Exhibit 99.1
WIMI HOLOGRAM CLOUD INC. AND SUBSIDIARIES
UNAUDTED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, | June 30 | June 30 | ||||||||||
| 2021 | 2022 | 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| Restricted cash | ||||||||||||
| Short term investments | ||||||||||||
| Accounts receivable, net | ||||||||||||
| Inventories | ||||||||||||
| Prepaid services fees | ||||||||||||
| Other receivables and prepaid expenses | ||||||||||||
| Other receivable-related parties | - | - | ||||||||||
| Consideration receivable | ||||||||||||
| Loans receivable | - | - | ||||||||||
| Total current assets | ||||||||||||
| PROPERTY AND EQUIPMENT, NET | ||||||||||||
| OTHER ASSETS | ||||||||||||
| Deferred merger cost | ||||||||||||
| Cost method investments | ||||||||||||
| Prepaid expenses and deposits | ||||||||||||
| Prepayments | ||||||||||||
| Intangible assets, net | ||||||||||||
| Operating lease right-of-use assets | ||||||||||||
| Goodwill | ||||||||||||
| Investment in unconsolidated subsidiary | ||||||||||||
| Total non-current assets | ||||||||||||
| Total assets | ||||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||
| CURRENT LIABILITIES | ||||||||||||
| Accounts payable | ||||||||||||
| Deferred revenues | ||||||||||||
| Other payables and accrued liabilities | ||||||||||||
| Current portion of related party loans | ||||||||||||
| Operating lease liabilities | ||||||||||||
| Taxes payable | ||||||||||||
| Total current liabilities | ||||||||||||
| OTHER LIABILITIES | ||||||||||||
| Non-current related party loans | ||||||||||||
| Operating lease liabilities - noncurrent | ||||||||||||
| Deferred tax liabilities, net | ||||||||||||
| Total other liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||||
| SHAREHOLDERS' EQUITY | ||||||||||||
| Class A ordinary shares, USD | ||||||||||||
| Class B ordinary shares, USD | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Retained earnings (accumulative deficit) | ( | ) | ( | ) | ( | ) | ||||||
| Statutory reserves | ||||||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||
| Total WiMi Hologram Cloud, Inc. shareholders' equity | ||||||||||||
| NONCONTROLLING INTERESTS | ||||||||||||
| Total equity | ||||||||||||
| Total liabilities and shareholders' equity | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-1
WIMI HOLOGRAM CLOUD INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| For the Six Months Ending June 30, | ||||||||||||
| 2021 | 2022 | 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| OPERATING REVENUES | ||||||||||||
| Products | ||||||||||||
| Services | ||||||||||||
| Total operating revenues | ||||||||||||
| COST OF REVENUES | ( | ) | ( | ) | ( | ) | ||||||
| GROSS PROFIT | ||||||||||||
| OPERATING EXPENSES | ||||||||||||
| Selling expenses | ( | ) | ( | ) | ( | ) | ||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ||||||
| Research and development expenses | ( | ) | ( | ) | ( | ) | ||||||
| Stock compensation expenses | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| INCOME (LOSS) FROM OPERATIONS | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||
| Investment income | ( | ) | ( | ) | ||||||||
| income from unconsolidated subsidiary | - | |||||||||||
| Interest income | ||||||||||||
| Finance expenses, net | ( | ) | ( | ) | ( | ) | ||||||
| Other income, net | ||||||||||||
| Gain from disposal of equity interest in unconsolidated subsidiary | ||||||||||||
| Total other (expenses) income, net | ( | ) | ( | ) | ||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ( | ) | ||||||||
| BENEFIT OF (PROVISION FOR) INCOME TAXES | ||||||||||||
| Current | ( | ) | ( | ) | ( | ) | ||||||
| Deferred | ||||||||||||
| Total (provision for) benefit of income tax | ||||||||||||
| NET INCOME (LOSS) | ( | ) | ( | ) | ||||||||
| Less: Net income (loss) attributable to non-controlling interests | ||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO WIMI HOLOGRAM CLOUD, INC. | ( | ) | ( | ) | ||||||||
| NET INCOME (LOSS) | ( | ) | ( | ) | ||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ||||||||||
| COMPREHENSIVE INCOME (LOSS) | ( | ) | ( | ) | ||||||||
| Less: Comprehensive income (loss) attributable to non-controlling interests | ( | ) | ( | ) | ||||||||
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO WIMI HOLOGRAM CLOUD, INC. | ( | ) | ( | ) | ( | ) | ||||||
| WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES | ||||||||||||
| Basic | ||||||||||||
| Diluted | ||||||||||||
| EARNINGS (LOSS) PER SHARE | ||||||||||||
| Basic | ( | ) | ( | ) | ||||||||
| Diluted | ( | ) | ( | ) | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-2
WIMI HOLOGRAM CLOUD INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
| Convertible | |||||||||||||||||||||||||||||||||||||||||
| preferred | Ordinary shares | Accumulated | |||||||||||||||||||||||||||||||||||||||
| shares | Class A | Class B | Additional | Retained earnings | other | ||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Shares | Par Value | paid-in capital | Statutory reserves | Unrestricted | comprehensive income | Noncontrolling interests | Total | Total | |||||||||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | USD | ||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2020 | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Issuance of ordinary share through public offering, net | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
| Vesting of employee share compensation | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Sales of subsidiary's non controlling interest | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Net (loss) income | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Statutory reserves | - | - | - | - | - | - | - | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | - | - | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| BALANCE, June 30, 2021 | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2021 | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of ordinary share through public offering, net | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Vesting of employee share compensation | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
| Net (loss) income | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Statutory reserves | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2022 | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
WIMI HOLOGRAM CLOUD INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Six Months Ending June 30, | ||||||||||||
| 2021 | 2022 | 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income | ( | ) | ( | ) | ||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Provision for doubtful accounts | ( | ) | ( | ) | ||||||||
| Stock compensation expenses | ||||||||||||
| Deferred tax benefit | ( | ) | ( | ) | ( | ) | ||||||
| Gain (loss) from short term investments | ( | ) | ||||||||||
| Loss (gain) from deconsolidation of subsidiaries | ( | ) | ( | ) | ||||||||
| Income from unconsolidated subsidiary | ( | ) | ( | ) | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||||||
| Amortization of debt discount | ||||||||||||
| Change in operating assets and liabilities: | ||||||||||||
| Accounts receivables | ( | ) | ( | ) | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||||||
| Inventories | ( | ) | ||||||||||
| Prepaid services fees | ( | ) | ( | ) | ( | ) | ||||||
| Other receivables and prepaid expenses | ( | ) | ( | ) | ||||||||
| Prepaid expenses and deposits | ( | ) | ||||||||||
| Accounts payable | ||||||||||||
| Deferred revenues | ||||||||||||
| Other payables and accrued liabilities | ||||||||||||
| Operating lease liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Taxes payable | ( | ) | ||||||||||
| Net cash provided by (used in) operating activities | ( | ) | ( | ) | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Purchases of cost method investment | ( | ) | ( | ) | ||||||||
| Prepayments for real estate purchase | ( | ) | ||||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Purchases of short term investments | ( | ) | ( | ) | ( | ) | ||||||
| Redemption of short term investments | ||||||||||||
| Consideration received from sale of equity interest | ||||||||||||
| Collection of loans receivable | ||||||||||||
| Collection of receivable from unconsolidated subsidiary | ||||||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from public offerings, net | ||||||||||||
| Proceeds from short term loan - banking facility | ||||||||||||
| Payments to banking facility | ( | ) | ||||||||||
| Proceeds from related party loans | ||||||||||||
| Repayments to related party loans | ( | ) | ( | ) | ( | ) | ||||||
| Sale of subsidiary's noncontrolling interest | ||||||||||||
| Deferred merger costs | ( | ) | ( | ) | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ( | ) | ||||||||
| EFFECT OF EXCHANGE RATE ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ||||||||||
| CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ( | ) | ( | ) | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period | ||||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period | ||||||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||
| Cash paid for income taxes | ||||||||||||
| Cash paid for interest | ||||||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities | ||||||||||||
| Reclassification of investment in subsidiary to additional paid in capital upon sale of subsidiary’s non controlling interest | ||||||||||||
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the balance sheets that sum to the total of the same amounts shown in the statements of cash flows:
| 2021 | 2022 | 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| Cash and cash equivalents | ||||||||||||
| Restricted cash | ||||||||||||
| Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
WIMI HOLOGRAM CLOUD INC. AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Nature of business and organization
WiMi Hologram Cloud Inc. (“WiMi Cayman” or the “Company”) is a holding company incorporated on August 16, 2018, under the laws of the Cayman Islands. The Company’s headquarter is located in the city of Beijing, China. Prior to 2020, the Company has no substantive operations other than holding all of the outstanding share capital of WiMi Hologram Cloud Limited (“WiMi HK”) which was established in Hong Kong on September 4, 2018. WiMi HK holds all of the outstanding equity of Beijing Hologram WiMi Cloud Network Technology Co., Ltd. (“WiMi WFOE”) which was established on September 20, 2018 under the law of the People’s Republic of China (“PRC” or “China”).
(1) Reorganization with Beijing WiMi VIE and its subsidiaries in 2018
The Company, through its variable interest entity (“VIE”), Beijing WiMi Cloud Software Co., Ltd. (“Beijing WiMi”) and its subsidiaries, engages in providing augmented reality (“AR”) related products and services.
Beijing WiMi acquired Shenzhen Yitian Internet Technology Co., Ltd. (“Shenzhen Yitian”) in 2015. Shenzhen Yitian established wholly owned subsidiaries, Shenzhen Qianhai Wangxin Technology Co., Ltd. in 2015 and Korgas 233 Technology Co., Ltd. Shenzhen in 2017. Shenzhen Yitian and subsidiaries mainly engage in AR advertising and entertainment services.
