SOS(US:SOS)2025-05-15 20:05PART I ITEM 3. KEY INFORMATION This section details significant investment risks, covering operational, regulatory, and market challenges, including data mining, cryptocurrency, China operations, and ADS volatility Enforceability of Civil Liability Enforcing U.S. court judgments against the company and its management is challenging due to its Cayman Islands incorporation and substantial operations in China - It may be difficult or impossible for investors to effect service of process or enforce U.S. judgments against the company and its management, as most operations, assets, and personnel are located in China37 - The Cayman Islands do not have statutory enforcement of U.S. court judgments, and enforcement at common law is subject to specific conditions and may not apply to penalties under U.S. securities laws38 - China does not have treaties or reciprocity with the U.S. for enforcing foreign judgments, and PRC courts may refuse enforcement if it violates basic PRC laws or public interest39 Risk Factors This section comprehensively outlines principal risks across data mining, cryptocurrency, China operations, and ADSs, including capital intensity, competition, client concentration, regulatory uncertainties, and delisting potential - The company's business is exposed to significant risks across its data mining, cryptocurrency, and China-based operations, as well as risks inherent to its publicly traded ADSs43 Risks Related to Data Mining and Analysis Business The data mining business faces risks from capital intensity, intense competition, client concentration, technological obsolescence, service failures, and security breaches - The development of data warehouses is capital-intensive, and the company may struggle to generate or obtain sufficient capital, potentially disrupting business expansion484950 - The company faces intense competition and pricing pressure, which could lead to loss of market share and decreased profitability5152 Client Concentration Risk (FY 2024) | Client | Revenue (USD Million) | % of Commodity Trading Revenue | | :--- | :--- | :--- | | Qingdao Ronghe Energy Co., Ltd. | $45.9 | 21.6% | | Shangdong Changshi Property Management Co. Ltd. | $12.4 | 5.8% | | Shangdong Energy (Qingdao) Digital Technology Co, Ltd | $11.99 | 5.6% | | Qingdao West Travel and Trading Co Ltd. | $10.3 | 4.8% | - The business is exposed to risks of significant service disruptions from facility failures or security breaches, which could harm its reputation and lead to financial penalties6871 Risks Relating to Cryptocurrency Mining, Security and Insurance Business The cryptocurrency business faces early-stage development uncertainties, reliance on power and mining machines, rapid technological changes, volatile U.S. regulatory environment, and price fluctuations of Bitcoin and Ethereum - The cryptocurrency mining, security, and insurance businesses are still under development with a limited operating history, making future prospects difficult to evaluate8081 - Operations are highly dependent on stable, low-cost power and the availability of mining machines, with shortages or price hikes posing significant risks8284 - The company has moved all its cryptocurrency production to the USA, making it susceptible to regulatory changes in that jurisdiction89108 - The company's results are significantly impacted by the price volatility of Bitcoin and Ethereum, with sharp price decreases posing a material risk to profitability100101 - As of December 31, 2024, the company holds $17.3 million in cash at Silkroad International Bank in Djibouti, which is not covered by a formal deposit insurance system and is subject to Djibouti's stringent foreign exchange regulations and potential currency shortages135136 Risks Related to Doing Business in China Operating in China presents significant legal, political, and economic risks, including increasing government oversight on data security and overseas listings, potential delisting under the HFCA Act, and restrictions on cash transfers - The company faces uncertainty regarding the need for approval from the China Securities Regulatory Commission (CSRC) for its NYSE listing, which, if required and not obtained, could lead to significant penalties137139 - Increased oversight by the Cyberspace Administration of China (CAC) over data security and cybersecurity could subject the company to reviews and penalties, materially affecting its business and listing status143144 - The Holding Foreign Companies Accountable Act (HFCA Act) could lead to the delisting of the company's ADSs if the PCAOB is unable to inspect its auditor for two consecutive years. Although the current auditor is in Singapore and inspectable, this remains a risk if circumstances change29160165 - The company relies on dividends from its PRC subsidiaries, but PRC regulations restrict the ability of these subsidiaries to transfer cash, requiring them to set aside statutory reserves and pay withholding taxes on dividends182184185 Risks Related to Our ADSs ADS trading price is highly volatile due to market factors and negative sentiment, compounded by short-seller risks, a dual-class share structure limiting ADS holder influence, and less developed Cayman Islands legal protections - The trading price of the company's ADSs is highly volatile and can be influenced by broad market trends, industry factors, and negative sentiment towards U.S.