Exhibit 99.1
WIMI HOLOGRAM CLOUD INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, | June 30 | June 30 | ||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | USD | ||||||||||
| ASSETS | ||||||||||||
| CURRENT ASSETS | ||||||||||||
| Cash and cash equivalents | ||||||||||||
| Short-term investments | ||||||||||||
| Accounts receivable, net | ||||||||||||
| Prepaid services fees | ||||||||||||
| Other receivables and prepaid expenses | ||||||||||||
| Deferred tax assets | ||||||||||||
| Total current assets | ||||||||||||
| NON-CURRENT ASSETS | ||||||||||||
| Property and equipment, net | ||||||||||||
| Equity investments | ||||||||||||
| Prepaid expenses and deposits | ||||||||||||
| Prepayments | ||||||||||||
| Operating lease right-of-use assets | ||||||||||||
| Total non-current assets | ||||||||||||
| Total assets | ||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| CURRENT LIABILITIES | ||||||||||||
| Accounts payable | ||||||||||||
| Advance from customers | ||||||||||||
| Other payables and accrued liabilities | ||||||||||||
| Amount due to related party – current | ||||||||||||
| Bank loans | ||||||||||||
| Operating lease liabilities – current | ||||||||||||
| Convertible notes payable | ||||||||||||
| Taxes payable | ||||||||||||
| Total current liabilities | ||||||||||||
| NONCURRENT LIABILITIES | ||||||||||||
| Amount due to related party – noncurrent | ||||||||||||
| Operating lease liabilities – noncurrent | ||||||||||||
| Total noncurrent liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| COMMITMENTS AND CONTINGENCIES (refer to Note 16) | ||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||
| Class A ordinary shares, USD | ||||||||||||
| Class B ordinary shares, USD | ||||||||||||
| Additional paid-in capital | ||||||||||||
| Accumulated deficits | ( | ) | ( | ) | ( | ) | ||||||
| Statutory reserves | ||||||||||||
| Accumulated other comprehensive income | ||||||||||||
| 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 unaudited interim condensed 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 Ended June 30, | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | USD | ||||||||||
| OPERATING REVENUES | ||||||||||||
| AR services | ||||||||||||
| Semiconductor business | ||||||||||||
| Total operating revenues | ||||||||||||
| COST OF REVENUES | ||||||||||||
| AR services | ( | ) | ( | ) | ( | ) | ||||||
| Semiconductor business | ( | ) | ||||||||||
| Total cost of revenues | ( | ) | ( | ) | ( | ) | ||||||
| GROSS PROFIT | ||||||||||||
| OPERATING EXPENSES | ||||||||||||
| Selling expenses | ( | ) | ( | ) | ( | ) | ||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ||||||
| Research and development expenses | ( | ) | ( | ) | ( | ) | ||||||
| Reversal of credit losses | ||||||||||||
| Stock compensation expenses | ( | ) | ||||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||
| OTHER INCOME/(EXPENSE) | ||||||||||||
| Investment income/(loss) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||
| Finance expenses, net | ( | ) | ( | ) | ( | ) | ||||||
| Other income, net | ||||||||||||
| Gain from disposal of equity interest in unconsolidated subsidiary | ||||||||||||
| Total other income, net | ||||||||||||
| (LOSS)/INCOME BEFORE INCOME TAXES | ( | ) | ||||||||||
| PROVISION FOR INCOME TAXES | ||||||||||||
| Current | ( | ) | ( | ) | ( | ) | ||||||
| Deferred | ( | ) | ( | ) | ||||||||
| Total provision for income tax | ( | ) | ( | ) | ( | ) | ||||||
| NET (LOSS)/INCOME | ( | ) | ||||||||||
| Less: Net (loss)/income attributable to non-controlling interests | ( | ) | ||||||||||
| NET (LOSS)/INCOME ATTRIBUTABLE TO WIMI HOLOGRAM CLOUD, INC. | ( | ) | ||||||||||
| NET (LOSS)/INCOME | ( | ) | ||||||||||
| OTHER COMPREHENSIVE INCOME/(LOSS) | ||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||
| COMPREHENSIVE INCOME/(LOSS) | ( | ) | ( | ) | ||||||||
| Less: Comprehensive (loss)/income attributable to non-controlling interests | ( | ) | ||||||||||
| COMPREHENSIVE INCOME/(LOSS) ATTRIBUTABLE TO WIMI HOLOGRAM CLOUD, INC. | ( | ) | ( | ) | ||||||||
| WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES | ||||||||||||
| Basic and diluted | ||||||||||||
| (LOSS)/EARN PER SHARE | ||||||||||||
| Basic and diluted | ( | ) | ||||||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-2
WIMI HOLOGRAM CLOUD INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Ordinary shares | Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | Additional | Accumulated deficits | other | |||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par value |
paid-in capital |
Statutory reserves |
Unrestricted |
comprehensive income |
Noncontrolling interests |
Total | ||||||||||||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2022 | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||||
| Vesting of employee share compensation | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | ( |
) | |||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2023 | ( |
) | |||||||||||||||||||||||||||||||||||||||
| USD | USD | USD | USD | USD | USD | USD | USD | ||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2023 | ( |
) | |||||||||||||||||||||||||||||||||||||||
| Ordinary shares | Accumulated | ||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | Additional | Accumulated deficits | other | |||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par value |
paid-in capital |
Statutory reserves |
Unrestricted |
comprehensive income |
Noncontrolling interests |
Total | ||||||||||||||||||||||||||||||||
| RMB | RMB | RMB | RMB | RMB | RMB | RMB | RMB | ||||||||||||||||||||||||||||||||||
| BALANCE, December 31, 2023 | ( |
) | |||||||||||||||||||||||||||||||||||||||
| Capital contribution from noncontrolling interests | - | - | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2024 | ( |