Beijing WiMi acquired Shenzhen Kuxuanyou Technology Co., Ltd. (“Shenzhen Kuxuanyou”) in 2015, and Shenzhen Kuxuanyou established wholly owned subsidiary Shenzhen Yiruan Tianxia Technology Co., Ltd. in 2016 and wholly owned subsidiaries Shenzhen Yiyun Technology Co., Ltd. and Korgas Shengyou Information Technology Co., Ltd. (“Korgas Shengyou”) in 2017, of which Korgas Shengyou was subsequently disposed in May 2020. Shenzhen Kuxuanyou engages in AR entertainment and AR advertising services.
Beijing WiMi acquired Shenzhen Yidian Network Technology Co., Ltd. (“Shenzhen Yidian”) in 2015, and Shenzhen Yidian established Korgas Duodian Network Technology Co., Ltd. in 2016 and Shenzhen Duodian Cloud Technology Co., Ltd. in 2017. Shenzhen Yidian and subsidiaries mainly engaged in AR advertising services.
In 2016, Beijing WiMi established wholly owned subsidiaries
Korgas WiMi Xinghe Network Technologies Co., Ltd. (“Korgas WiMi”) and Micro Beauty Lightspeed Investment Management
HK Limited, of which Korgas WiMi was subsequently dissolved in February 2019. On March 7, 2017, Micro Beauty Lightspeed Investment
Management HK Limited acquired
On November 6, 2018, WiMi Cayman completed a reorganization of entities under common control of its shareholders, who collectively owned all of the equity interests of WiMi Cayman prior to the reorganization. WiMi Cayman and WiMi HK were established as the holding companies of WiMi WFOE. WiMi WFOE is the primary beneficiary of Beijing WiMi and its subsidiaries through contractual arrangements (see contractual arrangements below), and all of these entities included in WiMi Cayman are under common control which results in the consolidation of Beijing WiMi and subsidiaries which have been accounted for as a reorganization of entities under common control at carrying value. The consolidated financial statements are prepared on the basis as if the reorganization became effective as of the beginning of the first period presented in the accompanying consolidated financial statements of WiMi Cayman.
(2) Subsidiaries established under Beijing WiMi from 2019 to 2020:
On December 3, 2019, Shenzhen Yidian established Shenzhen Zhiyun Image Technology Co., Ltd. On September 24, 2020, Shenzhen Yidian established Shenzhen Yunzhan Image Network Technology Co., Ltd. On January 31, 2019, Shenzhen Yidian established Kashi Duodian Internet Technology Co., Ltd.
On January 14, 2019, Shenzhen Yitian established
Shenzhen Yiyou Online Technology Co., Ltd. On May 15, 2020, Shenzhen Yitian established Wuhan 233 Interactive Entertainment
Technology Co., Ltd. On October 28, 2020, Shenzhen Yitian established Weidong Technology Co., Ltd. (“Weidong”). Weidong
established a wholly owned subsidiary Korgas Weidong Technology Co., Ltd. in October 2020
and a
F-5
Note 1 — Nature of business and organization (cont.)
(3) Establishment of VIYI and subsidiaries in 2020
On September 24, 2020, WiMi Cayman set up a
wholly owned subsidiary, VIYI Technology Inc., which was renamed to VIYI Algorithm Inc. (“VIYI”), under the laws of the Cayman
Islands. VIYI was set up to accelerate the development of artificial intelligence (“AI”) algorithm and cloud computing services. On
November 15, 2020, WiMi Cayman entered into an equity transfer agreement with Bofeng Investment Limited and Bravo Great Enterprises
Limited, pursuant to which it transferred
On March 26, 2021, Bofeng Investment Limited
and Bravo Great Enterprises Limited transferred their respective shareholdings in VIYI to MIDI Capital Markets LLC (“MIDI”)
and Guosheng Holdings Limited (“Guosheng”). On March 26, 2021, WiMi Cayman entered into an equity transfer agreement
with MIDI and Guosheng, pursuant to which WiMi Cayman transferred a total of
On September 27, 2020, VIYI entered into Acquisition
Framework Agreement which was amended and supplemented on September 28, 2020 to acquire
On October 9, 2020, VIYI set up a wholly owned
holding company in HK, VIYI Technology Ltd. (“VIYI Ltd”), which holds all of the outstanding equity of its wholly foreign
owned entity Shenzhen Weiyixin Technology Co., Ltd. (“Shenzhen Weiyixin” or “VIYI WFOE”) established
on November 18, 2020 under the laws of the PRC. On November 30, 2020, Shenzhen Weiyixin established Shanghai Weimu Technology
Co., Ltd. (“Shanghai Weimu”) in the PRC for software support services, and Shenzhen Weiyixin holds
On June 10, 2021, the Company, VIYI and Venus Acquisition Corporation (NASDAQ: VENA) (“Venus”), a publicly traded special purpose acquisition company entered into a definitive merger agreement (the “Merger Agreement”). A newly created merger subsidiary of Venus will be merged with and into VIYI with VIYI being the surviving entity and becoming Venus’s wholly owned subsidiary.
(4) Reorganization of Beijing WiMi and Shenzhen Yitian in December 2020
On December 18, 2020,
with consent of WiMi WFOE and approval of the Board of Directors, the original shareholders of Beijing WiMi terminated the original
VIE agreements that were entered into on November 6, 2018. The original shareholders who collectively owned
F-6
Note 1 — Nature of business and organization (cont.)
On December 24, 2020, with consent of WiMi
WFOE, Beijing WiMi transferred
The reorganization was completed on December 24, 2020. WiMi WFOE is the primary beneficiary of Beijing WiMi and its subsidiaries, and Shenzhen Weiyixin is the primary beneficiary of Shenzhen Yitian and its subsidiaries. All of these entities are under common control of WiMi Cayman, which results in the consolidation of Beijing WiMi, Shenzhen Yitian and their subsidiaries which have been accounted for as a reorganization of entities under common control at carrying value. The reorganization has no effect on the consolidated financial statements as Beijing WiMi, Shenzhen Yitian and their subsidiaries are always under the common control of WiMi Cayman without change of reporting entities.
On January 11, 2021, Shenzhen Yitian transferred its 100% equity interest of Weidong and subsidiaries to Shenzhen Weiyixin; its 100% equity interest YY Online to Weidong and its 100% equity interest in Horgos 233 and Wuhan 233 to YY Online. As a result, Wuhan 233 and Horgos 233 became wholly owned subsidiaries of YY Online and YY Online became wholly owned subsidiary of Weidong and Weidong became wholly owned subsidiary of Shenzhen Weiyixin.
(5) Other subsidiaries established between 2020 to 2021
On August 4, 2020, WiMi Cayman established a wholly-owned subsidiary, Lixin Technology Co., Ltd. (“Lixin Technology”) in the PRC, to accelerate development of its holographic vision intelligent robots and fabless semiconductor businesses. Lixin Technology focuses on a new upstream business in the domestic smart product market, and research, development and sales of computer chip and intelligent chip products to further enhance the Company’s competitiveness. Lixin Technology established a wholly-owned subsidiary, Hainan Lixin Technology Co., Ltd. in October 2020.
On June 1, 2020, Wimi HK established ICinit
Limited (“ICinit”) in Hong Kong, and Wimi HK has a
On January 22, 2021,
On March 1, 2021, Shenzhen ICinit purchased
On May 28, 2021, Shenzhen ICinit purchased 100% equity interests of Tianjin Yaodi Tomorrow Technology Co. (“Tianjin Yaodi”), Ltd., a provider of electronic components, for RMB2 (approximately USD 0.3).
On August 21, 2020, WiMi HK set up a joint
venture company, VIDA Semicon Co., Limited (“VIDA”) in Hong Kong, and WiMi HK has a
F-7
Note 1 — Nature of business and organization (cont.)
On March 4, 2021, WiMi Cayman established a
wholly owned entity of Tianjin Zhongzhengdaohe Investment Co., Ltd. (“TJ Zhongzheng”), which is deemed as a wholly foreign
owned enterprise, with a register capital of USD
On April 15, 2021, VIYI Ltd formed a
On July 19, 2021, Viwo Technology established
a fully owned subsidiary Shenzhen Viwotong Technology Co., Ltd. (“Viwotong Tech”) in Shenzhen to support its operations. On
November 19, Viwotong Tech acquired
(6) Deconsolidation of ICinit in 2021
On October 1, 2021, the Company’s board
approved the equity transfer agreement between WiMi HK and Lucky Monkey Holding Limited, pursuant to which WiMi Cayman transferred
The Company concluded that it has lost controlling financial interest in ICinit on October 1, 2021, and deconsolidated ICinit on October 1, 2021 and recorded the fair value of its investment as equity investment. As the deconsolidation did not present a strategic change on the Company’s operation, the deconsolidation was not presented as discontinued operations. See Note 5 for details.
