[Preliminary Information](index=6&type=section&id=Preliminary%20Information) [Forward-Looking Statements](index=6&type=section&id=FORWARD-LOOKING%20STATEMENTS) The report contains forward-looking statements subject to significant risks and uncertainties detailed elsewhere - The report contains forward-looking statements subject to risks and uncertainties, made under the 'safe harbor' provisions of the U.S. Private Securities Litigation Reform Act of 1995[9](index=9&type=chunk) - Key risks highlighted include **regulatory scrutiny, competition, technological changes, data security breaches, credit risks** in the lending business, and **economic downturns**[12](index=12&type=chunk)[13](index=13&type=chunk)[15](index=15&type=chunk) - Risks related to operating in Hong Kong and China include **potential government intervention, legal system uncertainties**, and changes in policy[19](index=19&type=chunk)[20](index=20&type=chunk) [Definitions](index=9&type=section&id=DEFINITIONS) This section defines key terms, abbreviations, entities, and reporting currencies used throughout the annual report - The company, **TROOPS, Inc.**, was previously named SGOCO Group, Ltd. and is a Cayman Islands incorporated entity[28](index=28&type=chunk) - Key operating subsidiaries include **Giant Financial Services Limited (GFS)**, **First Asia Finance Limited (FAF)**, and **Giant Credit Limited (GCL)**[27](index=27&type=chunk) - The reporting currency is the **U.S. Dollar**, while functional currencies include the **Hong Kong Dollar (HKD)**, **Chinese Renminbi (RMB)**, and **Australian Dollar (AUD)**[29](index=29&type=chunk) [PART I](index=12&type=section&id=PART%20I) [Item 1. Identity of Directors, Senior Management and Advisers](index=14&type=section&id=ITEM%201.%20IDENTITY%20OF%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20ADVISERS) This section is marked as 'Not applicable' in the report [Item 2. Offer Statistics and Expected Timetable](index=15&type=section&id=ITEM%202.%20OFFER%20STATISTICS%20AND%20EXPECTED%20TIMETABLE) This section is marked as 'Not applicable' in the report [Item 3. Key Information](index=15&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents selected financial data, a detailed breakdown of risk factors, and disclosures regarding the company's foreign private issuer status - The company operates as a holding company incorporated in the Cayman Islands, with substantial operations conducted through subsidiaries in Hong Kong and a non-operating subsidiary in Beijing, China[35](index=35&type=chunk) - There are significant risks associated with the **Holding Foreign Companies Accountable Act (HFCAA)**, which could lead to delisting if the PCAOB cannot inspect the company's auditor for two consecutive years[30](index=30&type=chunk)[32](index=32&type=chunk)[34](index=34&type=chunk) - The company has **not utilized cash from one subsidiary to fund another since 2018** and has **never issued dividends** to the holding company[36](index=36&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) [A. Selected Financial Data](index=15&type=section&id=A.%20Selected%20Financial%20Data.) This subsection presents consolidated financial data for the last three fiscal years, highlighting key income statement and balance sheet figures Consolidated Statement of Income (In thousands of U.S. dollars) | Indicator | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | **Revenues** | 3,569 | 3,875 | 3,683 | | **Gross Profit** | 776 | 822 | 360 | | **Operating Loss** | (1,802) | (536) | (8,805) | | **Net Loss** | (1,719) | (346) | (8,413) | | **Basic and Diluted Loss Per Share** | (0.02) | (0.01) | (0.08) | Consolidated Balance Sheet Data (In thousands of U.S. dollars) | Indicator | As of Dec 31, 2023 | As of Dec 31, 2022 | As of Dec 31, 2021 | | :--- | :--- | :--- | :--- | | **Total Assets** | 70,345 | 69,686 | 70,346 | | **Total Liabilities** | 9,766 | 7,482 | 7,822 | | **Total Equity** | 60,579 | 62,204 | 62,524 | [D. Risk Factors](index=16&type=section&id=D.%20Risk%20Factors.) This subsection details numerous business, jurisdictional, and share-related risks, including competition, regulation, and potential NASDAQ delisting - **Business Risks:** The company faces **intense competition**, risks of **significant fines** for non-compliance with anti-money laundering and data privacy laws, and **greater credit risks** in its lending business[53](index=53&type=chunk)[63](index=63&type=chunk)[81](index=81&type=chunk) - **Jurisdictional Risks:** Operations are subject to the economic and political policies of China and Hong Kong, with risks of **government intervention** and **legal system uncertainties**[118](index=118&type=chunk)[122](index=122&type=chunk)[126](index=126&type=chunk) - **Share-Related Risks:** The company may fail to meet **NASDAQ's continued listing requirements**, is exempt from certain U.S. reporting rules, and risks being classified as a **Passive Foreign Investment Company (PFIC)**[149](index=149&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) - The company has identified several **material weaknesses in its internal control over financial reporting**, including inadequate documentation and a lack of qualified accounting personnel[98](index=98&type=chunk)[99](index=99&type=chunk) [Item 4. Information on the Company](index=39&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section details the company's history, business operations, organizational structure, and property holdings [A. History and Development of the Company](index=39&type=section&id=A.%20History%20and%20Development%20of%20the%20Company.) This subsection outlines the company's corporate evolution from a blank check company to its current conglomerate structure through various acquisitions and disposals - The company was incorporated as a blank check company and completed its initial business combination by acquiring Honesty Group in March 2010[183](index=183&type=chunk)[185](index=185&type=chunk) - The company shifted its business model through strategic sales, including the disposal of its manufacturing arm Honesty Group in 2011 and SGOCO (Fujian) in 2014[195](index=195&type=chunk)[199](index=199&type=chunk) - Key current business segments were established through acquisitions: **Giant Credit Limited (2017)** for money lending, **Paris Sky Limited (2018)** for property investment, and **Giant Financial Services Limited (GFS) (2020)** for fintech services[210](index=210&type=chunk)[212](index=212&type=chunk)[215](index=215&type=chunk) [B. Business Overview](index=45&type=section&id=B.%20Business%20overview.) The company operates as a Hong Kong-based conglomerate with three principal business segments: money lending, property investment, and fintech services - The company is a conglomerate group with three main business lines: **money lending, property investment, and fintech services**[218](index=218&type=chunk) - **Money Lending:** Operates through licensed entities Giant Credit Limited and First Asia Finance Limited in Hong Kong, providing personal and corporate loans[219](index=219&type=chunk)[220](index=220&type=chunk) - **Property Investment:** Generates rental income from four real properties and a 19-storey building in Hong Kong[221](index=221&type=chunk) - **Fintech & IT:** Provides an online financial marketplace via its subsidiary GFS, leveraging AI, big data, and blockchain, and offers API consulting through Apiguru[221](index=221&type=chunk)[224](index=224&type=chunk) [D. Organizational Structure](index=48&type=section&id=D.%20Organizational%20structure.) This subsection presents a diagram illustrating the company's corporate structure, reflecting its conglomerate business model - The report includes a diagram that outlines the corporate hierarchy, with **TROOPS, Inc. (Cayman Islands)** as the ultimate parent of subsidiaries in multiple jurisdictions[231](index=231&type=chunk)[232](index=232&type=chunk) [E. Property, Plant and Equipment](index=49&type=section&id=E.%20Property%2C%20plant%20and%20equipment.) This subsection provides the carrying values of property, plant, and equipment for its main operating subsidiaries in Hong Kong Carrying Value of PP&E by Subsidiary (as of Dec 31, 2023) | Subsidiary | Carrying Value (in millions of U.S. Dollars) | | :--- | :--- | | Suns Tower | $42.92 | | 11 Hau Fook Street | $2.32 | | Vision Lane | $0.96 | | Giant Credit | $0.56 | [Item 5. Operating and Financial Review and Prospects](index=50&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section provides management's analysis of financial condition and results of operations, liquidity, capital resources, and critical accounting policies [A. Operating Results](index=50&type=section&id=A.%20Operating%20results.) This subsection provides a detailed comparison of operating results for fiscal years 2023 vs 2022 and 2022 vs 2021 Revenue by Segment (In thousands of U.S. dollars) | Product Line | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Interest on loans | 2,313 | 2,451 | 1,673 | | Property lease and management | 1,069 | 1,106 | 1,068 | | Financial technology solutions and services | 187 | 318 | 942 | | **Total** | **3,569** | **3,875** | **3,683** | - **Net loss increased to $1.72 million in 2023** from $0.35 million in 2022, mainly due to an **8.0% decrease in revenue** and a **25.6% increase in general and administrative expenses**[301](index=301&type=chunk)[304](index=304&type=chunk)[308](index=308&type=chunk) - **Net loss significantly decreased to $0.35 million in 2022** from $8.41 million in 2021, primarily due to a **$4.74 million goodwill impairment in 2021** that did not recur[308](index=308&type=chunk)[313](index=313&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk) [B. Liquidity and Capital Resources](index=65&type=section&id=B.%20Liquidity%20and%20capital%20resources.) This subsection analyzes the company's cash position, working capital, and cash flows from operating, investing, and financing activities Summary of Cash Flows (In thousands of U.S. dollars) | Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | (6,538) | (368) | 12,291 | | Net cash from investing activities | 4,779 | (156) | (5,594) | | Net cash from financing activities | 1,923 | — | (6,241) | | **Increase (Decrease) in Cash** | **163** | **(530)** | **452** | - As of December 31, 2023, the company had **$3.11 million in cash and cash equivalents** and **working capital of $5.95 million**[317](index=317&type=chunk) - In 2023, financing activities included a **$1.92 million loan from a shareholder**, Ms Kwok Kai Kai Clara[327](index=327&type=chunk)[330](index=330&type=chunk) [F. Tabular Disclosure of Contractual Obligations](index=68&type=section&id=F.%20Tabular%20disclosure%20of%20contractual%20obligations.) This subsection provides a table detailing the company's contractual obligations, all of which are due in less than one year Contractual Obligations as of December 31, 2023 (In thousands of U.S. dollars) | Obligation | Total | Due in Less than 1 Year | | :--- | :--- | :--- | | Amount due to a shareholder | 1,923 | 1,923 | | Advances from unrelated parties | 538 | 538 | | **Total** | **2,461** | **2,461** | [Item 6. Directors, Senior Management and Employees](index=68&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section provides information on the company's leadership, board structure, compensation practices, and employee base [A. Directors and Senior Management](index=68&type=section&id=A.%20Directors%20and%20senior%20management.) This subsection lists the company's directors and executive officers, providing their age, position, and a brief biography - **Raleigh Siu Lau** serves as the Chief Executive Officer and President[337](index=337&type=chunk) - **Chung Hang Lui** serves as the Chief Financial Officer[337](index=337&type=chunk)[339](index=339&type=chunk) - The Board of Directors consists of five members, **three of whom are independent directors**[337](index=337&type=chunk)[360](index=360&type=chunk) [B. Compensation](index=70&type=section&id=B.%20Compensation.) This subsection details the compensation philosophy and structure for executives, including base salary, bonuses, and equity incentives - **Aggregate cash compensation** paid to executive officers was approximately **$0.23 million** for the year ended December 31, 2023[347](index=347&type=chunk) - The company has a **2016 Omnibus Equity Plan** which allows for the granting of up to **2,500,000 ordinary shares** as equity compensation[350](index=350&type=chunk) [C. Board Practices](index=73&type=section&id=C.%20Board%20Practices.) This subsection describes the board's composition, committees, director duties, and the adoption of a new clawback policy - The board has five directors, **three of whom are independent**: Mr. Wood Shing Kei Sze, Mr. Jason Che Wai Au, and Mr. Wang Tai Dominic Li[360](index=360&type=chunk) - The company has three board committees: **Audit, Compensation, and Nominating**, with defined memberships and responsibilities[362](index=362&type=chunk)[363](index=363&type=chunk)[364](index=364&type=chunk) - A **clawback policy was adopted on November 17, 2023**, allowing the company to recoup incentive compensation following an accounting restatement[372](index=372&type=chunk) [D. Employees](index=76&type=section&id=D.