) | |||||||||||||||||||||||||||||||||||||||
| USD | USD | USD | USD | USD | USD | USD | USD | ||||||||||||||||||||||||||||||||||
| BALANCE, June 30, 2024 | ( | ) | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-3
WIMI HOLOGRAM CLOUD INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB | RMB | USD | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net (loss)/income | ( | ) | ||||||||||
| Adjustments to reconcile net (loss)/income to net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Amortization of operating lease right-of-use assets | ||||||||||||
| Loss on disposal of property and equipment | ||||||||||||
| Reversal of credit losses | ( | ) | ( | ) | ( | ) | ||||||
| Stock compensation expenses | ||||||||||||
| Deferred income tax | ||||||||||||
| Loss on short-term investments-unrealized | ||||||||||||
| Gain on deconsolidation of subsidiaries | ( | ) | ( | ) | ||||||||
| Expenses from unconsolidated subsidiary | ||||||||||||
| Change in operating assets and liabilities: | ||||||||||||
| Accounts receivables | ( | ) | ||||||||||
| Inventories | ||||||||||||
| Prepaid services fees | ( | ) | ( | ) | ( | ) | ||||||
| Other receivables and prepaid expenses | ( | ) | ( | ) | ( | ) | ||||||
| Prepaid expenses and deposits | ||||||||||||
| Accounts payable | ( | ) | ( | ) | ||||||||
| Deferred revenue | ||||||||||||
| Other payables and accrued liabilities | ||||||||||||
| Operating lease liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Taxes payable | ( | ) | ||||||||||
| Net cash (used in)/provided by operating activities | ( | ) | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Purchases of short-term investments | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds from sale of short-term investments | ||||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from bank loans | ||||||||||||
| Repayments of bank loans | ( | ) | ( | ) | ||||||||
| Proceeds from related party loans | ||||||||||||
| Repayments to related party loans | ( | ) | ( | ) | ||||||||
| Capital contributions from noncontrolling interests | ||||||||||||
| Proceeds from convertible notes | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
| EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS | ( | ) | ( | ) | ||||||||
| CHANGE IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||||||
| CASH AND CASH EQUIVALENTS, beginning of period | ||||||||||||
| CASH AND CASH EQUIVALENTS, end of period | ||||||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||
| Cash paid for income taxes | ||||||||||||
| Cash paid for interest | ||||||||||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
| Initial recognition of right-of-use assets and lease liabilities | ||||||||||||
The accompanying notes are an integral part of these unaudited interim condensed 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. The Company operates through its subsidiaries, WiMi Hologram Cloud Limited (“WiMi HK”), MicroAlgo Inc. (“MicroAlgo”), Tianjin Zhongzhengdaohe Investment Co., Ltd. (“TJ Zhongzheng”), and Lixin Technology Co., Ltd. (“Lixin Technology”). On April 28, 2022, the Company also established Weeto Investment Pte. Ltd. in Singapore.
(a) WiMi HK and subsidiaries
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”). WiMi WFOE, through its variable interest entity (“VIE”), Beijing WiMi Cloud Software Co., Ltd. (“Beijing WiMi”) and its subsidiaries, engages in providing augmented reality related products and services.
On December 18, 2020, with consent of WiMi
WFOE and approval of board, 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
On June 1, 2020, Wimi HK established ICinit
Limited (“ICinit”) in Hong Kong, and Wimi HK has a
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 HK transferred
On May 25, 2022, the Company entered into an equity transfer agreement
between WiMi HK and Lucky Monkey Holding Limited, pursuant to which WiMi HK transferred
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
On April 15, 2021, Wimi HK set up a joint
venture company, Viru Technology Limited (“Viru”) in Hong Kong and Wimi HK has a
On August 26, 2022, Viru established a fully owned subsidiary, Shenzhen Weiruntong Technology Co., Ltd. (“Shenzhen Weiruntong”) in PRC. Shenzhen Weiruntong was set up to develop application of ARservices and it had no material operation as of December 31, 2022.
On November 1, 2022, the Company’s board
approved the equity transfer agreement between Beijing WiMi and Cui, Yang and Shenzhen Zhangshangkuyu Technology Ltd. to transfer
F-5
Note 1 — Nature of business and organization (cont.)
(b) MicroAlgo and subsidiaries
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 AI algorithm and cloud computing services.
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 Shenzhen Weiyixin
Technology Co., Ltd. (“Shenzhen Weiyixin”) 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 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 without change of reporting entities.
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
On July 1, 2021, VIYI acquired
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, 2021 Viwotong Tech acquired
On September 23, 2022, Viwotong Tech entered
into Acquisition Framework Agreement to acquire
VIYI entered into the Business Combination and
Merger Agreement dated June 10, 2021 (as amended on January 24, 2022, August 2, 2022, August 3, 2022 and August 10,
2022, the “Merger Agreement”), by and among WiMi, Venus Acquisition Corporation (“Venus”)), Venus Merger Sub Corporation
(“Venus Merger Sub”), a Cayman Islands exempted company incorporated for the purpose of effectuating the Business Combination.
On December 9, 2022, in accordance with the Merger Agreement, the closing of the business combination (the “Closing”)
occurred, pursuant to which Venus issued
F-6
Note 1 — Nature of business and organization (cont.)
