[UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS](index=1&type=section&id=UNAUDITED%20INTERIM%20CONDENSED%20CONSOLIDATED%20BALANCE%20SHEETS) [Assets](index=1&type=section&id=Assets) Total assets slightly decreased to RMB 1,486,952,134 as of June 30, 2022, with notable increases in cost method investments and goodwill Assets Breakdown | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | **Total Assets** | 1,505,028,697 | 1,486,952,134 | 221,556,176 | | **Current Assets** | | | | | Cash and cash equivalents | 751,904,587 | 705,621,445 | 105,137,742 | | Short term investments | 33,540,301 | 35,349,990 | 5,267,156 | | Accounts receivable, net | 26,235,989 | 50,469,939 | 7,520,031 | | Inventories | 6,841,745 | 3,616,916 | 538,921 | | Prepaid service fees | 29,063,036 | 37,761,620 | 5,626,489 | | Other receivables and prepayments | 6,000,928 | 6,103,083 | 909,361 | | Other receivables from related parties | 27,589,530 | - | - | | Consideration receivable | 40,972 | 2,608,970 | 388,737 | | Loans receivable | 26,160,000 | - | - | | **Total Current Assets** | 907,819,648 | 841,974,523 | 125,454,379 | | **Non-current Assets** | | | | | Property and equipment, net | 24,839,545 | 25,300,367 | 3,769,760 | | Deferred merger costs | 3,839,567 | 4,177,622 | 622,465 | | Cost method investments | 114,650,000 | 164,172,800 | 24,461,781 | | Prepayments and deposits | 1,519,909 | 1,490,344 | 222,062 | | Prepayments | 142,527,894 | 142,527,894 | 21,236,686 | | Intangible assets, net | 27,880,937 | 24,514,570 | 3,652,676 | | Operating lease right-of-use assets | 3,255,747 | 2,636,553 | 392,847 | | Goodwill | 276,978,601 | 278,750,074 | 41,533,819 | | Investment in unconsolidated subsidiary | 1,716,849 | 1,407,387 | 209,701 | | **Total Non-current Assets** | 572,369,504 | 619,677,244 | 92,332,037 | - As of June 30, 2022, the company's total assets were **RMB 1,486,952,134**, a slight decrease from December 31, 2021[3](index=3&type=chunk) - Net accounts receivable in current assets **increased significantly** from RMB 26,235,989 on December 31, 2021, to **RMB 50,469,939** on June 30, 2022[2](index=2&type=chunk) - Cost method investments in non-current assets **increased** from RMB 114,650,000 on December 31, 2021, to **RMB 164,172,800** on June 30, 2022[3](index=3&type=chunk) [Liabilities and Shareholders' Equity](index=1&type=section&id=Liabilities%20and%20Shareholders'%20Equity) Total liabilities decreased to RMB 148,955,830 as of June 30, 2022, while total equity remained relatively stable Liabilities and Equity Breakdown | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | **Total Liabilities** | 165,564,432 | 148,955,830 | 22,194,448 | | **Current Liabilities** | | | | | Accounts payable | 27,958,057 | 30,859,763 | 4,598,111 | | Deferred revenue | 21,902,430 | 70,389,892 | 10,488,109 | | Other payables and accrued liabilities | 13,655,554 | 15,524,294 | 2,313,121 | | Current portion of loans from related parties | 20,000,000 | 3,853,724 | 574,206 | | Operating lease liabilities | 1,819,522 | 2,045,000 | 304,705 | | Taxes payable | 6,424,746 | 6,722,592 | 1,001,668 | | **Total Current Liabilities** | 91,760,309 | 129,395,265 | 19,279,920 | | **Other Liabilities** | | | | | Non-current loans from related parties | 67,136,490 | 14,600,000 | 2,175,403 | | Operating lease liabilities - non-current | 1,413,490 | 574,476 | 85,597 | | Deferred tax liabilities, net | 5,254,143 | 4,386,089 | 653,528 | | **Total Other Liabilities** | 73,804,123 | 19,560,565 | 2,914,528 | | **Shareholders' Equity** | | | | | Class A ordinary shares | 13,095 | 13,095 | 1,951 | | Class B ordinary shares | 102,127 | 102,127 | 15,217 | | Additional paid-in capital | 1,454,680,407 | 1,457,787,868 | 217,210,696 | | Retained earnings (Accumulated deficit) | (164,334,928) | (207,082,206) | (30,855,292) | | Statutory reserves | 28,573,157 | 31,377,202 | 4,675,210 | | Accumulated other comprehensive loss | (54,970,351) | (17,681,709) | (2,634,578) | | **Total WiMi Hologram Cloud, Inc. shareholders' equity** | 1,264,063,507 | 1,264,516,377 | 188,413,204 | | **Non-controlling interests** | 75,400,758 | 73,479,927 | 10,948,524 | | **Total Equity** | 1,339,464,265 | 1,337,996,304 | 199,361,728 | - Deferred revenue in current liabilities **increased substantially** from RMB 21,902,430 on December 31, 2021, to **RMB 70,389,892** on June 30, 2022[4](index=4&type=chunk) - Non-current loans from related parties **decreased significantly** from RMB 67,136,490 on December 31, 2021, to **RMB 14,600,000** on June 30, 2022[4](index=4&type=chunk) - Retained earnings (accumulated deficit) **widened** from (RMB 164,334,928) on December 31, 2021, to **(RMB 207,082,206)** on June 30, 2022[4](index=4&type=chunk) [UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)](index=3&type=section&id=UNAUDITED%20INTERIM%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20OPERATIONS%20AND%20COMPREHENSIVE%20INCOME%20(LOSS)) [Operating Results](index=3&type=section&id=Operating%20Results) For the six months ended June 30, 2022, the company's revenue, gross profit, and operating income all declined, shifting from profit to loss Operating Performance Summary | Indicator | Jun 30, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | **Total operating revenues** | 516,245,166 | 434,311,150 | 64,712,452 | | Revenues from products | 274,021,079 | 156,848,405 | 23,370,445 | | Revenues from services | 242,224,087 | 277,462,745 | 41,342,007 | | **Cost of revenues** | (363,192,372) | (350,033,949) | (52,155,131) | | **Gross profit** | 153,052,794 | 84,277,201 | 12,557,321 | | **Operating expenses** | | | | | Selling expenses | (4,564,276) | (3,802,016) | (566,501) | | General and administrative expenses | (30,957,256) | (20,966,832) | (3,124,063) | | Research and development expenses | (86,142,412) | (70,005,160) | (10,430,783) | | Share-based compensation expenses | (6,055,258) | (3,107,461) | (463,012) | | **Total operating expenses** | (127,719,202) | (97,881,469) | (14,584,359) | | **Income (loss) from operations** | 25,333,592 | (13,604,268) | (2,027,038) | | **Other income (expenses)** | | | | | Investment income | 4,533,894 | (25,088,662) | (3,738,216) | | Income from unconsolidated subsidiary | - | 1,760,445 | 262,307 | | Interest income | 2,383,224 | 419,778 | 62,547 | | Finance costs, net | (3,440,096) | (1,852,020) | (275,951) | | Other income, net | 2,394,836 | 2,803,655 | 417,746 | | Gain on disposal of equity interest in unconsolidated subsidiary | - | 373,651 | 55,674 | | **Total other (expenses) income, net** | 5,871,858 | (21,583,153) | (3,215,893) | | **Income (loss) before income taxes** | 31,205,450 | (35,187,421) | (5,242,931) | | **Income tax (provision) benefit** | 914,003 | 736,249 | 109,701 | | **Net income (loss)** | 32,119,453 | (34,451,172) | (5,133,230) | | Net income (loss) attributable to non-controlling interests | 25,033,552 | 5,492,061 | 818,318 | | **Net income (loss) attributable to WiMi Hologram Cloud, Inc.** | 7,085,901 | (39,943,233) | (5,951,548) | | **Earnings (loss) per share** | | | | | Basic | 0.04 | (0.23) | (0.03) | | Diluted | 0.04 | (0.23) | (0.03) | - For the six months ended June 30, 2022, total operating revenues **decreased by 15.9%** year-over-year to **RMB 434,311,150**[7](index=7&type=chunk) - Product revenue **decreased sharply by 42.8%** year-over-year to RMB 156,848,405, while service revenue **grew by 14.5%** to RMB 277,462,745[7](index=7&type=chunk) - Gross profit **declined by 44.9%** year-over-year to RMB 84,277,201, and operating income shifted from RMB 25,333,592 in the same period of 2021 to an **operating loss of RMB 13,604,268**[7](index=7&type=chunk) - Net income attributable to WiMi Hologram Cloud, Inc shifted from a profit of RMB 7,085,901 in the prior year period to a **net loss of RMB 39,943,233**, with basic and diluted EPS turning from RMB 0.04 to **(RMB 0.23)**[7](index=7&type=chunk) [UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY](index=4&type=section&id=UNAUDITED%20INTERIM%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20SHAREHOLDERS'%20EQUITY) [Shareholders' Equity Changes](index=4&type=section&id=Shareholders'%20Equity%20Changes) Total shareholders' equity slightly decreased in the first half of 2022, primarily due to net loss and foreign currency translation adjustments Equity Movement Summary | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | **Beginning Balance** | 1,339,464,265 | 1,339,464,265 | 199,580,455 | | Share-based compensation expenses | - | 3,107,461 | 463,012 | | Net income (loss) | - | (34,451,172) | (5,133,232) | | Statutory reserves | - | - | - | | Foreign currency translation adjustments | - | 29,875,750 | 4,451,493 | | **Ending Balance** | 1,339,464,265 | 1,337,996,304 | 199,361,728 | - As of June 30, 2022, the company's total shareholders' equity was **RMB 1,337,996,304**, a slight decrease from RMB 1,339,464,265 on December 31, 2021[10](index=10&type=chunk) - Share-based compensation expense of **RMB 3,107,461** was recognized during the period[10](index=10&type=chunk) - A **net loss of RMB 34,451,172** negatively impacted shareholders' equity during the period[10](index=10&type=chunk) - Foreign currency translation adjustments had a positive impact of **RMB 29,875,750**[10](index=10&type=chunk) [UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS](index=5&type=section&id=UNAUDITED%20INTERIM%20CONDENSED%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) [Cash Flows from Operating Activities](index=5&type=section&id=Cash%20Flows%20from%20Operating%20Activities) For the six months ended June 30, 2022, operating cash flow turned negative, mainly due to net loss and an increase in accounts receivable Operating Cash Flow Summary | Indicator | Jun 30, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | **Net income (loss)** | 32,119,453 | (34,451,172) | (5,133,230) | | Depreciation and amortization | 10,122,472 | 5,087,743 | 758,075 | | Provision for doubtful accounts | - | (3,765,397) | (561,045) | | Share-based compensation expenses | 6,055,258 | 3,107,461 | 463,012 | | Deferred tax benefit | (1,749,317) | (1,023,038) | (152,433) | | Gain (loss) on short-term investments | (4,520,914) | 1,163,652 | 173,384 | | Changes in accounts receivable | (39,586,131) | (20,089,871) | (2,993,395) | | Changes in inventories | (5,882,419) | 3,284,039 | 489,323 | | Changes in prepaid service fees | (38,911,997) | (8,343,838) | (1,243,234) | | Changes in accounts payable | 16,407,585 | 2,533,460 | 377,486 | | Changes in deferred revenue | 24,210,875 | 46,767,189 | 6,968,321 | | **Net cash from operating activities** | 44,096 | (5,738,210) | (854,995) | - For the six months ended June 30, 2022, net cash used in operating activities was **(RMB 5,738,210)**, a shift from net cash provided of RMB 44,096 in the prior year period[13](index=13&type=chunk) - The shift from a net income of RMB 32,119,453 in the prior year period to a **net loss of (RMB 34,451,172)** was the primary driver of the decline in operating cash flow[13](index=13&type=chunk) - An increase in deferred revenue (**RMB 46,767,189**) positively contributed to operating cash flow[13](index=13&type=chunk) [Cash Flows from Investing Activities](index=5&type=section&id=Cash%20Flows%20from%20Investing%20Activities) For the six months ended June 30, 2022, cash outflow from investing activities decreased significantly due to the collection of loans receivable Investing Cash Flow Summary | Indicator | Jun 30, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Purchase of cost method investments | - | (49,067,000) | (7,310,993) | | Prepayment for real estate purchase | (142,527,894) | - | - | | Purchase of property and equipment | (25,168,016) | (1,250,234) | (186,285) | | Purchase of short-term investments | (53,635,580) | (85,668,000) | (12,764,550) | | Redemption of short-term investments | 45,670,894 | 84,462,142 | 12,584,877 | | Collection of loans receivable | - | 26,160,000 | 3,897,845 | | **Net cash from investing activities** | (175,660,596) | 2,580,727 | 384,529 | - For the six months ended June 30, 2022, net cash provided by investing activities was **RMB 2,580,727**, a significant improvement from net cash used of (RMB 175,660,596) in the prior year period[13](index=13&type=chunk) - The