WiMi Hologram Cloud Inc. — 2020 Form 20-F Summary
Period and scope: This is an audited annual report for the fiscal year ended December 31, 2020, filed April 29, 2021—not a standalone 2020 fourth-quarter filing. Financial statements are prepared under U.S. GAAP and reported in RMB; USD figures are convenience translations.
Business context
WiMi provides holographic augmented-reality (AR) advertising and entertainment services and, beginning in 2020, semiconductor products and central-processing algorithm solutions. The semiconductor business began generating revenue in September 2020. The company is Cayman Islands-incorporated, with most operations in China; substantially all revenue historically came through PRC variable interest entities (VIEs) controlled by contractual arrangements.
Key financial metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | RMB 766.0 million (US$117.4 million) | RMB 319.2 million |
| Gross profit / margin | RMB 169.4 million / 22.1% | RMB 173.0 million / 54.2% |
| Operating income (loss) | RMB (153.4) million | RMB 112.9 million |
| Net income (loss) | RMB (145.0) million | RMB 102.2 million |
| Net income (loss) attributable to WiMi | RMB (151.2) million; diluted EPS RMB (1.17), or US$ (0.18) | RMB 102.2 million |
| Non-GAAP net income attributable to WiMi | RMB 40.3 million (US$6.2 million), excluding RMB 191.4 million of stock compensation | RMB 102.2 million |
| Operating cash flow | RMB (67.0) million | RMB 144.0 million |
| Investing / financing cash flow | RMB (228.1) million / RMB 562.6 million | RMB (126.5) million / RMB (41.0) million |
At December 31, 2020, total assets were RMB 1,172.4 million, total liabilities RMB 163.4 million, and total equity RMB 1,009.1 million. Current assets were RMB 616.4 million and current liabilities RMB 132.2 million; reported working capital was RMB 484.2 million. Cash, cash equivalents and restricted cash totaled RMB 368.1 million, including RMB 13.1 million restricted cash; short-term investments were RMB 32.9 million. Related-party loans totaled RMB 86.6 million, of which RMB 63.9 million was current and RMB 22.7 million non-current. A RMB 13.0 million DBS banking facility was outstanding at year-end and the filing says it was paid off by the report date.
Material changes versus 2019
- Revenue rose 140.0%, driven mainly by RMB 428.9 million of new semiconductor revenue, which represented approximately 56.0% of 2020 revenue. AR advertising revenue increased 14.9% to RMB 307.3 million; AR entertainment revenue fell 42.4% to RMB 29.7 million.
- Revenue growth did not translate into higher gross profit: gross profit slipped to RMB 169.4 million, while gross margin contracted to 22.1% from 54.2%. Semiconductor gross margin was 10.9%; AR advertising margin fell to 31.2% from 47.4%. AR entertainment margin was reported at 89.4% in both years.
- Operating expenses increased to RMB 322.9 million from RMB 60.2 million. The main unusual item was RMB 191.4 million in stock-based compensation; research and development expense increased to RMB 85.0 million from RMB 18.4 million.
- Net loss attributable to WiMi was RMB 151.2 million, versus attributable net income of RMB 102.2 million in 2019. The company reported RMB 40.3 million of non-GAAP net income after excluding stock compensation; this is a non-GAAP measure, not GAAP profit.
- Operating cash flow turned negative, with cash use attributed in part to a RMB 110.6 million increase in receivables and higher prepayments. Receivables, net, increased to RMB 172.6 million from RMB 36.1 million.
Outlook, commentary and risks
- Management said it expected AR advertising pricing to return to pre-COVID levels in 2021 and anticipated growth in semiconductor revenue and improvement in semiconductor margins as the company develops more integrated solutions. The filing provides no quantified revenue, earnings or margin guidance and cautions that future growth is not assured.
- COVID-19 reduced some customers’ advertising and MR-software budgets in 2020. The company recorded approximately RMB 7.3 million of goodwill impairment related to its MR software reporting unit; management said operations had returned to normal levels in the second half of 2020 and reported no significant collection issues to date.
- Investment income of RMB 12.3 million from marketable securities contributed to 2020 other income. The company also made RMB 109.7 million of cost-method investments and reported RMB 228.1 million of net investing cash outflow.
- The FE-DA acquisition expanded the semiconductor business. The acquisition agreement contemplated consideration of up to US$35 million, with US$15 million paid in 2020 and further performance-contingent payments. A March 2021 amendment deferred the three remaining installments to March 2024; payment terms and performance guarantees merit review.
- In March 2021, after year-end, WiMi reported net proceeds of approximately US$77.8 million from a unit offering that included warrants. The filing states management believed working capital was sufficient for the next 12 months, while noting that future financing needs and dilution remain possible.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2020. Four material weaknesses were identified: inadequate U.S. GAAP/SEC financial-reporting resources and IT-control deficiencies involving risk assessment, computer operations and recovery, and system access/segregation of duties. The financial statements received an unqualified audit opinion; the auditor did not audit internal-control effectiveness.
- Key structural and operating risks include dependence on PRC VIE contracts, uncertainty in PRC regulation and foreign-exchange controls, customer and vendor concentration in receivables/payables, intense competition, evolving AR and semiconductor markets, and exposure to COVID-19 and foreign-currency movements. The chairman controlled approximately 68.5% of voting power. The company said it did not expect to pay dividends in the foreseeable future.
Important facts for investors to verify
- Whether semiconductor revenue can be sustained and whether its low reported gross margin improves; validate the revenue mix, product economics and customer demand.
- Receivables growth, subsequent collections, allowance adequacy and the effect of operating cash outflow on liquidity.
- The size, timing, vesting and potential dilution from stock awards, follow-on offerings and warrants; reconcile the 2020 share-based compensation disclosures.
- FE-DA’s performance against the acquisition targets, remaining consideration, revised payment schedule and any refund rights.
- Progress in remediating the four material weaknesses and whether controls are operating effectively in subsequent reporting periods.
- VIE contractual enforceability, required PRC licenses and any regulatory changes affecting operations, fund transfers or the ability to consolidate VIE results.