In December 2022, Viwotong Tech acquired
On April 6, 2023, the Company’s board
approved the equity transfer agreement between VIYI and LIM TZEA, to transfer
On March 27, 2023, Weidong established a fully
owned subsidiary Shenzhen Weidong Technology Co., Ltd. (“SZ Weidong”) in Shenzhen. On May 17, 2023, YY Online transferred
On June 5, 2023 VIYI Technology Ltd established
a fully owned subsidiary CDDI Capital Ltd (“CDDI”) in British Virgin Islands. On June 27, 2023, CDDI formed a
On March 7, 2024, Beijing Viwotong established a wholly-owned subsidiary, Beijing Weiyunshikong Technology Co., Ltd. (“BJ Weiyunshikong”).
(c) Others
On March 4, 2021, WiMi Cayman established
a wholly owned entity of TJ Zhongzheng which is deemed as a wholly foreign owned enterprise, with a register capital of USD
On August 4, 2020, WiMi Cayman established a wholly-owned subsidiary, 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 20, 2024, Shenzhen Weiyixin Technology Co., Ltd. and Beijing Hologram WiMi Cloud Network Technology Co., Ltd jointly funded the establishment of Weiyiyuliang (Beijing) Science Technology Center (Limited Partnership) (“Weiyiyuliang”)
F-7
Note 1 — Nature of business and organization (cont.)
| Name | Background | Ownership | ||
| ● A Hong Kong company ● Incorporated on September 4, 2018 ● Primarily engages in the sales of semiconductor products and related accessories | ||||
| ● A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”) ● Incorporated on September 20, 2018 ● A holding company | ||||
| ● A PRC limited liability company ● Incorporated on May 27, 2015 ● Primarily engages in Hologram advertising services | ||||
| Shenzhen Yidian Network Technology Co., Ltd. (“Shenzhen Yidian”) | ● A PRC limited liability company ● Incorporated on May 20, 2014 ● Primarily engages in ARservices | |||
| Shenzhen Duodian Cloud Technology Co., Ltd. (“Shenzhen Duodian”) | ● A PRC limited liability company ● Incorporated on August 24, 2017 ● Primarily engages in AR services | |||
| Korgas Duodian Network Technology Co., Ltd. (“Korgas Duodian”) | ● A PRC limited liability company ● Incorporated on November 25, 2016 ● Primarily engages in AR services | |||
| Kashi Duodian Network Technology Co., Ltd. (“Kashi Duodian”) | ● A PRC limited liability company ● Incorporated on January 31, 2019 ● Primarily engages in AR services |
F-8
Note 1 — Nature of business and organization (cont.)
| Name | Background | Ownership | ||
| ● A PRC limited liability company ● Incorporated on December 3, 2019 ● Primarily engages in AR services | ||||
| ● A PRC limited liability company ● Incorporated on June 9, 2021 ● Primarily engages in AR services | ||||
| ● A PRC limited liability company ● Incorporated on September 24, 2020 ● Primarily engages in AR services | ||||
| Micro Beauty Lightspeed Investment Management HK Limited (“Micro Beauty”) | ● A Hong Kong company ● Incorporated on February 22, 2016 ● Primarily engages in MR software development and licensing | |||
| Skystar Development Co., Ltd (“Skystar”) | ● A Republic of Seychelles Company ● Incorporated on March 30, 2016 ● Primarily engages in MR software development and licensing | |||
| ● A Hong Kong company ● Incorporated on April 15, 2021 ● Primarily engages in AR services | ||||
|
| ● A PRC limited liability company ● Incorporated on August 26, 2022 ● Primarily engages in AR services and no material operation as of December 31, 2023 |
F-9
Note 1 — Nature of business and organization (cont.)
| Name | Background | Ownership | ||
| ● A Hong Kong company ● Incorporated on August 21, 2020 ● Primarily engages in the sales of semiconductor products and related accessories | ||||
| ● A Singapore limited liability company ● Incorporated on April 28, 2022 ● Primarily engages in AR services. No material operations as of December 31, 2023 | ||||
(“Lixin Technology”) | ● A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”) ● Incorporated on August 4, 2020 ● Primarily engages in research, development and sale of computer chip and intelligent chip products | |||
| ● A PRC limited liability company ● Incorporated on October 10, 2020 ● Plan to support the daily operations of Lixin Technology | ||||
| ● A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”) ● Incorporated on March 4, 2021 ● A holding company | ||||
| ● A PRC limited liability company ● Incorporated on May 21, 2021 ● Plan to engage AR services | ||||
| ● A PRC limited liability company ● Incorporated on May 26, 2021 ● Plan to engage AR services | 100% owned by Shenzhen Hedao Dissolved on June 2, 2023 |
F-10
Note 1 — Nature of business and organization (cont.)
| Name | Background | Ownership | ||
| ● A Cayman company ● Incorporated on May 14, 2018 ● A holding company | ||||
| ● A Cayman company ● Incorporated on September 24, 2020 ● Primarily engages in the development of central processing algorithm and cloud computing services | ||||
| ● A Singapore company ● Incorporated on January 9, 2009 ● Primarily engages in customization of central processing units | 100% owned by VIYI Acquired in September 2020 Disposed in April 2023 | |||
| ● A Cayman Islands company ● Incorporated on May 6, 2021 ● Engages in software solution for intelligent chips | 100% owned by Fe-Da Electronics Disposed in April 2023 | |||
| ● A Hong Kong company ● Incorporated on September 10, 2020 ● Support the daily operations of Fe-da Electronics in Hong Kong | 100% owned by Fe-da Electronics Disposed in April 2023 | |||
| ● A Hong Kong company ● Incorporated on October 9, 2020 ● A holding company | ||||
| ● A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”) ● Incorporated on November 18, 2020 ● A holding company |
F-11
Note 1 — Nature of business and organization (cont.)