-listed Chinese companies207 - The company has undergone multiple ADS ratio changes, with the most recent change in November 2024 adjusting the ratio from 1 ADS representing 10 Class A ordinary shares to 1 ADS representing 150 Class A ordinary shares210211212 - The dual-class voting structure, where Class B shares have 10 votes per share compared to one vote for Class A shares, limits the ability of ADS holders to influence corporate matters227 - The company does not anticipate paying dividends in the foreseeable future, meaning investors must rely on the appreciation of ADS price for any return on investment221222 - As a foreign private issuer registered in the Cayman Islands, the company is exempt from certain U.S. reporting and governance requirements, and shareholder rights are governed by less-developed Cayman Islands law, making it difficult to protect interests through U.S. courts228233 ITEM 4. INFORMATION ON THE COMPANY This section outlines the company's history, business evolution, and current operational structure, detailing its transition from credit analytics to data mining, blockchain, and commodities trading, including the unwinding of its VIE structure and regulatory landscape History and Development of the Company The company transitioned from credit analytics to data mining and marketing services, culminating in the unwinding of its VIE structure in November 2022 - The company transitioned from a credit analytics service provider (China Risk Finance) to a data mining and targeted marketing services business in 2020 after acquiring YBT and disposing of its legacy peer-to-peer lending business243244245 - In November 2022, the company terminated its VIE agreements and sold S International Group Limited, unwinding its VIE structure in mainland China. The financial results of the former VIE are no longer consolidated after the closing date246250251 - As of December 31, 2024, the former VIE and its subsidiaries in China accounted for 40.2% of consolidated total assets and 93.2% of consolidated total net revenues254268 Business Overview SOS operates in blockchain-based marketing, cryptocurrency mining, and commodities trading, with FY2024 total revenues of $231.4 million primarily from commodities trading, and protects its business with 99 software copyrights - The company's primary business lines are commodities trading, cryptocurrency mining, and hosting services272 Revenue by Products and Services (FY 2024 vs FY 2023) | Revenue by Products and Services | FY 2024 (US$) | FY 2024 (%) | FY 2023 (US$) | FY 2023 (%) | | :--- | :--- | :--- | :--- | :--- | | Commodities Trading | 214,340 | 92.7% | 68,409 | 74.0% | | Cryptocurrency Mining | 9,258 | 4.0% | 18,898 | 20.4% | | Hosting Services | 6,507 | 2.8% | 2,365 | 2.6% | | Others | 1,320 | 0.5% | 2,744 | 3.0% | | Total revenue -net | 231,424 | 100% | 92,416 | 100% | - The company holds 99 registered software copyrights, 2 utility model patents, and 1 domain name to protect its proprietary rights282 Regulation The company's blockchain and cryptocurrency operations face evolving regulations in the U.S. and China, with increasing oversight from U.S. agencies and an unclear, tightening framework in China, including restrictions on financial institutions - Blockchain and cryptocurrencies are facing increasing governmental regulation in the U.S. from agencies like the SEC and DOJ285 - China's regulations treat Bitcoin as a virtual commodity but prohibit its use as a currency and forbid financial institutions from engaging in Bitcoin-related business289291 - Cryptocurrency mining in China is subject to an unclear and evolving regulatory framework, with some local governments taking measures to guide the orderly exit of mining operations295296 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section analyzes the company's financial performance, highlighting a $231.4 million total revenue in FY2024 driven by commodity trading, a $16.2 million net loss, $239.5 million in cash, and details R&D efforts and critical accounting estimates Operating Results FY2024 saw total revenue increase to $231.4 million driven by commodity trading, but cryptocurrency mining revenue declined, resulting in a $21.6 million operating loss and a $16.2 million net loss from continuing operations Revenue Breakdown (FY 2022-2024) | Revenue Source | FY 2024 (USD) | FY 2023 (USD) | FY 2022 (USD) | | :--- | :--- | :--- | :--- | | Commodity trading | 214,340 | 68,409 | 255,586 | | Cryptocurrency Mining | 9,258 | 18,898 | 329 | | Hosting service | 6,506 | 2,365 | - | | Other | 1,320 | 2,744 | 4,111 | | Total | 231,424 | 92,416 | 260,026 | Bitcoin Holdings (as of Dec 31, 2024) | | Number of bitcoins | Amount (USD) | | :--- | :--- | :--- | | Balance as of