The accompanying unaudited interim condensed consolidated financial statements reflect the activities of WiMi Cayman and each of the following entities as of June 30, 2022:
| Name | Background | Ownership | |||
| WiMi HK | |||||
| VIDA Semicon Co., Limited (“VIDA”) | |||||
F-8
Note 1 — Nature of business and organization (cont.)
| Name | Background | Ownership | |||
| WiMi WFOE | |||||
| Beijing WiMi | |||||
| Shenzhen Kuxuanyou | |||||
| Shenzhen Yiruan Tianxia | |||||
| Shenzhen Yiyun Technology Co., Ltd. | |||||
| Shenzhen Yitian Internet Technology Co., Ltd. | |||||
F-9
Note 1 — Nature of business and organization (cont.)
| Name | Background | Ownership | |||
| Korgas 233 Technology Co., Ltd. | |||||
F-10
Note 1 — Nature of business and organization (cont.)
| Shenzhen Yunzhan Image Technology Co., Ltd. (“Shenzhen Yunzhan”) | |||||
| Micro Beauty Lightspeed Investment Management HK Limited | |||||
| Skystar Development Co., Ltd (“Skystar”) | |||||
F-11
Note 1 — Nature of business and organization (cont.)
| Name | Background | Ownership | |||
| Lixin Technology Co., Ltd. (“Lixin Technology”) | |||||
| Hainan Lixin Technology Co., Ltd. (“Hainan Lixin”) | |||||
| Tianjin Zhongzhengdaohe Investment Co., Ltd. (“TJ Zhongzheng”) | |||||
| Shenzhen Hedaozhongshu Technology Co., Ltd. (“Shenzhen Hedao”) | |||||
| Kashi Daohezhongzheng Internet Technology Co., Ltd. (“Kashi Daohe”) | |||||
| VIYI Algorithm Inc. (“VIYI”), previously known as VIYI Technology Inc. | |||||
F-12
Note 1 — Nature of business and organization (cont.)
| Name | Background | Ownership | |||
| Fe-da Electronics Company Private Limited (“Fe-da Electronics”) | |||||
| Excel Crest Limited (“Excel Crest”) | |||||
| Shenzhen Weiyixin Technology Co., Ltd. (“Shenzhen Weiyixin” or “VIYI WFOE”) | |||||
| Shanghai Weimu Technology Co., Ltd. (“Shanghai Weimu”) | |||||
| Wisdom Lab Inc. (“Wisdom Lab”) | |||||
| Viwo Technology Limited. (“Viwo Tech”) | |||||
| Shenzhen Viwotong Technology Co., Ltd. (“Viwotong Tech”) | |||||
| Shanghai Guoyu Information Technology Co., Ltd. (“Shanghai Guoyu”) | |||||
F-13
Note 1 — Nature of business and organization (cont.)
| Name | Background | Ownership | |||
| Kashi Guoyu Information Technology Co., Ltd. (“Kashi Guoyu”) | |||||
| Guangzhou Tapuyu Internet Technology Co., Ltd. (“Tapuyu”) | |||||
| Pengcheng Keyi (Xi’an) Intelligence Technology Co., Ltd. | |||||
| Weeto. Investment Pte. Ltd | |||||
Contractual Arrangements
Due to legal restrictions on foreign ownership and investment in, among other areas, value-added telecommunications services, which include the operations of internet content providers, the Company operates its internet and other businesses in which foreign investment is restricted or prohibited in the PRC through certain PRC domestic companies. As such, Beijing WiMi and Shenzhen Yitian (from December 24, 2020) are controlled through contractual arrangements in lieu of direct equity ownership by the Company or any of its subsidiaries.
Beijing WiMi contractual arrangements signed on November 6, 2018 and December 18, 2020
The contractual arrangements consist of a series
of
Exclusive Business Cooperation Agreement
Under the exclusive business cooperation agreement between WiMi WFOE and Beijing WiMi, WiMi WFOE has the exclusive right to provide to Beijing WiMi consulting and services related to, among other things, use of software, operation maintenance, product development, and management and marketing consulting. WiMi WFOE has the exclusive ownership of intellectual property rights created as a result of the performance of this agreement. Beijing WiMi agrees to pay WiMi WFOE service fee at an amount equal to the consolidated net income after offsetting previous year’s loss (if any). This agreement will remain effective until the date when it is terminated by WiMi WFOE.
Exclusive Share Purchase Option Agreement
Pursuant to the exclusive share purchase option agreement, by and among WiMi WFOE, Beijing WiMi and each of the shareholders of Beijing WiMi, each of the shareholders of Beijing WiMi irrevocably granted WiMi WFOE an exclusive call option to purchase, or have its designated person(s) to purchase, at its discretion, all or part of their equity interests in Beijing WiMi, and the purchase price shall be the lowest price permitted by applicable PRC law. Each of the shareholders of Beijing WiMi undertakes that, without the prior written consent of WiMi WFOE or us, they may not increase or decrease the registered capital, amend its articles of association or change registered capital structure. This agreement will remain effective for years and can be renewed at WiMi WFOE’s sole discretion. Any transfer of shares pursuant to this agreement would be subject to PRC regulations and to any changes required thereunder.
F-14
Note 1 — Nature of business and organization (cont.)
Exclusive Assets Purchase Agreement
Pursuant to the exclusive asset purchase agreement by WiMi WFOE and Beijing WiMi, Beijing WiMi irrevocably granted WiMi WFOE an exclusive call option to purchase, or have its designated person(s) to purchase, at its discretion, all or part of Beijing WiMi’s current or future assets (including intellectual property rights), and the purchase price shall be the lowest price permitted by applicable PRC law. Beijing WiMi undertakes that, without the prior written consent of WiMi WFOE, it may not sell, transfer, pledge, dispose of its assets, incur any debts or guarantee liabilities. It will notify WiMi WFOE any potential litigation, arbitration or administrative procedures regarding the assets, and defend the assets if necessary. This agreement will remain effective for years and can be renewed at WiMi WFOE’s sole discretion. Any transfer of assets pursuant to this agreement would be subject to PRC regulations and to any changes required thereunder.
Equity Interest Pledge Agreement
Pursuant to the equity interest pledge agreement, by and among WiMi WFOE, Beijing WiMi and the shareholders of Beijing WiMi, the shareholders of Beijing WiMi pledged all of their equity interests in Beijing WiMi to WiMi WFOE to guarantee their and Beijing WiMi’s obligations under the contractual arrangements including the exclusive consulting and services agreement, the exclusive option agreement, the exclusive asset purchase agreement and the power of attorney and this equity interest pledge agreement, as well as any loss incurred due to events of default defined therein and all expenses incurred by WiMi WFOE in enforcing such obligations of Beijing WiMi or its shareholders. The shareholders of Beijing WiMi agree that, without WiMi WFOE’s prior written approval, during the term of the equity interest pledge agreement, they will not dispose of the pledged equity interests or create or allow any other encumbrance on the pledged equity interests. The Company has completed the registration of the equity pledges with the relevant administration for industry and commerce in accordance with the PRC Property Rights Law.
Power of Attorney
Pursuant to the power of attorney, by WiMi WFOE and each shareholder of Beijing WiMi, respectively, each shareholder of Beijing WiMi irrevocably authorized WiMi WFOE or any person(s) designated by WiMi WFOE to exercise such shareholder’s voting rights in Beijing WiMi, including, without limitation, the power to participate in and vote at shareholder’s meetings, the power to nominate directors and appoint senior management, the power to sell or transfer such shareholder’s equity interest in Beijing WiMi, and other shareholders’ voting rights permitted by PRC law and the Articles of Association of Beijing WiMi. The power of attorney remains irrevocable and continuously valid from the date of execution so long as each shareholder remains as a shareholder of Beijing WiMi.
Spousal Consent Letters
Pursuant to these letters, the spouses of the applicable shareholders of Beijing WiMi unconditionally and irrevocably agreed that the equity interest in Beijing WiMi held by them and registered in their names will be disposed of pursuant to the equity interest pledge agreement, the exclusive option agreement, the exclusive asset purchase agreement and the power of attorney. Each of their spouses agreed not to assert any rights over the equity interest in Beijing WiMi held by their respective spouses. In addition, in the event that any spouse obtains any equity interest in Beijing WiMi held by his or her spouse for any reason, he or she agreed to be bound by the contractual arrangements.
F-15
Note 1 — Nature of business and organization (cont.)
Based on the foregoing agreements signed on November 6, 2018 and December 18, 2020, which grant WiMi WFOE effective control of Beijing WiMi and enable WiMi WFOE to receive all of their expected residual returns, the Company accounts for Beijing WiMi as a VIE. Accordingly, the Company consolidates the accounts of Beijing WiMi for the periods presented herein, in accordance with Regulation S-X-3A-02 promulgated by the U.S. Securities and Exchange Commission (“SEC”), and Accounting Standards Codification (“ASC”) 810-10, Consolidation.
Shenzhen Yitian (Terminated April, 1, 2022)
The contractual arrangements consist of a series of four agreements, shareholders power of attorney and irrevocable commitment letters, which were signed on December 24, 2020. The significant terms of the agreements are as follows:
Exclusive Business Cooperation Agreement
Under the exclusive business cooperation agreement between Shenzhen Weiyixin and Shenzhen Yitian dated December 24, 2020, Shenzhen Weiyixin has the exclusive right to provide to Shenzhen Yitian consulting and services related to, among other things, use of software, operation maintenance, product development, and management and marketing consulting. Shenzhen Weiyixin has the exclusive ownership of intellectual property rights created as a result of the performance of this agreement. Shenzhen Yitian agrees to pay Shenzhen Weiyixin service fee at an amount equal to the consolidated net income after offsetting previous year’s loss (if any). This agreement will remain effective until the date when it is terminated by Shenzhen Weiyixin.
Exclusive Share Purchase Option Agreement
Pursuant to the exclusive share purchase option agreement dated December 24, 2020, by and among Shenzhen Weiyixin, Shenzhen Yitian and each of the shareholders of Shenzhen Yitian, each of the shareholders of Shenzhen Yitian irrevocably granted Shenzhen Weiyixin an exclusive call option to purchase, or have its designated person(s) to purchase, at its discretion, all or part of their equity interests in Shenzhen Yitian, and the purchase price shall be the lowest price permitted by applicable PRC law. Each of the shareholders of Shenzhen Yitian undertakes that, without the prior written consent of Shenzhen Weiyixin or us, they may not increase or decrease the registered capital, amend its articles of association or change registered capital structure. This agreement will remain effective unless terminated in the event that the entire equity interests held by registered shareholders in Shenzhen Yitian have been transferred to Shenzhen Weiyixin or until the date when it is terminated by Shenzhen Weiyixin. Any transfer of shares pursuant to this agreement would be subject to PRC regulations and to any changes required thereunder.