| Name | Background | Ownership | ||
| ● A PRC limited liability company ● Incorporated on November 30, 2020 ● Engages in providing software support services | ||||
| ● A PRC limited liability company ● Incorporated on October 28, 2020 ● Primarily engages in AR services | ||||
| ● A PRC limited liability company ● Incorporated on March 18, 2019 ● Engages in R&D and application of intelligent visual algorithm technology | ||||
| ● A PRC limited liability company ● Incorporated on October 30, 2020 ● Primarily engages in AR services | ||||
| ● A PRC limited liability company ● Incorporated on September 15, 2017 ● Primarily engages in central processing algorithm in mobile games industry | 100% owned by Shenzhen Yitian before January 11, 2021; 100% owned by YY Online after January 11, 2021; Dissolved in October 2023; | |||
| ● A PRC limited liability company ● Incorporated on January 14, 2019 ● Primarily engages in AR services |
F-12
Note 1 — Nature of business and organization (cont.)
| Name | Background | Ownership | ||
| Shenzhen Yitian Internet Technology Co., Ltd. (“Shenzhen Yitian”) | ● A PRC limited liability company ● Incorporated on March 08, 2011 ● Primarily engages in mobile games development | |||
| Shenzhen Qianhai Wangxin Technology Co., Ltd. (“Shenzhen Qianhai”) | ● A PRC limited liability company ● Incorporated on October 16, 2015 ● Primarily engages in AR services | |||
| ● A British Virgin Islands Company ● Incorporated on June 5, 2023 | ||||
(“VIWO Cayman”) | ● Incorporated on June 5, 2023, under the laws of the Cayman Islands ● A holding company | |||
(“Viwo Tech”) | ● A Hong Kong company ● Incorporated on April 15, 2021 ● Engages in intelligent chips design | |||
| ● A PRC limited liability company ● Incorporated on July 19, 2021 ● No operations as of December 31, 2022 | ||||
| ● A PRC limited liability company ● Incorporated on June 22, 2021 ● Engages in E-commerce services and application of intelligent visual algorithm technology | ||||
| ● A PRC limited liability company ● Incorporated on July 22, 2022 ● Engages in central processing algorithm in advertising industry | ||||
| ● A PRC limited liability company ● Incorporated on March 27, 2023 ● Primarily engages in central processing algorithm in advertising industry | ||||
(VIWO HK) | ● A Hong Kong company ● Incorporated on December 20,2023 ● A holding company | |||
(“Beijing Viwotong”) | ● A PRC limited liability company ● Incorporated on January 24, 2024 ● Primarily engages in central processing algorithm in advertising industry | |||
| ● A PRC limited liability company ● Incorporated on March 7, 2024 ● Primarily engages in central processing algorithm in advertising industry | ||||
| ● A Limited Partnership ● Incorporated on June 20, 2024 ● No operations as of June 30, 2024 |
F-13
Note 1 — Nature of business and organization (cont.)
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 is 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 four agreements, shareholders power of attorney and irrevocable commitment letters, which were initially signed on November 6, 2018. Pursuant to reorganization on December 18, 2020, the previous agreements were terminated and Beijing WiMi and WiMi WFOE entered into identical agreements on December 18, 2020. WiMi WFOE maintained effective control of Beijing WiMi. The significant terms of agreements are as follows:
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.
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.
F-15
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, 2024 are not necessarily indicative of results to be expected for any other interim period or for the full year of 2024. 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 year ended December 31, 2023.
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, plant and equipment, impairment of long-lived assets, allowance for credit losses, 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 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 income amounted to RMB
F-16
Note 2 — Summary of significant accounting policies (cont.)
Convenience translation
Cash and cash equivalents
Cash and cash equivalents primarily consist of bank deposits with original maturities of three months or less, which are unrestricted as to withdrawal and use. Cash and cash equivalents also consist of funds earned from the Company’s operating revenues which were held at third party platform fund accounts which are unrestricted as to immediate use or withdraw. The Company maintains most of its bank accounts in the PRC, HK, Singapore and US.
Accounts receivable, net
Accounts receivable include trade accounts due from customers. Accounts are considered overdue after 90 days. Management reviews its receivables on a regular basis to determine if the credit losses are adequate and provide credit losses when necessary. The credit loss is based on management’s best estimates of specific losses on individual customer exposures, as well as the historical trends of collections. Account balances are charged off against the credit losses after all means of collection have been exhausted and the likelihood of collection is not probable.
Short-term investments
Short-term investments are investment in marketable equity securities that are measured and recorded at fair value based on quoted prices in active markets on reporting dates with changes in fair value, whether realized or unrealized, recorded through the income statement.
Prepaid services fees
Prepaid services fees are mainly payments made to vendors or services providers for future services. These amounts are refundable and bear no interest. Prepaid services fees also include money deposited with certain channel providers to ensure the contents of the advertisement do not violate the terms of the channel providers. The deposits usually have one year term and are refundable upon contract termination.
F-17
Note 2 — Summary of significant accounting policies (cont.)
Other receivables and prepaid expenses
Other receivables that are short-term in nature include employee advances to pay certain of the Company’s expenses in the normal course of business and certain short-term deposits. Prepaid expenses included utilities or system services and prepaid VAT. Delinquent account balances are written-off against the allowance for credit losses after management has determined that the likelihood of collection is not probable.
