TROOPS, Inc. — FY2022 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. Amounts below are in U.S. dollars unless stated otherwise; financial statement amounts are generally presented in thousands.
Business context
TROOPS is a Cayman Islands holding company with substantial operations in Hong Kong. Its principal activities are money lending, Hong Kong property leasing and management, and fintech/API and IT support services through Giant Financial Services and Apiguru. It reports under U.S. GAAP. Its ordinary shares trade on Nasdaq under TROO.
Financial performance and position
| Metric | FY2022 / Dec. 31, 2022 | FY2021 / Dec. 31, 2021 |
|---|---|---|
| Revenue | $3.875 million | $3.683 million |
| Gross profit and margin | $0.822 million; 21.2% | $0.360 million; 9.8% |
| Operating loss | $0.536 million | $8.805 million |
| Net loss | $0.346 million | $8.413 million |
| Basic and diluted loss per share | $0.01 | $0.08 |
| Cash from continuing operating activities | $(0.368) million | $12.291 million |
| Cash used in investing activities | $(0.156) million | $(5.594) million |
| Cash from/(used in) financing activities | $0 | $(6.241) million |
| Cash and cash equivalents | $2.950 million | $3.480 million |
| Total assets / liabilities / equity | $69.686 / $7.482 / $62.204 million | $70.346 / $7.822 / $62.524 million |
| Working capital | $9.354 million | Not clearly stated in the supplied text |
Revenue rose 5.4%. Loan interest revenue increased to $2.451 million from $1.673 million, and property lease and management revenue edged up to $1.106 million from $1.068 million. Fintech revenue fell to $0.318 million from $0.942 million. Gross profit improved as cost of revenue fell to $3.053 million from $3.323 million. General and administrative expense decreased to $2.189 million, partly because there was no share-based compensation or system development fee in 2022. A $0.973 million reversal of loan-loss provision helped results; property, plant and equipment impairment of $0.139 million partly offset the improvement. No goodwill or intangible-asset impairment was recorded in 2022.
Loan receivables were $14.622 million gross and $12.550 million net of a $2.072 million allowance; $8.380 million was classified current and $4.170 million long-term. Annualized loan rates ranged from 5% to 42%. Four borrowers represented 11%, 14%, 20% and 23% of loan receivables, respectively. Property, plant and equipment was $48.655 million net, primarily Hong Kong real estate.
The company reported $0.094 million of current convertible notes and $0.409 million of advances from unrelated parties. Its prior $6.41 million bank borrowing was fully repaid in March 2021. Total liabilities also include $5.293 million of deferred tax liabilities. Management stated that cash and available financing should meet anticipated needs for at least 12 months, while cautioning that additional financing might not be available on acceptable terms.
Changes, outlook and material risks
- Loss narrowed substantially from 2021, when results included $4.740 million of goodwill impairment and $0.202 million of intangible-asset impairment. However, 2022 operating cash flow turned negative from $12.291 million provided in 2021; the filing attributes much of the prior-year inflow to a reduction in loans receivable, while the 2022 loan portfolio expanded.
- Management provided no specific revenue or earnings guidance and anticipates no cash dividends in the foreseeable future. It says it intends to retain earnings for business expansion.
- Management identified material weaknesses in financial reporting and lending controls, including insufficient documentation and monitoring of borrower credit risk, past-due balances, loan extensions/restructurings and related-party loan concentration, as well as inadequate qualified U.S. GAAP/SEC reporting personnel. Management described remediation plans, but gave no assurance they would be completed successfully. Disclosure controls were reported ineffective at period-end; the filing does not include an auditor attestation on internal controls.
- In Hong Kong case HCA 938 of 2022, subsidiaries and Giant Connection were subject to injunctions restricting dealings with certain Hong Kong assets up to specified amounts. The company says it considers the claims without merit and intends to defend the case, but could not estimate a possible loss. A separate property-related case, HCA 1520 of 2021, was discontinued in October 2022 without an order as to costs.
- Credit risk is significant: loan outcomes depend on borrower repayment, collateral values and Hong Kong economic conditions. The filing also identifies borrower and customer concentration, property-market and tenant risks, lending-license and regulatory risks, privacy/cybersecurity exposure, and uncertainty around PRC/Hong Kong regulation and cross-border cash transfers. Most company cash was held in Hong Kong; $0.230 million was in a Vanuatu bank without deposit protection as of December 31, 2022.
- The company reported a $4.869 million deposit for an acquisition, net of an allowance, and says the proposed TROOPS InsurTech acquisition remained in progress; the deposit was described as refundable if the acquisition was not completed or due diligence was unsatisfactory.
- Auditor changes are notable: Yu CPA was dismissed in September 2022, WWC was appointed and then dismissed in March 2023, and Audit Alliance LLP was appointed for the 2022 audit. Audit Alliance issued an unqualified opinion on the 2022 financial statements. The PCAOB restored inspection access in mainland China and Hong Kong in December 2022, but the filing notes prior predecessor-auditor work through 2019 had not been fully inspected.
Important facts for investors to verify
- Reconcile the loan-aging disclosures: one table reports only $1 thousand past due at year-end, while accompanying text describes $1.154 million over one year past due and a $1.153 million provision. Confirm the correct delinquency and reserve figures.
- Review the $4.869 million acquisition deposit, its recoverability, allowance, counterparties, and the current status and terms of the proposed InsurTech transaction.
- Track HCA 938 of 2022, the scope and continuing effect of its injunctions, and any subsequent estimate or recognition of potential loss.
- Assess lending exposure and concentration, including collateral quality and the four borrowers comprising a combined 68% of loan receivables; compare loan growth and collections with negative 2022 operating cash flow.
- Confirm progress in remediating internal-control weaknesses and review the basis for management’s 12-month liquidity assessment, including cash availability across subsidiaries.
- Verify auditor-transition disclosures and the status of future audit oversight, and note that the filing contains some inconsistent or erroneous wording in its financial and controls discussions.