collection of loans receivable amounting to **RMB 26,160,000** in the first half of 2022 had a positive impact on investing cash flow[13](index=13&type=chunk) - The primary cash outflows were the purchase of cost method investments (**RMB 49,067,000**) and short-term investments (**RMB 85,668,000**)[13](index=13&type=chunk) [Cash Flows from Financing Activities](index=5&type=section&id=Cash%20Flows%20from%20Financing%20Activities) For the six months ended June 30, 2022, financing cash flow shifted from a significant inflow to an outflow due to the repayment of related party loans Financing Cash Flow Summary | Indicator | Jun 30, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Net proceeds from public offering | 508,132,968 | - | - | | Proceeds from related party loans | 5,744,246 | 4,153,724 | 618,906 | | Repayment of related party loans | (10,414,129) | (72,836,490) | (10,852,652) | | Sale of non-controlling interests in subsidiary | 87,211,350 | - | - | | Deferred merger costs | - | (131,276) | (19,560) | | **Net cash from financing activities** | 577,730,835 | (68,814,042) | (10,253,306) | - For the six months ended June 30, 2022, net cash used in financing activities was **(RMB 68,814,042)**, a shift from net cash provided of RMB 577,730,835 in the prior year period[13](index=13&type=chunk) - The repayment of related party loans amounting to **RMB 72,836,490** was the primary reason for the cash outflow from financing activities[13](index=13&type=chunk) [Overall Cash Position](index=5&type=section&id=Overall%20Cash%20Position) As of June 30, 2022, total cash and cash equivalents decreased, reflecting net outflows from operating and financing activities Overall Cash Movement | Indicator | Jun 30, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Effect of exchange rate changes | (8,541,065) | 25,688,383 | 3,827,574 | | Change in cash, cash equivalents, and restricted cash | 393,573,270 | (46,283,142) | (6,896,198) | | Cash, cash equivalents, and restricted cash at beginning of period | 374,823,004 | 752,347,147 | 112,099,882 | | **Cash, cash equivalents, and restricted cash at end of period** | 768,396,274 | 706,064,005 | 105,203,684 | - As of June 30, 2022, the ending balance of cash, cash equivalents, and restricted cash was **RMB 706,064,005**, a decrease from RMB 752,347,147 on December 31, 2021[13](index=13&type=chunk)[15](index=15&type=chunk) - The effect of exchange rate changes had a positive impact of **RMB 25,688,383** on cash, cash equivalents, and restricted cash[13](index=13&type=chunk) [NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS](index=7&type=section&id=NOTES%20TO%20UNAUDITED%20INTERIM%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) [Note 1 — Nature of business and organization](index=7&type=section&id=Note%201%20%E2%80%94%20Nature%20of%20business%20and%20organization) This note details the business nature and organizational structure of WiMi Hologram Cloud Inc and its subsidiaries, including its VIE structure [Company Background and Reorganizations](index=7&type=section&id=Company%20Background%20and%20Reorganizations) - WiMi Hologram Cloud Inc was incorporated in the Cayman Islands on August 16, 2018, and controls Beijing WiMi and its subsidiaries through WiMi HK and WiMi WFOE, primarily engaging in AR-related products and services[18](index=18&type=chunk)[21](index=21&type=chunk) - In September 2020, WiMi Cayman established a wholly-owned subsidiary, VIYI Technology Inc (later renamed VIYI Algorithm Inc), to accelerate the development of AI algorithms and cloud computing services[24](index=24&type=chunk) - On December 18, 2020, Beijing WiMi and WiMi WFOE entered into new contractual arrangements, allowing WiMi WFOE to maintain effective control over Beijing WiMi[28](index=28&type=chunk) - On December 24, 2020, Shenzhen Yitian and Shenzhen Weiyixin entered into contractual arrangements, giving Shenzhen Weiyixin effective control over Shenzhen Yitian and its subsidiaries[30](index=30&type=chunk) [Subsidiary Establishments and Disposals](index=7&type=section&id=Subsidiary%20Establishments%20and%20Disposals) - From 2019 to 2020, Beijing WiMi established several subsidiaries primarily engaged in AR advertising services[22](index=22&type=chunk) - In 2020, VIYI acquired Fe-da Electronics Company Private Limited in Singapore to accelerate the company's computer chip and smart chip business development[26](index=26&type=chunk) - From 2020 to 2021, WiMi Cayman established Lixin Technology Co, Ltd, and WiMi HK established ICinit Limited and VIDA Semicon Co, Limited to develop holographic vision intelligent robots, fabless semiconductors, and AR technology applications in the semiconductor industry[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - On October 1, 2021, the company deconsolidated ICinit after losing control due to a 2% equity transfer, but retained a 49% non-controlling interest[38](index=38&type=chunk) [Consolidated Entities and VIE Structure](index=10&type=section&id=Consolidated%20Entities%20and%20VIE%20Structure) - As of June 30, 2022, the company's consolidated financial statements include WiMi Cayman and its subsidiaries, such as WiMi HK, VIDA, WiMi WFOE, and Beijing WiMi[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk) - Due to legal restrictions on foreign ownership and investment in China, the company controls Beijing WiMi and Shenzhen Yitian (until April 1, 2022) through contractual arrangements rather than direct equity ownership[54](index=54&type=chunk) - The VIE contractual arrangements ensure effective control and economic benefits for WiMi WFOE over Beijing WiMi and for Shenzhen Weiyixin over Shenzhen Yitian[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk)[61](index=61&type=chunk)[62](index=62&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk)[69](index=69&type=chunk)[70](index=70&type=chunk)[71](index=71&type=chunk) - On April 1, 2022, Shenzhen Yitian terminated its VIE agreements, and its original shareholders transferred their equity to VIYI WFOE, giving VIYI WFOE 100% equity control[73](index=73&type=chunk) [Note 2 — Summary of significant accounting policies](index=20&type=section&id=Note%202%20%E2%80%94%20Summary%20of%20significant%20accounting%20policies) This note outlines the significant accounting policies followed in preparing the financial statements, including the basis of presentation and revenue recognition [Revenue Recognition](index=22&type=section&id=Revenue%20Recognition) - AR advertising service revenue is recognized at a point in time upon service delivery, based on CPM or CPA models, with the company acting as the principal and recognizing revenue on a gross basis[85](index=85&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk) - AR entertainment services include SDK payment channel services (recognized on a net basis), MR software development services (recognized over time), and mobile game services (recognized on a net basis)[91](index=91&type=chunk)[93](index=93&type=chunk)[96](index=96&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) - The semiconductor business includes product sales (recognized on a gross basis) and software development (recognized over time)[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) Revenue by Timing of Transfer | Timing of Transfer | Jun 30, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Goods and services transferred at a point in time | 499,418,486 | 434,311,150 | 64,712,452 | | Goods and services transferred over time | 16,826,680 | - | - | | **Total revenue** | 516,245,166 | 434,311,150 | 64,712,452 | - The company's financial statements are prepared in accordance with **U.S. Generally Accepted Accounting Principles (U.S. GAAP)** and include the accounts of the company and its subsidiaries (including WFOEs and VIEs)[74](index=74&type=chunk)[75](index=75&type=chunk) - The company uses the **Renminbi (RMB)** as its reporting currency, with some subsidiaries using the US dollar or Hong Kong dollar as their functional currency, requiring foreign currency translation[77](index=77&type=chunk) - The company recognizes revenue using the five-step model of **ASC Topic 606**, with primary revenue sources from AR advertising, AR entertainment, and semiconductor product sales[84](index=84&type=chunk)[108](index=108&type=chunk) Revenue by Business Type | Revenue Type | Jun 30, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Holographic AR advertising | 235,069,726 | 276,011,189 | 41,125,725 | | Holographic AR entertainment | 7,154,361 | 1,451,556 | 216,282 | | Semiconductor product sales | 257,194,399 | 156,848,405 | 23,379,445 | | Software development | 16,826,680 | - | - | | **Total revenue** | 516,245,166 | 434,311,150 | 64,712,452 | - Non-controlling interests primarily consist of a 47.0% stake in VIDA and a 27% stake in VIYI, totaling **RMB 73,479,927** as of June 30, 2022[111](index=111&type=chunk)[112](index=112&type=chunk) [Note 3 — Variable interest entity ("VIE")](index=27&type=section&id=Note%203%20%E2%80%94%20Variable%20interest%20entity%20(%22VIE%22)) This note details the consolidation of VIEs, for which the company is the primary beneficiary, and provides a summary of their financial positions - WiMi WFOE is deemed the primary beneficiary of Beijing WiMi through contractual arrangements, leading to the consolidation of Beijing WiMi and its subsidiaries[114](index=114&type=chunk)[117](index=117&type=chunk) - Shenzhen Weiyixin was the primary beneficiary of Shenzhen Yitian through contractual arrangements, leading to its consolidation until the VIE agreements were terminated on April 1, 2022[114](index=114&type=chunk)[118](index=118&type=chunk)[120](index=120&type=chunk) Carrying Amounts of VIEs' Consolidated Assets and Liabilities | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | **Total Assets** | 600,518,909 | 689,168,057 | 102,686,184 | | Current assets | 82,728,636 | 39,001,150 | 5,811,179 | | Property and equipment, net | 24,385,762 | 23,767,354 | 3,541,341 | | Other non-current assets | 493,404,511 | 626,399,553 | 93,333,664 | | **Total Liabilities** | (614,667,803) | (610,892,197) | (91,023,064) | | Current liabilities | 547,531,313 | 596,292,196 | 88,847,661 | | Non-current shareholder loans | 67,136,490 | 14,600,000 | 2,175,403 | | **Net Assets** | (14,148,894) | 78,275,860 | 11,663,120 | Summary of VIEs' Operating Results | Indicator | Jun 30, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Operating revenues | 123,939,836 | 26,624,433 | 3,967,046 | | Gross profit | 24,417,262 | 13,923,800 | 2,074,649 | | Income from operations | 1,330,677 | 5,237,687 | 780,416 | | Net income | 154,867 | 1,931,944 | 287,860 | Summary of VIEs' Cash Flows | Indicator | Jun 30, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Net cash from operating activities | 31,877,089 | 57,426,128 | 8,556,505 | | Net cash from investing activities | (40,313,501) | (28,795,961) | (4,290,604) | | Net cash from financing activities | (3,188,573) | (68,682,766) | (10,233,746) | | Net decrease in cash, cash equivalents, and restricted cash | (11,647,451) | (40,001,983) | (5,960,304) | | Cash, cash equivalents, and restricted cash at end of period | 47,602,270 | 16,406,429 | 2,444,562 | [Note 4 — Business combination](index=30&type=section&id=Note%204%20%E2%80%94%20Business%20combination) This note discloses several business combinations completed during the reporting period, accounted for in accordance with ASC 805 - In 2021, Shenzhen ICinit acquired electronic component suppliers Shenzhen Yichong, Shenzhen Shengtang, and Tianjin Yaodi for a nominal price[126](index=126&type=chunk) - On July 1, 2021, Weidong acquired a 99% equity interest in Shanghai Guoyu Information Technology Co, Ltd, a company specializing in intelligent visual algorithm technology, for **RMB 20,000,000**[131](index=131&type=chunk)[132](index=132&type=chunk) Fair Value Allocation of Shanghai Guoyu Acquisition | Indicator | Fair Value (RMB) | Fair Value (USD) | |:---|:---|:---| | Copyrights | 8,955,000 | 1,383,888 | | Goodwill | 13,283,750 | 2,052,844 | | Deferred tax liabilities | (2,238,750) | (345,972) | | **Total Consideration** | 20,000,000 | 3,090,760 | - In November and December 2021, Viwotong Tech acquired Guangzhou Tapuyu Internet Technology