Wimi Hologram Cloud Inc. annual report, Q4 FY2023

WiMi Hologram Cloud Inc. — FY2023 Form 20-F

Reporting period: Fiscal year ended December 31, 2023; this is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP. Amounts are in RMB unless stated otherwise; USD figures are the filing’s convenience translations.

Business context

WiMi is a Cayman Islands holding company operating mainly in China. Its businesses include holographic AR advertising and entertainment, and semiconductor products and algorithm-related services. AR advertising became the dominant business in 2023. The company also operates through PRC subsidiaries and, for certain activities, contractual arrangements with a variable interest entity (VIE); ADS investors do not own direct equity in the VIE.

Key financial metrics

MetricFY2023FY2022
RevenueRMB 585.4 million (USD 82.6 million)RMB 682.3 million
Gross profit / marginRMB 173.7 million / 29.7%RMB 143.0 million / 21.0%
Operating lossRMB 617.1 millionRMB 308.7 million
Net lossRMB 510.4 million (USD 72.1 million); attributable to WiMi: RMB 421.2 millionRMB 376.8 million; attributable to WiMi: RMB 357.7 million
Operating cash flowRMB 88.6 million providedRMB 238.2 million used
Investing cash flowRMB 304.7 million usedRMB 90.3 million used
Financing cash flowRMB 3.9 million providedRMB 108.9 million provided
Cash and cash equivalents at year-endRMB 338.2 millionRMB 572.8 million
Short-term investments at year-endRMB 435.7 millionRMB 38.4 million
Working capital at year-endRMB 624.2 millionNot clearly stated in the supplied filing text

Management reported cash and short-term investments of RMB 773.8 million combined and said working capital was sufficient for the next 12 months. Current liabilities were RMB 233.5 million; total liabilities were RMB 269.5 million. These included RMB 13.5 million of current bank loans and RMB 36.0 million of related-party loans classified as non-current and due in 2025. Other payables and accrued liabilities rose to RMB 170.5 million from RMB 22.2 million.

Material changes versus FY2022

  • Revenue fell 14.2%. AR advertising revenue grew 19.1% to RMB 571.8 million, while semiconductor revenue fell 93.6% to RMB 12.8 million, primarily following the April 2023 disposal of FE-DA and subsidiaries. AR entertainment revenue declined to RMB 0.7 million.
  • Gross profit rose RMB 30.7 million, and gross margin improved to 29.7% from 21.0%, despite lower total revenue.
  • Operating expenses increased 75.0% to RMB 790.8 million. Major items included RMB 243.3 million of goodwill impairment, RMB 144.9 million of cost-method investment impairment, RMB 55.7 million of share-based compensation, and higher general and administrative expenses. R&D expense declined 49.9% to RMB 171.1 million.
  • Net loss widened to RMB 510.4 million from RMB 376.8 million. Other income swung to RMB 104.2 million from net other expense of RMB 71.7 million, including RMB 52.7 million of investment income and RMB 37.6 million of gains on subsidiary disposals; this did not offset the operating loss.
  • Operating cash flow turned positive, but it included substantial non-cash adjustments, including goodwill impairment and share compensation, as well as working-capital movements. Investing outflows increased, including RMB 687.4 million of short-term investment purchases, partly offset by RMB 290.2 million of redemptions. Cash and equivalents declined RMB 234.6 million during the year.

Outlook, risks and unusual items

  • Outlook: No quantified revenue, earnings or cash-flow guidance is provided. Management stated existing working capital should support operations for 12 months, but noted financing could be needed if conditions change or investment opportunities arise.
  • Impairments and disposals: The filing reports full goodwill impairment for Shenzhen Yidian, Shenzhen Yitian and Shanghai Guoyu reporting units, and a significant impairment of cost-method investments. FE-DA’s disposal generated a reported loss of RMB 17.8 million. These items materially affected comparability and reported losses.
  • Internal controls: Management concluded internal control over financial reporting and disclosure controls were ineffective at year-end because of material weaknesses in U.S. GAAP/SEC reporting expertise and IT controls, including backups and disaster recovery, user access and segregation of duties, and risk assessment. Remediation is underway. The auditor did not audit internal controls.
  • China and corporate structure: The company relies on contractual VIE arrangements whose enforceability and regulatory treatment are uncertain. PRC oversight, licensing, cybersecurity/data rules, foreign-exchange controls and the CSRC filing regime for future overseas offerings could affect operations, fund transfers or securities offerings. The filing says no CSRC or cybersecurity-review permission was required for prior issuance as of the report date, but future offerings may require CSRC filings.
  • Audit and listing: The current auditor is Singapore-based and the filing says it is PCAOB-registered and not subject to the PCAOB’s 2021 China/Hong Kong inspection determination. Future inspection access and HFCA Act consequences remain potential risks.
  • Concentration and liquidity: One customer represented 9.2% of FY2023 revenue. Three customers represented 52.7% of year-end receivables in total. Cash balances and investments are exposed to counterparty and foreign-exchange risk; the company reports no FX hedging.
  • Related parties and shareholder control: RMB 36.0 million was owed to an entity under common control of Chairman Jie Zhao, and the chairman controls more than 50% of voting power. No cash dividends are planned in the foreseeable future.
  • Subsequent events: In 2024, subsidiary MicroAlgo completed share issuances and entered into agreements for up to USD 11 million of convertible notes; WiMi also agreed to potentially buy MicroAlgo shares to maintain ownership above 51%. Verify the terms and resulting dilution/control effects in the later filings.

Important facts for investors to verify

  • Reconcile the reported RMB 773.8 million of cash and short-term investments with the balance-sheet amounts and assess how much is readily available, including geographic restrictions and investment liquidity.
  • Review the composition, terms and counterparties behind the RMB 170.5 million of other payables and accrued liabilities and the RMB 36.0 million related-party loan.
  • Assess whether the increase in AR advertising revenue and gross margin can continue after the sharp contraction and FE-DA disposal in the semiconductor business.
  • Examine the valuation assumptions supporting goodwill and investment impairments, and whether further impairment or disposal losses may arise.
  • Track remediation of internal-control material weaknesses and any subsequent auditor or SEC reporting developments.
  • Confirm the status of PRC operating permits, VIE contractual arrangements and CSRC filing obligations for any future securities offerings.
  • Review MicroAlgo’s 2024 financing and share transactions for dilution, cash commitments and effects on WiMi’s ownership and control.