TOP Financial Group Limited — FY2022 Form 20-F
Reporting period: Fiscal year ended March 31, 2022, with comparisons to FY2021 and FY2020. This is an annual report, not a report for calendar 2021 Q4. Financial statements are prepared under U.S. GAAP and reported in U.S. dollars.
Business context and reporting period
TOP is a Cayman Islands holding company whose operations are conducted primarily in Hong Kong through licensed subsidiaries. It provides online futures and securities brokerage and related services, relying in part on third-party trading platforms and execution brokers. At March 31, 2022, it reported 292 registered customer accounts and 74 revenue-generating accounts.
Financial performance and position
| Metric (US$ unless stated) | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $7.82 million | $16.91 million | Down 53.7% |
| Income before tax | $3.58 million | $5.12 million | Down 30.0% |
| Net income | $3.49 million | $5.04 million | Down 30.8% |
| Net cash from operating activities | $1.58 million | $4.33 million | Down 63.4% |
| Cash, cash equivalents and restricted cash, year-end | $7.96 million | $6.84 million | Up $1.12 million |
| Total assets | $13.88 million | $10.26 million | Up $3.62 million |
| Total liabilities | $3.69 million | $3.51 million | Up $0.18 million |
| Shareholders’ equity | $10.20 million | $6.75 million | Up $3.44 million |
- FY2022 revenue mix included futures brokerage commissions of $4.29 million (54.9% of revenue), trading solution services of $3.31 million (42.3%), structured-note subscription fees of $0.73 million (9.4%), and other service revenue of $0.28 million (3.6%). Proprietary trading recorded a loss of $0.79 million, versus a gain of $0.39 million in FY2021.
- Futures trading volume fell 72.5%, from 9.61 million contracts to 2.64 million. Average commission per contract was broadly stable at $1.62 versus $1.67.
- Total expenses were $4.24 million, down from $11.79 million, principally reflecting lower commissions paid to broker partners. The filing reports income before tax as a 45.8% margin in FY2022 and 30.3% in FY2021.
- Operating cash flow was below net income, mainly due to a $1.1 million increase in customer receivables and an $0.8 million increase in securities owned. Investing cash outflow was $0.41 million; financing cash flow was zero.
- Year-end cash and cash equivalents were $6.20 million; an additional $1.76 million was restricted client cash and is not freely available for general corporate use. Customer payables were $3.21 million, with a further $0.10 million payable to related parties. Lease liabilities were $0.24 million. The filing reports no material borrowings at year-end.
- Liquidity included receivables from broker-dealers and clearing organizations of $2.36 million and customer receivables of $1.23 million. The company stated that cash resources and anticipated operating cash flows were expected to cover general corporate needs for at least 12 months. It also disclosed that only $0.61 million, or 49%, of FY2022 trading-solution receivables had been collected as of the report date.
Material changes versus prior periods
- Revenue and net income declined from FY2021, primarily as futures trading activity and related commission revenue contracted. New trading-solution and structured-note services partly offset the decline.
- Futures brokerage fell from 95.1% of revenue in FY2021 to 54.9% in FY2022, reflecting a broader revenue mix. Trading-solution services began in FY2022 and generated $3.31 million from nine customers.
- FY2022 customer growth continued, but revenue-generating futures accounts fell from 33 to 16; registered accounts increased from 247 to 292.
- Cash from operations decreased materially year over year. The company also began recognizing right-of-use assets and lease liabilities after entering a three-year office lease in September 2021.
Outlook, risks and unusual items
- No quantified financial guidance is provided. Management described plans to expand customer acquisition and product offerings, including asset management and CFDs; it expected to launch CFD products in the first or second quarter of 2023. These plans are forward-looking and depend on execution and regulatory requirements.
- Management attributed weaker trading activity partly to market volatility, reduced customer risk tolerance, and COVID-19-related economic effects. It said the pandemic’s duration and future impact remained uncertain.
- Customer concentration is significant, but the filing gives inconsistent FY2022 figures: one section reports top-five customers at 22.0%, another at 77%, and the financial-statement note lists three customers at approximately 35%, 18%, and 11%. FY2021 top-five concentration is reported as 91.6%. These figures should be reconciled.
- Hong Kong subsidiaries hold SFC licenses for securities dealing, futures dealing, advisory and asset-management activities, and must meet ongoing licensing and capital requirements. The company reported compliance with regulatory capital requirements at March 31, 2022.
- The company warned of uncertainty over whether future PRC data-security, cybersecurity-review or overseas-listing rules could apply to its Hong Kong operations. It also cited Hong Kong legal and political uncertainty, potential regulatory intervention, and possible limits on moving funds between subsidiaries.
- The report identifies material weaknesses in internal controls: inadequate U.S. GAAP/SEC reporting expertise and, in the controls disclosure, a lack of a comprehensive U.S. GAAP accounting policies and procedures manual. Management judged disclosure controls and internal control over financial reporting ineffective at March 31, 2022; remediation efforts were underway. The auditor did not provide an ICFR attestation.
- The June 2022 IPO occurred after the fiscal year: 5 million shares were issued at $5.00 each, for $25 million gross proceeds and approximately $22.8 million net proceeds. The filing says $0.8 million had been used by its date. It also reports a July 2022 company name change to TOP Financial Group Limited.
- The company paid no dividend in FY2022 and said it did not expect to pay dividends in the foreseeable future. It reported no material pending legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Reconcile the conflicting FY2022 top-five customer concentration disclosures and confirm actual revenue concentration by customer and service line.
- Check subsequent collections of the $1.23 million trading-solution receivable and any related credit-loss exposure.
- Review whether the disclosed internal-control weaknesses were remediated and whether later filings identify additional deficiencies or financial-statement changes.
- Assess whether the proposed CFD and asset-management expansion launched as planned, and the related licensing, funding, and execution costs.
- Track regulatory developments affecting Hong Kong-based issuers, data handling, PCAOB inspection, and the company’s ability to transfer subsidiary funds and maintain required regulatory capital.
- Confirm IPO proceeds used to date and the remaining cash available for operations, while distinguishing unrestricted cash from segregated client funds.