Co, Ltd (e-commerce services) and Pengcheng Keyi (Xi'an) Intelligent Technology Co, Ltd (test equipment development) for a nominal price[137](index=137&type=chunk) [Note 5 — Deconsolidation of ICinit](index=33&type=section&id=Note%205%20%E2%80%94%20Deconsolidation%20of%20ICinit) This note explains the reasons for and financial impact of the deconsolidation of ICinit on October 1, 2021 - On October 1, 2021, the company's board approved the transfer of a **2% equity interest in ICinit**, resulting in a loss of control and its deconsolidation[142](index=142&type=chunk) - The deconsolidation resulted in a recognized **loss of RMB 901,526** (USD 139,739), while the company retained a 49% non-controlling interest in ICinit[143](index=143&type=chunk) - Following the deconsolidation, the company recognized a related party receivable of **RMB 27,589,530** (USD 4,327,294), which was repaid on May 7, 2022[144](index=144&type=chunk) - On June 1, 2022, the company agreed to transfer an additional **30% equity interest in ICinit** for HKD 3,050,000 (approx RMB 2.6 million / USD 0.4 million), with consideration received in July 2022[144](index=144&type=chunk) [Note 6 — Short term investments](index=34&type=section&id=Note%206%20%E2%80%94%20Short%20term%20investments) This note discloses the composition of the company's short-term investments, which primarily consist of trading securities Short-Term Investments | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | **Trading securities** | 33,540,301 | 35,349,990 | 5,267,156 | - As of June 30, 2022, the company's short-term investments, primarily trading securities, totaled **RMB 35,349,990** (USD 5,267,156)[148](index=148&type=chunk) - In the first half of 2022, the company purchased approximately **RMB 85.7 million** in short-term investments and redeemed approximately **RMB 84.5 million**[149](index=149&type=chunk) - For the first half of 2022, the company recorded a **loss of RMB 1,163,652** (USD 173,384) on short-term investments, compared to a loss of RMB 4,450,914 in the same period of 2021[149](index=149&type=chunk) [Note 7 — Accounts receivable, net](index=35&type=section&id=Note%207%20%E2%80%94%20Accounts%20receivable,%20net) This note provides details on the company's accounts receivable and the corresponding allowance for doubtful accounts Accounts Receivable, Net | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | **Accounts receivable** | 137,875,301 | 163,431,462 | 24,351,322 | | Less: Allowance for doubtful accounts | (111,639,312) | (112,961,523) | (16,831,290) | | **Accounts receivable, net** | 26,235,989 | 50,469,939 | 7,520,031 | Allowance for Doubtful Accounts Movement | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Beginning balance | 2,734,421 | 111,639,312 | 16,634,281 | | Additions | 128,392,115 | 1,399,234 | 208,486 | | Deconsolidation of ICinit and subsidiaries | (19,487,224) | - | - | | Recoveries (write-offs) | - | (5,164,631) | (769,531) | | Exchange rate differences | - | 5,087,608 | 758,055 | | **Ending balance** | 111,639,312 | 112,961,523 | 16,831,290 | - As of June 30, 2022, net accounts receivable was **RMB 50,469,939**, an increase from RMB 26,235,989 on December 31, 2021[151](index=151&type=chunk) - The ending balance of the allowance for doubtful accounts was **RMB 112,961,523**, a slight increase from RMB 111,639,312 on December 31, 2021[151](index=151&type=chunk) [Note 8 — Inventories](index=36&type=section&id=Note%208%20%E2%80%94%20Inventories) This note presents the composition of the company's inventories, which mainly include holographic accessories and finished semiconductor products Inventory Breakdown | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | **Finished goods - holographic accessories** | 1,590,495 | 1,494,770 | 222,721 | | **Finished goods - semiconductors** | 5,251,250 | 2,122,146 | 316,200 | | **Total inventories** | 6,841,745 | 3,616,916 | 538,921 | - As of June 30, 2022, total inventories were **RMB 3,616,916**, a **47.1% decrease** from RMB 6,841,745 on December 31, 2021[152](index=152&type=chunk) - Finished semiconductor product inventories **decreased by 59.6%** from RMB 5,251,250 on December 31, 2021, to **RMB 2,122,146** on June 30, 2022[152](index=152&type=chunk) [Note 9 — Property and equipment, net](index=36&type=section&id=Note%209%20%E2%80%94%20Property%20and%20equipment,%20net) This note lists the composition and net value of the company's property and equipment Property and Equipment, Net | Indicator | Dec 31, 2020 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Office electronic equipment | 1,758,527 | 1,837,108 | 273,729 | | Office fixtures and furniture | 41,392 | 50,497 | 7,524 | | Vehicles | - | 1,201,452 | 179,017 | | Buildings | 24,825,710 | 24,825,710 | 3,699,036 | | Leasehold improvements | 1,363,989 | 1,363,989 | 203,235 | | Subtotal | 27,989,618 | 29,278,755 | 4,390,046 | | Less: Accumulated depreciation | (3,150,073) | (3,978,388) | (592,781) | | **Total** | 24,839,545 | 25,300,367 | 3,769,760 | - As of June 30, 2022, net property and equipment was **RMB 25,300,367**, a slight increase from RMB 24,839,545 on December 31, 2020[154](index=154&type=chunk) - Depreciation expense for the first half of 2022 was **RMB 780,733** (USD 116,329), a significant increase from RMB 213,897 in the same period of 2021[154](index=154&type=chunk) [Note 10 — Cost method investments](index=37&type=section&id=Note%2010%20%E2%80%94%20Cost%20method%20investments) This note details the company's cost method investments, primarily in companies in the AR, VR, and software sectors Cost Method Investments | Investment Type | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | 9.0% investment (AR/VR) | 45,000,000 | 45,000,000 | 6,705,009 | | 8.0% investment (AR/VR) | 1,100,000 | 1,100,000 | 163,900 | | 6.0% investment (AR/VR/Software/Robotics) | 600,000 | 600,000 | 89,400 | | 5.5% investment (AR/VR/Gaming) | 600,000 | 600,000 | 89,400 | | 5.0% investment (AR/VR/Digital Marketing) | 51,000,000 | 51,000,000 | 7,688,411 | | 4.5% investment (VR Medical) | 200,000 | 200,000 | 29,800 | | 4.0% investment (AR/VR/3D Animation/Software) | 8,400,000 | 8,400,000 | 1,251,602 | | 3.5% investment (AR/VR) | 1,200,000 | 1,200,000 | 178,800 | | 3.0% investment (AR/VR/3D Animation) | 3,900,000 | 3,900,000 | 581,101 | | 2.55% investment (AR/VR/3D Animation) | - | 13,422,800 | 2,000,000 | | 2.0% investment (AR/VR/3D Animation/Software) | 1,200,000 | 36,700,000 | 5,468,308 | | 1.0% investment (AR/VR/3D Animation/Hardware/Software) | 1,450,000 | 1,450,000 | 216,050 | | **Total** | 114,650,000 | 164,172,800 | 24,461,781 | - As of June 30, 2022, total cost method investments were **RMB 164,172,800**, a **43.2% increase** from RMB 114,650,000 on December 31, 2021[157](index=157&type=chunk) - In the first half of 2022, the company purchased **RMB 49,067,000** (USD 7,310,993) in cost method investments[157](index=157&type=chunk) [Note 11 — Intangible assets, net](index=38&type=section&id=Note%2011%20%E2%80%94%20Intangible%20assets,%20net) This note presents the composition of the company's intangible assets, which mainly include copyrights and customer relationships Intangible Assets, Net | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Copyrights | 8,955,000 | 8,955,000 | 1,334,297 | | Customer relationships | 25,502,800 | 26,845,600 | 4,000,000 | | Non-compete agreements | 42,200,000 | 42,200,000 | 6,287,809 | | Technical know-how | 2,852,016 | 3,002,184 | 447,326 | | Subtotal | 79,509,816 | 81,002,784 | 12,069,432 | | Less: Accumulated amortization | (51,628,879) | (56,488,214) | (8,416,756) | | **Intangible assets, net** | 27,880,937 | 24,514,570 | 3,652,676 | - As of June 30, 2022, net intangible assets were **RMB 24,514,570**, a **12.1% decrease** from RMB 27,880,937 on December 31, 2021[160](index=160&type=chunk) - Amortization expense for the first half of 2022 was **RMB 4,307,010** (USD 641,744), a decrease from RMB 9,908,575 in the same period of 2021[160](index=160&type=chunk) Estimated Amortization Expense | Twelve Months Ended June 30 | Estimated Amortization (RMB) | Estimated Amortization (USD) | |:---|:---|:---| | 2023 | 9,102,837 | 1,356,325 | | 2024 | 9,102,837 | 1,356,325 | | 2025 | 4,069,287 | 606,325 | | 2026 | 2,239,609 | 333,701 | | Thereafter | - | - | | **Total** | 24,514,570 | 3,652,676 | [Note 12 — Goodwill](index=39&type=section&id=Note%2012%20%E2%80%94%20Goodwill) This note discloses the composition and changes in the company's goodwill, primarily arising from various acquisitions Goodwill by Source | Goodwill Source | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Acquisition of Shenzhen Yidian | 137,060,340 | 137,060,339 | 20,422,019 | | Acquisition of Shenzhen Yitian | 92,990,256 | 92,990,256 | 13,855,568 | | Acquisition of Fe-da Electronics | 33,644,255 | 35,415,729 | 5,276,951 | | Acquisition of Guoyu | 13,283,750 | 13,283,750 | 1,979,282 | | **Total Goodwill** | 276,978,601 | 278,750,074 | 41,533,819 | Changes in Carrying Amount of Goodwill | Reporting Segment | Dec 31, 2020 (RMB) | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | |:---|:---|:---|:---| | AR advertising services | 137,060,340 | 150,344,090 | 150,344,090 | | AR entertainment | 206,069,104 | 92,990,256 | 92,990,256 | | Semiconductor business | 53,099,316 | 33,644,255 | 35,415,728 | | **Total** | 396,228,760 | 276,978,601 | 278,750,074 | - As of June 30, 2022, total goodwill was **RMB 278,750,074**, a slight increase from RMB 276,978,601 on December 31, 2021, mainly due to exchange rate differences in the semiconductor business[164](index=164&type=chunk)[165](index=165&type=chunk) - In 2021, the company recognized a **goodwill impairment loss of RMB 131,194,659**, primarily from the AR entertainment and semiconductor businesses[165](index=165&type=chunk) [Note 13 — Other payables and accrued liabilities](index=39&type=section&id=Note%2013%20%E2%80%94%20Other%20payables%20and%20accrued%20liabilities) This note lists the composition of other payables and accrued liabilities, mainly consisting of salaries payable and accrued interest Other Payables and Accrued Liabilities | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Salaries payable | 2,011,702 | 1,753,536 | 261,276 | | Other payables and accrued expenses | 3,446,740 | 3,929,171 | 585,447 | | Accrued interest | 8,197,112 | 9,841,587 | 1,446,399 | | **Total** | 13,655,554 | 15,524,294 | 2,313,122 | - As of June 30, 2022, total other payables and accrued liabilities were **RMB 15,524,294**, a **13.7% increase** from RMB 13,655,554 on December 31, 2021[167](index=167&type=chunk) - Accrued interest increased from RMB 8,197,112 on December 31, 2021, to **RMB 9,841,587** on June 30, 2022[167](index=167&type=chunk) [Note 14 — Related party balances and transactions](index=40&type=section&id=Note%2014%20%E2%80%94%20Related%20party%20balances%20and%20transactions) This note discloses the loan balances between the company and its related parties Related Party Loans | Related Party Name | Relationship | Nature | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---|:---|:---| | Yang Cui | Executive Director of Beijing WiMi | Loan | 16,100,000 | 14,600,000 | 2,175,403 | | Shanghai Junyi Internet Co, Ltd | Co-controlled by Zhao Jie | Loan | 71,036,490 | 3,853,724 | 574,206 | | **Total** | | | 87,136,490 | 18,453,724 | 2,749,609 | | Current portion of related party loans | | | 20,000,000 | 3,853,724 | 574,206 | | Non-current portion of related party loans | | | 67,136,490 | 14,600,000 | 2,175,403 | - As of June 30, 2022, total loans from related parties were **RMB 18,453,724**, a **78.8% decrease** from RMB 87,136,490 on December 31, 2021[169](index=169&type=chunk) - Non-current loans from related parties decreased from RMB 67,136,490 on December 31, 2021, to **RMB 14,600,000** on June 30, 2022[169](index=169&type=chunk) Maturity Schedule of Related Party Loans | Twelve Months Ended June 30 | RMB | USD | |:---|:---|:---| | 2023 | 3,853,724 | 574,206 | | 2024 | 14,600,000 | 2,175,403 | | **Total** | 18,453,724 | 2,749,609 | [Note 15 — Taxes](index=40&type=section&id=Note%2015%20%E2%80%94%20Taxes) This note details the composition of the company's income tax benefit, deferred tax assets and liabilities, and taxes payable Income Tax Benefit | Indicator | Jun 30, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | **Income tax benefit** | 914,003 | 736,249 | 109,701 | | Current | (835,315) | (286,789) | (42,732) | | Deferred | 1,749,318 | 1,023,038 | 152,433 | Deferred Tax Assets and Liabilities | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | **Deferred tax assets:** | | | | | Allowance for doubtful accounts | 142,316 | 142,316 | 21,205 | | Inventory impairment loss | 1,014,527 | - | - | | Net operating loss carryforwards | 11,086,999 | 13,756,980 | 2,049,793 | | Less: Valuation allowance | (12,101,526) | (13,756,980) | (2,049,793) | | **Net deferred tax assets** | 142,316 | 142,316 | 21,205 | | **Deferred tax liabilities:** | | | | | Intangible assets recognized from business combinations | 5,396,459 | 4,528,405 | 674,733 | | **Total net deferred tax liabilities** | 5,254,143 | 4,386,089 | 653,528 | - For the six months ended June 30, 2022, the company recognized an **income tax benefit of RMB 736,249**, primarily from deferred income tax benefits[172](index=172&type=chunk) - As of June 30, 2022, the company had accumulated net operating losses of approximately **RMB 55,027,921** (USD 8,199,172), for which a full valuation allowance has been provided[175](index=175&type=chunk) Taxes Payable | Indicator | Dec 31, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Value-added tax | 168,384 | 467,114 | 69,600 | | Income tax | 6,217,156 | 5,760,846 | 858,367 | | Other taxes | 39,206 | 494,632 | 73,700 | | **Total** | 6,424,746 | 6,722,592 | 1,001,668 | [Note 16 — Concentration of risk](index=41&type=section&id=Note%2016%20%E2%80%94%20Concentration%20of%20risk) This note discusses the various risk concentrations faced by the company, including credit, foreign exchange, customer, and supplier risks - As of June 30, 2022, the company faced credit risk on its cash deposits in China, Hong Kong, and Singapore, with **RMB 180,016,699** (USD 26,822,526) at risk in China and **RMB 506,008,161** (USD 75,395,321) at risk in Hong Kong[178](index=178&type=chunk) - The majority of the company's expense transactions are denominated in RMB, which is not freely convertible, and exchange rate fluctuations could adversely affect financial performance[180](index=180&type=chunk)[181](index=181&type=chunk) - In the first half of 2022, **one customer accounted for 23.0%** of the company's total revenue, and as of June 30, 2022, two customers accounted for **16.3% and 10.1%** of accounts receivable, respectively[182](index=182&type=chunk) - In the first half of 2022, **one supplier accounted for 16.2%** of total purchases, and as of June 30, 2022, three suppliers accounted for **22.3%, 19.4%, and 11.4%** of accounts payable, respectively[183](index=183&type=chunk) [Note 17 — Leases](index=42&type=section&id=Note%2017%20%E2%80%94%20Leases) This note provides details on the company's lease commitments, with all real estate leases classified as operating leases - The company has entered into 11 non-cancellable operating lease agreements for office space with terms exceeding one year, expiring by August 2026[185](index=185&type=chunk) - As of June 30, 2022, the present value of the company's operating lease right-of-use assets and lease liabilities was **RMB 2,619,476** (USD 390,302)[185](index=185&type=chunk)[188](index=188&type=chunk) - Lease expense for the first half of 2022 was **RMB 1,852,211** (USD 275,980), an increase from RMB 1,174,826 in the same period of 2021[185](index=185&type=chunk) Lease Obligation Maturity Schedule | Twelve Months Ended June 30 | Operating Lease Amount (RMB) | Operating Lease Amount (USD) | |:---|:---|:---| | 2023 | 2,220,422 | 330,843 | | 2024 | 425,015 | 63,327 | | 2025 | 71,287 | 10,622 | | 2026 | 71,287 | 10,622 | | **Total lease payments** | 2,788,011 | 415,414 | | Less: Interest | (168,535) | (25,112) | | **Present value of lease liabilities** | 2,619,476 | 390,302 | [Note 18 — Shareholders' equity](index=43&type=section&id=Note%2018%20%E2%80%94%20Shareholders'%20equity) This note details the composition of the company's shareholders' equity, including common stock, warrants, and equity incentive plans - The company completed its third public offering on March 24, 2021, with net proceeds of approximately **USD 79.7 million** (RMB 508.1 million), of which RMB 108.5 million (USD 16.8 million) was allocated to the fair value of warrants[190](index=190&type=chunk)[191](index=191&type=chunk) - As of June 30, 2022, **4,469,334 warrants remained unexercised**, with a weighted-average exercise price of RMB 57.6 (USD 8.60) and a remaining contractual term of 0.75 years[192](index=192&type=chunk)[193](index=193&type=chunk) - The company granted restricted stock to employees under its 2020 Equity Incentive Plan, recognizing **RMB 3,107,461** (USD 463,012) in share-based compensation expense in the first half of 2022[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) - As of June 30, 2022, the restricted assets of WiMi PRC entities amounted to **RMB 558,257,552** (USD 83,180,492), limiting their ability to distribute dividends to the parent company[199](index=199&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) [Note 19 — Commitments and contingencies](index=45&type=section&id=Note%2019%20%E2%80%94%20Commitments%20and%20contingencies) This note discloses the company's commitments and contingencies, including legal proceedings and risks related to its VIE structure and COVID-19 - The company is subject to legal proceedings and claims from time to time, which management believes do not have a material impact on the consolidated financial statements[201](index=201&type=chunk) - Management believes the **VIE structure complies with existing Chinese laws**, but acknowledges significant uncertainties in the interpretation and application of these regulations[202](index=202&type=chunk)[203](index=203&type=chunk) - The **COVID-19 pandemic** has negatively impacted the company's operations and customer budgets, leading to impairment tests on intangible assets and goodwill in late 2021[205](index=205&type=chunk) - The company is involved in several legal proceedings, one of which resulted in **RMB 442,560** (USD 69,414) of cash being restricted for Shenzhen Yiyun[206](index=206&type=chunk)[207](index=207&type=chunk) [Note 20 — Segments](index=46&type=section&id=Note%2020%20%E2%80%94%20Segments) This note discloses the company's operating segments in accordance with ASC 280, including AR advertising, AR entertainment, and semiconductor-related products - The company has three operating segments: **AR advertising services, AR entertainment, and semiconductor-related products and services**[210](index=210&type=chunk) Revenue and Gross Profit by Segment | Indicator | AR Advertising Services (RMB) | AR Entertainment (RMB) | Semiconductor Business (RMB) | Total (RMB) | |:---|:---|:---|:---|:---| | **June 30, 2021** | | | | | | Revenue | 235,069,726 | 7,154,361 | 274,021,079 | 516,245,166 | | Gross Profit | 111,424,555 | 6,676,910 | 34,951,329 | 153,052,794 | | **June 30, 2022** | | | | | | Revenue | 276,162,981 | 1,299,764 | 156,848,405 | 434,311,150 | | Gross Profit | 70,832,220 | 955,271 | 12,337,918 | 84,277,201 | - In the first half of 2022, AR advertising services revenue **grew 17.5%** year-over-year to RMB 276,162,981, but its gross profit **decreased by 36.4%** to RMB 70,832,220[211](index=211&type=chunk) - Semiconductor business revenue **decreased by 42.8%** year-over-year to RMB 156,848,405, and its gross profit **decreased by 64.7%** to RMB 12,337,918[211](index=211&type=chunk) Revenue by Geographic Location | Geographic Location | Jun 30, 2021 (RMB) | Jun 30, 2022 (RMB) | Jun 30, 2022 (USD) | |:---|:---|:---|:---| | Mainland China | 296,307,628 | 290,966,447 | 43,354,061 | | Hong Kong | 133,017,383 | 59,650,651 | 8,887,959 | | International | 86,916,424 | 83,694,052 | 12,470,431 | | **Total revenue** | 516,245,166 | 434,311,150 | 64,712,452 | [Note 21 — Subsequent events](index=47&type=section&id=Note%2021%20%E2%80%94%20Subsequent%20events) This note discloses significant events that occurred after the reporting period but before the financial statements were issued - On July 1, 2022, Viwo Technology Inc signed an equity transfer agreement to sell its 99.0% and 1.0% stakes in Pengcheng Keyi for RMB 1.0 and RMB 0.1, respectively, to two unrelated individuals[213](index=213&type=chunk)

[FORWARD-LOOKING STATEMENTS](index=5&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines that the report contains forward-looking statements subject to various risks and uncertainties, advising investors to consider disclosed risk factors [Forward-Looking Statements Overview](index=5&type=section&id=Forward-Looking%20Statements%20Overview) The report contains forward-looking statements based on current expectations, subject to risks and uncertainties, requiring investors to consider disclosed risk factors - All statements in the report, other than historical facts, are **forward-looking** and involve **known and unknown risks, uncertainties, and other factors** that may cause **actual results to differ materially**[7](index=7&type=chunk) - Key areas covered by forward-looking statements include **growth strategies**, **future business development**, **financial condition**, **results of operations**, **ability to retain and grow user base**, **product expansion**, **expected changes in revenues and operating margins**, **talent retention**, **competitive landscape in China's holographic AR industry**, **general economic and political conditions in China and globally**, and the **regulatory environment**[8](index=8&type=chunk) - **Investors are advised** to read forward-looking statements in conjunction with the **risk factors** disclosed in 'Item 3. Key Information—3.D. Risk Factors' and acknowledge that **new risks and uncertainties may emerge**, and the company **does not undertake to update or revise these statements** except as required by law[9](index=9&type=chunk) [INTRODUCTORY NOTE](index=6&type=section&id=INTRODUCTORY%20NOTE) This section defines key terms and specifies the company's reporting currency and exchange rate for U.S. dollar translations [Key Definitions and Currency Translation](index=6&type=section&id=Key%20Definitions%20and%20Currency%20Translation) This section defines key terms and specifies the company's reporting currency and exchange rate for U.S. dollar translations - **Key terms defined** include **ADSs** (American depositary shares), **AR** (augmented reality), **China/PRC** (People's Republic of China excluding Taiwan, Hong Kong, Macau), **CPM** (cost per thousand impressions), **GAAP** (U.S. generally accepted accounting principles), **HKD**, **RMB**, **USD**, **View** (advertisement impression), and **WIMI** (WiMi Hologram Cloud Inc. and its consolidated entities)[12](index=12&type=chunk) - The company's reporting currency is **Renminbi (RMB)**. Translations from Renminbi to U.S. dollars in this report were made at **RMB6.5249 to US$1.00**, based on the mid-point reference rate set by the People's Bank of China on **December 31, 2020**[13](index=13&type=chunk) - The PRC government imposes **controls** over its foreign currency reserves, including **direct regulation of Renminbi conversion** and **restrictions on foreign trade**[13](index=13&type=chunk) [PART I](index=7&type=section&id=PART%20I) This section covers the company's key financial data, risk factors, business operations, corporate governance, and market disclosures [ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS](index=7&type=section&id=ITEM%201.%20IDENTITY%20OF%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20ADVISERS) Information regarding the identity of directors, senior management, and advisers is not applicable in this item - This item is marked as '**Not applicable**'[16](index=16&type=chunk) [ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE](index=7&type=section&id=ITEM%202.%20OFFER%20STATISTICS%20AND%20EXPECTED%20TIMETABLE) Information regarding offer statistics and expected timetable is not applicable for this report - This item is marked as '**Not applicable**'[16](index=16&type=chunk) [ITEM 3. KEY INFORMATION](index=7&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section provides essential information about the company, including financial data, capitalization, indebtedness, and comprehensive risk factors [A. Selected financial data.](index=7&type=section&id=A.