AIOS Tech Inc. annual report, Q4 FY2022

Business context and reporting period

This is Nisun International Enterprise Development Group Co., Ltd.’s annual report on Form 20-F for the fiscal year ended December 31, 2022, filed August 8, 2023—not a standalone 2022 fourth-quarter report. The request metadata names AIOS Tech Inc.; that does not match the registrant identified in the filing.

Nisun is a British Virgin Islands holding company whose operations are primarily in China. Its businesses provide SME financing and other financial services, supply-chain financing solutions, and supply-chain trading. The company consolidates certain China-based variable interest entities (VIEs) through contractual arrangements rather than direct equity ownership.

Financial performance and position

Supply-chain trading generated $143.4 million, or 61% of 2022 revenue, up 110% year over year. Financial-services revenue was $90.8 million, down 1%; SME financing revenue was essentially flat at $87.3 million, while supply-chain financing revenue fell 28% to $3.5 million. Management attributed revenue growth mainly to trading expansion and said it shifted business development toward trading.

Margins compressed as cost of revenue rose 86%, faster than revenue growth of 46%. Management cited higher third-party channel costs in SME financing; financing-solutions gross profit fell $18.7 million. Operating expenses rose 22% to $19.3 million, including $4.5 million of bad-debt expense versus $0.3 million in 2021. The company reported $4.8 million of other income, partly from investment income, and $4.7 million of income-tax expense. The effective tax rate was 21.1%.

At year-end, total assets were $283.4 million and total liabilities were $93.6 million. Current assets of $230.9 million exceeded current liabilities of $90.5 million. Short-term bank loans were $0.4 million; a $8.0 million related-party loan was due on demand and interest-free. Operating-lease liabilities totaled $3.4 million. No variable-rate borrowings were reported. Working-capital assets included $47.0 million of advances to suppliers, $43.5 million of supply-chain receivables and $31.6 million of inventory. The company recorded allowances related to supplier advances and supply-chain receivables.

Changes, outlook, risks and unusual items

• Revenue increased $74.0 million, but gross profit declined 31%, operating income declined 54%, and net income attributable to shareholders declined 42% year over year.
• Operating cash flow swung from $23.9 million provided in 2021 to $29.0 million used in 2022. Management linked the outflow principally to working-capital needs, including supplier advances, inventory purchases and other supply-chain balances.
• Management stated that available funds should meet working-capital requirements for the 12 months following the report’s release. The filing gives no quantified revenue or earnings guidance.
• Foreign-currency translation reduced 2022 comprehensive income by $12.6 million. The company said it had no foreign-exchange hedges. It paid no dividends and did not expect to pay them in the foreseeable future.
• Customer concentration remained material. Five financial-services customers represented 18%, 16%, 15%, 13% and 13% of that business’s revenue. A supply-chain trading customer represented 29% in the financial-statement note; another section reports 33%. Major customers generally were not covered by long-term contracts.
• A March 2023 lawsuit concerns $1.1 million paid for frozen pork that allegedly failed quality standards. The filing says a full allowance was recorded because recovery was considered unlikely; the court later froze the supplier’s and guarantor’s assets. The filing also describes a separate supplier-advance dispute and allowance.
• Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2022. Identified material weaknesses included inadequate U.S. GAAP/SEC-reporting expertise among accounting personnel and failure to file the annual report by its prescribed deadline. Remediation was underway; the auditor did not provide an internal-control attestation.
• The independent auditor gave an unqualified opinion on the U.S. GAAP financial statements. Critical audit matters included valuation of a limited-partnership investment and goodwill. The filing reports $23.8 million of goodwill and $14.9 million invested in the partnership.
• Key risks include enforceability of the VIE contracts and evolving PRC regulation, data-security and cross-border transfer rules, restrictions on moving cash out of China, and possible future CSRC filing requirements for capital raising. The company said its auditor was headquartered in New York and the PCAOB removed China and Hong Kong from its inspection restriction list in December 2022.
• Other notable items: a one-for-ten reverse share split took effect in May 2023 and is reflected retrospectively in the financial statements; 62,188 shares were repurchased for approximately $0.4 million in 2022. The company reported a $8.0 million related-party loan due on demand.

Most important facts to verify

1. Confirm the filing is for Nisun, not AIOS Tech, and treat the reported period as fiscal-year 2022 rather than Q4 alone.
2. Reconcile the supply-chain trading customer concentration figures (29% in the financial-statement note versus 33% elsewhere) and assess exposure to major customers.
3. Review collectability and subsequent recovery of supplier advances and supply-chain receivables, including the pork dispute, recorded allowances and asset-freeze order.
4. Assess the quality and location of cash, the large 2022 operating cash outflow, near-term working-capital demands, and whether PRC restrictions constrain access to offshore funds.
5. Track remediation of the material weaknesses and late filing; review the filing’s conflicting share-count disclosures, including the cover-page count and year-end financial-statement count.
6. Evaluate VIE enforceability and PRC regulatory exposure, and confirm any required CSRC filings before future offerings or financing.