Dec 31, 2023 | 675.65 | $17,871,099 | | Receipt from mining/investment | 127.12 | $9,257,897 | | Impairment | - | ($781,003) | | Balance as of Dec 31, 2024 | 802.77 | $26,347,993 | Key Profitability Metrics (FY 2022-2024) | Metric | FY 2024 (USD Million) | FY 2023 (USD Million) | FY 2022 (USD Million) | | :--- | :--- | :--- | :--- | | Operating Loss | (21.6) | (4.8) | (214.5) | | Net Loss from Continuing Operations | (16.2) | (6.4) | (230.5) | Liquidity and Capital Resources The company's liquidity, primarily from cash and operations, stood at $239.5 million as of December 31, 2024, despite a $63.6 million net cash outflow from operating activities in 2024, with management deeming current resources sufficient for the next twelve months - As of December 31, 2024, the company had cash and cash equivalents of approximately $239.5 million338 Summary of Cash Flows (FY 2022-2024) | Cash Flow Activity | 2024 (USD) | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | :--- | | Net cash from operating activities | (63,558) | 9,708 | (72,915) | | Net cash used in investing activities | - | - | (16,030) | | Net cash generated from financing activities | 24,550 | 17,596 | 34,695 | - Net cash used in operating activities was $63.6 million in 2024, a significant decrease from the $9.7 million generated in 2023, primarily due to changes in working capital, including a $69.3 million outflow from other receivables341344 - In June 2024, the company raised gross proceeds of approximately $16.99 million through a private placement with non-U.S. investors349 Research and Development, Patents and Licenses, etc. The company's R&D focuses on decentralized blockchain technology, insurance product promotion, and cryptocurrency mining, yielding systems for inventory management, supercomputing, and AI-driven insurance marketing - The company's R&D has produced registered intellectual property in decentralized blockchain technology, including systems for firewall, personal bio-information storage, and antivirus351 - Key operational R&D achievements include a blockchain-based inventory management system for international trade and a management system for its supercomputing center351 - R&D in the insurance sector focuses on systems for agent distribution, AI-powered electronic marketing, and big data management to support insurance product promotion352354 Critical Accounting Estimates This section details critical accounting policies and estimates, including the accounting for discontinued operations, reclassification of business segments in FY2022, and evaluation of new accounting standards updates - The company's financial statements are prepared under U.S. GAAP and require management to make significant estimates and judgments356 - The sale of S International Group Limited in October 2022 was accounted for as a discontinued operation and a related party transaction359 - In fiscal year 2022, the company reclassified its business segments into four main categories: commodity trading, cryptocurrency mining, hosting service, and others360 - The company completed a registered follow-on offering on March 15, 2024, raising gross proceeds of $7.85 million through the sale of ADSs and warrants367 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section details the company's leadership, compensation, and board structure, including key executives, $2.38 million in cash compensation for directors and officers in FY2024, equity incentive plans, and a workforce of 65 full-time employees as of December 31, 2024 - The company's key executive officers are Yandai Wang (CEO and Chairman) and Li Sing Leung (CFO and Director)373374375 - In fiscal year 2024, aggregate cash compensation for directors and executive officers was approximately $2.38 million, supplemented by 10,051,000 restricted share units381 - The company has adopted a 2023 Equity Incentive Plan with a maximum of 445,000,000 Class A ordinary shares authorized for issuance386388 - The Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee, each composed of independent directors397398399 - The number of full-time employees decreased from 181 as of December 31, 2023, to 65 as of December 31, 2024404 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS This section details beneficial ownership of ordinary shares by directors, executive officers, and major shareholders, highlighting CEO Yandai Wang's 16.58% voting power and the collective 16.749% voting power of all directors and executive officers, along with related party transactions Beneficial Ownership of Directors and Executive Officers | Name | Position | % of total ordinary shares | % of aggregate voting power | | :--- | :--- | :--- | :--- | | Yandai Wang | CEO & Chairman | 2.38% | 16.58% | | Li Sing Leung | CFO & Director | 0.004% | 0.02% | | Russell Krauss | Director | 0.01% | 0.009% | | Douglas L. Brown | Independent Director | 0.15% | 0.1% | | Wenbin Wu | Independent Director | 0.004% | 0.02% | | Ronggang (Jonathan) Zhang | Independent Director | 0.004% | 0.02% | | All directors and executive officers as a group (6 persons) | | 