%20Employees.) This subsection provides information on the company's workforce size and labor relations - The company had **19 full-time employees** as of December 31, 2023[373](index=373&type=chunk) [E. Share Ownership](index=76&type=section&id=E.%20Share%20Ownership.) This subsection provides a table detailing the beneficial ownership of the company's ordinary shares for major shareholders and management Beneficial Share Ownership (as of April 22, 2024) | Shareholder | Shares Beneficially Owned | Percentage | | :--- | :--- | :--- | | Prime Ocean Holdings Limited (1) | 29,000,000 | 28.5% | | Leung Iris Chi Yu | 23,132,500 | 22.8% | | All directors and executive officers as a group (8 persons) | 559,581 | * | <small>(1) Beneficially owned by Ms Kwok Kai Kai Clara.</small> <small>* Indicates less than 1%</small> [Item 7. Major Shareholders and Related Party Transactions](index=77&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section discloses a key related party transaction involving a loan from a major shareholder - On December 8, 2023, a major shareholder, **Ms Kwok Kai Kai Clara, loaned $1.92 million** to the company's subsidiary Giant Credit Limited[377](index=377&type=chunk) [Item 8. Financial Information](index=77&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section discloses an ongoing material legal proceeding and the company's dividend policy - The company and several subsidiaries are defendants in a lawsuit in Hong Kong involving allegations of **unlawful conspiracy**, with restrictions on the disposal of certain key assets remaining in place[379](index=379&type=chunk)[381](index=381&type=chunk)[382](index=382&type=chunk) - The company **does not anticipate paying any cash dividends** in the foreseeable future, intending to retain earnings to finance business expansion[383](index=383&type=chunk) [Item 10. Additional Information](index=79&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section covers corporate information, exchange controls, and a detailed overview of taxation in various jurisdictions, including U.S. PFIC rules - **Cayman Islands Taxation:** **No corporate or individual taxes** on profits, income, or gains are levied, and no exchange control regulations exist[389](index=389&type=chunk) - **Hong Kong Taxation:** No tax on dividends or capital gains; trading gains may be subject to **profits tax (16.5% for corporations)**[392](index=392&type=chunk)[393](index=393&type=chunk) - **U.S. Federal Income Taxation:** The report provides a detailed summary for U.S. Holders, including the risk that the company could be classified as a **Passive Foreign Investment Company (PFIC)**[394](index=394&type=chunk)[407](index=407&type=chunk)[408](index=408&type=chunk)[409](index=409&type=chunk) [Item 11. Quantitative and Qualitative Disclosure About Market Risk](index=87&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURE%20ABOUT%20MARKET%20RISK) This section details the company's exposure to market risks, primarily credit risk from its money lending activities and customer concentration risk - The company's primary market risk is **credit risk** associated with its loan portfolio, which is geographically concentrated in Hong Kong[431](index=431&type=chunk)[433](index=433&type=chunk) - For FY 2023, there was a significant **customer concentration**, with two major customers accounting for **23% and 11% of total revenues**[439](index=439&type=chunk) - The company recognized a **reversal of provision for loan losses of $0.05 million in 2023**, compared to a reversal of $0.97 million in 2022[434](index=434&type=chunk) - As of December 31, 2023, the company held **$0.42 million in cash at a bank in Vanuatu**, which does not have a deposit protection scheme[443](index=443&type=chunk) [PART II](index=90&type=section&id=PART%20II) [Item 15. Controls and Procedures](index=90&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were not effective due to several material weaknesses in internal control over financial reporting - Management concluded that **disclosure controls and procedures were not effective** as of December 31, 2023[447](index=447&type=chunk) - **Material weaknesses** identified include: inadequate documentation on internal controls, insufficient controls for loan credit risk monitoring, and a **lack of sufficient qualified accounting personnel** with U.S. GAAP/SEC expertise[449](index=449&type=chunk)[450](index=450&type=chunk) - The independent registered public accounting firm, Audit Alliance LLP, issued an **adverse opinion** on the company's internal control over financial reporting[456](index=456&type=chunk) - Remediation plans include **hiring additional accounting staff**, providing more training, and implementing better control procedures[451](index=451&type=chunk)[452](index=452&type=chunk) [Item 16C. Principal Accountant Fees and Services](index=94&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) This section discloses the fees paid to the principal external independent registered public accountant for professional services Accountant Fees (In thousands of U.S. dollars) | Fee Type | 2023 | 2022 | | :--- | :--- | :--- | | Audit Fee | 280 | 244 | | Audit-Related Fees | — | — | | Tax fees | — | — | | **Total** | **280** | **244** | [Item 16F. Changes in Registrant's Certifying Accountant](index=94&type=section&id=ITEM%2016F.%20CHANGES%20IN%20REGISTRANT'S%20CERTIFYING%20ACCOUNTANT) This section details recent changes in the company's independent registered public accounting firm - On September 7, 2022, the company dismissed Yu Certified Public Accountant, P.C. and appointed WWC, P.C.[467](index=467&type=chunk)[470](index=470&type=chunk) - On March 3, 2023, the company dismissed WWC, P.C. and appointed **Audit Alliance LLP** as its new independent registered public accounting firm[471](index=471&type=chunk)[472](index=472&type=chunk) [PART III](index=96&type=section&id=PART%20III) [Item 18. Financial Statements](index=96&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section contains the company's audited consolidated financial statements and the independent auditor's report Consolidated Balance Sheet (In thousands of U.S. Dollars) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | **Total Current Assets** | 10,670 | 11,539 | | **Total Non-Current Assets** | 59,675 | 58,147 | | **Total Assets** | **70,345** | **69,686** | | **Total Current Liabilities** | 4,723 | 2,185 | | **Total Non-Current Liabilities** | 5,043 | 5,297 | | **Total Liabilities** | **9,766** | **7,482** | | **Total Shareholders' Equity** | **60,579** | **62,204** | Consolidated Statements of Comprehensive Income (Loss) (In thousands of U.S. Dollars) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | **Revenues** | 3,569 | 3,875 | 3,683 | | **Gross Profit (Loss)** | 776 | 822 | 360 | | **Operating Loss** | (1,802) | (536) | (8,805) | | **Net Loss** | (1,719) | (346) | (8,413) | | **Comprehensive Loss** | (1,719) | (351) | (8,400) | [Note 4 - Loans Receivable, Net](index=123&type=section&id=Note%204-%20Loans%20receivable%2C%20net) This note details the composition of the company's loan portfolio, which is diversified across personal and corporate loans primarily in Hong Kong Loans Receivable, Gross (In thousands of U.S. dollars) | Loan Type | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Personal loans | 7,099 | 7,622 | | Corporate loans | 14,603 | 7,000 | | **Subtotal** | **21,702** | **14,622** | | Provision for loan losses | (2,023) | (2,072) | | **Total loans receivable, net** | **19,679** | **12,550** | - The annualized interest rates on loans ranged from **6% to 48%** in 2023[598](index=598&type=chunk) [Note 9 - Goodwill](index=134&type=section&id=Note%209%20%E2%80%93%20Goodwill) This note explains the status of the company's goodwill, including a significant impairment loss recorded in 2021 Goodwill Movement (In thousands of U.S. dollars) | | Amount | | :--- | :--- | | Balance as of Jan 1, 2021 | 5,107 | | Impairment of goodwill (2021) | (4,740) | | Balance as of Dec 31, 2021 | 385 | | Impairment of goodwill (2022) | — | | Balance as of Dec 31, 2022 | 385 | | Impairment of goodwill (2023) | — | | **Balance as of Dec 31, 2023** | **385** | - A **goodwill impairment loss of $4.74 million** was recorded in 2021 for the financial technology solutions and services reporting unit[662](index=662&type=chunk) [Note 17 - Segment Information](index=139&type=section&id=Note%2017%20%E2%80%93%20Segment%20information) This note provides a breakdown of the company's financial performance by its primary operating segments Segment Performance for Year Ended Dec 31, 2023 (In thousands of U.S. dollars) | Segment | Revenues | Operating Income/(Loss) | Total Assets | | :--- | :--- | :--- | :--- | | Money lending services | 2,313 | 624 | 22,157 | | Property lease and management | 1,069 | (1,536) | 46,953 | | Financial technology solutions and services | 187 | (36) | 583 | | Corporate unallocated | — | (854) | 652 | | **Consolidated** | **3,569** | **(1,802)** | **70,345** |

PART I [Key Information](index=15&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents selected financial data for 2020-2022, highlighting a significant net loss reduction in 2022, and outlines comprehensive business and share-related risks [Selected Financial Data](index=15&type=section&id=A.%20Selected%20Financial%20Data.) Net loss significantly decreased to **$0.35 million** in 2022, primarily due to reduced goodwill impairment, while revenues slightly increased to **$3.88 million** Consolidated Statement of Income (In thousands of U.S. Dollars) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **REVENUES** | 3,875 | 3,683 | 4,293 | | **GROSS PROFIT (LOSS)** | 822 | 360 | (1,066) | | **OPERATING LOSS** | (536) | (8,805) | (67,342) | | **NET LOSS** | (346) | (8,413) | (67,918) | | **Basic and Diluted Loss per share** | (0.01) | (0.08) | (0.69) | Consolidated Balance Sheet Data (In thousands of U.S. Dollars) | | As of Dec 31, 2022 | As of Dec 31, 2021 | As of Dec 31, 2020 | | :--- | :--- | :--- | :--- | | **Total assets** | 69,686 | 70,346 | 90,130 | | **Total liabilities** | 7,482 | 7,822 | 19,503 | | **Total equity** | 62,204 | 62,524 | 70,627 | [Risk Factors](index=17&type=section&id=D.%20Risk%20Factors.) The company faces significant business, operational, and share-related risks, including intense competition, regulatory scrutiny, and potential delisting - The company's financial services arm, GFS, is subject to increasing regulatory scrutiny regarding privacy and data protection, particularly under the PRC Data Security Law, which could lead to significant fines or operational changes[53](index=53&type=chunk)[56](index=56&type=chunk) - The money lending subsidiaries (FAF and Giant Credit) face significant credit risks from borrowers, intense competition in the Hong Kong market, and are subject to the Money Lenders Ordinance, which caps interest rates[76](index=76&type=chunk)[79](index=79&type=chunk)[83](index=83&type=chunk) - The company identified several material weaknesses in its internal control over financial reporting as of December 31, 2021, including insufficient controls in loan risk assessment and a lack of qualified accounting personnel with U.S. GAAP and SEC reporting experience[93](index=93&type=chunk)[94](index=94&type=chunk) - The company is exposed to risks related to the Holding Foreign Companies Accountable Act (HFCAA); while its current auditor is PCAOB-inspected, its predecessor was not, and recent legislation has reduced the non-inspection period for delisting from three to two years, increasing the risk to investors[105](index=105&type=chunk)[110](index=110&type=chunk) - The PRC government may intervene in business operations or exert more control over overseas listings; if future approval from authorities like the CSRC or CAC is needed and denied, the company may be unable to continue listing on U.S. exchanges[122](index=122&type=chunk)[130](index=130&type=chunk) [Information on the Company](index=39&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) TROOPS, Inc. is a Hong Kong-based conglomerate with a history of strategic acquisitions, operating in money lending, property investment, and fintech services [History and Development of the Company](index=39&type=section&id=A.%20History%20and%20Development%20of%20the%20Company.) TROOPS, Inc. originated as a blank check company in 2007, evolving through strategic acquisitions and disposals to focus on money lending, property investment, and fintech - The company was incorporated in 2007 as a blank check company and acquired Honesty Group in 2010[180](index=180&type=chunk) - The company transitioned to a "light-asset" model by selling its manufacturing arm, Honesty Group, in 2011 and SGOCO (Fujian) in 2014[192](index=192&type=chunk)[196](index=196&type=chunk)[198](index=198&type=chunk) - From 2017 to 2020, the company built its current portfolio by acquiring several businesses in money lending (Giant Credit, First Asia Finance), property investment (11 Hau Fook Street, Paris Sky, Vision Lane), and fintech (Giant Financial Services, Apiguru)[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk)[211](index=211&type=chunk)[213](index=213&type=chunk) [Business Overview](index=45&type=section&id=B.%20Business%20overview.) TROOPS, Inc. operates three main segments: money lending, property investment, and fintech/IT services, leveraging technology for an online financial marketplace - The company's business is divided into three main segments: money lending, property investment, and fintech/IT services[215](index=215&type=chunk) - The money lending business is conducted through licensed Hong Kong subsidiaries, Giant Credit Limited and First Asia Finance Limited[216](index=216&type=chunk)[217](index=217&type=chunk) - The fintech arm, Giant Financial Services (GFS), provides an online financial marketplace leveraging technologies like AI, big data, and blockchain[218](index=218&type=chunk)[219](index=219&type=chunk) [Organizational Structure](index=48&type=section&id=D.%20Organizational%20structure.) TROOPS, Inc., a Cayman Islands parent, operates through wholly-owned subsidiaries in Hong Kong, including SGOCO International, Giant Financial Services, and Giant Connection Limited - The company's corporate structure consists of the parent, TROOPS, Inc. (Cayman Islands), with multiple layers of wholly-owned subsidiaries primarily based in Hong Kong, Seychelles, Samoa, and the Marshall Islands[228](index=228&type=chunk) [Property, Plant and Equipment](index=48&type=section&id=E.%20Property,%20plant%20and%20equipment.) As of December 31, 2022, the company holds significant property, plant, and equipment assets in Hong Kong through its subsidiaries, with total carrying value primarily concentrated in Suns Tower Limited Carrying Value of Property, Plant and Equipment by Subsidiary (as of Dec 31, 2022) | Subsidiary | Carrying Value (in millions of U.S. Dollars) | | :--- | :--- | | Suns Tower | $44.58 | | 11 Hau Fook Street Limited | $2.51 | | Vision Lane | $1.03 | | Giant Credit | $0.52 | [Operating and Financial Review and Prospects](index=49&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes the company's financial performance, highlighting increased 2022 revenue, reduced net loss, and liquidity, alongside critical accounting policies [Operating Results](index=49&type=section&id=A.%20Operating%20results.) For FY2022, revenue increased to **$3.88 million**, gross profit improved, and net loss significantly reduced to **$0.35 million** due to lower impairment charges Revenue by Major Product Line (In millions of U.S. Dollars) | Product Line | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Interest on loans | $2.45 | $1.67 | +46.7% | | Property lease and management | $1.11 | $1.07 | +3.7% | | Financial technology solutions and services | $0.32 | $0.94 | -66.0% | | **Total Revenue** | **$3.88** | **$3.68** | **+5.4%** | - General and administrative expenses decreased by **20.1%** to **$2.19 million** in 2022, mainly because no share-based compensation or system development fees were incurred, unlike in 2021[302](index=302&type=chunk) - The company recorded a reversal of provision for loan losses of **$0.97 million** in 2022, compared to a provision of **$1.39 million** in 2021[303](index=303&type=chunk)[428](index=428&type=chunk) - There were no impairment losses on goodwill or intangible assets in 2022, compared to a combined **$4.94 million** in such charges in 2021, which was a primary driver for the reduced net loss[305](index=305&type=chunk) [Liquidity and Capital Resources](index=64&type=section&id=B.%20Liquidity%20and%20capital%20resources.) As of December 31, 2022, the company held **$2.95 million** in cash and **$9.35 million** in working capital, with liquidity primarily from operations, expecting sufficiency for the next 12 months - As of December 31, 2022, the company held **$2.95 million** in cash and cash equivalents and had working capital of **$9.35 million**[315](index=315&type=chunk) Summary of Cash Flows (In millions of U.S. Dollars) | Cash Flow Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Operating Activities** | (0.37) | 12.29 | 21.64 | | **Investing Activities** | (0.16) | (5.59) | (27.17) | | **Financing Activities** | 0.00 | (6.24) | 3.43 | - The company believes its current cash and available funds will be sufficient to meet its cash needs for at least the next 12 months[325](index=325&type=chunk) [Contractual Obligations](index=67&type=section&id=F.%20Tabular%20disclosure%20of%20contractual%20obligations.) As of December 31, 2022, the company's contractual obligations totaled approximately **$0.41 million**, all due in less than one year, primarily from advances and convertible note interest Contractual Obligations as of December 31, 2022 | Obligation | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Advances from unrelated parties | $409,414 | $409,414 | $— | $— | $— | | Convertible notes – future interest payment | $4,582 | $4,582 | $— | $— | $— | | **Total** | **$413,996** | **$413,996** | **$—** | **$—** | **$—** | [Directors, Senior Management and Employees](index=67&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's leadership, compensation, and governance, including executive team, board structure, employee count, and concentrated share ownership [Directors and Senior Management](index=67&type=section&id=A.%20Directors%20and%20senior%20management.) The company's leadership team includes Raleigh Siu Lau as CEO, Chung Hang Lui as CFO, and Tommy Wing Ling Lui as CTO, with a board of five directors, three of whom are independent - Key executive officers include Raleigh Siu Lau (CEO), Chung Hang Lui (CFO), and Tommy Wing Ling Lui (CTO)[334](index=334&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk) [Compensation](index=69&type=section&id=B.%20Compensation.) Executive compensation for FY2022 totaled approximately **$0.27 million**, with the company's 2016 Omnibus Equity Plan authorizing up to **2,500,000 ordinary shares** for equity awards - Aggregate cash compensation for executive officers was approximately **$0.27 million** for the fiscal year 2022[344](index=344&type=chunk) - The company has a 2016 Omnibus Equity Plan authorizing up to **2,500,000 ordinary shares** for equity compensation awards to employees, directors, and consultants[347](index=347&type=chunk) [Board Practices](index=71&type=section&id=C.%20Board%20Practices.) The Board of Directors consists of **five members**, three of whom are independent, and has established Audit, Compensation, and Nominating Committees with defined responsibilities - The board has **five directors**, three of whom are independent[355](index=355&type=chunk) - The company has established an Audit Committee, a Compensation Committee, and a Nominating Committee with defined responsibilities and membership[357](index=357&type=chunk)[358](index=358&type=chunk)[359](index=359&type=chunk) [Employees](index=73&type=section&id=D.%20Employees.) As of December 31, 2022, TROOPS, Inc. had **19 full-time employees**, all management and administrative staff, maintaining a good working relationship without union representation - The company had **19 full-time employees** as of December 31, 2022[367](index=367&type=chunk) [Share Ownership](index=74&type=section&id=E.%20Share%20Ownership.) As of April 28, 2023, the company had **101,597,998 ordinary shares** outstanding, with directors and executive officers owning **2.1%** and Prime Ocean Holdings Limited holding **28.7%** Beneficial Share Ownership (as of April 28, 2023) | Shareholder | Number of Shares | Percentage | | :--- | :--- | :--- | | All directors and executive officers as a group (8 persons) | 2,129,581 | 2.1% | | Prime Ocean Holdings Limited | 29,000,000 | 28.7% | [Financial Information](index=75&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section refers to the full consolidated financial statements in Item 18, discloses two material legal proceedings in Hong Kong (one discontinued), and states no cash dividends are anticipated - The company and its subsidiaries are defendants in a lawsuit in Hong Kong (HCA 938 of 2022) involving allegations of unlawful means conspiracy, with injunctions placed on their Hong Kong assets; the company believes the lawsuit is without merit and is defending the case vigorously[374](index=374&type=chunk)[375](index=375&type=chunk) - A separate lawsuit (HCA 1520 of 2021) against subsidiaries 11 Hau Fook Street Limited and Vision Lane Limited was wholly discontinued by the plaintiff in October 2022[376](index=376&type=chunk) - The company does not expect to pay cash dividends in the foreseeable future, planning to retain earnings for business expansion[377](index=377&type=chunk) [Additional Information](index=76&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section covers corporate and regulatory matters, including Cayman Islands exchange controls, tax regimes, and U.S. federal income tax implications, notably PFIC risk - The company is incorporated in the Cayman Islands, which currently levies **no taxes** on profits, income, gains, or appreciation[383](index=383&type=chunk) - The company's Hong Kong subsidiaries are subject to a **16.5% profits tax**, while PRC subsidiaries are subject to a **25% tax rate**; dividends from PRC entities to foreign parents may be subject to a **10% withholding tax** (or **5%** for Hong Kong resident enterprises under the tax arrangement)[384](index=384&type=chunk)[386](index=386&type=chunk)[387](index=387&type=chunk) - There is a risk that the company could be classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. investors; the company believes it was not a PFIC for 2022 but notes the determination is not certain[161](index=161&type=chunk)[401](index=401&type=chunk)[402](index=402&type=chunk)[403](index=403&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=85&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURE%20ABOUT%20MARKET%20RISK) The company's primary market risk is credit concentration in its money lending business, managed via collateral and provisions, alongside significant customer and geographic concentration - The company's main risk is credit risk from its lending activities, primarily concentrated in Hong Kong; this is managed via collateral and loan loss provisions[425](index=425&type=chunk)[713](index=713&type=chunk) - In 2022, the company recognized a **reversal of provision for loan losses of $0.97 million**, compared to a provision of **$1.39 million** in 2021[428](index=428&type=chunk)[716](index=716&type=chunk) - Significant customer concentration exists, with two customers representing **18%** and **13%** of total revenues in 2022; four loan customers accounted for **68%** of the total loan receivable balance[431](index=431&type=chunk)[433](index=433&type=chunk) - The majority of the company's cash is held in Hong Kong banks covered by the Deposit Protection Scheme, but as of March 31, 2023, **$0.13 million** was held in a bank in Vanuatu with no such protection[437](index=437&type=chunk)[438](index=438&type=chunk) PART II [Controls and Procedures](index=88&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls were ineffective as of December 31, 2022, due to material weaknesses in internal control over financial reporting, with remediation plans underway - Management concluded that disclosure controls and procedures were **not effective** as of the end of the reporting period[443](index=443&type=chunk) - Material weaknesses were identified in internal control over financial reporting, including: - Limited documentation and policies for monitoring loan risk - Lack of controls for monitoring past-due payments and loan extensions - Insufficient controls over related-party loans - Lack of sufficient qualified accounting personnel with U.S. GAAP and SEC reporting experience[445](index=445&type=chunk) - Remediation plans include hiring additional accounting and internal control staff, providing further training, and engaging professional consultants to improve controls, particularly in the money lending operations[446](index=446&type=chunk)[447](index=447&type=chunk)[448](index=448&type=chunk) [Principal Accountant Fees and Services](index=91&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) The company's audit fees were **$244,000** in 2022 and **$255,000** in 2021, with no audit-related or tax fees billed by the principal accountant, and all services pre-approved by the Audit Committee Principal Accountant Fees (in U.S. Dollars) | Fee Category | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fee | $244,000 | $255,000 | | Audit-Related Fees | $— | $— | | Tax fees | $— | $— | | **Total** | **$244,000** | **$255,000** | [Changes in Registrant's Certifying Accountant](index=91&type=section&id=ITEM%2016F.%20CHANGES%20IN%20REGISTRANT'S%20CERTIFYING%20ACCOUNTANT) The company experienced multiple changes in its independent registered public accounting firm, with Audit Alliance LLP performing the 2022 audit, and reported no disagreements with dismissed firms - On September 7, 2022, the company dismissed its auditor, Yu Certified Public Accountant, P.C., and appointed WWC, P.C[458](index=458&type=chunk)[460](index=460&type=chunk) - On March 3, 2023, the company dismissed WWC, P.C. and appointed Audit Alliance LLP as its new independent auditor for the fiscal year 2022[461](index=461&type=chunk)[463](index=463&type=chunk) - The company stated there were no disagreements with either of the dismissed auditors on accounting principles, financial statement disclosure, or auditing scope[458](index=458&type=chunk)[462](index=462&type=chunk) PART III [Financial Statements](index=93&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section contains the audited consolidated financial statements for 2020-2022, prepared under U.S. GAAP, including the auditor's unqualified opinion and critical audit matters [Report of Independent Registered Public Accounting Firm](index=98&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor issued an unqualified opinion on the 2022 financial statements, identifying CECL and Property, Plant, and Equipment impairment as Critical Audit Matters due to subjective judgment - The auditor issued an **unqualified (clean) opinion** on the financial statements for the year ended December 31, 2022[473](index=473&type=chunk) - Critical Audit Matters identified were: 1. Allowance for current expected credit losses (CECL) on receivables, due to the subjective judgment and estimates involved 2. Impairment of Property, Plant and Equipment, due to the complexity and judgment in fair value measurement[477](index=477&type=chunk)[479](index=479&type=chunk)[482](index=482&type=chunk) [Consolidated Balance Sheets](index=104&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2022, total assets were **$69.69 million**, a slight decrease from **$70.35 million** in 2021, with total liabilities at **$7.48 million** and total equity at **$62.20 million** Consolidated Balance Sheet Highlights (In thousands of U.S. Dollars) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | 11,539 | 6,208 | | **Total Non-Current Assets** | 58,147 | 64,138 | | **Total Assets** | **69,686** | **70,346** | | **Total Current Liabilities** | 2,185 | 2,190 | | **Total Non-Current Liabilities** | 5,297 | 5,632 | | **Total Liabilities** | **7,482** | **7,822** | | **Total Shareholders' Equity** | **62,204** | **62,524** | [Consolidated Statements of Comprehensive Income (Loss)](index=105&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) For FY2022, net loss significantly improved to **$0.35 million** from **$8.41 million** in 2021, driven by a loan loss reversal and no goodwill impairment, with revenues increasing Key Income Statement Items (In thousands of U.S. Dollars) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **REVENUES** | 3,875 | 3,683 | 4,293 | | **GROSS PROFIT (LOSS)** | 822 | 360 | (1,066) | | **Impairment (reversal) loss of loan and interest receivable** | (973) | 1,386 | 1,980 | | **Impairment loss of goodwill** | — | 4,740 | 59,440 | | **OPERATING LOSS FROM CONTINUING OPERATIONS** | (536) | (8,805) | (67,342) | | **NET LOSS** | (346) | (8,413) | (67,918) | [Consolidated Statements of Cash Flows](index=107&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For FY2022, net cash used in operating activities was **$0.37 million**, a shift from **$12.29 million** provided in 2021, resulting in a **$0.53 million** decrease in cash, ending at **$2.95 million** Cash Flow Summary (In thousands of U.S. Dollars) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | (368) | 12,291 | 21,853 | | **Net cash used in investing activities** | (156) | (5,594) | (27,417) | | **Net cash (used in) provided by financing activities** | — | (6,241) | 3,431 | | **Increase (Decrease) in Cash** | (530) | 452 | (2,133) | | **Cash and cash equivalent, end of year** | 2,950 | 3,480 | 3,028 |

[Form 6-K Report of Foreign Private Issuer](index=1&type=section&id=Form%206-K%20Report) This Form 6-K report outlines the formation of a Special Committee to investigate an independent director and review corporate governance, along with an exhibit [Item 8.01 Other Events](index=2&type=section&id=Item%208.01%20Other%20Events) On April 11, 2023, TROOPS, Inc. formed a Special Committee of the Board of Directors. The committee's purpose is to investigate allegations from Civil Action HCA 938 of 2022 against independent director Mr. Wang Tai Dominic Li, specifically concerning his independence and integrity, and to conduct a review of the company's internal corporate governance - A Special Committee of the Board of Directors was formed on **April 11, 2023**[2](index=2&type=chunk) - The committee will investigate allegations against independent director **Mr. Wang Tai Dominic Li** regarding his independence and integrity, as raised in Civil Action HCA 938 of 2022[2](index=2&type=chunk) - The committee will also review the company's internal corporate governance[2](index=2&type=chunk) [Item 9.01 Financial Statements and Exhibits](index=2&type=section&id=Item%209.01.%20Financial%20Statements%20and%20Exhibits.) The report includes one exhibit, a press release issued by the company on April 11, 2023, which is incorporated by reference Exhibit List | Exhibit Number | Description | | :--- | :--- | | 99.1 | Press release issued by TROOPS, Inc., dated April 11, 2023 |

PART I [Key Information](index=18&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section presents selected financial data showing significant net losses and declining assets, alongside a wide range of business, operational, and regulatory risks [Selected Financial Data](index=18&type=section&id=A.%20Selected%20Financial%20Data.) The company experienced significant net losses and declining revenues from 2019 to 2021, with a peak loss in 2020 due to goodwill impairment Consolidated Statement of Income (In thousands of U.S. Dollars) | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | **REVENUES** | 3,683 | 4,293 | 5,115 | | **GROSS PROFIT (LOSS)** | 360 | (1,066) | 2,734 | | **OPERATING LOSS FROM CONTINUING OPERATIONS** | (8,805) | (67,342) | (732) | | **NET LOSS** | (8,413) | (67,918) | (37,059) | | **Net loss attributable to ordinary shareholders** | (8,413) | (67,918) | (19,402) | | **Loss per share (Basic & Diluted)** | (0.08) | (0.69) | (0.24) | Consolidated Balance Sheet Data (In thousands of U.S. Dollars) | | 2021 | 2020 | 2019 (Restated) | | :--- | :--- | :--- | :--- | | **Total assets** | 70,346 | 90,130 | 139,717 | | **Total liabilities** | 7,822 | 19,503 | 19,952 | | **Total equity** | 62,524 | 70,627 | 119,765 | [Risk Factors](index=20&type=section&id=D.%20Risk%20Factors.) The company faces substantial risks from its diverse business operations, regulatory changes in Hong Kong and China, and its status as a foreign private issuer - **Business and Industry Risks:** - The COVID-19 pandemic may continue to adversely affect operations and customer budgets[77](index=77&type=chunk) - Increased regulatory oversight, especially concerning privacy and data protection for its fintech subsidiary GFS, could lead to fines and operational changes[81](index=81&type=chunk) - Intense competition and the need for continuous innovation pose threats to market share and profitability[104](index=104&type=chunk) - The strategy of acquiring complementary businesses may fail and result in impairment losses[108](index=108&type=chunk) - The money lending business (FAF and Giant Credit) is subject to significant credit risks, competition, and regulatory changes in Hong Kong - **Risks of Operating in Hong Kong and China:** - Economic downturns in Hong Kong, China, or globally could adversely affect business[143](index=143&type=chunk) - The legal systems in Hong Kong and the PRC present uncertainties that could limit legal protections[146](index=146&type=chunk) - The PRC government may exercise significant oversight, intervene in operations, and implement new regulations with little notice, particularly concerning data security and overseas listings, which could hinder operations and devalue securities[151](index=151&type=chunk) - **Risks Related to Shares and Listing:** - The company may fail to meet NASDAQ's continued listing requirements[174](index=174&type=chunk) - The **Holding Foreign Companies Accountable Act (HFCAA) poses a delisting risk** as the PCAOB was unable to inspect the company's predecessor auditors, and the potential delisting period could be shortened to two years[209](index=209&type=chunk) - The company is a foreign private issuer, exempting it from certain U.S. reporting and governance rules, offering less protection to shareholders[197](index=197&type=chunk) - There is a risk of being classified as a **Passive Foreign Investment Company (PFIC)**, which could have adverse U.S. federal income tax consequences for U.S. investors[199](index=199&type=chunk) [Information on the Company](index=46&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) The company operates as a Hong Kong-based conglomerate in money lending, property, and fintech, shaped by a history of strategic acquisitions and disposals [History and Development of the Company](index=46&type=section&id=A.%20History%20and%20Development%20of%20the%20Company.) The company transformed from a blank check company into a conglomerate through key acquisitions in money lending, property, and fintech services - The company was incorporated in 2007 as a blank check company and acquired Honesty Group in 2010, which was later sold in 2011 as the company transitioned to a "light-asset" business model[219](index=219&type=chunk)[235](index=235&type=chunk)[239](index=239&type=chunk) - Acquired Giant Credit Limited in December 2017, marking its entry into the money lending business in Hong Kong[255](index=255&type=chunk) - Expanded into property investment through the acquisitions of 11 Hau Fook Street Limited and Paris Sky Limited in 2018[256](index=256&type=chunk)[257](index=257&type=chunk) - Acquired Giant Financial Services Limited (GFS) for **$64.34 million** in January 2020 to enter the fintech market, providing an online financial marketplace[259](index=259&type=chunk)[260](index=260&type=chunk) [Business Overview](index=52&type=section&id=B.%20Business%20overview.) The company's operations are structured into three principal segments: money lending, property investment, and a fintech service marketplace - The company's business is divided into three main segments: **money lending, property investment, and fintech services**[263](index=263&type=chunk) - The money lending business is conducted through licensed Hong Kong subsidiaries, Giant Credit Limited and First Asia Finance Limited[264](index=264&type=chunk)[265](index=265&type=chunk) - The fintech arm, Giant Financial Services (GFS), operates an online financial marketplace using technologies like AI and blockchain to connect financial institutions with users[267](index=267&type=chunk)[268](index=268&type=chunk) [Property, Plant and Equipment](index=55&type=section&id=E.%20Property%2c%20plant%20and%20equipment.) The company holds a significant portfolio of property assets in Hong Kong with a carrying value over $50 million as of year-end 2021 Carrying Value of Property by Subsidiary (as of Dec 31, 2021) | Subsidiary | Carrying Value (in millions of U.S. Dollars) | | :--- | :--- | | Suns Tower | $46.26 | | 11 Hau Fook Street Limited | $2.73 | | Vision Lane | $1.03 | | Giant Credit | $0.55 | [Operating and Financial Review and Prospects](index=56&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) Financial performance in 2021 showed decreased revenue but a narrowed net loss due to lower goodwill impairment, with liquidity sustained by operating cash flow [Operating Results](index=56&type=section&id=A.%20Operating%20results.) In 2021, revenue declined but gross profit turned positive, and the net loss significantly narrowed due to a much smaller goodwill impairment charge Revenue by Major Product Line (In thousands of U.S. Dollars) | Revenue by major product line | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Interest on loans | 1,673 | 1,667 | 3,930 | | Property lease and management | 1,068 | 1,130 | 1,185 | | Financial technology solutions and services | 942 | 1,496 | — | | **Total** | **3,683** | **4,293** | **5,115** | - For the year ended Dec 31, 2021, **revenue decreased by 14.2%** to $3.68 million, while cost of revenues decreased by 38.0%, resulting in a **gross profit of $0.36 million** compared to a gross loss of $1.07 million in 2020[357](index=357&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk) - **Net loss for 2021 was $8.41 million**, a significant reduction from the $67.92 million net loss in 2020, primarily due to a much lower impairment of goodwill ($4.74 million in 2021 vs $59.44 million in 2020)[371](index=371&type=chunk)[366](index=366&type=chunk) - For the year ended Dec 31, 2020, revenue decreased by 16.1% to $4.29 million from $5.12 million in 2019, mainly due to a drop in interest income from loans[372](index=372&type=chunk) [Liquidity and Capital Resources](index=73&type=section&id=B.%20Liquidity%20and%20capital%20resources.) The company's liquidity is primarily sourced from operating activities, with sufficient cash to meet obligations for the next 12 months - As of December 31, 2021, the company had **$3.48 million in cash** and cash equivalents and **working capital of $4.01 million**[389](index=389&type=chunk) Summary of Cash Flows (In thousands of U.S. Dollars) | | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 12,291 | 21,639 | 3,349 | | Net cash used in investing activities | (5,594) | (27,170) | (18,825) | | Net cash (used in) provided by financing activities | (6,241) | 3,431 | 6,263 | - In 2021, **net cash from operating activities was $12.29 million**, primarily from changes in loans receivable and non-cash impairment charges, offset by the net loss[393](index=393&type=chunk) - The company fully settled a bank borrowing of **$6.41 million** from OCBC Wing Hang Bank on March 3, 2021[391](index=391&type=chunk) [Contractual Obligations](index=76&type=section&id=F.%20Tabular%20disclosure%20of%20contractual%20obligations.) As of year-end 2021, total contractual obligations were minimal, with the majority consisting of short-term advances from unrelated parties Contractual Obligations as of December 31, 2021 (in U.S. Dollars) | | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Advances from unrelated parties | $447,761 | $447,761 | $ — | $ — | $ — | | Convertible notes – future interest payment | 12,535 | 4,582 | 7,953 | — | — | | **Total** | **$460,296** | **$452,343** | **$ 7,953** | **$ —** | **$ —** | [Directors, Senior Management and Employees](index=76&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section outlines the company's leadership compensation, board structure, small employee base, and concentrated share ownership [Compensation](index=78&type=section&id=B.%20Compensation.) Executive compensation in 2021 was primarily stock-based, with directors receiving an annual fee and awards governed by an equity plan Summary Compensation Table (2021) | Name and Principal Position | Year | Salary (US$) | Stock Awards (US$) | Total (US$) | | :--- | :--- | :--- | :--- | :--- | | Raleigh Siu Lau, CEO | 2021 | — | 174,247 | 174,247 | | Chung Hang Lui, CFO | 2021 | 13,817 | — | 15,176 | | Tommy Wing Ling Lui, CTO | 2021 | — | 87,123 | 87,123 | - Directors are entitled to an annual compensation of **US$0.24 million** and reimbursement for out-of-pocket expenses[432](index=432&type=chunk) - The company's 2016 Omnibus Equity Plan allows for the issuance of up to **2,500,000 ordinary shares** through various awards to attract and retain employees and directors[433](index=433&type=chunk)[434](index=434&type=chunk) [Board Practices](index=80&type=section&id=C.%20Board%20Practices.) The board comprises five directors, including three independents, and maintains standard audit, compensation, and nominating committees - The board has five directors, **three of whom are independent** (Mr. Wood Shing Kei Sze, Mr. Jason Che Wai Au, Mr. Wang Tai Dominic Li)[443](index=443&type=chunk) - The company has three board committees: **Audit, Compensation, and Nominating**, with defined memberships and responsibilities[445](index=445&type=chunk)[446](index=446&type=chunk)[448](index=448&type=chunk) [Employees](index=83&type=section&id=D.%20Employees.) As of year-end 2021, the company employed a small, non-unionized team of 19 full-time management and administrative staff - The company had **19 full-time employees** as of December 31, 2021, all in management and administrative positions[457](index=457&type=chunk) [Share Ownership](index=83&type=section&id=E.%20Share%20Ownership.) Share ownership is highly concentrated, with two principal shareholders controlling over 50% of the company's ordinary shares 5% Shareholders (as of May 5, 2022) | 5% Shareholders | Number of Shares | Percent | | :--- | :--- | :--- | | Prime Ocean Holdings Limited | 29,000,000 | 28.7 % | | Leung Iris Chi Yu | 23,132,500 | 22.8 % | - The calculations are based on **101,597,998 ordinary shares** issued and outstanding as of May 5, 2022[460](index=460&type=chunk) [Major Shareholders and Related Party Transactions](index=84&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) The company discloses significant transactions with related parties, primarily involving the seller of its GFS fintech subsidiary - Victor Or, the seller of GFS and a shareholder, was a key related party with whom the company engaged in multiple loan agreements between 2018 and 2019[462](index=462&type=chunk)[464](index=464&type=chunk)[465](index=465&type=chunk) - The promissory note of **$28.47 million** issued to Victor Or as part of the GFS acquisition was fully settled by March 30, 2021[463](index=463&type=chunk) - As of December 31, 2021, the company held **$0.58 million in cash** deposited in Alpen Baruch Bank Limited, an international bank where Mr. Or is the sole shareholder[470](index=470&type=chunk) [Financial Information](index=85&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section references the full financial statements and discloses an ongoing property lawsuit and the company's policy of retaining earnings - The company is involved in a civil lawsuit in Hong Kong concerning a property sale agreement involving its subsidiaries, 11 Hau Fook Street Limited and Vision Lane Limited, but believes an unfavorable outcome is not likely[475](index=475&type=chunk) - The company **does not expect to pay any cash dividends** in the foreseeable future, intending to retain earnings to finance business expansion[476](index=476&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=95&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURE%20ABOUT%20MARKET%20RISK) The company's primary market risks include credit risk from its lending business, significant customer concentration, and geographic concentration in Hong Kong - The most significant risk is **credit risk** from lending activities, with a provision for loan losses of **$1.39 million** for the year ended December 31, 2021[537](index=537&type=chunk)[541](index=541&type=chunk) - There is significant **customer concentration risk**, with two major customers accounting for **17% and 10% of total revenues** in 2021[546](index=546&type=chunk)[547](index=547&type=chunk) - The company has a concentration of cash deposits in Hong Kong banks, which are protected up to HKD 500,000, and also holds deposits in a bank in Vanuatu, which has **no deposit protection scheme**[550](index=550&type=chunk)[551](index=551&type=chunk) - As of December 31, 2021, loans receivable from 4 customers accounted for **11%, 15%, 21% and 26%** of the total loan receivable balance[544](index=544&type=chunk) PART II [Controls and Procedures](index=98&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls were ineffective as of year-end 2021 due to material weaknesses in internal financial reporting controls - Management concluded that **disclosure controls and procedures were not effective** as of December 31, 2021[558](index=558&type=chunk) - **Material weaknesses** in internal control were identified, including: - Limited written documentation and policies for monitoring loan risk - Lack of controls for monitoring past-due payments and loan extensions - Lack of controls over related-party loans - Insufficient qualified accounting personnel with U.S. GAAP and SEC reporting expertise[560](index=560&type=chunk) - Remediation measures include seeking additional accounting and internal control staff, hiring a permanent CFO with SEC experience, and implementing stricter documentation and policies[561](index=561&type=chunk) [Principal Accountant Fees and Services](index=100&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Audit fees for 2021 and 2020 are disclosed, with no other audit-related or tax fees billed by the principal accountant during this period Accountant Fees (in U.S. Dollars) | | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fee | 255,000 | 247,233 | | Audit-Related Fees | — | — | | Tax fees | — | — | | **Total** | **255,000** | **247,233** | [Changes in Registrant's Certifying Accountant](index=101&type=section&id=ITEM%2016F.%20CHANGES%20IN%20REGISTRANT'S%20CERTIFYING%20ACCOUNTANT) The company changed its independent registered public accounting firm in January 2021, reporting no disagreements with the former auditor - On January 11, 2021, the company dismissed Centurion ZD CPA & Co. and appointed **Yu Certified Public Accountant, P.C.** as its new auditor[575](index=575&type=chunk)[579](index=579&type=chunk) - The company stated there were **no disagreements** with the former auditor, CZD, on any matter of accounting principles or practices[576](index=576&type=chunk) PART III [Financial Statements](index=102&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the company's audited consolidated financial statements and accompanying notes for the fiscal years 2019 through 2021 [Report of Independent Registered Public Accounting Firm](index=107&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM) The auditor's report provides a fair presentation opinion and highlights critical audit matters related to goodwill impairment and credit loss allowances - Auditor Yu Certified Public Accountant, P.C. issued an opinion that the **2021 and 2020 financial statements are fairly presented** in all material respects[592](index=592&type=chunk) - **Critical Audit Matters** identified were: 1. **Goodwill Impairment Assessment:** Required subjective judgment in evaluating forecasts for the financial technology solutions and services reporting unit, which recorded a **$4.74 million impairment loss** in 2021[599](index=599&type=chunk) 2. **Allowance for CECL:** Involved significant management estimates for loan receivables and other financial assets, resulting in an allowance of **$1.97 million** for the year ended Dec 31, 2021[604](index=604&type=chunk) - Predecessor auditor Centurion ZD CPA & Co. issued an opinion on the 2019 financial statements, noting they were restated and that discontinued operations were reclassified[609](index=609&type=chunk)[613](index=613&type=chunk)[614](index=614&type=chunk) [Notes to Consolidated Financial Statements](index=116&type=section&id=NOTES%20TO%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) The notes detail key accounting policies, segment performance, significant asset impairments, and related-party transactions shaping the financial results - **Discontinued Operations (Note 3):** The company reclassified operations of Century Skyway Limited (CSL) and Boca International Limited as discontinued following their disposals by 2019 and 2020, respectively[717](index=717&type=chunk)[723](index=723&type=chunk) - **Loans Receivable (Note 5):** Total net loans receivable decreased from $23.7 million in 2020 to **$10.6 million in 2021**, with past-due loans falling significantly from $15.02 million to $0.42 million[731](index=731&type=chunk)[734](index=734&type=chunk) - **Goodwill (Note 10):** The company recorded goodwill impairment losses of **$4.74 million in 2021** and **$55.53 million in 2020** related to the underperforming financial technology solutions unit[794](index=794&type=chunk)[800](index=800&type=chunk) - **Segment Information (Note 19):** For 2021, the Money Lending segment generated **$1.67 million in revenue** and **$1.47 million in gross profit**, while the Financial Technology Solutions segment generated **$0.94 million in revenue** and a **gross loss of $76 thousand**[842](index=842&type=chunk)

Part I [Key Information](index=9&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section summarizes the company's financial data, capitalization, and significant risk factors, highlighting a history of strategic shifts, substantial net losses from impairment charges, and key risks including COVID-19, regulatory scrutiny, and internal control weaknesses [Selected Financial Data](index=9&type=section&id=A.%20Selected%20Financial%20Data.) The company has undergone significant strategic changes through numerous acquisitions and disposals, shifting its focus towards money lending, property investment, and fintech, resulting in a substantial net loss of $67.9 million in 2020 primarily due to a $59.4 million goodwill impairment - The company has a complex history of acquisitions and disposals, reflecting a significant and ongoing strategic transformation, with key recent acquisitions including **Giant Financial Services (GFS) in 2020**, **Vision Lane Limited in 2019**, and **Paris Sky Limited in 2018**, pivoting towards fintech, money lending, and property investment[15](index=15&type=chunk) Selected Consolidated Statement of Operations Data (in thousands of U.S. Dollars) | Indicator | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Net revenues** | 4,293 | 5,115 | 1,570 | | **Gross profit (loss)** | (1,066) | 2,734 | 313 | | **Operating loss from continuing operations** | (67,342) | (732) | (2,461) | | **Impairment loss of goodwill** | (59,440) | - | - | | **Net loss attributable to ordinary shareholders** | (67,918) | (19,402) | (12,372) | | **Loss per share (Basic & Diluted)** | (0.69) | (0.24) | (0.35) | Selected Consolidated Balance Sheet Data (in thousands of U.S. Dollars) | Indicator | 2020 | 2019 (Restated) | 2018 | | :--- | :--- | :--- | :--- | | **Total assets** | 90,130 | 139,717 | 189,380 | | **Total liabilities** | 19,503 | 19,952 | 22,667 | | **Total equity** | 70,627 | 119,765 | 166,713 | [Risk Factors](index=13&type=section&id=D.%20Risk%20Factors.) The company faces a multitude of risks across its business segments, including adverse effects from COVID-19, increased regulatory scrutiny for its fintech and money lending operations, significant financial risks, identified material weaknesses in internal controls, and challenges for investors protecting rights under Cayman Islands law - The business is exposed to significant risks from health epidemics like COVID-19, which could reduce customer budgets, delay payments, and disrupt partner operations, materially impacting revenue and financial condition[22](index=22&type=chunk) - The company's fintech (GFS) and money lending (FAF, Giant Credit) subsidiaries face substantial regulatory risks, including increased oversight, potential fines for non-compliance with anti-money laundering and data privacy laws, and the need to maintain money lenders licenses[23](index=23&type=chunk)[25](index=25&type=chunk)[41](index=41&type=chunk) - The company has identified several **material weaknesses in its internal control over financial reporting**, including a lack of documented loan risk assessment, insufficient controls for credit risk monitoring, and inadequate procedures for handling past-due loans and related-party transactions[58](index=58&type=chunk)[59](index=59&type=chunk) - The company faces a risk of being **delisted from NASDAQ** for failing to timely file its Annual Report on Form 20-F for the year ended December 31, 2020, having received a deficiency notice on May 18, 2021[62](index=62&type=chunk)[63](index=63&type=chunk) - As a Cayman Islands company, shareholders may have difficulty protecting their interests, as their rights are governed by a less developed body of securities law compared to the U.S., and the company can follow home country governance practices that may offer less protection[67](index=67&type=chunk)[69](index=69&type=chunk) [Information on the Company](index=27&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) SGOCO Group, Ltd. is a Hong Kong-based conglomerate that evolved from a blank check company into a diversified holding company, focusing on money lending, property investment, and fintech services, with a property portfolio valued over $52 million as of December 31, 2020 [History and Development of the Company](index=27&type=section&id=A.%20History%20and%20Development%20of%20the%20Company.) SGOCO, originally a blank check company, underwent significant transformation through strategic M&A, divesting manufacturing to pivot into finance and property with key acquisitions like Giant Credit, Paris Sky, Vision Lane, GFS, and Apiguru, reflecting a dynamic growth strategy - The company transitioned from a manufacturing-focused entity to a **'light-asset' model** after selling Honesty Group in 2011 and SGOCO (Fujian) in 2014[76](index=76&type=chunk)[77](index=77&type=chunk) - From 2017 to 2020, the company aggressively expanded into financial services and property investment through multiple acquisitions, including **Giant Credit** (money lending), **Paris Sky** (property), **Vision Lane** (property and money lending), and **Giant Financial Services** (fintech)[83](index=83&type=chunk)[85](index=85&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) - In 2020, the company acquired **Giant Financial Services Limited (GFS) for $64.34 million** and **Apiguru Pty Ltd for $0.59 million** to build out its fintech capabilities, including an online financial marketplace and API consulting services[88](index=88&type=chunk)[89](index=89&type=chunk) [Business Overview](index=33&type=section&id=B.%20Business%20overview.) SGOCO Group operates as a conglomerate with three principal business lines: money lending in Hong Kong, property investment for rental income, and fintech services through Giant Financial Services (GFS) and its subsidiary Apiguru - The company's business is structured as a conglomerate with three main pillars: **Money lending in Hong Kong**, **Property investment for rental income**, and **Fintech solutions and services**[91](index=91&type=chunk) - The money lending business, operated via Giant Credit and First Asia Finance, targets personal and corporate loans, capitalizing on demand created by stringent policies from traditional financial institutions[93](index=93&type=chunk) - The fintech arm, Giant Financial Services (GFS), provides an online financial marketplace and leverages technologies like AI, big data, and blockchain, with its subsidiary Apiguru specializing in API strategy and implementation to expand the customer base[93](index=93&type=chunk) [Organizational Structure](index=36&type=section&id=D.%20Organizational%20structure.) SGOCO Group, Ltd., a Cayman Islands parent, holds a diverse portfolio of wholly-owned subsidiaries, including SGOCO International (HK) Limited (holding GFS and Apiguru) and Giant Connection Limited (holding money lending and property investment assets like Giant Credit and Paris Sky) Key Subsidiaries and Ownership | Subsidiary | Place of Incorporation | Ownership Percentage | | :--- | :--- | :--- | | SGOCO International (HK) Limited | Hong Kong | 100% | | Giant Financial Services Limited ("GFS") | Samoa | 100% | | Apiguru Pty Ltd. ("Apiguru") | Australia | 100% | | Giant Connection Limited | Republic of Seychelles | 100% | | Giant Credit Limited ("GCL") | Hong Kong | 100% | | Paris Sky Limited | Marshall Islands | 100% | [Property, Plant, and Equipment](index=37&type=section&id=E.%20Property%2C%20plant%20and%20equipment.) The company's primary physical assets are investment properties in Hong Kong, held through subsidiaries, with a total carrying value of approximately $52.04 million as of December 31, 2020 Carrying Value of Land and Property by Subsidiary (as of Dec 31, 2020) | Subsidiary | Carrying Value (in millions of U.S. Dollars) | | :--- | :--- | | Suns Tower | $47.67 | | 11 Hau Fook Street Limited | $2.81 | | Vision Lane | $1.10 | | Giant Credit | $0.46 | | **Total** | **$52.04** | [Operating and Financial Review and Prospects](index=37&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section details the company's financial performance, liquidity, and contractual obligations, highlighting a significant decline in 2020 revenue and a net loss of $67.9 million due to goodwill impairment, with liquidity sourced from operations and financing, and significant related-party transactions [Operating Results](index=37&type=section&id=A.%20Operating%20results.) In fiscal year 2020, revenue decreased 16.1% to $4.29 million, resulting in a gross loss and a net loss of $67.92 million primarily due to a $59.44 million goodwill impairment, contrasting with 2019's 226.1% revenue growth driven by money lending and property leases Revenue by Segment (2020 vs. 2019, in millions of U.S. Dollars) | Revenue Source | 2020 | 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Interest on loans | $1.67 | $3.93 | -57.5% | | Property lease and management | $1.13 | $1.19 | -5.0% | | Financial technology solutions and services | $1.50 | $0.00 | N/A | | **Total Revenue** | **$4.29** | **$5.12** | **-16.1%** | - The company recorded a **goodwill impairment of $59.44 million** and an **intangible asset impairment of $1.23 million in 2020**, both primarily related to the GFS acquisition, as its financial performance fell below original expectations[158](index=158&type=chunk) - In 2019, revenue grew significantly by **226.1% to $5.12 million** compared to 2018, mainly due to increased income from money lending services and property leases following recent acquisitions[161](index=161&type=chunk) - Loss from discontinued operations was a major factor in 2019 results, totaling **$36.12 million**, primarily from impairment charges related to the Boca and Century Skyway businesses[158](index=158&type=chunk)[164](index=164&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=B.%20Liquidity%20and%20capital%20resources.) As of December 31, 2020, the company held $3.03 million in cash and $18.21 million in working capital, with net cash from operating activities at $21.64 million, while investing activities used $27.17 million, and financing provided $3.43 million Summary of Cash Flows (in thousands of U.S. Dollars) | Cash Flow Activity | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | **Net cash from Operating Activities** | 21,639 | 3,349 | (36,882) | | **Net cash used in Investing Activities** | (27,170) | (18,825) | (7,960) | | **Net cash from Financing Activities** | 3,431 | 6,263 | 56,146 | | **(Decrease) Increase in Cash** | (2,133) | (9,186) | 9,570 | - As of December 31, 2020, the company had cash and cash equivalents of **$3.03 million** and working capital of **$18.21 million**[166](index=166&type=chunk) - The company had significant related party transactions with Victor Or (seller of GFS), including providing multiple loans totaling **$9.47 million outstanding** as of year-end 2020, and issued a promissory note for the GFS acquisition which was fully repaid by March 2021[174](index=174&type=chunk)[175](index=175&type=chunk) [Contractual Obligations](index=58&type=section&id=F.%20Tabular%20disclosure%20of%20contractual%20obligations.) As of December 31, 2020, the company had total contractual obligations of approximately $8.45 million, primarily long-term bank loans and associated future interest payments, with over $6.3 million due in more than five years Contractual Obligations as of December 31, 2020 (in thousands of U.S. Dollars) | Obligation | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term bank loans (current & non-current) | 6,240.5 | 200.7 | 414.5 | 432.5 | 5,192.9 | | Future interest payment on bank loans | 1,752.5 | 122.1 | 252.4 | 234.4 | 1,143.6 | | Advances from other/unrelated parties | 445.2 | 445.2 | - | - | - | | Convertible notes – future interest payment | 16.0 | 4.6 | 11.4 | - | - | | **Total** | **8,454.2** | **772.6** | **678.3** | **666.9** | **6,336.5** | [Directors, Senior Management, and Employees](index=59&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section details the company's governance and human capital structure, including its five-member Board of Directors, executive compensation for 2020, board committees, and major shareholders, noting 14 full-time employees at year-end 2020 [Directors and Senior Management](index=59&type=section&id=A.%20Directors%20and%20senior%20management.) As of December 31, 2020, the company's leadership consisted of a five-member Board of Directors and a senior management team including Raleigh Siu Lau as CEO & President, Tommy Wing Ling LUI as CTO, and Xiao-Ming HU as Interim CFO - The Board of Directors consists of five members: Jason Che Wai AU, Lai Man CHEUNG, Wood Shing Kei SZE, Wang Tai Dominic LI, and Mark Leonard TAN[180](index=180&type=chunk) - Key executive officers include **Raleigh Siu LAU** (Chief Executive Officer and President), **Tommy Wing Ling LUI** (Chief Technology Officer), and **Xiao-Ming HU** (Interim Chief Financial Officer)[180](index=180&type=chunk)[183](index=183&type=chunk) [Compensation](index=60&type=section&id=B.%20Compensation.) Executive compensation for 2020 included approximately $0.1 million in cash and $0.68 million in share-based compensation, utilizing the 2010 and 2016 Omnibus Equity Plans to attract and retain talent through various equity incentives Executive and Director Compensation (FY 2020) | Compensation Type | Amount (in millions of U.S. Dollars) | | :--- | :--- | | Aggregate Cash Compensation (Executive Officers) | ~$0.1 | | Share-Based Compensation (Directors & Executive Officers) | $0.68 | - The company has two primary equity incentive plans: the **2010 Equity Incentive Plan** and the **2016 Omnibus Equity Plan**, which allow for granting options, restricted shares, and other awards to eligible persons[187](index=187&type=chunk)[191](index=191&type=chunk) [Board Practices](index=64&type=section&id=C.%20Board%20Practices.) The Board of Directors comprises five members, with three independent directors meeting NASDAQ standards, and maintains Audit, Compensation, and Nominating Committees, all composed of independent directors, with Mr. Sze designated as the audit committee financial expert - The Board has five directors, **three of whom (Mr. Sze, Mr. Au, Mr. Li) are considered independent** under NASDAQ rules[195](index=195&type=chunk)[199](index=199&type=chunk) - The company maintains three board committees: **Audit, Compensation, and Nominating**, all composed of independent directors[201](index=201&type=chunk) - Mr. Sze serves as the Audit Committee Chairperson and is designated as the **'audit committee financial expert'**[201](index=201&type=chunk) [Share Ownership](index=67&type=section&id=E.%20Share%20Ownership.) As of June 30, 2021, the company's ownership was concentrated among major shareholders, with Prime Ocean Holdings Limited holding 28.7% and Leung Iris Chi YU 22.8%, while executive officers held less than 1% each Principal Shareholders (as of June 30, 2021) | Shareholder | Number of Shares | Percentage | | :--- | :--- | :--- | | Prime Ocean Holdings Limited | 29,000,000 | 28.7% | | Leung Iris Chi YU | 23,132,500 | 22.8% | - Beneficial ownership for executive officers and directors was generally **less than 1% each**, with CEO Raleigh Siu LAU holding **1,000,000 shares** and CTO Tommy Wing Ling LUI holding **500,000 shares**[204](index=204&type=chunk) [Major Shareholders and Related Party Transactions](index=68&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details the company's concentrated ownership and significant related party transactions, particularly the extensive financial relationship with Victor Or, the GFS seller, including $9.47 million in outstanding loans as of year-end 2020, highlighting concentrated credit risk - The company has significant related party transactions with Victor Or, the seller of its GFS subsidiary, including a promissory note issued to him as part of the acquisition and multiple loans extended to him by the company[208](index=208&type=chunk) - As of December 31, 2020, loans receivable from Mr. Or and two other unrelated parties totaled **HK$73.84 million ($9.47 million)**, representing **39.9% of the company's total loans receivable**[209](index=209&type=chunk)[408](index=408&type=chunk) - The company also had cash deposits of **HK$6.74 million ($0.86 million)** in Alpen Baruch Bank Limited, an international bank in which Mr. Or owned a **75% stake**[211](index=211&type=chunk) [Financial Information](index=69&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section confirms the full consolidated financial statements are in Item 18, notes no significant pending legal proceedings, and states the company has no plans for cash dividends, intending to retain earnings for expansion, subject to PRC regulations - The company is not currently party to any pending legal proceedings expected to have a significant effect on its business[213](index=213&type=chunk) - The company has no plans to pay cash dividends in the foreseeable future and intends to retain earnings for business operations and expansion, with payments also restricted by PRC regulations on subsidiary profit distribution[213](index=213&type=chunk) [Additional Information](index=70&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section covers legal and regulatory matters, including the company's Cayman Islands incorporation, taxation for shareholders in various jurisdictions, and the significant risk of being classified as a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes - The company is incorporated in the Cayman Islands, which currently levies **no taxes on corporate profits, income, or gains**[218](index=218&type=chunk) - For U.S. federal income tax purposes, there is a significant risk that the company could be treated as a **Passive Foreign Investment Company (PFIC)**, potentially resulting in adverse tax consequences for U.S. Holders, including gains taxed at ordinary income rates plus an interest charge[56](index=56&type=chunk)[233](index=233&type=chunk) - The company believes it was likely a PFIC for its **2008 and 2009 taxable years** and that there is a risk it could be treated as a PFIC for **2018 and 2019**, though it does not expect to be for the year ended Dec 31, 2018[233](index=233&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=79&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURE%20ABOUT%20MARKET%20RISK) The company's primary market risk is credit risk concentration in its money lending business, with significant exposure to a related party, Victor Or, and high geographical concentration of revenue in Hong Kong, alongside deposit institution risk in Vanuatu - The company has significant **credit risk concentration**, with loans to three customers representing **16%, 15%, and 39.9% of the total loan receivable** as of December 31, 2020, and the largest exposure to a related party, Victor Or[248](index=248&type=chunk) - There is also a high concentration of customer revenue, with two major customers accounting for **19% and 10% of total revenues in 2020**, and one major customer (Victor Or) accounting for **21% of total revenues in 2019**[248](index=248&type=chunk) - The business is geographically concentrated, with **98.6% of its 2020 revenue ($4.235 million out of $4.293 million) generated in Hong Kong**[249](index=249&type=chunk) - The company faces **deposit institution risk**, with **HK$8.17 million ($1.05 million)** held in Alpen Baruch Bank in Vanuatu as of June 30, 2021, a jurisdiction without a deposit protection scheme[250](index=250&type=chunk) Part II [Controls and Procedures](index=81&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2020, due to several material weaknesses in internal control over financial reporting, primarily related to loan risk management, for which remediation measures are being implemented - Management concluded that the company's disclosure controls and procedures were **not effective** as of December 31, 2020[252](index=252&type=chunk) - Several **material weaknesses** were identified in internal controls, primarily related to the money lending business, including limited written documentation for loan risk assessment, insufficient controls for post-loan credit risk monitoring, lack of controls for monitoring past-due principal and interest, insufficient policy on loan term extensions and troubled loan restructuring, and lack of controls on loans with related parties and monitoring concentration risk[254](index=254&type=chunk) - Another material weakness identified was the **lack of sufficient qualified accounting personnel** with an appropriate understanding of U.S. GAAP and SEC reporting requirements[254](index=254&type=chunk) - Remediation plans include hiring additional accounting staff, providing further training, engaging professional consultants, and implementing more stringent documentation and monitoring procedures for the money lending operations[254](index=254&type=chunk) [Principal Accountant Fees and Services](index=83&type=section&id=ITEM%2016C.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) The company paid its principal external independent registered public accounting firms **$247,233 in 2020** and **$230,376 in 2019**, exclusively for audit services, with all services pre-approved by the Audit Committee Accountant Fees (in U.S. Dollars) | Fee Category | 2020 | 2019 | | :--- | :--- | :--- | | Audit Fee | $247,233 | $230,376 | | Audit-Related Fees | - | - | | Tax fees | - | - | | **Total** | **$247,233** | **$230,376** | [Changes in Registrant's Certifying Accountant](index=84&type=section&id=ITEM%2016F.%20CHANGES%20IN%20REGISTRANT%27S%20CERTIFYING%20ACCOUNTANT) On January 11, 2021, SGOCO Group dismissed Centurion ZD CPA & Co. and appointed Yu Certified Public Accountant, P.C as its new auditor, with no disagreements reported, though material weaknesses in internal control were considered "reportable events" during the former auditor's tenure - On January 11, 2021, the company dismissed its auditor, **Centurion ZD CPA & Co. ("CZD")**[259](index=259&type=chunk) - On the same day, the company appointed **Yu Certified Public Accountant, P.C ("Yu CPA")** as its new independent registered public accounting firm[259](index=259&type=chunk) - There were no disagreements with the former auditor, but the previously disclosed **material weaknesses in internal control** were considered "reportable events" under SEC rules[259](index=259&type=chunk) Part III [Financial Statements](index=85&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) The audited consolidated financial statements for 2020, audited by Yu Certified Public Accountant, P.C., reflect a net loss of $67.9 million and highlight critical audit matters including goodwill impairment and CECL, with 2018 and 2019 statements restated for share-based compensation errors - The auditor's report from Yu Certified Public Accountant, P.C. for FY2020 identified two **Critical Audit Matters**: **Goodwill Impairment Assessment** and **Allowance for current expected credit losses ("CECL") on receivables**[277](index=277&type=chunk)[278](index=278&type=chunk)[281](index=281&type=chunk) - The financial statements for the years ended December 31, 2019 and 2018 were **restated to correct an error** in the accounting treatment of unvested restricted stock, which decreased additional paid-in-capital and total equity[418](index=418&type=chunk)[419](index=419&type=chunk) Consolidated Balance Sheet Highlights (in thousands of U.S. Dollars) | Account | Dec 31, 2020 | Dec 31, 2019 (Restated) | | :--- | :--- | :--- | | Cash | 3,028 | 5,126 | | Loans receivable, net | 22,096 | 33,886 | | Goodwill | 5,107 | 3,906 | | Total Assets | 90,130 | 139,717 | | Total Liabilities | 19,503 | 19,952 | | Total Equity | 70,627 | 119,765 | Consolidated Statement of Comprehensive Loss Highlights (in thousands of U.S. Dollars) | Account | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenues | 4,293 | 5,115 | 1,570 | | Gross Profit (Loss) | (1,066) | 2,734 | 313 | | Impairment loss of goodwill | 59,440 | - | - | | Net Loss from Continuing Operations | (67,923) | (943) | (1,881) | | Net Loss | (67,918) | (37,059) | (21,064) |

Part I [Key Information](index=10&type=section&id=ITEM%203.%20KEY%20INFORMATION) The company's financial performance is marked by significant net losses and impairment charges, driven by strategic acquisitions and disposals across money lending, property, and fintech, alongside various operational and financial risks [Selected Financial Data](index=10&type=section&id=A.%20Selected%20Financial%20Data.) The company transformed into a conglomerate through acquisitions and disposals, experiencing volatile revenues and consistent net losses, primarily due to significant impairment charges - The company has a history of frequent and significant acquisitions and disposals, fundamentally changing its business focus over the years, including key transactions in energy saving, money lending, property, and fintech, alongside manufacturing divestitures[14](index=14&type=chunk)[15](index=15&type=chunk) Consolidated Statement of Income (In thousands of U.S. Dollars) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Net revenues** | 5,525 | 1,580 | 51 | | **Gross profit (loss)** | 1,406 | (1,055) | (1,292) | | **Operating loss from continuing operations** | (41,673) | (14,318) | (9,126) | | **Impairment loss of intangible assets** | (18,893) | - | - | | **Impairment loss of goodwill** | (20,556) | (10,330) | (5,618) | | **Net loss from continuing operations** | (37,052) | (13,551) | (8,803) | | **Net loss** | (37,059) | (21,064) | (11,214) | | **Net loss attributable to ordinary shareholders** | (19,402) | (12,372) | (11,214) | | **Loss per share (Basic)** | (0.24) | (0.35) | (0.99) | Consolidated Balance Sheet Data (In thousands of U.S. Dollars) | As of December 31, | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Total assets** | 140,578 | 190,841 | 98,453 | | **Total liabilities** | 19,952 | 22,667 | 14,638 | | **Total equity** | 120,626 | 168,174 | 83,815 | [Risk Factors](index=13&type=section&id=D.%20Risk%20Factors.) The company faces substantial operational, regulatory, financial, and market risks, including COVID-19 impacts, increased scrutiny on fintech, significant impairment losses, and challenges to its NASDAQ listing - **Business and Industry Risks:** - **COVID-19 Impact:** The company's revenues, substantially generated in Hong Kong, are vulnerable to the economic effects of pandemics, potentially leading to reduced customer budgets, payment delays, and loss of customers[21](index=21&type=chunk) - **Regulatory Scrutiny:** The newly acquired GFS (fintech) business faces increasing regulatory oversight in areas like anti-money laundering, data privacy, and licensing, which could lead to significant fines and operational changes[22](index=22&type=chunk)[24](index=24&type=chunk) - **Acquisition & Impairment Risk:** Acquisitions like Boca have not produced anticipated benefits, leading to significant goodwill and intangible asset impairment losses (**$20.6 million goodwill impairment in 2019**). Future acquisitions carry similar risks[32](index=32&type=chunk)[35](index=35&type=chunk) - **Lending & Property Risks:** The money lending business (FAF, Giant Credit) is subject to significant credit risk, interest rate fluctuations, and intense competition. The property investment business is sensitive to downturns in the Hong Kong real estate market[40](index=40&type=chunk)[51](index=51&type=chunk) - **Internal Controls:** Management identified a material weakness in internal controls due to a lack of sufficient qualified accounting personnel with U.S. GAAP and SEC reporting experience[57](index=57&type=chunk) - **Share-Related Risks:** - **NASDAQ Listing:** The company faces the risk of failing to meet NASDAQ's continued listing requirements, such as the minimum **$1.00 bid price**, which it previously failed to meet in 2018. Delisting would severely impact liquidity and share price[62](index=62&type=chunk) - **No Dividends:** The company does not expect to pay dividends, meaning shareholder returns depend solely on share price appreciation, which is not guaranteed[65](index=65&type=chunk) - **Foreign Issuer Status:** As a foreign private issuer incorporated in the Cayman Islands, the company is exempt from certain SEC reporting and governance rules, offering less protection to shareholders compared to U.S. domestic companies[53](index=53&type=chunk)[67](index=67&type=chunk) [Information on the Company](index=28&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) SGOCO Group evolved into a Hong Kong-based conglomerate, operating in energy saving, money lending, property investment, and fintech, with intellectual property and operations subject to various regulations [History and Development of the Company](index=28&type=section&id=A.%20History%20and%20Development%20of%20the%20Company.) SGOCO transitioned from manufacturing to a diversified holding company through a series of strategic acquisitions in energy saving, money lending, property, and fintech from 2015 to 2020 - The company has a complex history of corporate restructuring, marked by a pivot away from manufacturing towards a diversified holding company structure[70](index=70&type=chunk)[76](index=76&type=chunk)[77](index=77&type=chunk) - A series of major acquisitions occurred between 2015 and 2020, shaping the current business focus: - **Boca International (Mar 2016):** Energy saving for **$52 million cash** and **1.16 million shares**[81](index=81&type=chunk) - **Giant Credit Limited (Dec 2017):** Money lending for **2.22 million shares**[83](index=83&type=chunk) - **Paris Sky Limited (June 2018):** Property investment, involving cash, shares, and asset transfers[86](index=86&type=chunk) - **Vision Lane Limited (Mar 2019):** Property investment and money lending for **$7.5 million cash** and **4.52 million shares**[87](index=87&type=chunk) - **Giant Financial Services (Jan 2020):** Fintech solutions for **$64.3 million**, paid via cash, shares, and a promissory note[88](index=88&type=chunk) [Business Overview](index=34&type=section&id=B.%20Business%20overview.) SGOCO operates as a conglomerate across four main segments: energy saving (Boca), money lending (Giant Credit, FAF), property investment, and fintech services (GFS) - The company's business is diversified across four main segments: 1. **Energy Saving:** Boca's PCM-TES storage systems for cooling and heating[90](index=90&type=chunk) 2. **Money Lending:** Personal and corporate loans in Hong Kong via Giant Credit and First Asia Finance (FAF)[90](index=90&type=chunk) 3. **Property Investment:** Holds four real properties and a 19-storey building in Hong Kong for rental income[90](index=90&type=chunk) 4. **Fintech & IT Services:** Development of a financial technology platform via Giant Financial Services (GFS)[90](index=90&type=chunk)[92](index=92&type=chunk) [Organizational Structure](index=37&type=section&id=D.%20Organizational%20structure.) SGOCO Group, a Cayman Islands holding company, operates through multi-layered subsidiaries in Hong Kong, PRC, and US, managing energy, money lending, and property investment businesses - The company operates through a multi-layered holding structure with the parent company in the Cayman Islands and key operating subsidiaries based in Hong Kong, the Republic of Seychelles, and the Marshall Islands, which in turn hold the business assets in Hong Kong and the PRC[103](index=103&type=chunk) [Operating and Financial Review and Prospects](index=38&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) Revenue growth from acquisitions is offset by substantial operating losses due to impairment charges, with the company relying on external financing and facing challenges in financial comparability due to frequent business transformations [Operating Results](index=38&type=section&id=A.%20Operating%20results.) In 2019, revenues grew significantly due to money lending and property acquisitions, but a substantial net loss of **$37.06 million** was driven by massive impairment charges on intangible assets and goodwill, primarily from the Boca segment Revenue by Major Product Line (In thousands of U.S. Dollars) | Product Line | 2019 | 2018 | | :--- | :--- | :--- | | Interest on loans | 3,930 | 980 | | Property lease and management | 1,185 | 590 | | Provision of energy saving services | 402 | - | | Product sales | 8 | 10 | | **Total** | **5,525** | **1,580** | - The company recorded significant impairment losses in 2019, which were the primary drivers of its net loss: - **Impairment of intangible assets:** **$18.89 million**, primarily related to the proprietary technology of Boca[145](index=145&type=chunk) - **Impairment of goodwill:** **$20.56 million**, also primarily attributable to the underperformance of the Boca (green energy) reporting unit[146](index=146&type=chunk) - General and administrative expenses increased by **81.9%** to **$4.35 million** in 2019 from **$2.39 million** in 2018, mainly due to the administrative costs of newly acquired subsidiaries Vision Lane and FAF[144](index=144&type=chunk) - Loss from discontinued operations, related to the Century Skyway (VR) business, was **$0.01 million** in 2019, down from **$7.51 million** in 2018. The 2018 loss was mainly due to amortization and goodwill impairment of Century Skyway[148](index=148&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=B.%20Liquidity%20and%20capital%20resources.) As of December 31, 2019, the company had **$5.16 million** in cash and **$40.74 million** in working capital, relying on external financing, with operating cash flow turning positive in 2019 despite significant debt obligations Summary of Cash Flows (In thousands of U.S. Dollars) | | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | 3,115 | (36,174) | (7,977) | | **Net cash (used in) provided by investing activities** | (19,265) | (10,402) | 7,400 | | **Net cash provided by financing activities** | 6,964 | 56,146 | 5,325 | | **(DECREASE) INCREASE IN CASH** | (9,186) | 9,570 | 4,748 | - The company relies on external financing. In 2019, it secured a bank loan of **$6.4 million**. In 2018, it raised approximately **$50.15 million** from a rights offering and **$5.78 million** from convertible notes[155](index=155&type=chunk)[157](index=157&type=chunk)[161](index=161&type=chunk) - As of Dec 31, 2019, the company had significant debt obligations, including **$6.4 million** in bank loans, **$4.26 million** in other loans from unrelated parties, and a liability component of convertible notes[161](index=161&type=chunk) [Contractual Obligations](index=55&type=section&id=F.%20Tabular%20disclosure%20of%20contractual%20obligations.) As of December 31, 2019, total contractual obligations were **$15.28 million**, with the majority (**$7.91 million**) due in more than five years, primarily long-term bank loans Contractual Obligations as of December 31, 2019 (In thousands of U.S. Dollars) | | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term bank loans | 6,410 | 155 | 334 | 360 | 5,561 | | Future interest payment on bank loans | 3,480 | 246 | 456 | 431 | 2,347 | | Other loan - unsecured | 3,877 | 3,877 | - | - | - | | Other Obligations | 1,508 | 954 | 109 | 66 | - | | **Total** | **15,275** | **5,612** | **899** | **857** | **7,908** | [Directors, Senior Management and Employees](index=55&type=section&id=ITEM%206.%20DIRECTORS%2C%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section outlines the company's leadership, compensation, and governance, noting recent changes, a five-member board, **11** employees, and concentrated share ownership among key principal shareholders - As of December 31, 2019, the company had **11 full-time employees**, all in management and administration[192](index=192&type=chunk) Principal Shareholders (as of June 10, 2020) | Name | Number of Shares | Percent | | :--- | :--- | :--- | | Victor Or | 16,356,500 | 17.0% | | Prime Ocean Holdings Limited | 29,000,000 | 30.2% | | Leung Iris Chi Yu | 23,132,500 | 24.1% | [Major Shareholders and Related Party Transactions](index=64&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) Ownership is highly concentrated among three principal shareholders, with significant related party transactions, notably **$21.3 million** in loans receivable from shareholder Victor Or and payments for IT services - The company has significant related party transactions with shareholder Victor Or. The company's subsidiary, GCL, provided multiple loans to Mr. Or and other parties[195](index=195&type=chunk) Loans to Shareholder Victor Or and other parties | Date | Amount | Status as of Dec 31, 2019 | | :--- | :--- | :--- | | Sep 26, 2018 | HK$11.5M ($1.5M) | Outstanding, term extended to Sep 2020 | | Sep 26, 2018 | HK$116.5M ($14.9M) | Outstanding, term extended to Sep 2020 | | Oct 3, 2018 | HK$20.0M ($2.6M) | Repaid in 2019 | | Mar 14, 2019 | HK$7.0M ($0.9M) | Repaid in 2019 | | Nov 1, 2019 | HK$38.0M ($4.9M) | Outstanding, maturing Oct 2020 | - As of December 31, 2019, total loans receivable due from Mr. Or and two other unrelated parties amounted to **$21.3 million** (HK$166.0 million)[195](index=195&type=chunk) - In 2019, the company paid GFS (acquired from Victor Or in Jan 2020) **$1.58 million** for IT consultancy and support services[195](index=195&type=chunk) [Quantitative and Qualitative Disclosure about Market Risk](index=75&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURE%20ABOUT%20MARKET%20RISK) The company faces significant market risks, including credit risk from concentrated lending, unhedged foreign exchange risk from RMB exposure, and interest rate risk from floating-rate borrowings, with a **100 basis point** change impacting pre-tax loss by **$0.06 million** - **Credit Risk:** A significant risk from lending activities, concentrated geographically in Hong Kong. The company requires collateral to minimize risk, but has high customer concentration[227](index=227&type=chunk)[228](index=228&type=chunk) - **Foreign Exchange Risk:** The company is exposed to fluctuations between the RMB and the USD, as a portion of its earnings and assets are in RMB. The company does not currently use hedging transactions to mitigate this risk[229](index=229&type=chunk) - **Interest Rate Risk:** Arises from bank borrowings with floating rates. A **100 basis point (1%)** change in interest rates is estimated to impact pre-tax loss by **$0.06 million** as of December 31, 2019[230](index=230&type=chunk) Part II [Controls and Procedures](index=76&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were **not effective** as of December 31, 2019, due to material weaknesses in internal control, including insufficient qualified accounting personnel and inadequate review functions, with remediation efforts underway - Management concluded that disclosure controls and procedures were **not effective** as of December 31, 2019[232](index=232&type=chunk) - Material weaknesses in internal control were identified: - Lack of sufficient qualified accounting personnel with appropriate understanding of U.S. GAAP and SEC reporting requirements - Insufficient internal control personnel to set up adequate review functions at each reporting level - Limited written documentation on monitoring loan risk assessment on a regular basis[233](index=233&type=chunk) - Remediation measures include seeking additional accounting staff, hiring a permanent CFO, providing further training, and implementing more stringent documentation for credit risk[235](index=235&type=chunk) - The annual report does not include an attestation report from the registered public accounting firm on internal control over financial reporting, as the company is a non-accelerated filer[236](index=236&type=chunk) Part III [Financial Statements](index=79&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the audited consolidated financial statements for 2017-2019, prepared under U.S. GAAP with an unqualified opinion, reflecting the company's complex structure, discontinued operations, significant related party loans, and substantial goodwill impairments - The independent registered public accounting firm, Centurion ZD CPA & Co., provided an unqualified opinion on the consolidated financial statements[252](index=252&type=chunk) [Notes to Consolidated Financial Statements](index=89&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail discontinued operations (CSL), significant related party loans (Victor Or), a history of numerous acquisitions, substantial goodwill and intangible asset impairments (Boca, CSL), and a high concentration of credit risk - **Note 3 - Discontinued Operations:** The operations of Century Skyway Limited (CSL) were reported as discontinued operations following a plan to dispose of the remaining **51% interest**, which was completed on December 31, 2019[306](index=306&type=chunk) - **Note 8 - Acquisitions:** The company has engaged in numerous business combinations, acquiring Boca (energy), CSL (VR), GCL (lending), Paris Sky (property), Vision Lane (lending/property), and GFS (fintech), which has fundamentally reshaped its balance sheet and operations[326](index=326&type=chunk)[331](index=331&type=chunk)[335](index=335&type=chunk) - **Note 11 - Goodwill:** The company recognized significant goodwill impairment losses from continuing operations (related to Boca) of **$20.56 million** in 2019, **$10.33 million** in 2018, and **$5.62 million** in 2017 due to underperformance of the green energy segment[349](index=349&type=chunk)[351](index=351&type=chunk) - **Note 25 - Concentration of Risks:** There is a high concentration of credit risk. As of Dec 31, 2019, loans receivable due from one customer (shareholder Victor Or) accounted for **52%** of the total loan receivable balance[385](index=385&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F (Mark one) ¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 19 ...