Credit losses
The Company follows Accounting Standards Update No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Company’s allowance for credit losses as of December 31, 2023 and June 30, 2024 reflects the best estimation of the expected future losses for its financial instruments measured at amortized cost, based on the current economic conditions; however, as a result of the uncertainty caused by other factors, these estimates may change and future actual losses may differ from the estimates. The Company will continue to monitor economic conditions and will revise the estimates of the expected future losses for financial instruments measured at amortized cost as necessary.
Property and equipment, net
Property and equipment are stated at cost less
accumulated depreciation and impairment if applicable.
| Useful Life | ||
| Office equipments | ||
| Office furniture and fixtures | ||
| Vehicles | ||
| Building | ||
| Leasehold improvements | lesser of lease term or expected useful life |
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the unaudited interim consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
F-18
Note 2 — Summary of significant accounting policies (cont.)
Equity investments
The
Company accounts for investments with less than
Equity investments are evaluated for impairment when facts or circumstances indicate that the fair value of the long-term investments is less than its carrying value. An impairment is recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near term prospects of the investments; and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.
Prepayments
Prepayments are payments made to housing developers
for commercial and residential properties down payments. These amounts are refundable and bear an interest ranging from
F-19
Note 2 — Summary of significant accounting policies (cont.)
Deconsolidation
Upon the loss of control, the Company derecognizes the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in profit or loss. If the Company retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as cost method investment depending on the level of influence retained.
Impairment for long-lived assets
Long-lived assets, including property and equipment with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values.
Convertible notes payable
On February 27, 2024, MicroAlgo entered into various Convertible Note Purchase Agreements with certain investors (the “Investors”), relating to our issuance of Convertible Promissory Notes due after 360 days of issuance (the “Convertible Notes”) and our ordinary shares that are issuable upon conversion of the Convertible Note. On February 28, 2024, MicroAlgo issued to each Investor an Unsecured Convertible Promissory Note (the “Notes”) pursuant to the relevant Purchase Agreements in registered offerings. On June 5, 2024, MicroAlgo entered into convertible note purchase agreements with certain investors pursuant to which we issued on June 6, 2024 in convertible notes with a term of 360 days.
Convertible notes are debt or equity instruments that either require
or permit the investor to convert the instrument into equity securities of the issuer. MicroAlgo accounts for its convertible notes in
accordance with ASC 470-20 Debt with Conversion and Other Options, whereby the convertible instrument is initially accounted for as a
single unit of account, unless it contains a derivative that must be bifurcated from the host contract in accordance with ASC 815-15 Derivatives
and hedging – Embedded Derivatives or the substantial premium model in ASC 470-20 Debt – Debt with Conversion and Other Options
applies. For the six months ended June 30, 2024, the convertible notes payable amounted to RMB
F-20
Note 2 — Summary of significant accounting policies (cont.)
Fair value measurement
The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. |
Revenue recognition
The Company adopted Accounting Standards Update
(“ASU”) 2014-09 Revenue from Contracts with Customers (ASC Topic 606). The ASU requires the use of a new five-step
model to recognize revenue from customer contracts.
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 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-21
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 are provided by third party service provider.
(ii) AR Entertainment
The Company’s AR entertainment includes mainly mobile games operations.
F-22
Note 2 — Summary of significant accounting policies (cont.)
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-23
Note 2 — Summary of significant accounting policies (cont.)
(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-24
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.
June 30, 2023 (Unaudited) | June 30, 2024 (Unaudited) | June 30, 2024 (Unaudited) | ||||||||||
| RMB | RMB | USD | ||||||||||
| Revenues | ||||||||||||
| AR services | ||||||||||||
| Semiconductor business | ||||||||||||
| Total revenues | ||||||||||||
|
June 30, 2023 (Unaudited) |
June 30, 2024 (Unaudited) |
June 30, 2024 (Unaudited) |
||||||||||
| RMB | RMB | USD | ||||||||||
| Goods and services transferred at a point in time | ||||||||||||
| Total revenues | ||||||||||||
|
June 30, 2023 (Unaudited) |
June 30, 2024 (Unaudited) |
June 30, 2024 (Unaudited) |
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| RMB | RMB | USD | ||||||||||
| Mainland PRC revenues | ||||||||||||
| Hong Kong revenues | ||||||||||||
| International revenues | ||||||||||||
| Total revenues | ||||||||||||
Cost of revenues
For AR services, the cost of revenue comprised of costs paid to channel distributors based on the sales agreements.
F-25
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.
Research and development expenses
Research and development expenses include salaries and other compensation-related expenses to the Company’s research and product development personnel, outsourced subcontractors, as well as office rental, depreciation and related expenses for the Company’s research and product development team.
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
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized, or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
An uncertain tax position is recognized as a benefit
only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination
being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than
Leases
The Company adopted FASB ASU 2016-02, “Leases” (Topic 842) for the year ended December 31, 2020, and elected the practical expedients that does not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. For lease terms of twelve months or fewer, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. The Company also adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component.
Operating lease ROU assets and lease liabilities are recognized at the adoption date or the commencement date, whichever is earlier, based on the present value of lease payments over the lease term. Since the implicit rate for the Company’s leases is not readily determinable, the Company use its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments, in a similar economic environment and over a similar term.
F-26
Note 2 — Summary of significant accounting policies (cont.)
Lease terms used to calculate the present value of lease payments generally do not include any options to extend, renew, or terminate the lease, as the Company does not have reasonable certainty at lease inception that these options will be exercised. The Company generally considers the economic life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. The Company has elected the short-term lease exception, therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. Its leases generally do not provide a residual guarantee. The operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term.
The Company reviews the impairment of its ROU assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. The Company has elected to include the carrying amount of operating lease liabilities in any tested asset group and include the associated operating lease payments in the undiscounted future pre-tax cash flows.