%20Selected%20financial%20data.) This subsection presents selected consolidated financial data for 2018-2020, including statements of operations, balance sheets, cash flow, and non-GAAP net income Selected Consolidated Statements of Operations and Comprehensive Income (Loss) | Metric | 2018 (RMB) | 2019 (RMB) | 2020 (RMB) | 2020 (USD) | |:---|:---|:---|:---|:---| | Operating revenues | 225.3 million | 319.2 million | 766.0 million | 117.4 million | | Cost of revenues | (85.4 million) | (146.2 million) | (596.6 million) | (91.4 million) | | Gross profit | 139.9 million | 173.0 million | 169.4 million | 26.0 million | | Operating expenses | (39.1 million) | (60.2 million) | (322.9 million) | (49.5 million) | | Income (loss) from operations | 100.8 million | 112.9 million | (153.4 million) | (23.5 million) | | Net income (loss) attributable to WiMi Hologram Cloud, Inc. | 89.2 million | 102.2 million | (151.2 million) | (23.2 million) | | Basic EPS | 0.89 | 1.02 | (1.17) | (0.18) | | Diluted EPS | 0.88 | 0.94 | (1.17) | (0.18) | Selected Consolidated Balance Sheet Data (as of December 31) | Metric | 2018 (RMB) | 2019 (RMB) | 2020 (RMB) | 2020 (USD) | |:---|:---|:---|:---|:---| | Current assets | 213.3 million | 177.5 million | 616.4 million | 94.5 million | | Total assets | 607.5 million | 563.5 million | 1.17 billion | 179.7 million | | Total liabilities | 288.6 million | 140.8 million | 163.4 million | 25.0 million | | Total shareholders' equity | 318.9 million | 422.7 million | 1.01 billion | 154.6 million | Selected Consolidated Cash Flow Data (for the years ended December 31) | Metric | 2018 (RMB) | 2019 (RMB) | 2020 (RMB) | 2020 (USD) | |:---|:---|:---|:---|:---|\ | Net cash provided by (used in) operating activities | 99.5 million | 144.0 million | (67.0 million) | (10.3 million) | | Net cash used in investing activities | (98.6 million) | (126.5 million) | (228.1 million) | (35.0 million) | | Net cash provided by (used in) financing activities | 137.5 million | (41.0 million) | 562.6 million | 86.2 million | | Cash, cash equivalents and restricted cash, end of year | 151.9 million | 129.0 million | 368.1 million | 56.4 million | Non-GAAP Net Income Attributable to WiMi Hologram Cloud, Inc. | Metric | 2018 (RMB) | 2019 (RMB) | 2020 (RMB) | 2020 (USD) | |:---|:---|:---|:---|:---|\ | Net income (loss) attributable to WiMi Hologram Cloud, Inc. | 89.2 million | 102.2 million | (151.2 million) | (23.2 million) | | Stock compensation expenses | - | - | 191.4 million | 29.3 million | | Non-GAAP net income attributable to WiMi Hologram Cloud, Inc. | 89.2 million | 102.2 million | 40.3 million | 6.2 million | | Non-GAAP Basic EPS | 0.89 | 1.02 | 0.31 | 0.05 | | Non-GAAP Diluted EPS | 0.88 | 0.94 | 0.31 | 0.05 | - **Non-GAAP net income (loss)** is defined as net income (loss) before **stock compensation expenses**, which are excluded as they are **non-cash** and partially discretionary, providing a **better understanding of core operations** and facilitating comparisons[25](index=25&type=chunk)[26](index=26&type=chunk) [B. Capitalization and Indebtedness](index=10&type=section&id=B.%20Capitalization%20and%20Indebtedness) Information regarding capitalization and indebtedness is not applicable for this report - This item is marked as '**Not applicable**'[30](index=30&type=chunk) [C. Reasons for the Offer and Use of Proceeds](index=10&type=section&id=C.%20Reasons%20for%20the%20Offer%20and%20Use%20of%20Proceeds) Information regarding the reasons for the offer and use of proceeds is not applicable for this report - This item is marked as '**Not applicable**'[30](index=30&type=chunk) [D. Risk Factors](index=10&type=section&id=D.%20Risk%20Factors) This section outlines significant risks across various categories, including business, industry, corporate structure, China operations, and ADSs - The company operates in a relatively new and **rapidly evolving holographic AR and semiconductor market**, facing challenges such as **technological innovations**, **changing customer demands**, and the need for **significant capital expenditures**[31](index=31&type=chunk)[32](index=32&type=chunk)[35](index=35&type=chunk) - **Intense competition**, **short product life cycles**, and **customer price sensitivity** characterize the markets, requiring **continuous enhancement of products and services** and **timely introduction of new offerings**[37](index=37&type=chunk) - The company incurred a **net loss of RMB 145.0 million (US$21.8 million)** and **negative cash flows from operating activities of RMB 67.0 million** in **2020**, and may not maintain profitability due to investment in R&D, business acquisitions, and stock compensation expenses[42](index=42&type=chunk) - The business is **highly dependent** on the proper functioning of **IT systems and infrastructure**, which are **vulnerable to disruptions, failures, and security breaches**, potentially harming reputation and growth[78](index=78&type=chunk)[79](index=79&type=chunk) - The company relies on **contractual arrangements with Variable Interest Entities (VIEs)** for operations in China due to **foreign ownership restrictions**, which may not be as effective as direct ownership and are subject to **PRC government scrutiny and legal uncertainties**[123](index=123&type=chunk)[125](index=125&type=chunk)[129](index=129&type=chunk) - Doing business in China involves **risks from adverse changes in economic, political, or social conditions**, **extensive government regulation of the Internet industry**, and **uncertainties in the interpretation and enforcement of PRC laws**[143](index=143&type=chunk)[144](index=144&type=chunk)[157](index=157&type=chunk) - Risks related to **ADSs** include **market price volatility**, **limited voting rights** for ADS holders, **potential dilution** from rights offerings, and the possibility of being classified as a **Passive Foreign Investment Company (PFIC)** for U.S. federal income tax purposes[200](index=200&type=chunk)[221](index=221&type=chunk)[223](index=223&type=chunk)[241](index=241&type=chunk) [ITEM 4. INFORMATION ON THE COMPANY](index=39&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section provides a comprehensive overview of the company's history, business, organizational structure, and property, plant, and equipment [A. History and Development of our Company](index=39&type=section&id=A.%20History%20and%20Development%20of%20our%20Company) The company commenced commercial operations in May 2015, underwent offshore holding company formation, completed IPOs, and established a semiconductor business - Commercial operations began in **May 2015** via Beijing WiMi Hologram Cloud Software Co., Ltd[242](index=242&type=chunk) - WiMi Cayman was incorporated in **August 2018** as an **offshore holding company** to facilitate offshore financing[243](index=243&type=chunk) Public Offerings and Proceeds | Offering Type | Date | ADSs Sold | Price per ADS | Gross Proceeds (US$) | Net Proceeds (US$) | |:---|:---|:---|:---|:---|:---|\ | Initial Public Offering | April 2020 | 4,750,000 | US$5.50 | US$26.125 million | US$24.2 million | | Follow-on Public Offering | July 27, 2020 | 7,560,000 | US$8.18 | - | US$57.3 million | | Second Follow-on Public Offering | March 25, 2021 | 11,173,335 units | US$7.50 per unit | US$83.8 million | US$77.8 million | - In **September 2020**, the company acquired **100% equity interests** of FE-DA Electronics Company Private Limited for a total consideration of **US$35 million** to further develop its **semiconductor business**[246](index=246&type=chunk) - Due to **PRC foreign ownership restrictions**, the company relies on **contractual arrangements with Variable Interest Entities (VIEs)**, Beijing WiMi and Shenzhen Yitian, to conduct most of its operations in China, with recent restructuring in **December 2020**[249](index=249&type=chunk) [B. Business Overview](index=41&type=section&id=B.%20Business%20Overview) The company provides AR-based holographic services and products, expanded into central processing algorithm services and computer chip products, and operates under a complex regulatory framework - The company offers **AR-based holographic services and products**, focusing on innovative, immersive, and interactive holographic AR experiences, alongside **central processing algorithm services** and **computer chip products** for enterprise customers[254](index=254&type=chunk) Revenue Contribution by Business Segment | Business Segment | 2018 Revenue Contribution (%) | 2019 Revenue Contribution (%) | 2020 Revenue Contribution (%) | |:---|:---|:---|:---|\ | Holographic AR advertising services | 80.5% | 83.8% | 40.1% | | Holographic AR entertainment products | 19.5% | 16.2% | 3.9% | | Semiconductor business | - | - | 56.0% | - **Holographic AR advertising services** embed **3D objects** into online videos using proprietary image and video recognition technologies, generating **11.3 billion views in 2020**, a **16.5% increase** from **2019**[256](index=256&type=chunk) - **Holographic AR entertainment products** include **payment middleware software**, a **game distribution platform (233 Game Platform with over 3,532 apps and 3.8 million active members in 2020)**, and **holographic MR software**[260](index=260&type=chunk)[263](index=263&type=chunk)[264](index=264&type=chunk) - The **semiconductor business**, launched in **July 2020**, provides **central processing algorithm services** and **computer chip products**, generating **56.0% of 2020 revenues** from sales of semiconductor products and related accessories[255](index=255&type=chunk)[267](index=267&type=chunk) - **Key technologies** include **holographic image processing and recognition intelligence** (e.g., **3D facial recognition, facial change technology**), **software engineering**, **content production (4,600+ ready-to-use AR holographic contents)**, **cloud architecture**, **big data analytics (2,560+ user tags)**, and **artificial intelligence**, with future adaptation to **5G technology**[268](index=268&type=chunk)[269](index=269&type=chunk)[271](index=271&type=chunk)[272](index=272&type=chunk)[273](index=273&type=chunk)[277](index=277&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) - The company's **intellectual property portfolio** as of **December 31, 2020**, includes **195 registered patents** (**193 utility models**), **56 pending patent applications**, **325 registered software copyrights**, **26 registered trademarks**, and **25 registered domain names** in China[290](index=290&type=chunk) - The company operates in a **highly regulated Internet industry in China**, subject to various laws and regulations concerning **foreign investment restrictions**, **AR industry promotion**, **value-added telecommunication services**, **internet content providers**, **intellectual property rights**, **online advertising**, **internet security**, **privacy protection**, **online games**, **employment**, **social welfare**, and **taxation**[296](index=296&type=chunk)[297](index=297&type=chunk)[301](index=301&type=chunk)[302](index=302&type=chunk)[305](index=305&type=chunk)[310](index=310&type=chunk)[319](index=319&type=chunk)[321](index=321&type=chunk)[325](index=325&type=chunk)[331](index=331&type=chunk)[341](index=341&type=chunk)[342](index=342&type=chunk)[345](index=345&type=chunk)[346](index=346&type=chunk) [C. Organizational Structure](index=62&type=section&id=C.