Equity Interest Pledge Agreement
Pursuant to the equity interest pledge agreement dated December 24, 2020, by and among Shenzhen Weiyixin, Shenzhen Yitian and the shareholders of Shenzhen Yitian, the shareholders of Shenzhen Yitian pledged all of their equity interests in Shenzhen Yitian to Shenzhen Weiyixin to guarantee their and Shenzhen Yitian’s obligations under the contractual arrangements including the exclusive consulting and services agreement, the exclusive option agreement, the power of attorney and this equity interest pledge agreement, as well as any loss incurred due to events of default defined therein and all expenses incurred by Shenzhen Weiyixin in enforcing such obligations of Shenzhen Yitian or its shareholders. The shareholders of Shenzhen Yitian agree that, without Shenzhen Weiyixin’s prior written approval, during the term of the equity interest pledge agreement, they will not dispose of the pledged equity interests or create or allow any other encumbrance on the pledged equity interests. The pledge under the equity interest pledge agreement shall take effect upon the completion of registration with the relevant administration for industry and commerce, which was completed as of January 29, 2021, and shall remain valid until the earlier of (1) the completion of all contractual obligations and the repayment of all secured debts, or (2) the time when the pledgee and/or the appointed person(s) have decided, subject to the PRC laws, to purchase the entire equity interests of the pledger in Shenzhen Yitian, and such equity interests of Shenzhen Yitian have been transferred to the pledgee and/or the appointed person(s) in accordance with the law such that the pledgee and/or the appointed person(s) may lawfully engage in the business of Shenzhen Yitian.
F-16
Note 1 — Nature of business and organization (cont.)
Loan Agreement
Pursuant to the loan agreement dated December 24, 2020, Shenzhen Weiyixin agreed to provide loans to the registered shareholders of Shenzhen Yitian, to be used exclusively as investment in Shenzhen Yitian. The loan must not be used for any other purposes without the relevant lender’s prior written consent. The term of the loan agreement commences from the date of the agreement and ends on the date the lender exercises its exclusive option under the relevant exclusive share purchase option agreement, or when certain defined termination events occur, such as if the lender sends a written notice demanding repayment to the borrower, or upon the default of the borrower, whichever is earlier. After the lender exercises its exclusive option, the borrower may repay the loan by transferring all of its equity interest in the relevant onshore holding company to the lender, or a person or entity nominated by the lender, and use the proceeds of such transfer as repayment of the loan. If the proceeds of such transfer are equal to or less than the principal of the loan under the loan agreement, the loan is considered interest-free. If the proceeds of such transfer are higher than the principal of the loan under the loan agreement, any surplus is considered interest for the loan.
Power of Attorney
Pursuant to the power of attorney dated December 24, 2020, by Shenzhen Weiyixin and each shareholder of Shenzhen Yitian, respectively, each shareholder of Shenzhen Yitian irrevocably authorized Shenzhen Weiyixin or any person(s) designated by Shenzhen Weiyixin to exercise such shareholder’s voting rights in Shenzhen Yitian, including, without limitation, the power to participate in and vote at shareholder’s meetings, the power to nominate directors and appoint senior management, the power to sell or transfer such shareholder’s equity interest in Shenzhen Yitian, and other shareholders’ voting rights permitted by PRC law and the Articles of Association of Shenzhen Yitian. The power of attorney remains irrevocable and continuously valid from the date of execution so long as each shareholder remains as a shareholder of Shenzhen Yitian.
Spousal Consent Letters
Pursuant to these letters, the spouses of the applicable shareholders of Shenzhen Yitian unconditionally and irrevocably agreed that the equity interest in Shenzhen Yitian held by them and registered in their names will be disposed of pursuant to the equity interest pledge agreement, the exclusive option agreement, and the power of attorney. Each of their spouses agreed not to assert any rights over the equity interest in Shenzhen Yitian held by their respective spouses. In addition, in the event that any spouse obtains any equity interest in Shenzhen Yitian held by his or her spouse for any reason, he or she agreed to be bound by the contractual arrangements.
Based on the foregoing contractual arrangements, which grant Shenzhen Weiyixin effective control of Shenzhen Yitian and enable Shenzhen Weiyixin to receive all of their expected residual returns, the Company accounts for Shenzhen Yitian as a VIE on December 24, 2020. The reorganization under common control did not result in change in reporting entities of the Company therefore no impact to the Company’s consolidated financial statements as of December 31, 2020 and 2021.
Due to the business strategy adjustment, Shenzhen
Yitian and its subsidiaries no longer operate the business involving foreign investment restrictions since March 1, 2022, therefore VIYI
is able to have direct equity interest in Shenzhen Yitian and its subsidiaries. On April 1, 2022, VIYI terminated the agreements under
the VIE structure with Shenzhen Yitian. Shenzhen Yitian’s original shareholders transferred their respective ownership to VIYI WFOE
and VIYI WFOE obtained
F-17
Note 2 — Summary of significant accounting policies
Basis of presentation
The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”), regarding financial reporting, and include all normal and recurring adjustments that management of the Company considers necessary for a fair presentation of its financial position and operation results. The results of operations for the six months ended June 30, 2022 are not necessarily indicative of results to be expected for any other interim period or for the full year of 2022. Accordingly, these unaudited interim condensed financial statements should be read in conjunction with the Company’s audited financial statements and note thereto as of and for the years ended December 31, 2020 and 2021.
Principles of consolidation
The unaudited interim condensed consolidated financial statements include the financial statements of the Company and its subsidiaries, which include the wholly-foreign owned enterprise (“WFOE”) and variable interest entity (“VIE”) and VIE’s subsidiaries over which the Company exercises control and, when applicable, entities for which the Company has a controlling financial interest or is the primary beneficiary. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
Use of estimates and assumptions
The preparation of unaudited interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the unaudited interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s unaudited interim condensed consolidated financial statements include the useful lives of property and equipment and intangible assets, impairment of long-lived assets and goodwill, allowance for doubtful accounts, provision for contingent liabilities, revenue recognition, deferred taxes and uncertain tax position, the fair value of contingent consideration related to business acquisitions. Actual results could differ from these estimates.
Foreign currency translation and other comprehensive income (loss)
The Company uses Renminbi (“RMB”) as its reporting currency. The functional currency of the Company, its subsidiaries in Seychelles and Singapore and two subsidiaries, ICinit and VIDA, in Hong Kong is U.S. dollar, and its other subsidiaries which are incorporated in Hong Kong and PRC are Hong Kong Dollar and RMB, respectively, which are their respective local currencies based on the criteria of ASC 830, “Foreign Currency Matters”.
In the unaudited interim condensed consolidated financial statements, the financial information of the Company and other entities located outside of the PRC has been translated into RMB. Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the average rate for the period.
Translation adjustments included in accumulated
other comprehensive loss amounted to RMB
F-18
Note 2 — Summary of significant accounting policies (cont.)
Convenience translation
Translations of balances in the unaudited interim
condensed consolidated balance sheets, unaudited interim condensed consolidated statements of income and unaudited interim condensed consolidated
statements of cash flows from RMB into USD as of and for the six months ended June 30, 2022 are solely for the convenience of the reader
and were calculated at the rate of RMB
Short-term investments
Short-term investments are investments in wealth
management product with underlying in cash, bonds and equity funds. The investments can be redeemed any time and the investment was recorded
at fair value. The gain (loss) from sale of any investments and fair value change are recognized in the statements of income and comprehensive
income. The Company purchased approximately RMB
Loans receivable
Loans receivable represent loans to a third party
under the terms of the agreements signed in November and December 2021 at
F-19
Note 2 — Summary of significant accounting policies (cont.)
Revenue recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC Topic 606) for the fiscal year ended December 31, 2019. The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identifies the contract with the customer, (ii) identifies the performance obligations in the contract, (iii) determines the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocates the transaction price to the respective performance obligations in the contract, and (v) recognizes revenue when (or as) the Company satisfies the performance obligation.
The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition.
(i) AR Advertising Services
— AR advertising display services
AR advertisements are the use of holographic materials integrated into advertisement on the online media platforms or offline display. The Company’s performance obligation is to identify advertising spaces, embed holographic AR images or videos into films, shows and short form videos that are hosted by leading online streaming platforms in China. Revenue is recognized at a point in time when the related services have been delivered based on the specific terms of the contract, which are commonly based on specific action (i.e. cost per impression (“CPM”) or cost per action (“CPA”) for on line display and service period for offline display contracts.
The Company enters into advertising contracts with advertisers where the amounts charged per specific action are fixed and determinable, the specific terms of the contracts were agreed on by the Company, the advertisers and channel providers, and collectability is probable. Revenue is recognized on a CPM basis as impressions or clicks are delivered while revenue on a CPA basis is recognized once agreed actions are performed or service period is completed.
The Company considers itself as provider of the services as it has control of the specified services and products at any time before it is transferred to the customers which is evidenced by (1) the Company is primarily responsible to its customers for products and services offered where the products were designed in house and the Company has customer services team to directly service the customers; and (2) having latitude in establish pricing. Therefore, the Company acts as the principal of these arrangements and reports revenue earned and costs incurred related to these transactions on a gross basis.
— Performance-based advertising service
The Company provides central processing algorithm performance-based advertising services for its customers, which enable the customers to get the optimal business opportunities.
F-20
Note 2 — Summary of significant accounting policies (cont.)
The Company’s performance obligation is to help customers to accurately match consumers and traffic users, and thereby increasing the conversion rate of product sale using its proprietary data optimization algorithms. The Company’s revenue is recognized at a point when an end user completes a transaction at a rate specified in contract. Related service fees are generally billed monthly, based on a per transaction basis.