Stock-based compensation
The Company records stock-based compensation expense for employees and non-employees at fair value on the grant date. Share-based compensation is recognized net of forfeitures, as amortized expense on a straight-line basis over the requisite service period, which is the vesting period.
The Company accounts for share-based compensation expenses using an estimated forfeiture rate at the time of grant and revising, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation expenses are recorded net of estimated forfeitures such that expenses are recorded only for those share-based awards that are expected to vest.
Employee benefit
The full-time employees of the Company are entitled to staff welfare benefits including medical care, housing fund, pension benefits, unemployment insurance and other welfare, which are government mandated defined contribution plans. The Company is required to accrue for these benefits based on certain percentages of the employees’ respective salaries, subject to certain ceilings, in accordance with the relevant PRC regulations, and make cash contributions to the state-sponsored plans out of the amounts accrued.
Noncontrolling interests
Noncontrolling interests consists of an aggregate
of
December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| VIDA | ( | ) | ( | ) | ( | ) | ||||||
| Viru | ( | ) | ( | ) | ( | ) | ||||||
| MicroAlgo | ||||||||||||
| Total noncontrolling interests | ||||||||||||
F-27
Note 2 — Summary of significant accounting policies (cont.)
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, 2023, there was no dilutive effect of potential shares due to the Company’s net loss. For the six months ended June 30, 2024, there was no dilutive effect of potential shares due to the Company’s net income.
Statutory reserves
Pursuant
to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable “statutory
surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations
of
Segment reporting
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.
Recently issued accounting pronouncements
In August 2023, the FASB issued ASU 2023-05, “Business Combinations-Joint Venture Formations (Subtopic 805-60)”. The amendments in this Update address the accounting for contributions made to a joint venture, upon formation, in a joint venture’s separate financial statements. Requiring a joint venture to recognize and initially measure its assets and liabilities using a new basis of accounting upon formation reduces diversity in practice and provides decision-useful information to a joint venture’s investors. The amendments in this Update address a newly formed joint venture should initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). That approach is generally consistent with other new basis of accounting models in GAAP, such as fresh-start reporting in accordance with Topic 852, Reorganizations. It is also broadly consistent with the accounting outcome that would result from treating the joint venture as the acquirer of a business within the scope of Subtopic 805-10, Business Combinations—Overall. For public business entities, ASU 2023-05 is effective prospectively for all joint venture formations with a formation date on or after January 1, 2025. Additionally, a joint venture that was formed before January 1, 2025 may elect to apply the amendments retrospectively if it has sufficient information. Early adoption is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance), either prospectively or retrospectively.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280)”. The amendments in this Update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this Update require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss (collectively referred to as the “significant expense principle”). The amendments in this Update also require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss. The amendments in this Update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted.
F-28
Note 2 — Summary of significant accounting policies (cont.)
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740)”. The amendments in this Update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this Update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate). Specifically, public business entities are required to disclose a tabular reconciliation, using both percentages and reporting currency amounts. A public business entity is required to provide an explanation, if not otherwise evident, of the individual reconciling items disclosed, such as the nature, effect, and underlying causes of the reconciling items and the judgment used in categorizing the reconciling items. The amendments in this Update eliminate the requirement for all entities to (1) disclose the nature and estimate of the range of the reasonably possible change in the unrecognized tax benefits balance in the next 12 months or (2) make a statement that an estimate of the range cannot be made. The amendments in this Update remove the requirement to disclose the cumulative amount of each type of temporary difference when a deferred tax liability is not recognized because of the exceptions to comprehensive recognition of deferred taxes related to subsidiaries and corporate joint ventures. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this Update should be applied on a prospective basis. Retrospective application is permitted.
Except as mentioned above, the Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited interim consolidated balance sheets, statements of income and comprehensive income and statements of cash flows.
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.
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.
F-29
Note 3 — Variable interest entity (“VIE”) (cont.)
| December 31, 2023 |
June 30, 2024 |
June 30, 2024 |
||||||||||
| RMB | RMB (Unaudited) |
USD (Unaudited) |
||||||||||
| Current assets | ||||||||||||
| Property, plant and equipment, net | ||||||||||||
| Other noncurrent assets | ||||||||||||
| Total assets | ||||||||||||
| Total liabilities | ( |
) | ( |
) | ( |
) | ||||||
| Net assets | ( |
) | ( |
) | ( |
) | ||||||
| December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | ||||||||||||
| Deferred revenue | ||||||||||||
| Other payables and accrued liabilities | ||||||||||||
| Taxes payable | ||||||||||||
| Intercompany payable* | ||||||||||||
| Total current liabilities | ||||||||||||
| Non-current shareholder loan | ||||||||||||
| Total liabilities | ||||||||||||
| * |
F-30
Note 3 — Variable interest entity (“VIE”) (cont.)
