811,625
Cash and cash equivalents, beginning of year			151,119,985				126,037,538				851,470,436				118,450,620
Cash and cash equivalents, end of year			126,037,538				851,470,436				1,843,388,870				262,262,245

Operating activities

Net cash provided by operating activities was approximately RMB 56.4 million (USD 7.9 million) for the year ended December 31, 2025, as compared to net cash used in operating activities of approximately RMB 98.6 million for the year ended December 31, 2024 and RMB 27.7 million for the year ended December 31, 2023.

Net cash provided by operating activities was approximately RMB 56.4 million (USD 7.9 million) for the year ended December 31, 2025, derived mainly from net loss of approximately RMB 50.2 million (USD 7.0 million) adjusted by the decrease from short-term investments of approximately RMB 98.4 million (USD 13.8million) and allowance for expected credit losses of RMB 4.4 million (USD 0.6 million), and net changes in our operating assets and liabilities, principally comprising of an increase of approximately RMB 8.2 million (USD 1.1 million) in accounts receivable, an increase of approximately RMB 12.8 million (USD 1.8 million) in accounts payable.

We recorded net cash used in operating activities of RMB 98.6 million for the year ended December 31, 2024. The difference between our net loss of RMB 64.2 million and the net cash used in operating activities was primarily due to (i) an adjustment of RMB 33.1 million in non-cash items, which mainly consisted of gain from short-term investments of RMB 42.3 million, deferred tax expense of RMB 2.9 million, allowance for expected credit losses of RMB 2.5 million and stock compensation expense of RMB 1.0 million (ii) an increase of accounts receivable of RMB 16.1 million, and (iii) an decrease of prepayments and other current assets of RMB5.2 million, and was partially offset by an increase of accounts payable of RMB 12.1 million and other payables and accrued liabilities of RMB 1.4 million.

We recorded net cash used in operating activities of RMB 27.7 million for the year ended December 31, 2023. The difference between our net loss of RMB 81.6 million and the net cash used in operating activities was primarily due to (i) an adjustment of RMB 57.8 million in non-cash items, which mainly consisted of depreciation and amortization of RMB 7.2 million, deferred tax benefits of RMB 4.0 million and Stock compensation expense of RMB 32.2 million, impairment loss for goodwill of RMB 21.2 million (ii) an decrease of accounts receivable of RMB 70.8 million, and (iii) an increase of prepayments and other current assets of RMB 8.7 million, and was partially offset by an decrease of accounts payable of RMB 59.9 million and other payables and accrued liabilities of RMB 4.5 million.

Investing activities

Net cash used in investing activities were approximately RMB 285.6 million (USD 40.7 million) for the year ended December 31, 2025, as compared to net cash used in investing activities approximately RMB 683.0 million for the year ended December 31, 2024 and approximately RMB 1.4 million for the year ended December 31, 2023.

Net cash used in investing activities was approximately RMB 285.6 million (USD 40.7 million) for the year ended December 31, 2025, primarily due to the purchases of short-term investments of approximately RMB 5,855.0 million (USD 833.0 million) and redemption of short-term investments of approximately RMB 5,557.7 million (USD 790.7 million).

Net cash used in investing activities was RMB 683.0 million for the year ended December 31, 2024, primarily due to purchase approximately RMB 683.0 million of short-term investments.

Net cash used in investing activities was RMB 1.4 million for the year ended December 31, 2023, primarily due to purchase of property and equipment of RMB 0.8 million and investments in unconsolidated entities of RMB 0.6 million.

Financing activities

Net cash provided by financing activities was approximately RMB 1,239.9 million (USD 176.4 million) for the year ended December 31, 2025, approximately RMB 1,506.9 million for the year ended December 31, 2024, and approximately RMB 2.2 million for the year ended December 31, 2023.

Net cash provided by financing activities was approximately RMB 1,239.9 million (USD 176.4 million) for the year ended December 31, 2025, which was primarily derived from proceeds of approximately RMB 1,241.6 million (USD 176.6 million) from convertible bonds, proceeds of approximately RMB 4.3 million (USD 0.6 million) from bank loans, partially net off by a repayment of bank loans of approximately RMB 5.9 million (USD 0.8 million).

Net cash provided by financing activities for the year ended December 31, 2024 was RMB 1,506.9 million, primarily due to the cash received from convertible promissory note of RMB 1,504.5 million.

Net cash provided by financing activities for the year ended December 31, 2023 was RMB 2.2 million, primarily due to proceeds of third-party loan of RMB 9.9 million. Cash inflow was offset by the repayments of third-party loan of RMB 7.4 million and repayments to related parties of RMB 0.4 million.

Commitments and Contingencies

In the normal course of business, we are subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations and tax matters. In accordance with ASC No. 450-20, "Loss Contingencies", we will record accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

Holding Company Structure

MicroCloud is a holding company with no material operations of its own. We conduct our operations primarily through our PRC subsidiary in China. As a result, MicroCloud's ability to pay dividends depends upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries or newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our PRC subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, our wholly foreign-owned subsidiaries in China may allocate a portion of their after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.

Contractual Obligations

As of December 31, 2025, the future minimum payments under certain of our contractual obligations were as follows:

		Payments Due In
		Total				Less than 1 year				1 - 2 years				2 - 3 years				Thereafter
		RMB				RMB				RMB				RMB				RMB
Contractual obligations			-				-				-				-				-
Operating leases obligations			1,180,653				1,180,653				-				-				-
Total			1,180,653				1,180,653				-				-				-

Inflation

Inflation does not materially affect our business or the results of our operations.

Seasonality

Seasonality does not materially affect our business or the results of our operations.

C.

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

We have focused on and will continue to focus on investment in our technology system. Our research and development expenses were approximately RMB 78.7 million, RMB 174.4 million and RMB 57.0 million (USD 8.0 million) for the years ended December 31, 2023, 2024 and 2025, respectively.

We believe that a core element of the competitiveness of the holographic AR industry is research and development related to technology development, and we rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. For details of our intellectual property portfolio, please refer to Item 4 B. Business Overview - Intellectual Property".

D.

TREND INFORMATION

Other than as disclosed in the foregoing disclosures and elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2025 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity or capital resources, or that would cause our disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial conditions and results of operations and require management's difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this report, we believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.