The Company considers itself as provider of the services as it has control of the specified services and products at any time before it is transferred to the customers which is evidenced by (1) it is primarily responsible to its customers for the services offered where the algorithms and data optimization were designed and performed in house and it has customer services team to directly serve the customers; and (2) having latitude in establish pricing. Therefore, VIYI acts as the principal of these arrangements and reports revenue earned and costs incurred related to these transactions on a gross basis.
In addition, through the Company’s data algorithm optimization, it is able to identify certain end user needs and it facilitates certain value-added services to the end users. The Company engages third party services provider to perform the services. The Company concludes that it does not control the services as the third-party service provider is responsible for providing the service and its responsibility is merely to facilitate the provision of these value added service to the end users and charges a fee. As such the Company recorded revenue from the value-added services on a net basis when the services is provided by third party service provider.
(ii) AR Entertainment
The Company’s AR entertainment includes mainly three sub categories: SDK payment channel services, software development and mobile games operations and technology developments.
a. SDK Payment Channel Services
The Company’s SDK payment channel services enable game players/app users to make online payments through Alipay, Unipay or Wechat pay etc. to various online content providers. When game players/app users make payments in the game or app, the SDK payment channel will automatically populate payment services for the users to fulfill payments.
The Company charges a fee for the payment channel services, the pricing of which is based on the predetermined rates specified in the contract. The Company’s performance obligation is to facilitate payment services and recognizes SDK payment channel service revenue at a point in time when a user completes a payment transaction via a payment channel and is entitled to payment. Related fees are generally billed monthly, based on a per transaction basis. The Company assessed that its promise to customer is to facilitate the service of third party instead of providing the payment services itself as the Company does not have control of the services provided as the Company does not service the users directly and does not have the latitude to establish the price, and therefore, revenue from SDK payment service is recorded on a net basis.
b. Mixed Reality (“MR”) software development services
The Company’s MR software development service contracts are primarily on a fixed price basis, which require the Company to perform services for MR application design, content development and integrating based on customers’ specific needs. These services also require significant production and customization. The required customization work period is generally less than one year. The Company currently does not have any modification of contract and the contracts currently do not have any variable consideration.
The software customization, application design, upgrades and integration are considered as one performance obligation. The promises to transfer software, customization and upgrades are not separately identifiable as the customers do not obtain benefits from these services on their own.
F-21
Note 2 — Summary of significant accounting policies (cont.)
The Company’s MR software development service contracts are generally recognized over time during the contract period as the Company has no alternative use of the customized software and application without incurring significant additional costs. Revenue is recognized based on the Company’s measurement of progress towards completion based on input or output methods. Input methods are used only when there is a direct correlation between hours incurred and the end product delivered, and output method is used when the Company could appropriately measure the customization progress towards completion. Assumptions, risks and uncertainties inherent in the estimates used to measure progress could affect the amount of revenues, receivables and deferred revenues at each reporting period. The Company has a long history of developing various MR software resulting in its ability to reasonably estimate the progress toward completion on each fixed price customized contract.
c. Mobile Games Services
The Company generates revenue from jointly operated mobile game publishing services and the licensed-out games. In accordance with ASC 606, Revenue Recognition: Principal Agent Considerations, the Company evaluates agreements with the game developers, distribution channels and payment channels in order to determine whether or not the Company acts as the principal or as an agent in the arrangement with each party respectively. The determination of whether to record the revenues gross or net is based on whether the Company’s promise to its customers is to provide the products or services or to facilitate a sale by a third party. The nature of the promise depends on whether the Company controls the products or services prior to transferring it. Control is evidenced by if the Company is primarily responsible for fulling the provision of services and has discretion in establishing the selling price. When the Company controls the products or services, its promise is to provide and deliver the products and revenue is presented gross. When the Company does not control the products, the promise is to facilitate the sale and revenue is presented net.
— Jointly operated mobile game publishing services
The Company is offering publishing services for mobile games developed by third party game developers. The Company acted as a distribution channel that it will publish the games on their own app or a third party owned app or website, named game portals. Through these game portals, game players can download the mobile games to their mobile devices and purchase coins, the virtual currency, for in game premium features to enhance their game playing experience. The Company contracts with third party payment platforms for collection services offered to game players who have purchased coins. The third-party game developers, third party payment platforms and the co publishers are entitled to profit sharing based on a prescribed percentage of the gross amount charged to the game players. The Company’s obligation in the publishing services is completed at a point in time when the game players made a payment to purchase coins.
With respect to the publishing services arrangements between the Company and the game developer, the Company considered that the Company does not control the services as evidenced by (i) developers are responsible for providing the game product desired by the game players; (ii) the hosting and maintenance of game servers for running the online mobile games is the responsibility of the third party platforms; (iii) the developers or third party platforms have the right to change the pricing of in game virtual items. The Company’s responsibilities are publishing, providing payment solution and market promotion service, and thus the Company views the game developers to be its customers and considers itself as the facilitator of the game developers in the arrangements with game players. Accordingly, the Company records the game publishing service revenue from these games, net of amounts paid to the game developers.
— Licensed out mobile games
The Company also licenses third parties to operate its mobile games developed internally through mobile portal and receives revenue from the third party licensee operators on a monthly basis. The Company’s performance obligation is to provide mobile games to game operators which enable players of the mobile games to make in game purchases and the Company recognized revenue at a point in time when game players completed the purchases. The Company records revenues on a net basis, as the Company does not have the control of the services provided as it does not have the primary responsibility for fulfillment nor does it have the right to change the pricing of the game services.
F-22
Note 2 — Summary of significant accounting policies (cont.)
d. Technology developments
The Company’s technology development contract requires the Company to design applications based on customers’ specific needs. The duration of the design period is short, usually approximately 3 months or less. Revenues are generally recognized at a point in time where the Company has transferred control of the asset upon completion of the design and after the acceptance by its customer with no more future obligation of the design project.
(iii) Semiconductor business
The Company’s semiconductor business includes two sub categories: sale of products and software development.
a. Sale of products
Starting in July 2020, the Company also engage in sales of semiconductor products and other electronic accessories. The Company typically enters into written contracts with its customer where the rights of the parties, including payment terms, are identified and sales prices to the customers are fixed with no separate sales rebate, discount, or other incentive and no right of return exists on sales of inventory. The Company’s performance obligation is to deliver products according to contract specifications. The Company recognizes gross product revenue at a time when the control of products or services are transferred to customers.
To distinguish a promise to provide products from a promise to facilitate the sale from a third party, the Company considers the guidance of control in ASC 606-10-55-37A and the indicators in 606-10-55-39. The Company considers this guidance in conjunction with the terms in the Company’s arrangements with both suppliers and customers.
In general, the Company controls the products as it has the obligation to (i) fulfill the products delivery and (ii) bear any inventory risk as legal owners. In addition, when establishing the selling prices for delivery of the resale products, the Company has control to set its selling price to ensure it would generate profit for the products delivery arrangements. The Company believes that all these factors indicate that the Company is acting as a principal in this transaction. As a result, revenue from the sales of products is presented on a gross basis.
b. Revenue from software development
The Company also designs software for central processing units based on customers’ specific needs. The contract is typically fixed priced and does not provide any post contract customer support or upgrades. The Company’s performance obligation is to design, develop, test and install the related software for customers, all of which are considered one performance obligation as the customers do not obtain benefit for each separate service. The duration of the development period is short, usually less than one year.
The Company’s revenue from software development contracts is generally recognized over time during the development period the Company has no alternative use of the customized software and application without incurring significant additional costs. Revenue is recognized based on the Company’s measurement of progress towards completion based on output methods when the Company could appropriately measure the customization progress towards completion by reaching certain milestones specified in contracts. Assumptions, risks and uncertainties inherent in the estimates used to measure progress could affect the amount of revenues, receivables and deferred revenues at each reporting period.
F-23
Note 2 — Summary of significant accounting policies (cont.)
Contract balances:
The Company records receivable related to revenue when it has an unconditional right to invoice and receive payment.
Payments received from customers before all of the relevant criteria for revenue recognition met are recorded as deferred revenue.
Contract costs:
Contract costs represent costs incurred in advance of revenue recognition arising from direct costs in respect of the revenue contracts according to the customer’s requirements prior to the delivery of services, and such deferred costs will be recognized upon the recognition of the related revenue. Estimated contract costs are based on the budgeted service hours, which are updated based on the progress toward completion on a monthly basis. Pursuant to the contract terms, the Company has enforceable right on payments for the work performed. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the current contract estimates.
The Company’s disaggregate revenue streams are summarized below:
June
30, | June
30, | June
30, | ||||||||||
| RMB | RMB | USD | ||||||||||
| Revenues | ||||||||||||
| Holographic AR advertising | ||||||||||||
| Holographic AR entertainment | ||||||||||||
| Sale of semiconductor products | ||||||||||||
| Software development | ||||||||||||
| Total revenues | ||||||||||||
The Company’s revenues by timing of transfer of goods or services are summarized below:
June
30, | June
30, | June
30, | ||||||||||
| RMB | RMB | USD | ||||||||||
| Goods and services transferred at a point in time | ||||||||||||
| Goods and services transferred overtime | ||||||||||||
| Total revenues | ||||||||||||
The Company’s revenues by geographic locations are summarized below:
2021 |
|
| ||||||||||
Cost of revenues
For AR advertising services, the cost of revenue comprised of costs paid to channel distributors based on the sales agreements.
F-24
Note 2 — Summary of significant accounting policies (cont.)
For AR entertainment segment, the cost of revenue consists of the shared costs with content providers based on the profit sharing arrangements, third party consulting services expenses and compensation expenses for the Company’s professionals.
For semiconductor business segment, the cost of revenue consists primarily of the costs of products sold and third party software development costs.
