Lichen China Limited (Nasdaq: LICN) — 2022 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing; quarterly results are not provided clearly in the filing. The filing identifies the registrant as Lichen China Limited, despite the request metadata naming Lichen International Ltd. Financial statements are prepared under U.S. GAAP and audited by TPS Thayer, LLC, which issued an unqualified opinion on the 2022 and 2021 statements.
Business context
Lichen China is a Cayman Islands holding company whose operations are conducted in China through subsidiaries. It provides financial and taxation consulting, education support to partnered institutions, and software and maintenance services. Its principal operating revenue is generated in China and denominated mainly in RMB.
Financial performance
Amounts below are in U.S. dollars; financial-statement amounts are rounded to millions.
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $33.805m | $34.295m | Down 1.43% |
| Gross profit / margin | $20.192m / 59.73% | $20.475m / 59.70% | Profit down 1.38% |
| Operating income / margin | $10.648m / 31.50% | $11.298m / 32.94% | Down 5.75% |
| Net income / margin | $7.818m / 23.13% | $8.462m / 24.67% | Down 7.61% |
| Basic and diluted EPS | $0.35 | $0.38 | Down from $0.38 |
| Operating cash flow | $10.766m | $7.304m | Increased |
| Cash at year-end | $22.599m | $16.845m | Increased |
Revenue mix: Financial and taxation solutions generated $26.278m (77.73% of revenue), education support $4.409m (13.04%), and software and maintenance $3.118m (9.22%). The company reported that consulting revenue increased 3.42% in RMB, while its U.S.-dollar equivalent declined, mainly reflecting RMB depreciation. Revenue declined in the education and software lines.
Expenses and profitability: Cost of revenue was $13.613m, or 40.27% of revenue. Selling and marketing expense rose 5.08% to $2.111m; general and administrative expense rose 3.70% to $7.433m. Income taxes were $2.924m, and the effective tax rate was 26.5%.
Cash flow and liquidity: Investing activities used $2.842m, principally for property and equipment ($1.950m) and intangible assets ($0.892m). Financing activities used $0.327m to repay short-term loans. Cash increased by $5.754m after a negative $1.843m effect from exchange-rate changes. Current assets were $27.267m and current liabilities $5.232m at year-end 2022.
Debt and balance sheet: No short-term bank loan remained at December 31, 2022, compared with $0.345m in 2021. Total liabilities were $5.416m in 2022. The 2021 total-liabilities line in the balance-sheet extract is unclear; reported current liabilities were $6.111m. Total assets were $46.525m and shareholders’ equity $41.109m in 2022. Cash was largely held in PRC financial institutions and was not insured, according to the filing.
Material changes and notable items
- Revenue decreased modestly, but net income declined faster, reflecting higher operating expenses as a share of revenue and lower other income. Comprehensive income fell to $4.277m from $9.189m, primarily because of a $3.541m adverse foreign-currency translation adjustment; 2022 net income was $7.818m.
- Capital expenditure increased substantially: the company reported $2.842m of capital expenditures in 2022 versus approximately $0.03m in 2021, including purchases related to its Shanghai office and software development.
- At December 31, 2022, the company had $1.095m of deferred IPO costs. It completed its Nasdaq IPO in February 2023, issuing 4.0m Class A shares at $4.00 each for $16m gross proceeds and approximately $14.1m net proceeds. The filing says $1.45m of net proceeds had been used by the report date.
- On February 10, 2023, the holding company transferred $6m to its BVI subsidiary for investment. Separately, on March 9, 2023, it signed an agreement to acquire all of Bounly Enterprise Limited; the purchase price remained subject to financial due diligence and a refundable $3m deposit was paid.
- Consulting projects are generally non-recurring. Partnered institutions referred 154 consulting projects in 2022, accounting for approximately 50.67% of consulting-service revenue. Two partnered institutions controlled by CEO Ya Li were related parties; 2022 related-party revenue was $0.815m. Amounts due to related parties totaled $1.078m, including $0.981m due to Ya Li, unsecured, non-interest bearing and payable on demand.
Outlook, risks and controls
- Management provided no numerical earnings or revenue guidance. It expects to reinvest earnings in research and development, new products and production capacity, and does not expect to pay cash dividends in the foreseeable future.
- Management said COVID-19 restrictions affected in-person consulting and education activities in 2022 and contributed to lower revenue. It intends to continue a mix of remote and on-site consultation services. The filing describes demand, competition and project renewals as uncertain.
- Key structural risks include PRC restrictions on converting or transferring cash, limits on subsidiary dividends, RMB exchange-rate movements, and evolving PRC regulatory requirements for overseas offerings. The 2023 CSRC overseas-listing filing regime took effect after year-end; the company described itself as an existing overseas-listed issuer but noted filing requirements may apply to future offerings.
- The PCAOB reported complete inspection access in mainland China and Hong Kong in 2022 and vacated its prior determinations. The company’s 2022 auditor is U.S.-based and subject to PCAOB inspection; future inspection access and delisting risk remain contingent on regulatory developments.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2022. Identified material weaknesses included insufficient U.S. GAAP/SEC reporting expertise and lack of a comprehensive accounting policies and procedures manual. Remediation measures were underway; the auditor did not attest to internal-control effectiveness.
- Ya Li held all 9m Class B shares, representing 83.72% of voting power, through Silver Sky Investment Limited. Class B shares carry ten votes each, versus one vote for Class A shares.
- The company reported no material legal proceedings, commitments, or off-balance-sheet arrangements at year-end. It disclosed limited insurance coverage and noted potential employee-benefit contribution exposure because contributions were based on minimum standards; a provision was accrued, but the amount is not clearly stated in the filing text.
Important facts for investors to verify
- Reconcile reported 2022 and 2021 results to the audited statements, especially the unclear 2021 total-liabilities presentation and the effect of foreign-exchange translation.
- Review cash location, availability for use outside China, and the completion and permitted use of the IPO proceeds and subsequent $6m transfer.
- Assess the Bounly acquisition terms, due-diligence outcome, final purchase price and use or return of the $3m deposit.
- Track remediation of the material weaknesses, staffing of the finance function, and any subsequent auditor or internal-control developments.
- Evaluate related-party balances and transactions, CEO voting control, and the dependence of consulting referrals on partnered institutions.
- Monitor future CSRC filing or cybersecurity-review requirements, PCAOB inspection developments, dividend-transfer restrictions, and the company’s exposure to RMB depreciation.