AIOS Tech Inc. (Nisun International) — FY 2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; this is an annual report, not a standalone fourth-quarter filing. The registrant is Nisun International Enterprise Development Group Co., Ltd., formerly Hebron Technology Co., Ltd. (Nasdaq: NISN). Financial statements are prepared under U.S. GAAP and audited.
Business context
The company shifted from legacy valve manufacturing and engineering to China-focused financial services and supply-chain solutions. Financial services include SME financing advisory and matching, supply-chain financing and management, and financial-product distribution services. It acquired Nami in May 2020 and sold its legacy Xibolun equipment and engineering business to an entity controlled by its former CEO on November 30, 2020. Most revenue was generated in China. The company operates through subsidiaries and contractual VIE arrangements.
Key financial results
| Metric (US$ unless noted) | FY 2020 | FY 2019 |
|---|---|---|
| Revenue from continuing operations | $42.19 million | $2.53 million |
| Gross profit | $22.22 million | $2.51 million |
| Operating income | $10.03 million | $1.17 million |
| Continuing-operations net income | $9.92 million | $1.23 million |
| Discontinued-operations loss, net of tax | $22.97 million | $1.51 million income |
| Net income (loss) | $(13.05) million | $2.74 million |
| Net income (loss) per share | $(0.71) | $0.17 |
| Cash from continuing operating activities | $2.25 million | $0.60 million |
| Cash, cash equivalents and restricted cash | $22.20 million | $2.78 million |
| Total assets | $108.10 million | $94.00 million |
| Current liabilities / total liabilities | $26.80 million / $28.16 million | $37.43 million / $40.07 million |
| Total equity | $79.94 million | $53.94 million |
- Revenue rose sharply as the financial-services business expanded and the company began supply-chain solutions in January 2020. SME financing generated 97% of 2020 revenue ($40.78 million); supply-chain financing generated 3% ($1.37 million).
- Approximate continuing-operations gross margin was 52.7%, operating margin 23.8%, and net margin 23.5% in 2020. These figures exclude discontinued operations.
- The 2020 discontinued-operations loss was mainly driven by a $22.4 million impairment charge on the legacy business. The sale produced a reported gain of approximately $0.14 million.
- Continuing operations generated $2.25 million of operating cash, but a $10.74 million increase in supply-chain financing receivables weighed on working capital. Investing activities used $4.71 million; financing activities provided $19.15 million. The latter included a $6.50 million private placement, $10.53 million in loans from the controlling shareholder’s affiliate, and other contributions and repayments.
- At year-end, current assets were $60.40 million against current liabilities of $26.80 million. Current liabilities included a $10.53 million related-party loan and $7.01 million acquisition consideration payable. The company also reported $1.42 million of operating lease liabilities.
Material changes and unusual items
- Revenue increased from $2.53 million in 2019 to $42.19 million in 2020, reflecting business expansion and acquisitions; the periods are not directly comparable because the financial-services business began in 2019 and Nami was acquired during 2020.
- The Xibolun disposal was a related-party transaction. Consideration was approximately $14.95 million; the filing says it was fully collected on April 9, 2021. The reported year-end receivable was $14.95 million.
- The Nami acquisition was recorded at approximately $25.34 million, including $18.33 million in shares and about $7.01 million payable in cash. It resulted in $12.32 million of goodwill; total goodwill was $25.17 million at year-end. The auditor identified acquisition accounting, goodwill valuation and the $15.7 million limited-partnership investment valuation as critical audit matters. No goodwill impairment was recorded.
- Class A shares outstanding increased to 20,555,129 from 17,710,471. The company reported $1.10 million of share-based compensation expense.
- Three customers accounted for 31%, 21% and 12% of financial-services revenue; three customers represented 45%, 20% and 17% of year-end accounts receivable. The filing says no long-term contracts with major customers are in place.
Outlook, risks and contingencies
- Management said it believed available funds were sufficient for working-capital needs for the next 12 months. It expects supply-chain financing revenue to grow, but provided no quantified earnings or revenue guidance. COVID-19 did not materially harm financial services in 2020; its effect on 2021 remained uncertain. The pandemic materially affected the discontinued business.
- Management reported a material weakness in internal control over financial reporting: insufficient personnel with U.S. GAAP and SEC-reporting expertise. Disclosure controls were deemed ineffective. The external auditor did not audit or opine on internal-control effectiveness.
- A shareholder class-action lawsuit related to allegations in a 2020 short-seller report remained pending; the company had moved to dismiss it and said an independent investigation found the allegations substantially unfounded. The outcome was uncertain.
- Key risks include evolving PRC financial and technology regulation, enforceability of VIE contracts, customer and partner concentration, credit and collection risk, funding needs for capital-intensive supply-chain activity, foreign-exchange and repatriation restrictions, and restrictions on U.S. regulatory access to audit materials. The company disclosed no hedging transactions.
- The company does not expect to pay dividends in the foreseeable future. Statutory reserves and PRC restrictions limit transfers of subsidiary funds; restricted net assets were approximately $46.5 million, or 60.5% of consolidated net assets.
Important facts for investors to verify
- Reconcile cost-of-revenue disclosures: the audited statements show $19.74 million of cost of revenue plus $0.23 million of related taxes, while the MD&A includes a different $20.04 million cost figure. Confirm the intended presentation and gross-margin calculation.
- Confirm collection and terms of the $14.95 million related-party disposal receivable, reported as fully collected in April 2021, and review the valuation and approval process for the sale.
- Review the terms, repayment status and liquidity implications of the $10.53 million demand loan from a related party, the $7.01 million acquisition payable, and other related-party balances.
- Assess customer concentration, receivable aging and collection, particularly the $10.74 million supply-chain financing receivable and the significant customer shares of accounts receivable.
- Evaluate the company’s remediation of its material control weakness and the valuation assumptions supporting goodwill and the limited-partnership investment.
- Track the pending class action and developments in PRC VIE, financial-services and cross-border audit regulation.