Noncontrolling interests
Noncontrolling interests consists of an aggregate
of
Noncontrolling interests subscriptions receivable
amounted to RMB
Excess of contribution received from noncontrolling shareholders over carrying value of the entity is recorded in additional paid in capital. The noncontrolling interests are presented in the consolidated balance sheets, separately from equity attributable to the shareholders of the Company. Noncontrolling interests in the results of the Company are presented on the face of the consolidated statement of operations as an allocation of the total income or loss for the year between non-controlling interest holders and the shareholders of the Company.
Noncontrolling interests consist of the following:
| December 31, 2021 | June
30, 2022 | June
30, 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| VIDA | ( | ) | ( | ) | ( | ) | ||||||
| VIYI | ||||||||||||
| Noncontrolling interests subscriptions receivable | ( | ) | ( | ) | ( | ) | ||||||
| Total noncontrolling interests | ||||||||||||
Earnings/(loss) per share
The Company computes earnings/loss per share (“EPS”)
in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to present basic and diluted EPS. Basic
EPS is measured as net income/loss divided by the weighted average ordinary share outstanding for the period. Diluted EPS presents the
dilutive effect on a per share basis of the potential ordinary shares (e.g., convertible securities, options and warrants) as if
they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an
anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of
diluted EPS. For the six months ended June 30, 2021, there were
Note 3 — Variable interest entity (“VIE”)
WiMi WFOE entered into contractual arrangements with Beijing WiMi on November 6, 2018. The agreements were terminated on December 18, 2020, and WiMi WFOE entered into another contractual arrangements with Beijing WiMi on the same day, under which WiMi WFOE maintains effective control of Beijing WiMi. The significant terms of these contractual arrangements are summarized in “Note 1 Nature of business and organization” above. As a result, the Company classifies Beijing WiMi as VIE which should be consolidated based on the structure as described in Note 1.
Shenzhen Weiyixin entered into contractual arrangements with Shenzhen Yitian on December 24, 2020. The significant terms of these contractual arrangements are summarized in “Note 1 Nature of business and organization” above. As a result, the Company classifies Shenzhen Yitian as VIE which should be consolidated based on the structure as described in Note 1.
F-25
Note 3 — Variable interest entity (“VIE”) (cont.)
A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support, or whose equity investors lack the characteristics of a controlling financial interest, such as through voting rights, right to receive the expected residual returns of the entity or obligation to absorb the expected losses of the entity. The variable interest holder, if any, that has a controlling financial interest in a VIE is deemed to be the primary beneficiary and must consolidate the VIE.
i) Beijing WiMi
WiMi WFOE is deemed to have a controlling financial interest and be the primary beneficiary of Beijing WiMi because it has both of the following characteristics:
(1) The power to direct activities at Beijing WiMi that most significantly impact such entity’s economic performance, and
(2) The right to receive benefits from Beijing WiMi that could potentially be significant to such entity.
Pursuant to the contractual arrangements, Beijing WiMi pays service fees equal to all of its net income to WiMi WFOE. The contractual arrangements are designed so that Beijing WiMi operate for the benefit of WiMi WFOE and ultimately, the Company.
Accordingly, the accounts of Beijing WiMi are consolidated in the accompanying financial statements. In addition, its financial positions and results of operations are included in the Company’s financial statements. Under the VIE Arrangements, the Company has the power to direct activities of Beijing WiMi and can have assets transferred out of Beijing WiMi. Therefore, the Company considers that there is no asset in Beijing WiMi that can be used only to settle obligations of Beijing WiMi, except for registered capital and PRC statutory reserves, if any. As Beijing WiMi is incorporated as limited liability company under the Company Law of the PRC, creditors of the Beijing WiMi do not have recourse to the general credit of the Company for any of the liabilities of Beijing WiMi.
ii) Shenzhen Yitian (terminated April 1, 2022)
Shenzhen Weiyixin is deemed to have a controlling financial interest and be the primary beneficiary of Shenzhen Yitian because it has both of the following characteristics:
(1) The power to direct activities at Shenzhen Yitian that most significantly impact such entity’s economic performance, and
(2) The right to receive benefits from Shenzhen Yitian that could potentially be significant to such entity.
Pursuant to the contractual arrangements, Shenzhen Yitian pays service fees equal to all of its net income to Shenzhen Weiyixin. The contractual arrangements are designed so that Shenzhen Yitian operate for the benefit of Shenzhen Weiyixin and ultimately, the Company.
Accordingly, the accounts of Shenzhen Yitian were consolidated in the accompanying financial statements as subsidiary of Beijing WiMi up to December 24, 2020 and as VIE of Shenzhen Weiyixin from December 24, 2020 forward. Under the VIE Arrangements, the Company has the power to direct activities of Shenzhen Yitian and can have assets transferred out of Shenzhen Yitian. Therefore, the Company considers that there is no asset in Shenzhen Yitian that can be used only to settle obligations of Shenzhen Yitian, except for registered capital and PRC statutory reserves, if any. As Shenzhen Yitian is incorporated as limited liability company under the Company Law of the PRC, creditors of the Shenzhen Yitian do not have recourse to the general credit of the Company for any of the liabilities of Shenzhen Yitian.
F-26
Note 3 — Variable interest entity (“VIE”) (cont.)
The carrying amount of the VIEs’ consolidated assets and liabilities are as follows:
| December 31, 2021 | June 30, 2022 | June 30, 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Current assets | ||||||||||||
| Property and equipment, net | ||||||||||||
| Other noncurrent assets | ||||||||||||
| Total assets | ||||||||||||
| Total liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Net assets | ( | ) | ||||||||||
| December 31, 2021 | June 30, 2022 | June 30, 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | ||||||||||||
| Deferred revenues | ||||||||||||
| Other payables and accrued liabilities | ||||||||||||
| Other payables – related parties | ||||||||||||
| Current portion of shareholder loans | ||||||||||||
| Operating lease liabilities | ||||||||||||
| Taxes payable | ||||||||||||
| Intercompany payable* | ||||||||||||
| Total current liabilities | ||||||||||||
| Non-current shareholder loan | ||||||||||||
| Total liabilities | ||||||||||||
| * |
The summarized operating results of the VIE’s are as follows:
| For the six months ended June 30, 2021 | For the six months ended June 30, 2022 | For the six months ended June 30, 2022 | ||||||||||
RMB (Unaudited) | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Operating revenues | ||||||||||||
| Gross profit | ||||||||||||
| Income from operations | ||||||||||||
| Net income | ||||||||||||
F-27
Note 3 — Variable interest entity (“VIE”) (cont.)
The summarized statements of cash flow of the VIE’s are as follows:
| For the six months ended June 30, 2021 | For the six months ended June 30, 2022 | For the six months ended June 30, 2022 | ||||||||||
RMB (Unaudited) | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Net cash provided by operating activities | ||||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ( | ) | ||||||
| Effect of exchange rate on cash and cash equivalents | ( | ) | ||||||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||||||
| Cash, cash equivalents and restricted cash, end of period | ||||||||||||
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the parent company balance sheets that sum to the total of the same amounts shown in the parent company statements of cash flows:
| For the six months ended June 30 | ||||||||||||
| 2021 | 2022 | 2022 | ||||||||||
RMB (Unaudited) | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Cash and cash equivalents | ||||||||||||
| Restricted cash | ||||||||||||
| Total cash, cash equivalents and restricted cash | ||||||||||||
Note 4 — Business combination
Acquisitions of Shenzhen Yichong, Shenzheng Shengtang and Tianjin Yaodi
The Company’s acquisitions of Shenzhen Yichong, Shenzhen Shengtang and Tianjin Yaodi were accounted for as business combinations in accordance with ASC 805. The Company then allocated the fair value of consideration of Shenzhen Yichong, Shenzhen Shengtang and Tianjin Yaodi based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. The Company estimated the fair values of the assets acquired and liabilities assumed at the acquisition date in accordance with the Business Combination standard issued by the FASB with the valuation methodologies using level 3 inputs, except for other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.
F-28
Note 4 — Business combination (cont.)
The following table summarizes the fair value of
the identifiable assets acquired and liabilities assumed on the acquisition date, which represents the net purchase price allocation on
the date of the acquisition of Shenzhen Yichong and translated the fair value from USD to RMB using the exchange rate on January 22,
2021 at the rate of USD
| Fair value | Fair value | |||||||
| RMB | USD | |||||||
| Cash | ||||||||
| Other current assets | ||||||||
| Plant and equipment | ||||||||
| Current liabilities | ( | ) | ( | ) | ||||
| Net assets of acquirees | ||||||||
| Gain on acquisition | ( | ) | ( | ) | ||||
| Total consideration | ||||||||
The Company subsequently deconsolidated ICinit on October 1, 2021, and as a result, the above acquired companies were deconsolidated as of June 30, 2022. See Note 5 for details.
Acquisition of Shanghai Guoyu
Shanghai Guoyu is committed to the R&D and application of intelligent visual algorithm technology, using image recognition, data analysis and modeling, virtual imaging, visual artificial intelligence algorithm and other technologies, integrating algorithm and data processing capabilities, and integrating functions from data processing to algorithm application, so as to provide customers with a full stack of intelligent visual algorithm services. At present, Shanghai Guoyu mainly serves the Internet marketing industry. The development of Shanghai Guoyu’s business is closely related to the progress and development of the computer vision industry and the Internet marketing industry.
The Company’s acquisition of Shanghai Guoyu was accounted for as business combination in accordance with ASC 805. The Company then allocated the fair value of consideration of Shanghai Guoyu based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. The Company estimated the fair values of the assets acquired and liabilities assumed at the acquisition date in accordance with the Business Combination standard issued by the FASB with the valuation methodologies using level 3 inputs, except for other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.
F-29
Note 4 — Business combination (cont.)