For the six months ended June 30, 2023 | For the six months ended June 30, 2024 | For the six months ended June 30, 2024 | ||||||||||
RMB (Unaudited) | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Operating revenues | ||||||||||||
| Gross profit | ( | ) | ( | ) | ||||||||
| Income from operations | ( | ) | ( | ) | ( | ) | ||||||
| Net income | ( | ) | ( | ) | ( | ) | ||||||
| For the six months ended June 30 | ||||||||||||
| 2023 | 2024 | 2024 | ||||||||||
| RMB (Unaudited) | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Cash and cash equivalents | ||||||||||||
| Total cash and cash equivalents | ||||||||||||
F-31
Note 4 — Deconsolidation
Disposal of Fe-da Electronics and its subsidiaries
On April 6, 2023, the Company’s board approved
the equity transfer agreement between VIYI and LIM TZEA, to transfer
| RMB | USD | |||||||
| Total current assets | ||||||||
| Total other assets | ||||||||
| Total assets | ||||||||
| Total current liabilities | ||||||||
| Total net assets | ||||||||
| Total consideration | ||||||||
| Total loss on disposal | ||||||||
Disposal of Shenzhen Yiyou Online Technology Co., Ltd. (“YY Online”)
On May 20, 2024, the Company’s board
of directors approved the equity transfer agreement between Weidong Technology Co., Ltd. (“Weidong”) and a related individual
to transfer
Note 5 — Short-term investments
| December 31, 2023 |
June 30, 2024 |
June 30, 2024 |
||||||||||
| RMB | RMB (Unaudited) |
USD (Unaudited) |
||||||||||
| Marketable securities | ||||||||||||
| December 31, | December 31, 2023 Fair Value | |||||||||||||||
| 2023 | Level 1 | Level 2 | Level 3 | |||||||||||||
| RMB | RMB | RMB | RMB | |||||||||||||
| Marketable securities | ||||||||||||||||
| June 30, | June 30, 2024 Fair Value |
|||||||||||||||
| 2024 | Level 1 | Level 2 | Level 3 | |||||||||||||
| RMB (Unaudited) |
RMB (Unaudited) |
RMB (Unaudited) |
RMB (Unaudited) |
|||||||||||||
| Marketable securities | ||||||||||||||||
There is no transfer between the levels for the periods presented.
Gain
from sale of investments amounted to approximately RMB
F-32
Note 6 — Accounts receivable, net
| December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Accounts receivable | ||||||||||||
| Less: allowance for credit losses | ( | ) | ( | ) | ( | ) | ||||||
| Accounts receivable, net | ||||||||||||
| December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Beginning balance | ||||||||||||
Reversal of credit losses | ( | ) | ( | ) | ( | ) | ||||||
| Deconsolidation of Fe-da and subsidiaries | ( | ) | ||||||||||
| Ending balance | ||||||||||||
Note 7 — Property and equipment, net
| December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
Office equipments | ||||||||||||
Office furniture and fixtures | ||||||||||||
| Vehicles | ||||||||||||
| Building | ||||||||||||
| Leasehold improvements | ||||||||||||
| Subtotal | ||||||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ( | ) | ||||||
| Total | ||||||||||||
Depreciation expenses for the six months ended
June 30, 2023 and 2024 amounted to RMB
F-33
Note 8 — Equity investments
| December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Total | ||||||||||||
During the year ended December 31, 2023 and the six months
ended June 30,2024, the Company totally made
F-34
Note 9 — Other payables and accrued liabilities
| December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Salary payables | ||||||||||||
| Other payables and accrued expenses | ||||||||||||
| Accrued interest payable | ||||||||||||
| Total other payables and accrued liabilities | ||||||||||||
F-35
Note 10 — Related party balances and transactions
Loans — related party
| Name of Related Parties | Relationship | Nature | December 31, 2023 | June 30, 2024 | June 30, 2024 | |||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||||||
| Shanghai Junei Internet Co. | Loan | |||||||||||||||
| Total: | ||||||||||||||||
| Amount due to related party -current | ||||||||||||||||
| Amount due to related party - noncurrent | ||||||||||||||||
Joyous JD is a non-controlling shareholder of MicroAlgo.
December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Advance to related party-current--Joyous JD Limited | ||||||||||||
The disposal of YY Online is a related party transaction between Weidong
and a related individual, which is a staff of a subsidiary of MicroAlgo. The disposal resulted in a gain from disposal of approximately
RMB
Note 11 — Taxes
Income tax
Cayman Islands
Under the current laws of the Cayman Islands, WiMi Cayman, MicroAlgo, VIYI and VIWO are not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
Hong Kong
WiMi HK, Micro Beauty, VIDA, ICinit, VIYI Ltd, Viwo Tech and Viwo HK
are incorporated in Hong Kong and are subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial
statements adjusted in accordance with relevant Hong Kong tax laws. Under the two-tiered profits tax rates regime, the first
Seychelles
Skystar is incorporated in Seychelles and is not subject to tax on income generated outside of Seychelles under the current law. In addition, upon payments of dividends by these entities to their shareholders, no withholding tax will be imposed.
Singapore
Fe-da Electronics and Weeto are incorporated in
Singapore and is subject to Singapore Profits Tax on the taxable income as reported in its statutory financial statements adjusted in
accordance with relevant Singapore tax laws. The applicable tax rate is
F-36
Note 11 — Taxes (cont.)
PRC
The subsidiaries and VIE incorporated in the PRC
are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable
tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under
the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), domestic enterprises and Foreign Investment Enterprises (the “FIE”)
are usually subject to a unified
Korgas Duodian, and Korgas Weidong were formed and
registered in Korgas in Xinjiang, China from 2016 to 2020, and Kashi Duodian was formed and registered in Kashi in Xinjiang, China in
2019. These companies are not subject to income tax for 5 years and can obtain another two years of tax-exempt status and three years
at reduced income tax rate of
Shenzhen Qianhai was formed and registered in Qianhai
District in Guangdong Provence, China in 2015. It is subject to income tax at a reduced rate of
Lixin Technology and Weidong were formed and registered
in the free tax zone in Hainan Provence, China in 2020. These companies are subject to income tax at a reduced rate of
For the ended June 30, 2023 | For the ended June 30, 2024 | For the ended June 30, 2024 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
| Current | ( | ) | ( | ) | ( | ) | ||||||
| Deferred | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ||||||
Deferred tax assets and liabilities
December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| Deferred tax assets: | ||||||||||||
| Allowance for credit losses | ||||||||||||
| Net operating loss carry forwards | ||||||||||||
| Less: valuation allowance | ( | ) | ||||||||||
| Deferred tax assets, net | ||||||||||||
| Deferred tax liabilities: | ||||||||||||
| Recognition of intangible assets arising from business combinations | ||||||||||||
| Total deferred tax liabilities, net | ||||||||||||
F-37
Note 11 — Taxes (cont.)