2.552% | 16.749% | - The company's dual-class share structure grants holders of Class B ordinary shares 10 votes per share, giving them significant voting power relative to their equity ownership414 ITEM 8. FINANCIAL INFORMATION This section details consolidated financial statements and significant legal proceedings, including a $5 million class-action settlement, an ongoing lawsuit regarding the P2P business, a $13 million settlement from Thor Miner, and the company's policy of not paying future cash dividends - A 2021 securities class action lawsuit was settled in 2022 with a $5 million payment by the company, which admitted no wrongdoing420421422 - The company is currently a defendant in a lawsuit filed in November 2023 related to the disposal of its legacy P2P business, with claims including breach of contract and fraudulent inducement. The company believes the claims have no merit423424 - A lawsuit against Thor Miner was settled in December 2022, with the company's subsidiary receiving a $13 million settlement payment425426 - The company has never paid cash dividends and does not intend to in the foreseeable future, retaining earnings to fund business development and growth429430 ITEM 10. ADDITIONAL INFORMATION This section details the company's Cayman Islands corporate structure, including its dual-class share system and increased authorized capital, along with material tax considerations for shareholders in the Cayman Islands, PRC, and U.S., including potential PFIC classification - The company has a dual-class share structure: Class A ordinary shares (1 vote per share) and Class B ordinary shares (10 votes per share). Class B shares are convertible into Class A shares441445447 - On August 15, 2024, shareholders approved an increase in authorized share capital to US$50,000,000, divided into 9 billion Class A shares and 1 billion Class B shares442 - The Cayman Islands does not levy taxes on profits, income, or gains, and there are no withholding taxes on dividends504 - The company could be considered a PRC resident enterprise for tax purposes if its "de facto management" is in China, which would subject it to a 25% tax on worldwide income and potential withholding taxes on dividends paid to foreign shareholders507510 - 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. shareholders223523524 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section addresses the company's market risk exposure, primarily foreign exchange risk due to RMB/USD fluctuations without hedging, and minimal interest rate risk given no outstanding long-term debt - The company is exposed to foreign exchange risk as its revenues and expenses are mostly denominated in RMB, while its reporting currency is the U.S. dollar. Fluctuations in the RMB/USD exchange rate can impact reported financial results543 - The company does not currently engage in any hedging transactions to reduce its exposure to foreign currency exchange risk543 - Interest rate risk is not considered significant as the company's operations are not directly sensitive to interest rate fluctuations and it has no long-term debt outstanding545 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES This section details fees and charges applicable to ADS holders, including issuance, cancellation, and distribution fees, typically up to U.S. 5¢ per ADS, along with other charges like taxes and currency conversion expenses ADS Holder Fees | Service | Fees | | :--- | :--- | | Issuance of ADSs | Up to U.S. 5¢ per ADS issued | | Cancellation of ADSs | Up to U.S. 5¢ per ADS cancelled | | Distribution of cash dividends or other cash distributions | Up to U.S. 5¢ per ADS held | | Distribution of ADSs (stock dividends, etc.) | Up to U.S. 5¢ per ADS held | | Distribution of other securities | Up to U.S. 5¢ per ADS held | | ADS Services | Up to U.S. 5¢ per ADS held on the record date | - ADS holders are also responsible for paying other charges, including taxes, registration fees, currency conversion expenses, and other fees incurred by the depositary bank551 PART II ITEM 15. CONTROLS AND PROCEDURES Management concluded that as of December 31, 2024, disclosure controls and internal control over financial reporting were ineffective due to six material weaknesses, including lack of U.S. GAAP expertise and inadequate transaction controls, with a remediation plan underway - Management concluded that as of December 31, 2024, the company's disclosure controls and procedures and internal control over financial reporting were not effective559560 - Six material weaknesses were identified, including: (i) lack of U.S. GAAP/SEC expertise, (ii) insufficient closing policies, (iii) inadequate controls for non-routine transactions, (iv) deficiencies in loan management, and (v) improper sales recognition in commodity trading562564 - The company has developed a remediation plan that includes hiring more qualified accounting staff, implementing training programs, establishing an internal audit function, and improving control processes for financial closing and significant transactions565566 ITEM 16. