20-F: TROOPS, Inc. Files 20-F Annual Report for Fiscal Year 2023, Details Financial Performance and Risk Factors

TROOPS, Inc. has filed its 20-F annual report, outlining its financial results for the year ended December 31, 2023, and highlighting key risk factors impacting its business.

Summary

• TROOPS, Inc., a Cayman Islands-based conglomerate with operations primarily in Hong Kong, has filed its Form 20-F annual report.
• The report details the company's financial performance for the fiscal year ended December 31, 2023, with revenues of $3.57 million, a decrease of 8.0% from $3.88 million in 2022.
• The company reported a net loss of $1.72 million for 2023, compared to a net loss of $0.35 million in 2022.
• The report also outlines various risk factors associated with the company's business and industry, including regulatory compliance, competition, and economic conditions.
• As of April 22, 2024, the company had 101,597,998 ordinary shares issued and outstanding.
• The company's internal control over financial reporting was deemed ineffective as of December 31, 2023, due to material weaknesses.
• The company is taking remedial measures to address these weaknesses.
• The company's auditor, Audit Alliance LLP, issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2023.
• The company's securities may be delisted or prohibited from trading if the PCAOB determines that it cannot inspect or investigate completely the company's auditor under the HFCAA.

Sentiment

Score: 4

Explanation: The document presents a mixed sentiment. While it provides factual information about the company's financial performance and operations, it also highlights significant risks and challenges, including ineffective internal controls and potential regulatory issues. The overall tone is cautious and suggests potential difficulties for the company.

Positives

• The company's property investment business continues to generate rental income.
• The company is taking remedial measures to address the material weaknesses in its internal control over financial reporting.
• The company has a clawback policy in place to recoup incentive compensation from executive officers in certain circumstances.

Negatives

• The company's revenues decreased by 8.0% in 2023 compared to 2022.
• The company's net loss increased significantly in 2023 compared to 2022.
• The company's internal control over financial reporting was deemed ineffective as of December 31, 2023, due to material weaknesses.
• The company's auditor, Audit Alliance LLP, issued an adverse opinion on the company's internal control over financial reporting as of December 31, 2023.

Risks

• The company may be subject to significant fines or other enforcement action if it violates applicable reporting, anti-money laundering, privacy, corporate governance, risk management, or any other applicable requirements.
• Regulatory scrutiny of privacy, data protection, and the collection, storage, use, and sharing of personal data is increasing around the world.
• If the company is unable to compete effectively, its business, financial condition and results of operations would be materially and adversely affected.
• A downturn in the Hong Kong, China or global economy, and economic and political policies of China could materially and adversely affect the company's business and financial condition.
• The Hong Kong legal system embodies uncertainties which could limit the legal protections available to the company.
• The company may fail to meet continued listing requirements on the NASDAQ Capital Market.
• A large, active trading market for the company's securities may not develop and the trading price for the company's securities may fluctuate significantly.
• The trading price of the ordinary shares is likely to be volatile, which could result in substantial losses to investors.
• Techniques employed by short sellers may drive down the market price of the ordinary shares.
• The company may rely on dividends and other distributions on equity paid by its subsidiaries to fund any cash and financing requirements it may have, and any limitation on the ability of its subsidiaries to make payments to the company could have a material adverse effect on its ability to conduct its business and may affect the value of your investment.
• The company's securities may be delisted or prohibited from trading if the PCAOB determines that it cannot inspect or investigate completely the company's auditor under the HFCAA.

Future Outlook

The company intends to keep any future earnings to finance the expansion of its business and does not anticipate paying any cash dividends in the foreseeable future.

Industry Context

The company operates in the money lending, property investment, and financial technology industries, which are subject to various economic and regulatory factors. The report highlights the increasing competition in the lending industry and the potential impact of changes in regulations and economic conditions on the company's business.

Comparison to Industry Standards

• The report does not provide specific comparisons to industry standards.
• However, it does mention that the company faces competition from established Chinese internet companies and companies engaged in other financial technology services.
• The report also notes that the Hong Kong Monetary Authority continues to impose stringent policies and prudential measures on property mortgage loans provided by authorized financial institutions in Hong Kong, which creates additional hurdles for the public who are looking for mortgages to satisfy their financial needs.

Corporate Governance

Legal Proceedings

• TROOPS, Inc. and certain subsidiaries of the Company were included amongst other Defendants and served with a writ of summons in Hong Kong (HCA 938 of 2022) and received injunctions dated August 5, 2022, issued by the High Court of the Hong Kong Special Administrative Region Court of First Instance in connection with the writ of summons.
• On September 19, 2023, an order issued by the High Court of the Hong Kong Special Administrative Region Court of First Instance dated August 22, 2023 (the Order) was filed.
• Trial commenced on March 5, 2024 and is ongoing as of the date of this report.
• The Company believes the lawsuit is without merit and intends to defend the case vigorously.

Related Party Transactions

• On December 8, 2023, Ms Kwok Kai Kai Clara (the beneficiary owner of Prime Ocean Holdings Limited), a shareholder of the Company loaned $1.92 million to Giant Credit Limited.
• The loan is unsecured, non-interest bearing and repayable on demand.
• As of December 31, 2023, $nil was repaid and the outstanding amount due to Ms Kwok Kai Kai Clara was $1.92 million.

Stakeholder Impact

• Shareholders may experience volatility in the trading price of the ordinary shares.
• Shareholders may face difficulties in protecting their interests due to the company's incorporation under Cayman Islands law.
• The company's employees may be affected by changes in internal control procedures and potential cost-cutting measures.
• The company's customers may be affected by changes in the availability and pricing of its products and services.
• The company's creditors may be affected by the company's ability to repay its debts.

Next Steps

• The company is in the process of implementing measures to resolve the material weaknesses in its internal control over financial reporting.
• The company will continue to evaluate and work to improve its internal control over financial reporting related to the identified material weaknesses.
• The company will report the progress and status of the above remediation efforts to the Audit Committee on a periodic basis.

Key Dates

Keywords

financial report, risk factors, internal control, money lending, property investment, financial technology, TROOPS Inc, 20-F, audit