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 evidence to the extent it could be objectively verified.
Uncertain tax positions
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of December 31, 2023 and June 30,2024, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the year ended December 31,2023 and for the six months ended June 30, 2024.
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
December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||
| RMB | RMB | USD | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| VAT taxes payable | ||||||||||||
| Income taxes payable | ||||||||||||
| Other taxes payable* | ||||||||||||
| Totals | ||||||||||||
| * |
Note 12 — 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-38
Note 12 — 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, 2023, no customer
accounted for more than 10% of the Company’s total revenues. For the six months ended June 30, 2024, one customer accounted for
As of December 31, 2023, three customers
accounted for
Vendor concentration risk
For the six months ended June 30, 2023, no vendor
accounted for more than 10% of the Company’s total purchases. For the six months ended June 30, 2024, three vendors accounted for
As of December 31, 2023, four vendors accounted
for
Note 13 — 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 eight
non-cancellable operating lease agreements with term more than one year for office spaces expiring through July 2026. As of
June 30, 2024, 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, 2023 and 2024
were RMB
F-39
Note 13 — Leases (cont.)
| Schedule of operating lease obligations Twelve Months Ending December 31, | Operating Lease Amount | |||||||
| RMB | USD | |||||||
| (Unaudited) | (Unaudited) | |||||||
| 2024 (remaining six months) | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Total lease payments | ||||||||
| Less: Interest | ||||||||
| Present value of lease liabilities | ||||||||
F-40
Note 14 — 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
Stock based compensation
On January 26, 2023, the Company’s Board
approved the Company’s 2023 Equity Incentive Plan (the “2023 Plan”). The maximum aggregate number of Class B ordinary
shares that may be issued under the 2023 Equity Incentive Plan is
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 accumulated deficits, 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, 2024, amounts restricted are the paid-in-capital and statutory reserve of WiMi PRC entities, which amounted to RMB
F-41
Note 14 — Shareholders’ equity (cont.)
Statutory reserve
As of December 31, 2023 and June 30, 2024,
WiMi PRC entities collectively attributed RMB
Note 15 — Warrant liability
The Company’s subsidiary, MicroAlgo Inc.
(“MicroAlgo”), consummated a private placement of
The Private Warrants will be exercisable on a cashless basis and will be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by MicroAlgo and exercisable by such holders on the same basis as the Public Warrants.
The private warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the balance sheets.
The warrants were classified as Level 3 at the
initial measurement date due to the use of unobservable inputs. MicroAlgo established the initial fair value for the private warrants
at USD
| Schedule of Black-Scholes model | December 31, 2023 | December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||||
| USD | RMB | USD | RMB | |||||||||||||
| Input | ||||||||||||||||
| Share price | ||||||||||||||||
| Risk-free interest rate | % | % | % | % | ||||||||||||
| Volatility | % | % | % | % | ||||||||||||
| Exercise price | ||||||||||||||||
| Warrant life (yr) | ||||||||||||||||
As of December 9, 2022, the aggregate value
of the private warrants was $
F-42
Note 16 — 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.
Note 17 — 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.
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
AR services |
AR entertainment | Semiconductor business | Total June 30, 2023 | |||||||||||||
RMB (Unaudited) | RMB (Unaudited) | RMB (Unaudited) | RMB (Unaudited) | |||||||||||||
| Revenues | - | |||||||||||||||
| Cost of revenues | - | |||||||||||||||
| Gross profit | - | |||||||||||||||
| Depreciation and amortization | - | |||||||||||||||
| Total capital expenditures | - | |||||||||||||||
F-43
Note 17 — Segments (cont.)
AR services |
AR entertainment | Semiconductor business | Total June 30, 2024 | |||||||||||||
RMB (Unaudited) | RMB (Unaudited) | RMB (Unaudited) | RMB (Unaudited) | |||||||||||||
| Revenues | - | |||||||||||||||
| Cost of revenues | - | |||||||||||||||
| Gross profit | - | |||||||||||||||
| Depreciation and amortization | - | |||||||||||||||
| Total capital expenditures | - | |||||||||||||||
December 31, 2023 | June 30, 2024 | June 30, 2024 | ||||||||||
| RMB | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| AR services | ||||||||||||
| AR entertainment | ||||||||||||
| Semiconductor business | ||||||||||||
| Total assets | ||||||||||||
Total for the six months ended June 30, 2023 | Total for the six months ended June 30, 2024 | Total for the six months ended June 30, 2024 | ||||||||||
RMB (Unaudited) | RMB (Unaudited) | USD (Unaudited) | ||||||||||
| Mainland PRC revenues | ||||||||||||
| Hong Kong revenues | ||||||||||||
| International revenues | ||||||||||||
| Total revenues | ||||||||||||
Note 18 — Subsequent events
The Company evaluated all events and transactions that occurred after June 30, 2024 up through the date the Company issued these unaudited interim condensed consolidated financial statements, and determined that it does not have any additional material subsequent events to disclose in these financial statements.
F-44