WiMi Hologram(WIMI) - 2022 Q2 - Quarterly Report

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS 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] - 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] - 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] Liabilities and Shareholders' Equity 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] - 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] - Retained earnings (accumulated deficit) widened from (RMB 164,334,928) on December 31, 2021, to (RMB 207,082,206) on June 30, 2022[4] UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) Operating Results 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] - 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] - 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] - 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] UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Shareholders' Equity Changes 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] - Share-based compensation expense of RMB 3,107,461 was recognized during the period[10] - A net loss of RMB 34,451,172 negatively impacted shareholders' equity during the period[10] - Foreign currency translation adjustments had a positive impact of RMB 29,875,750[10] UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Cash Flows from Operating Activities 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] - 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] - An increase in deferred revenue (RMB 46,767,189) positively contributed to operating cash flow[13] Cash Flows from Investing Activities 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] - 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] - The primary cash outflows were the purchase of cost method investments (RMB 49,067,000) and short-term investments (RMB 85,668,000)[13] Cash Flows from Financing Activities 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] - The repayment of related party loans amounting to RMB 72,836,490 was the primary reason for the cash outflow from financing activities[13] Overall Cash Position 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][15] - The effect of exchange rate changes had a positive impact of RMB 25,688,383 on cash, cash equivalents, and restricted cash[13] NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 — Nature of business and organization 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 - 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][21] - 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] - 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] - 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] Subsidiary Establishments and Disposals - From 2019 to 2020, Beijing WiMi established several subsidiaries primarily engaged in AR advertising services[22] - 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] - 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][33][34] - 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] Consolidated Entities and VIE Structure - 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][39][40][41][42][43][45][46][47][48][49][50][51][52][53][54] - 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] - The VIE contractual arrangements ensure effective control and economic benefits for WiMi WFOE over Beijing WiMi and for Shenzhen Weiyixin over Shenzhen Yitian[55][56][57][59][60][61][62][64][65][66][67][69][70][71] - 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] Note 2 — Summary of significant accounting policies This note outlines the significant accounting policies followed in preparing the financial statements, including the basis of presentation and revenue recognition Revenue Recognition - 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][86][87] - 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][93][96][99][100] - The semiconductor business includes product sales (recognized on a gross basis) and software development (recognized over time)[102][103][104][105] 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][75] - 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] - 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][108] 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][112] Note 3 — Variable interest entity ("VIE") 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][117] - 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][118][120] 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 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] - 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][132] 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] Note 5 — Deconsolidation of ICinit 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] - 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] - 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] - 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] Note 6 — Short term investments 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] - 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] - 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] Note 7 — Accounts receivable, net 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] - 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] Note 8 — Inventories 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] - 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] Note 9 — Property and equipment, net 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] - 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] Note 10 — Cost method investments 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] - In the first half of 2022, the company purchased RMB 49,067,000 (USD 7,310,993) in cost method investments[157] Note 11 — Intangible assets, net 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] - 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] 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 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][165] - In 2021, the company recognized a goodwill impairment loss of RMB 131,194,659, primarily from the AR entertainment and semiconductor businesses[165] Note 13 — Other payables and accrued liabilities 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] - Accrued interest increased from RMB 8,197,112 on December 31, 2021, to RMB 9,841,587 on June 30, 2022[167] Note 14 — Related party balances and transactions 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] - 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] 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 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] - 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] 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 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] - 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][181] - 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] - 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] Note 17 — Leases 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] - 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][188] - 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] 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 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][191] - 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][193] - 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][195][196][197] - 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][200][201] Note 19 — Commitments and contingencies 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] - Management believes the VIE structure complies with existing Chinese laws, but acknowledges significant uncertainties in the interpretation and application of these regulations[202][203] - 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] - 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][207] Note 20 — Segments 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] 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] - 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] 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 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]