%20Organizational%20Structure) The company's corporate structure involves an offshore holding company, PRC subsidiaries, and VIEs, relying on contractual arrangements due to foreign ownership restrictions - The company's **corporate structure** includes **WiMi Cayman** (offshore holding), **PRC subsidiaries** (Hologram WiMi, Shenzhen Weiyixin), and **VIEs** (Beijing WiMi, Shenzhen Yitian) and their subsidiaries[369](index=369&type=chunk)[371](index=371&type=chunk) - **Jie Zhao**, Chairman, beneficially owns **100% of Class A ordinary shares**, **27.1% of Class B ordinary shares**, and **82.05% of Beijing WiMi's capital stock**, indicating **significant control**[369](index=369&type=chunk) - **Contractual arrangements with VIEs** are necessary to comply with **PRC foreign ownership restrictions** in value-added telecommunication services, internet audio-video programs, and other restricted businesses[371](index=371&type=chunk) - These contractual arrangements grant the company **effective control** over its VIEs, allow it to receive **substantially all economic benefits**, and provide **exclusive options to purchase equity interests and assets**, enabling **consolidation under GAAP**[373](index=373&type=chunk) - **Key agreements** include **Power of Attorney** (granting voting rights), **Equity Interest Pledge Agreement** (securing obligations), **Exclusive Business Cooperation Agreement** (service fees equal to net income), **Exclusive Share Purchase Option Agreement** (option to acquire equity), and **Exclusive Asset Purchase Agreement** (option to acquire assets)[375](index=375&type=chunk)[376](index=376&type=chunk)[379](index=379&type=chunk)[380](index=380&type=chunk)[381](index=381&type=chunk)[382](index=382&type=chunk)[384](index=384&type=chunk)[386](index=386&type=chunk)[387](index=387&type=chunk) [D. Property, Plant and equipment](index=65&type=section&id=D.%20Property%2C%20Plant%20and%20equipment) The company's headquarters are in Beijing, China, with additional offices, and capital expenditures primarily for office property and equipment - The company's headquarters are in **Beijing, China**, with additional offices in **Shenzhen, China (2,620 sq meters)**, **Hong Kong (655 sq feet)**, and **Singapore (1,500 sq feet)**[389](index=389&type=chunk) Capital Expenditure | Year | Capital Expenditure (RMB) | Capital Expenditure (USD) | |:---|:---|:---|\ | 2018 | 0.05 million | - | | 2019 | 0.2 million | - | | 2020 | 0.5 million | 74,296 | - **Capital expenditures in 2020** were mainly for the purchase of **office property and equipment**, and **leasehold improvements**[253](index=253&type=chunk) [ITEM 4A. UNRESOLVED STAFF COMMENTS](index=66&type=section&id=ITEM%204A.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments applicable to this report - This item is marked as '**Not applicable**', indicating no unresolved staff comments to report[391](index=391&type=chunk) [ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS](index=66&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section provides a detailed discussion and analysis of the company's financial condition and results of operations, including operating results, liquidity, R&D, and contractual obligations [A. Operating Results](index=66&type=section&id=A.%20Operating%20Results) The company experienced significant revenue growth in 2020, driven by the new semiconductor business, despite a net loss and negative operating cash flow, with COVID-19 impacts Revenue Growth (YoY) | Year | Total Revenues (RMB) | YoY Growth (%) | |:---|:---|:---|\ | 2018 | 225.3 million | - | | 2019 | 319.2 million | 41.7% | | 2020 | 766.0 million | 140.0% | Net Income (Loss) and Non-GAAP Net Income | Year | Net Income (Loss) (RMB) | Non-GAAP Net Income (RMB) | |:---|:---|:---|\ | 2018 | 89.2 million | 89.2 million | | 2019 | 102.2 million | 102.2 million | | 2020 | (145.0 million) | 40.3 million | - The **semiconductor business**, launched in **July 2020**, generated approximately **RMB 429.0 million (US$ 65.7 million)** in revenues, accounting for **56.0% of total revenues in 2020**[394](index=394&type=chunk)[421](index=421&type=chunk) - **AR advertising revenue increased by 14.9% to RMB 307.3 million in 2020**, driven by an increase in customers (**from 153 to 294**), but average revenue per customer decreased due to lower pricing during the COVID-19 pandemic[419](index=419&type=chunk) - **AR entertainment revenue decreased by 42.4% to RMB 29.7 million in 2020**, primarily due to reduced demand for mobile games and SDK payment channel services impacted by COVID-19 and competition[420](index=420&type=chunk) Operating Expenses (YoY Change) | Expense Category | 2019 (RMB) | 2020 (RMB) | YoY Change (RMB) | YoY Change (%) | |:---|:---|:---|:---|:---|\ | Selling expenses | 1.9 million | 3.7 million | 1.8 million | 94.7% | | General and administrative expenses | 39.9 million | 42.7 million | 2.8 million | 7.1% | | Research and development expenses | 18.4 million | 85.0 million | 66.6 million | 362.8% | | Stock compensation expenses | - | 191.4 million | 191.4 million | 100.0% | | **Total Operating Expenses** | **60.2 million** | **322.9 million** | **262.7 million** | **436.6%** | - **Gross profit decreased slightly by RMB 3.6 million to RMB 169.4 million in 2020**, with overall **gross margin declining from 54.2% in 2019 to 22.1% in 2020**, mainly due to the **lower profit margin of the semiconductor business (10.9%)** and higher costs for AR advertising in short-form videos[425](index=425&type=chunk)[426](index=426&type=chunk)[429](index=429&type=chunk) - The **COVID-19 pandemic negatively impacted** customer budgets for online advertising and MR software development in the **first half of 2020**, leading to an **impairment of approximately RMB 7.3 million (US$1.1 million)** for MR software development[398](index=398&type=chunk)[399](index=399&type=chunk) [B. Liquidity and Capital Resources](index=83&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) As of December 31, 2020, the company had **RMB 368.1 million** in cash and **RMB 484.2 million** in working capital, with liquidity financed through operations, debt, and equity offerings Cash and Working Capital (as of December 31, 2020) | Metric | Amount (RMB) | Amount (USD) | |:---|:---|:---|\ | Cash, cash equivalents and restricted cash | 368.1 million | 56.4 million | | Working capital | 484.2 million | 74.2 million | - The company received **net proceeds of approximately US$24.2 million** from its initial public offering in **April 2020**, **US$57.3 million** from a follow-on offering in **July 2020**, and **US$77.8 million** from a registered direct offering in **March 2021**[496](index=496&type=chunk) - **PRC regulations restrict** the ability of PRC entities to transfer net assets to the Cayman Islands and Hong Kong subsidiaries, but these restrictions **do not currently impact** the company's ability to meet its cash obligations within the PRC[497](index=497&type=chunk) - Funding to PRC subsidiaries through loans or capital contributions is subject to **PRC government approvals or registrations**, with **statutory limits on foreign debts**[498](index=498&type=chunk)[500](index=500&type=chunk) Cash Flow Summary (for the years ended December 31) | Cash Flow Activity | 2018 (RMB) | 2019 (RMB) | 2020 (RMB) | 2020 (USD) | |:---|:---|:---|:---|:---|\ | Net cash provided by (used in) operating activities | 99.5 million | 144.0 million | (67.0 million) | (10.3 million) | | Net cash used in investing activities | (98.6 million) | (126.5 million) | (228.1 million) | (35.0 million) | | Net cash provided by (used in) financing activities | 137.5 million | (41.0 million) | 562.6 million | 86.2 million | | Net change in cash, cash equivalents and restricted cash | 139.3 million | (22.9 million) | 239.1 million | 36.6 million | - **Net cash used in operating activities in 2020** was primarily due to a **net loss of RMB 145.0 million**, increased accounts receivable, and higher prepaid expenses, partially offset by non-cash items like stock compensation expenses[504](index=504&type=chunk) - **Net cash used in investing activities in 2020 increased significantly** due to payments for cost method investments, net acquisition payments for Fe-DA, and purchases of short-term investments[508](index=508&type=chunk)[509](index=509&type=chunk) - **Net cash provided by financing activities in 2020** was mainly from **public offering proceeds** and additional related-party loans, partially offset by loan repayments[513](index=513&type=chunk) [C. Research and Development, Patents and Licenses, etc.](index=87&type=section&id=C.%20Research%20and%20Development%2C%20Patents%20and%20Licenses%2C%20etc.) The company significantly increased its research and development expenses in 2020, focusing on AI, holographic AR, image processing, intelligent hardware, and photosensitive signal transmission technologies Research and Development Expenses | Year | R&D Expenses (RMB) | R&D Expenses (USD) | |:---|:---|:---|\ | 2018 | 8.0 million | - | | 2019 | 18.4 million | - | | 2020 | 85.0 million | 13.0 million | - **R&D efforts** are primarily focused on enhancing **artificial intelligence technology**, **holographic AR and image processing technology**, **intelligent hardware technology**, and **photosensitive signal transmission technology**[402](index=402&type=chunk) - The company relies on a combination of **patent, copyright, trademark, and trade secret laws**, along with disclosure restrictions, to protect its **intellectual property rights**[520](index=520&type=chunk) [D. Trend information](index=87&type=section&id=D.%20Trend%20information) No additional material adverse trends, uncertainties, demands, commitments, or events were identified for the year ended December 31, 2020, beyond those already disclosed - **No additional material adverse trends**, uncertainties, demands, commitments, or events were identified for the year ended **December 31, 2020**, beyond those already disclosed in the annual report[521](index=521&type=chunk) [E. Off-Balance Sheet Arrangements](index=87&type=section&id=E.%20Off-Balance%20Sheet%20Arrangements) The company has not entered into any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on its financial condition - The company has **not entered into any material off-balance sheet arrangements**, including financial guarantees, derivative contracts, or retained/contingent interests in assets transferred to unconsolidated entities[522](index=522&type=chunk) [F. Tabular Disclosure of Contractual Obligations](index=88&type=section&id=F.%20Tabular%20Disclosure%20of%20Contractual%20Obligations) As of December 31, 2020, the company's contractual obligations primarily consisted of operating lease obligations, loans from related parties, and acquisition payables Contractual Obligations as of December 31, 2020 | Contractual obligations | Total (RMB) | Less than 1 year (RMB) | 1 - 2 years (RMB) | 3 - 5 years (RMB) | Thereafter (RMB) | |:---|:---|:---|:---|:---|:---|\ | Operating leases obligations | 3.5 million | 2.8 million | 640,628 | - | - | | Loans—related parties | 86.6 million | 63.9 million | 22.7 million | - | - | | Acquisition payable | 1.9 million | - | 1.9 million | - | - | | **Total** | **91.9 million** | **66.7 million** | **25.2 million** | **-** | **-** | [G. Safe Harbor](index=88&type=section&id=G.%20Safe%20Harbor) This section refers to the 'Forward-looking Statements' section at the beginning of the annual report for information regarding safe harbor provisions - This section directs readers to the '**Forward-looking Statements**' section for details on safe harbor provisions[526](index=526&type=chunk) [ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES](index=94&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section provides information on the company's directors and executive officers, their compensation, board practices, employee statistics, and share ownership [A. Directors, Senior Management and Employees](index=94&type=section&id=A.%20Directors%2C%20Senior%20Management%20and%20Employees) This subsection lists the company's directors and executive officers, including their age and position, highlighting their professional backgrounds and experience Directors and Executive Officers | Name | Age | Position/Title | |:---|:---|:---|\ | Jie Zhao | 44 | Chairman | | Shuo Shi | 38 | Chief Executive and Operations Officer and Director | | Songrui Guo | 37 | Chief Technology Officer and Director | | Guanghui Zheng | 31 | Chief Financial Officer | | Hongtao Zhao | 44 | Independent Director | | Yuanyuan Liu | 37 | Independent Director | | Shan Cui | 48 | Independent Director | | Michael W. Harlan | 60 | Independent Director | - **Jie Zhao**, the founder, has over **10 years of management experience** and holds **significant control** as Chairman[528](index=528&type=chunk) - **Shuo Shi**, CEO and COO, has over **10 years of experience** in sales marketing, internet management, and culture media[530](index=530&type=chunk) - **Songrui Guo**, CTO, has a **PhD in computer science and technology** and **extensive R&D experience**[531](index=531&type=chunk) [B. Compensation](index=96&type=section&id=B.