The following table summarizes the fair value of
the identifiable assets acquired and liabilities assumed on the acquisition date, which represents the net purchase price allocation on
the date of the acquisition of Shanghai Guoyu based on valuation performed by an independent valuation firm engaged by the Company and
translated the fair value from USD to RMB using the exchange rate on July 1, 2021 at the rate of USD
| Fair value | Fair value | |||||||
| RMB | USD | |||||||
| Copyright | ||||||||
| Goodwill | ||||||||
| Deferred tax liabilities | ( | ) | ( | ) | ||||
| Total consideration | ||||||||
Software consists of mainly data algorithm software,
with a fair value of approximately RMB
Acquisitions of Tapuyu and Pengcheng Keyi
On November 17, 2021, Viwotong Tech entered into Acquisition Framework Agreement to acquire 100% equity interests of Guangzhou Tapuyu Internet Technology Co., Ltd. (“Tapuyu”), a provider of e-commerce services and application of intelligent visual algorithm technology. The aggregate purchase price is RMB 2 (USD 0.3), and the transaction consummated on November 19, 2021. On November 17, 2021, Viwotong Tech entered into Acquisition Framework Agreement to acquire 100% equity interests of Pengcheng Keyi (Xi’an) Intelligence Technology Co., Ltd. (“Pengcheng Keyi”), a provider of testing equipment development and sales. The aggregate purchase price is RMB 2 (USD 0.3), and the purchase consummated on December 7, 2021.
The Company’s acquisitions of Tapuyu and Pengcheng Keyi were accounted for as business combination in accordance with ASC 805. The Company then allocated the fair value of consideration of Tapuyu and Pengcheng Keyi based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. The Company estimated the fair values of the assets acquired and liabilities assumed at the acquisition date in accordance with the Business Combination standard issued by the FASB with the valuation methodologies using level 3 inputs, except for other current assets and current liabilities were valued using the cost approach. Management of the Company is responsible for determining the fair value of assets acquired, liabilities assumed and intangible assets identified as of the acquisition date and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisitions are not material and have been expensed as incurred in general and administrative expense.
F-30
Note 4 — Business combination (cont.)
The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date, which represents the net purchase price allocation on the date of the acquisition of Tapuyu and translated the fair value from USD to RMB using the exchange rate on November 19, 2021 at the rate of USD 1.00 to RMB 6.3825 and the net purchase price allocation on the date of the acquisition of Pengcheng Keyi and translated the fair value from USD to RMB using the exchange rate on December 7, 2021 at the rate of USD 1.00 to RMB 6.3738.
| Fair value | Fair value | |||||||
| RMB | USD | |||||||
| Cash | ||||||||
| Other current assets | ||||||||
| Current liabilities | ( | ) | ( | ) | ||||
| Total consideration | ||||||||
Note 5 — Deconsolidation of ICinit
On October 1, 2021, the Company’s board
approved the equity transfer agreement between WiMi HK and Lucky Monkey Holding Limited, pursuant to which WiMi Cayman transferred
The fair value of the operations of ICinit, determined as of October 1, 2021, included the estimated consideration received, less costs to sell. Gain from sales of this transaction is as follows:
| RMB | USD | |||||||
| Consideration receivable | ||||||||
| Fair value of retained noncontrolling interest (49%) | ||||||||
| Carrying value of noncontrolling interest | ||||||||
| Less: ICinit’s book value | ( | ) | ( | ) | ||||
| Exchange rate difference | ( | ) | ||||||
| Loss on deconsolidation | ( | ) | ( | ) | ||||
Net loss on revaluation of retained interest amounted
to RMB
As result of deconsolidation, the Company recognized
RMB
On June 1, 2022, the Company signed equity transfer
agreement to transfer additional
F-31
Note 6 — Short term investments
Short term investments consist of the following:
| December 31, 2021 | June 30, 2022 | June 30, 2022 | |||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | |||||||||||
| Marketable securities(1) | |||||||||||||
Fair value disclosure:
| December 31, 2021 | December 31, 2021 Fair Value | |||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Marketable securities | ||||||||||||||||
| June 30, 2022 | June 30, 2022 Fair Value | |||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Marketable securities | ||||||||||||||||
There is no transfer between the levels for the periods presented.
| (1) |
F-32
Note 7 — Accounts receivable, net
Accounts receivable, net consisted of the following:
| December 31, 2021 | June 30, 2022 | June 30, 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Accounts receivable | ||||||||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ( | ) | ||||||
| Accounts receivable, net | ||||||||||||
The following table summarizes the changes in allowance for doubtful accounts:
| December 31, 2021 | June 30, 2022 | June 30, 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Beginning balance | ||||||||||||
| Addition | ||||||||||||
| Deconsolidation of ICinit and subsidiaries | ( | ) | ||||||||||
| Recovery(write off) | ( | ) | ( | ) | ||||||||
| Exchange rate difference | ||||||||||||
| Ending balance | ||||||||||||
F-33
Note 8 — Inventories
Inventories consist of the following:
| December 31, 2021 | June 30, 2022 | June 30, 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Finished goods – holographic accessories | ||||||||||||
| Finished goods – semiconductors | ||||||||||||
| Total inventories | ||||||||||||
Note 9 — Property and equipment, net
Property and equipment, net consist of the following:
| December 31, 2020 | June 30, 2022 | June 30, 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Office electronic equipment | ||||||||||||
| Office fixtures and furniture | ||||||||||||
| Vehicles | ||||||||||||
| Building | ||||||||||||
| Leasehold improvements | ||||||||||||
| Subtotal | ||||||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ( | ) | ||||||
| Total | ||||||||||||
Depreciation expense for the six months ended June
30, 2021 and 2022 amounted to RMB
F-34
Note 10 — Cost method investments
Cost method investments consist of the following:
| December 31, 2021 | June 30, 2022 | June 30, 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
areas) | ||||||||||||
| Total | ||||||||||||
For the six months ended June 30, 2021 and 2022,
the Company purchased and RMB
F-35
Note 11 — Intangible assets, net
The Company’s intangible assets with definite useful lives primarily consist of copyrights, customer relationship, non-compete agreements and technology know-hows. The following table summarizes acquired intangible asset balances as of:
| December 31, 2021 | June 30, 2022 | June 30, 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Copyrights | ||||||||||||
| Customer relationship | ||||||||||||
| Non-compete agreements | ||||||||||||
| Technology know-hows | ||||||||||||
| Subtotal | ||||||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ( | ) | ||||||
| Intangible assets, net | ||||||||||||
Amortization expense for the six months ended
June 30, 2021 and 2022 amounted to RMB
The estimated amortization is as follows:
| Twelve months ending June 30, | Estimated amortization expense | Estimated amortization expense | |||||||
| RMB | USD | ||||||||
| 2023 | |||||||||
| 2024 | |||||||||
| 2025 | |||||||||
| 2026 | |||||||||
| Thereafter | |||||||||
| Total | |||||||||
F-36
Note 12 — Goodwill
Goodwill represents the excess of the consideration paid of an acquisition over the fair value of the net identifiable assets of the acquired subsidiaries at the date of acquisition. Goodwill is not amortized and is tested for impairment at least annually, more often when circumstances indicate impairment may have occurred. The following table summarizes the components of acquired goodwill balances as of:
| December 31, 2021 | June 30 2022 | June 30 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Goodwill from Shenzhen Yidian acquisition | ||||||||||||
| Goodwill from Shenzhen Yitian acquisition | ||||||||||||
| Goodwill from Fe-da Electronics acquisition | ||||||||||||
| Goodwill from Guoyu acquisition | ||||||||||||
| Goodwill | ||||||||||||
The changes in the carrying amount of goodwill allocated to reportable segments as of December 31, 2021 and June 30, 2022 are as follows:
| AR advertising services | AR entertainment | Semiconductor business | Total | Total | ||||||||||||||||
| RMB | RMB | RMB | RMB | USD | ||||||||||||||||
| As of December 31, 2020 | ||||||||||||||||||||
| Add: acquisition of Guoyu | ||||||||||||||||||||
| Less: impairment loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Translation difference | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| As of December 31, 2021 | ||||||||||||||||||||
| Translation difference | ||||||||||||||||||||
| As of June 30, 2022 | ||||||||||||||||||||
Note 13 — Other payables and accrued liabilities
Other payables and accrued liabilities consist of the following:
| December 31, 2021 | June 30, 2022 | June 30,, 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Salary payables | ||||||||||||
| Other payables and accrued expenses | ||||||||||||
| Accrued interest payable | ||||||||||||
| Total other payables and accrued liabilities | ||||||||||||
F-37
Note 14 — Related party balances and transactions
Loans — related party
Loan related parties are as follows:
| Name of Related Parties | Relationship | Nature | December 31, 2021 | June 30, 2022 | June 30, 2022 | |||||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||||||||
| Yang Cui | Executive director of Beijing WiMi | Loan | ||||||||||||||||
| Shanghai Junei Internet Co. | Under common control of Jie Zhao | Loan | ||||||||||||||||
| Total: | ||||||||||||||||||
| Current portion of related party loan | ||||||||||||||||||
| Related party loan – non-current | ||||||||||||||||||
The maturities schedule is as follows:
| Twelve months ending June 30, | RMB | USD | |||||||
| 2023 | |||||||||
| 2024 | |||||||||
| Total | |||||||||
Note 15 — Taxes
Significant components of the benefit of income taxes are as follows:
| For the six months ended June 30, 2021 | For the six months ended June 30, 2022 | For the six months ended June 30, 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| Current | ( | ) | ( | ) | ( | ) | ||||||
| Deferred | ||||||||||||
| Benefit of income taxes | ||||||||||||
Deferred tax assets and liabilities
Significant components of deferred tax assets and liabilities were as follows:
| December 31, 2021 | June 30, 2022 | June 30, 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| Deferred tax assets: | ||||||||||||
| Allowance for doubtful accounts | ||||||||||||
| Impairment loss from inventories | — | — | ||||||||||
| Net operating loss carryforwards | ||||||||||||
| Less :valuation allowance | ( | ) | ( | ) | ( | ) | ||||||
| Deferred tax assets, net | ||||||||||||
| Deferred tax liabilities: | ||||||||||||
| Recognition of intangible assets arising from business combinations | ||||||||||||
| Total deferred tax liabilities, net | ||||||||||||
The Company evaluated the recoverable amounts of deferred tax assets, and provided a valuation allowance to the extent that future taxable profits will be available against which the net operating loss and temporary difference can be utilized. The Company considers both positive and negative factors when assessing the future realization of the deferred tax assets and applied weight to the relative impact of the evidences to the extent it could be objectively verified.