%20Compensation) In 2020, the aggregate cash compensation for directors and executive officers was approximately **RMB 810,518**, with no pension benefits, but statutory contributions for PRC employees Aggregate Cash Compensation for Directors and Executive Officers (2020) | Metric | Amount (RMB) | Amount (USD) | |:---|:---|:---|\ | Aggregate cash compensation | 810,518 | 124,219 | - The company **does not provide pension, retirement, or similar benefits** to directors and executive officers[538](index=538&type=chunk) - **PRC subsidiaries and consolidated VIEs** are required to contribute to **employee social security plans** (pension, medical, unemployment, childbirth, work-related injury insurance, and housing fund) based on specified percentages of salaries[538](index=538&type=chunk) - Employment agreements with executive officers are for an unspecified period, include **confidentiality clauses**, and can be terminated by either party with prior written notice or for cause[539](index=539&type=chunk) [C. Board Practices](index=96&type=section&id=C.%20Board%20Practices) The board of directors consists of seven members, including four independent directors, with established audit, compensation, and nominating committees, and directors owing fiduciary duties - The board of directors comprises **seven directors**, including **four independent directors** (Hongtao Zhao, Yuanyuan Liu, Shan Cui, and Michael W. Harlan), satisfying **Nasdaq's independence requirements**[540](index=540&type=chunk) - **Three committees** have been established: an **audit committee** (chaired by Shan Cui, with Shan Cui, Hongtao Zhao, and Yuanyuan Liu as independent members), a **compensation committee** (chaired by Hongtao Zhao, with Hongtao Zhao and Yuanyuan Liu as independent members), and a **nominating and corporate governance committee** (chaired by Hongtao Zhao, with Hongtao Zhao and Yuanyuan Liu as independent members)[543](index=543&type=chunk)[545](index=545&type=chunk)[546](index=546&type=chunk) - Directors owe **fiduciary duties** to the company under **Cayman Islands law**, including duties of loyalty, honesty, and acting in the company's best interests, as well as exercising reasonable skill and care[548](index=548&type=chunk) - Directors are appointed by the board or shareholders and serve without a fixed term, holding office until removed by an ordinary resolution of shareholders[549](index=549&type=chunk) - The **2020 Equity Incentive Plan** was adopted to **attract and retain personnel**, authorizing the issuance of up to **17,500,000 Class B ordinary shares** through options, restricted shares, restricted share units, and local awards[550](index=550&type=chunk)[552](index=552&type=chunk) [D. Employees](index=101&type=section&id=D.%20Employees) The company's total full-time employees increased from **122 in 2018** to **202 in 2020**, primarily in R&D, with all employees based in China and participating in social security plans Full-time Employees by Year | Year | Number of Full-time Employees | |:---|:---|\ | 2018 | 122 | | 2019 | 147 | | 2020 | 202 | Full-time Employees by Function (as of December 31, 2020) | Function | Number of Full-time Employees | |:---|:---|\ | Research and Development | 87 | | Business and Marketing | 67 | | Administrative, Human Resources and Finance | 48 | | **Total** | **202** | - **All employees are based in China**, and the company participates in **government-mandated social security plans** (pension, unemployment, childbirth, work-related injury, medical insurance, and housing fund) for its PRC-based employees[563](index=563&type=chunk) - The company maintains **good working relationships** with employees and has **not experienced any labor disputes**; none of its employees are represented by labor unions[564](index=564&type=chunk) [E. Share Ownership](index=96&type=section&id=E.%20Share%20Ownership) This subsection details the beneficial ownership of the company's ordinary shares by directors, executive officers, and major shareholders, with Chairman Jie Zhao holding significant voting power Beneficial Ownership of Ordinary Shares (as of report date) | Directors and Executive Officers | Class A Ordinary Shares (Number) | Class A Ordinary Shares (%) | Class B Ordinary Shares (Number) | Class B Ordinary Shares (%) | Voting Power (%) | |:---|:---|:---|:---|:---|:---|\ | Jie Zhao | 20,115,570 | 100.0% | 41,591,895 | 27.1% | 68.5% | | Shuo Shi | — | — | 56,680 | *% | *% | | Songrui Guo | — | — | 5,000 | *% | *% | | Guanghui Zheng | — | — | 10,000 | *% | *% | | All directors and officers as a group | 20,115,570 | 100.0% | 41,626,815 | 27.1% | 68.5% | | **Principal Shareholders:** | | | | | | | Vital Success Global Ltd. | — | — | 26,591,885 | 17.3% | 7.5% | | Wonderful Seed Ltd. | — | — | 15,000,010 | 9.8% | 4.2% | - **Jie Zhao**, the Chairman, beneficially owns **100% of Class A ordinary shares** and **27.1% of Class B ordinary shares**, giving him **68.5% of the total voting power**[568](index=568&type=chunk) - As of the report date, **85,017,502 Class B ordinary shares (56.3% of total outstanding ordinary shares)** are held by one record holder in the United States, which is the depositary of the ADS program[570](index=570&type=chunk) [ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS](index=103&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details the company's major shareholders and significant transactions with related parties, including loans and contractual arrangements with VIEs [A. Major Shareholders](index=103&type=section&id=A.%20Major%20Shareholders) Information on major shareholders is provided in 'Item 6.E. Share Ownership' - Information on major shareholders is provided in '**Item 6.E. Share Ownership**'[571](index=571&type=chunk) [B. Related Party Transactions](index=103&type=section&id=B.%20Related%20Party%20Transactions) The company has engaged in related party transactions, primarily involving unsecured loans from its Chairman and an entity under common control, and contractual arrangements with VIEs - The company borrowed funds from Chairman **Jie Zhao** for operational purposes; these loans are **unsecured, interest-free**, and due in **2021**. Repayments to Jie Zhao in **2020** amounted to **RMB 4,850,000 (USD 743,306)**[572](index=572&type=chunk) - Loans were also obtained from **Shanghai Junei Internet Co.** (under common control of Jie Zhao), with an annual interest rate of **7%**. In **2020**, the company repaid **RMB 91,500,000 (USD 14,023,203)** and borrowed an additional **RMB 96,300,000 (USD 14,758,847)**[573](index=573&type=chunk) Related Party Loans (as of December 31) | Name of Related Party | Relationship | Nature | 2019 (RMB) | 2020 (RMB) | 2020 (USD) | |:---|:---|:---|:---|:---|:---|\ | Jie Zhao | Chairman of Wimi Cayman | Loan | 4.9 million | - | - | | Jie Zhao* | Chairman of Wimi Cayman | Loan | 6.7 million | 6.3 million | 959,657 | | Shanghai Junei Internet Co. | Under common control of Jie Zhao | Loan | 75.5 million | 80.3 million | 12.3 million | | **Total** | | | **87.0 million** | **86.6 million** | **13.3 million** | | Current portion of shareholder loan | | | 71.0 million | 63.9 million | 9.8 million | | Shareholder loan—non-current | | | 16.0 million | 22.7 million | 3.5 million | - The company relies on **contractual arrangements with its VIEs**, as detailed in '**Item 4. Information on the Company—C. Organizational Structure**,' for its operations in China[576](index=576&type=chunk) [C. Interests of Experts and Counsel](index=98&type=section&id=C.%20Interests%20of%20Experts%20and%20Counsel) Information regarding the interests of experts and counsel is not applicable for this report - This item is marked as '**Not applicable**', indicating no interests of experts and counsel to report[576](index=576&type=chunk) [ITEM 8. FINANCIAL INFORMATION](index=104&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section confirms the inclusion of the company's audited consolidated financial statements and addresses legal proceedings, dividend policy, and significant changes [A. Consolidated Statements and Other Financial Information](index=104&type=section&id=A.%20Consolidated%20Statements%20and%20Other%20Financial%20Information) The company's audited consolidated financial statements are included in the report, with no material legal proceedings or current plans to pay dividends - The company's **audited consolidated financial statements** are included starting on **page F-1**[577](index=577&type=chunk) - The company is **not currently a party** to any legal, arbitration, or administrative proceedings that management believes could have a **material adverse effect** on its business, financial position, or results of operations[578](index=578&type=chunk) - The company currently has **no plan to declare or pay any dividends** in the near future, intending to retain most, if not all, available funds and future earnings to operate and expand its business[579](index=579&type=chunk) - **Dividend distribution** is at the discretion of the board of directors, subject to **Cayman Islands law** and the company's financial condition, with reliance on dividends from PRC subsidiaries for cash requirements[580](index=580&type=chunk)[582](index=582&type=chunk) [B. Significant Changes](index=105&type=section&id=B.%20Significant%20Changes) No significant changes have occurred since the date of the annual financial statements, other than those already disclosed in the report - **No significant changes** have occurred since the date of the annual financial statements, other than those already disclosed in the report[583](index=583&type=chunk) [ITEM 9. THE OFFER AND LISTING](index=105&type=section&id=ITEM%209.%20THE%20OFFER%20AND%20LISTING) This section provides details about the company's American Depositary Shares (ADSs) listing on the Nasdaq Global Market and confirms that other offer and listing-related items are not applicable [A. Offer and listing details](index=105&type=section&id=A.%20Offer%20and%20listing%20details) The company's ADSs have been listed on the Nasdaq Global Market under the symbol 'WIMI' since **April 1, 2020**, with each ADS representing two Class B ordinary shares - The company's **ADSs** have been listed on the **Nasdaq Global Market** under the symbol '**WIMI**' since **April 1, 2020**[584](index=584&type=chunk) - Each **ADS represents two Class B ordinary shares**, with a par value of **US$0.0001 per share**[584](index=584&type=chunk) - **No significant trading suspensions** have occurred since the ADSs began trading[584](index=584&type=chunk) [B. Plan of Distribution](index=105&type=section&id=B.%20Plan%20of%20Distribution) Information regarding the plan of distribution is not applicable for this report - This item is marked as '**Not applicable**'[584](index=584&type=chunk) [C. Markets](index=105&type=section&id=C.%20Markets) This section refers to 'Offer and Listing Details' for market information - This section refers to '**Offer and Listing Details**' for market information[584](index=584&type=chunk) [D. Selling Shareholders](index=105&type=section&id=D.%20Selling%20Shareholders) Information regarding selling shareholders is not applicable for this report - This item is marked as '**Not applicable**'[584](index=584&type=chunk) [E. Dilution](index=105&type=section&id=E.%20Dilution) Information regarding dilution is not applicable for this report - This item is marked as '**Not applicable**'[584](index=584&type=chunk) [F. Expenses of the Issue](index=105&type=section&id=F.%20Expenses%20of%20the%20Issue) Information regarding the expenses of the issue is not applicable for this report - This item is marked as '**Not applicable**'[584](index=584&type=chunk) [ITEM 10. ADDITIONAL INFORMATION](index=105&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section provides additional corporate information, including details on share capital, governing documents, material contracts, exchange controls, taxation, and dividend policy [A. Share Capital](index=105&type=section&id=A.%20Share%20Capital) Information regarding share capital is not applicable for this report - This item is marked as '**Not applicable**'[584](index=584&type=chunk) [B. Memorandum and Articles of Association](index=106&type=section&id=B.%20Memorandum%20and%20Articles%20of%20Association) The company's affairs are governed by its second amended and restated memorandum and articles of association, effective prior to its initial public offering - The company's affairs are governed by its **second amended and restated memorandum and articles of association**, the **Companies Law of the Cayman Islands**, and common law[586](index=586&type=chunk) - The memorandum and articles of association were adopted on **July 24, 2019**, and became effective immediately prior to the completion of the initial public offering[586](index=586&type=chunk) [C. Material Contracts](index=106&type=section&id=C.%20Material%20Contracts) No material contracts outside the ordinary course of business have been entered into within the two years preceding the report date, other than those already disclosed - **No material contracts** outside the ordinary course of business have been entered into within the past two years, other than those already disclosed in the report[587](index=587&type=chunk) [D. Exchange Controls](index=106&type=section&id=D.%20Exchange%20Controls) This section directs readers to 'Item 4. Information on the Company—B. Business Overview—Regulations—Regulation on Foreign Exchange' and 'Regulation on Dividend Distributions' for information on exchange controls - This section directs readers to '**Item 4. Information on the Company—B. Business Overview—Regulations—Regulation on Foreign Exchange**' and '**Regulation on Dividend Distributions**' for information on exchange controls[588](index=588&type=chunk) [E. Taxation](index=106&type=section&id=E.%20Taxation) This subsection outlines the tax implications for the company and its shareholders across various jurisdictions, including potential 'PRC resident enterprise' classification and PFIC status for U.S. investors - The **Cayman Islands currently levy no taxes** on individuals or corporations based on profits, income, gains, or appreciation, and there are **no withholding taxes on dividend payments**[589](index=589&type=chunk)[590](index=590&type=chunk) - Under **PRC EIT Law**, an enterprise established outside the PRC with '**de facto management bodies**' within the PRC is considered a '**resident enterprise**' and subject to a **25% enterprise income tax rate** on worldwide income, which could **significantly reduce net income** if applied to the company[591](index=591&type=chunk)[593](index=593&type=chunk) - If classified as a **PRC resident enterprise**, dividends paid to non-PRC enterprise shareholders (including ADS holders) may be subject to a **10% withholding tax**, and gains on the sale of ADSs or Class B ordinary shares may be subject to **PRC tax**[593](index=593&type=chunk) - **U.S. Holders of ADSs or Class B ordinary shares** may face **adverse U.S. federal income tax consequences** if the company is classified as a **Passive Foreign Investment Company (PFIC)**, including **increased tax liability** on disposition gains and '**excess distributions**'[241](index=241&type=chunk)[616](index=616&type=chunk) - The company **does not expect to be a PFIC** for its current taxable year, but uncertainties regarding the treatment of contractual arrangements with VIEs and the volatile market price of ADSs could affect this status in the future[613](index=613&type=chunk) [F. Dividends and Paying Agents](index=106&type=section&id=F.%20Dividends%20and%20Paying%20Agents) Information regarding dividends and paying agents is not applicable for this report - This item is marked as '**Not applicable**'[621](index=621&type=chunk) [G. Statement By Experts](index=106&type=section&id=G.%20Statement%20By%20Experts) Information regarding statements by experts is not applicable for this report - This item is marked as '**Not applicable**'[621](index=621&type=chunk) [H. Documents on Display](index=106&type=section&id=H.%20Documents%20on%20Display) The company is subject to SEC periodic reporting requirements as a foreign private issuer, filing annual reports on Form 20-F and furnishing press releases on Form 6-K, available on the SEC website - The company is subject to **periodic reporting and informational requirements** of the Exchange Act as a **foreign private issuer**[623](index=623&type=chunk) - **Annual reports on Form 20-F** are filed within four months after the end of each fiscal year, and press releases for financial results and material events are furnished on **Form 6-K**[623](index=623&type=chunk) - Filed documents can be inspected at the **SEC's public reference facilities** in Washington, D.C., and are available on the **SEC's website (http://www.sec.gov)**[623](index=623&type=chunk) [I. Subsidiary Information](index=106&type=section&id=I.%20Subsidiary%20Information) Information regarding subsidiary information is not applicable for this report - This item is marked as '**Not applicable**'[624](index=624&type=chunk) [ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=113&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the company's exposure to market risks, including credit risk, liquidity risk, and foreign exchange risk, detailing cash deposit concentrations and RMB exchange rate impacts - The company is exposed to **credit risk** primarily from **cash and short-term investments**, with **significant cash balances** held in financial institutions in China, Hong Kong, Singapore, and the US, some of which exceed local insurance coverage limits[625](index=625&type=chunk) - **Liquidity risk** is managed through financial position analysis and monitoring, with reliance on financial institutions and related parties for short-term funding when necessary[627](index=627&type=chunk) - The company faces **foreign exchange risk** due to operations in HKD and USD, and RMB is not freely convertible, meaning **RMB appreciation against USD could adversely affect USD conversion amounts**, and vice versa[626](index=626&type=chunk)[628](index=628&type=chunk) - **Customer concentration risk**: As of **December 31, 2020**, three customers accounted for **19.1%, 14.0%, and 12.2% of accounts receivable**[614](index=614&type=chunk) - **Vendor concentration risk**: As of **December 31, 2020**, four vendors accounted for **25.9%, 18.6%, 13.9%, and 11.0% of accounts payable**[630](index=630&type=chunk) [ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES](index=108&type=section&id=ITEM%2012.%20DESCRIPTION%20OF%20SECURITIES%20OTHER%20THAN%20EQUITY%20SECURITIES) This section clarifies that there are no debt securities, warrants, or other non-equity securities to report, but details fees and charges for American Depositary Shares (ADS) holders [A. Debt Securities](index=108&type=section&id=A.%20Debt%20Securities) There are no debt securities to report - This item is marked as '**None**'[630](index=630&type=chunk) [B. Warrants and Rights](index=108&type=section&id=B.%20Warrants%20and%20Rights) There are no warrants and rights to report - This item is marked as '**None**'[630](index=630&type=chunk) [C. Other Securities](index=108&type=section&id=C.%20Other%20Securities) There are no other securities to report - This item is marked as '**None**'[630](index=630&type=chunk) [D. American Depositary Shares](index=108&type=section&id=D.%20American%20Depositary%20Shares) This subsection details various fees and charges for American Depositary Shares (ADS) holders, including issuance, transfer, cash distribution, and administrative fees, and payments from the depositary to the company - **ADS holders may be charged $5.00 per 100 ADSs** for issuance, delivery, reduction, cancellation, or surrender[631](index=631&type=chunk) - Additional charges include fees for transfers of certificated/direct registration ADRs (**US$1.50 per ADR**), cash distributions (**up to US$0.05 per ADS**), annual administrative services (**up to US$0.05 per ADS per calendar year**), and reimbursement of depositary/agent expenses[631](index=631&type=chunk)[633](index=633&type=chunk) - For the year ended **December 31, 2020**, the company received **US$344,297** from the depositary[635](index=635&type=chunk) [PART II](index=116&type=section&id=PART%20II) This section addresses corporate governance, internal controls, use of offering proceeds, and financial statement disclosures [ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES](index=116&type=section&id=ITEM%2013.%20DEFAULTS%2C%20DIVIDEND%20ARREARAGES%20AND%20DELINQUENCIES) There are no defaults, dividend arrearages, or delinquencies to report - This item is marked as '**None**'[637](index=637&type=chunk) [ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS](index=116&type=section&id=ITEM%2014.%20MATERIAL%20MODIFICATIONS%20TO%20THE%20RIGHTS%20OF%20SECURITY%20HOLDERS%20AND%20USE%20OF%20PROCEEDS) This section confirms no material modifications to security holder rights or registered securities, and no withdrawal or substitution of assets, detailing the use of offering proceeds [A. Material Modifications to the Instruments Defining the Rights of Security Holders](index=116&type=section&id=A.%20Material%20Modifications%20to%20the%20Instruments%20Defining%20the%20Rights%20of%20Security%20Holders) No material modifications to the instruments defining the rights of security holders have occurred - **No material modifications** to the instruments defining the rights of security holders have occurred[637](index=637&type=chunk) [B. Material Modifications to the Rights of Registered Securities by Issuing or Modifying any other Class of Securities](index=116&type=section&id=B.%20Material%20Modifications%20to%20the%20Rights%20of%20Registered%20Securities%20by%20Issuing%20or%20Modifying%20any%20other%20Class%20of%20Securities) No material modifications to the rights of registered securities by issuing or modifying any other class of securities have occurred - This item is marked as '**None**'[637](index=637&type=chunk) [C. Withdrawal or Substitution of a Material Amount of the Assets Securing any Registered Securities](index=116&type=section&id=C.%20Withdrawal%20or%20Substitution%20of%20a%20Material%20Amount%20of%20the%20Assets%20Securing%20any%20Registered%20Securities) No withdrawal or substitution of a material amount of assets securing any registered securities has occurred - This item is marked as '**Not applicable**'[637](index=637&type=chunk) [D. Change of Trustees or Paying Agents for any Registered Securities](index=116&type=section&id=D.%20Change%20of%20Trustees%20or%20Paying%20Agents%20for%20any%20Registered%20Securities) No change of trustees or paying agents for any registered securities has occurred - This item is marked as '**Not applicable**'[637](index=637&type=chunk) [E. Use of Proceeds](index=116&type=section&id=E.%20Use%20of%20Proceeds) The company utilized net proceeds from its initial public offering and follow-on offerings for R&D, strategic acquisitions, and general corporate purposes Use of Net Proceeds from Initial Public Offering (April 2020) | Category | Amount (US$) | |:---|:---|\ | Research and development | 9.4 million | | Strategic acquisitions and investments | 10.0 million | | General corporate purposes | 4.8 million | | **Total Net Proceeds** | **24.2 million** | Use of Net Proceeds from Follow-on Public Offering (July 2020) | Category | Amount (US$) | |:---|:---|\ | Operating expenses and R&D in semiconductor industry | 3.6 million | | Strategic acquisitions and investments | 23.1 million | | General corporate purposes | 11.4 million | | **Total Net Proceeds** | **57.3 million** | - The registered direct offering in **March 2021** generated **net proceeds of approximately US$77.8 million (RMB 507.9 million)**, with the intended use as previously disclosed in Form F-1 registration statements[643](index=643&type=chunk) [ITEM 15. CONTROLS AND PROCEDURES](index=117&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) The company's management concluded that disclosure controls and procedures were ineffective as of **December 31

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of ...