F-38
Note 15 — Taxes (cont.)
The Company recognized deferred tax liabilities related to the excess of the intangible assets reporting basis over its income tax basis as a result of fair value adjustment from acquisitions in 2015. The deferred tax liabilities will reverse as the intangible assets are amortized for financial statement reporting purposes.
Value added taxes (“VAT”) and goods and services taxes (“GST”)
Revenue represents the invoiced value of service,
net of VAT or GST. The VAT and GST are based on gross sales price. VAT rate is
Taxes payable consisted of the following:
| December 31, 2021 | June 30, 2022 | June 30, 2022 | ||||||||||
| RMB | RMB | USD | ||||||||||
| VAT taxes payable | ||||||||||||
| Income taxes payable | ||||||||||||
| Other taxes payable | ||||||||||||
| Totals | ||||||||||||
Note 16 — Concentration of risk
Credit risk
Financial instruments that potentially subject the
Company to significant concentrations of credit risk consist primarily of cash and short term investments. In China, the insurance coverage
for cash deposits of each bank is RMB
F-39
Note 16 — Concentration of risk (cont.)
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the PBOC. Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
To the extent that the Company needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into U.S. dollar for the purpose of making payments for dividends, strategic acquisition or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company.
Customer concentration risk
For the six months ended June 30, 2021, no
customer accounted for more than
As of December 31, 2021,
Vendor concentration risk
For the six months ended June 30, 2021,
As of December 31, 2021,
Note 17 — Leases
Lease commitments
The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. All of the Company’s real estate leases are classified as operating leases.
The Company has entered into eleven non-cancellable
operating lease agreements with term more than one year for office spaces expiring through August 2026. Upon adoption of FASB ASU 2016-02,
the Company recognized approximately RMB
Operating lease expenses are allocated between the
cost of revenue and selling, general, and administrative expenses. Rent expenses for the six months ended June 30, 2021 and 2022
were RMB
F-40
Note 17 — Leases (cont.)
The maturity of the Company’s lease obligations is presented below:
| Twelve Months Ending June 30, | Operating Lease Amount | Operating Lease Amount | ||||||
| RMB | USD | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Total lease payments | ||||||||
| Less: Interest | ( | ) | ( | ) | ||||
| Present value of lease liabilities | ||||||||
The Company has operating leases commitment of RMB
Note 18 — Shareholders’ equity
Ordinary shares
WiMi Cayman was established under the laws of Cayman
Islands on August 16, 2018 with authorized share of
On March 24, 2021, the Company
completed its third public offering of
Warrants
The Company’s outstanding warrants are classified
as equity since they qualify for exception from derivative accounting as they are considered to be indexed to the Company’s own
stock and require net share settlement. The fair value of the warrants of RMB
| Annual dividend yield | ||||
| Expected life (years) | ||||
| Risk-free interest rate | % | |||
| Expected volatility | % |
As of June 30, 2022, the Company had
Following is a summary of the status of warrants outstanding and exercisable as of June 30, 2022:
| Warrants | Weighted RMB | Weighted USD | ||||||||||
| Warrants outstanding, as of December 31, 2021 | ||||||||||||
| Issued | ||||||||||||
| Exercised | ||||||||||||
| Expired | ||||||||||||
| Warrants outstanding, as of June 30, 2022 | ||||||||||||
| Warrants exercisable, as of June 30, 2022 | ||||||||||||
F-41
Note 18 — Shareholders’ equity (cont.)
Stock based compensation
On June 6, 2020, the Company’s shareholders
approved the Company’s 2020 Equity Incentive Plan (the “2020 Plan”) to be administered by the Company’s board.
The maximum aggregate number of Class B ordinary shares that may be issued under the 2020 Equity Incentive Plan is
On June 6, 2020, the board of directors approved
and granted
On September 12, 2020, the board of directors
approved and granted
On January 26, 2021, the board of directors
approved the grant of
As of December 31, 2021 and June 30, 2022, total
of
F-42
Note 18 — Shareholders’ equity (cont.)
Restricted assets
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiary. Relevant PRC statutory laws and regulations permit payments of dividends by WiMi WFOE, Lixin Technology, Shenzhen Weiyixin, Shanghai Weimu, Beijing WiMi and Shenzhen Yitian (collectively “WiMi PRC entities”) only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the accompanying consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of WiMi PRC entities.
As a result of the foregoing restrictions, WiMi
PRC entities are restricted in their ability to transfer their assets to the Company. Foreign exchange and other regulation in the PRC
may further restrict WiMi PRC entities from transferring funds to the Company in the form of dividends, loans and advances. As of June
30, 2022, amounts restricted are the paid-in-capital and statutory reserve of WiMi PRC entities, which amounted to RMB (USD
Statutory reserve
As of December 31, 2021 and June 30, 2022,
WiMi PRC entities collectively attributed RMB
Note 19 — Commitments and contingencies
Contingencies
From time to time, the Company is party to certain legal proceedings, as well as certain asserted and un-asserted claims. Amounts accrued, as well as the total amount of reasonably possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the consolidated financial statements.
Variable interest entity structure
In the opinion of management, (i) the corporate structure of the Company is in compliance with existing PRC laws and regulations; (ii) the contractual arrangements are valid and binding, and do not result in any violation of PRC laws or regulations currently in effect; and (iii) the business operations of WiMi WFOE and the VIE are in compliance with existing PRC laws and regulations in all material respects.
However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the Company cannot be assured that PRC regulatory authorities will not ultimately take a contrary view to the foregoing opinion of its management. If the current corporate structure of the Company or the contractual arrangements is found to be in violation of any existing or future PRC laws and regulations, the Company may be required to restructure its corporate structure and operations in the PRC to comply with changing and new PRC laws and regulations. In the opinion of management, the likelihood of loss in respect of the Company’s current corporate structure or the contractual arrangements is remote based on current facts and circumstances.
F-43
Note 19 — Commitments and contingencies (cont.)
Coronavirus (“COVID-19”)
The ongoing outbreak of the novel coronavirus (COVID-19) has spread rapidly to many parts of the world. In March 2020, the World Health Organization declared the COVID-19 as a pandemic. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in China from February to mid-March in 2020. All of the Company’s business operations and the workforce are concentrated in China, so the Company closed offices and implemented work-from-home policy during that period. Due to the nature of the Company’s business, the impact of the closure on the operational capabilities was not significant. However, the Company’s customers were negatively impacted by the pandemic and reduced their budgets for online advertising and marketing. The resurgence of COVID-19 in late 2021 in Asia has impacted the Company’s operation in China and subsidiaries in Singapore and Hong Kong which caused these subsidiaries to record impairment on intangibles and goodwill as a result of reduced forecast for 2022. Potential impact to the Company’s results of operations for 2022 will also depend on economic impact due to the pandemic and if any future resurgence of the virus, which are beyond the Company’s control. There is no guarantee that the Company’s revenues will grow or remain at a similar level year over year in 2022.
Legal proceedings
The Company’s VIE Shenzhen Yiyun filed a lawsuit
in September 2019 where Shenzhen Yiyun sued three companies for breach of contract and seeking damages of approximately RMB
of approximately RMB
Yingke network technology (Hainan) Co., Ltd., the
plaintiff, filed a lawsuit against Shenzhen Kuxuanyou, the defendant, for a service contract regarding the plaintiff’s RMB
Note 20 — Segments
ASC 280, “Segment Reporting”, establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for detailing the Company’s business segments.
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Note 20 — Segments (cont.)
The Company’s chief operating decision maker
is the Chief Executive Officer, who reviews the financial information of the separate operating segments when making decisions about allocating
resources and assessing the performance of the group. The Company has determined that it has
The following tables present summary information by segment for the six months ended June 30, 2021 and 2022:
| AR advertising services | AR entertainment | Semiconductor business | Total June 30, 2021 | |||||||||||||
| RMB | RMB | RMB (Unaudited) | RMB (Unaudited) | |||||||||||||
| Revenues | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total capital expenditures | ||||||||||||||||
| AR advertising services | AR entertainment | Semiconductor business | Total June 30, 2022 | |||||||||||||
| RMB | RMB | RMB (Unaudited) | RMB (Unaudited) | |||||||||||||
| Revenues | ||||||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total capital expenditures | ||||||||||||||||
Total assets as of:
| December 31, 2021 | June 30, 2022 | June 30, 2022 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| AR advertising services | ||||||||||||
| AR entertainment | ||||||||||||
| Semiconductor business | ||||||||||||
| Total assets | ||||||||||||
The Company’s operations are primarily based in the PRC, where the Company derives a substantial portion of their revenues. Management also reviewed consolidated financial results by business locations. Disaggregated information of revenues by geographic locations are as follows:
| Total for the six months ended June 30, 2021 | Total for the six months ended June 30, 2022 | Total for the six months ended June 30, 2022 | ||||||||||
RMB (Unaudited) | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Mainland PRC revenues | 296.307.628 | |||||||||||
| Hong Kong revenues | 133.017.383 | |||||||||||
| International revenues | ||||||||||||
| Total revenues | ||||||||||||
Note 21 — Subsequent events
The Company evaluated all events and transactions that occurred after June 30, 2022 up through the date the Company issued these unaudited interim condensed consolidated financial statements.
On July 1,
2022,
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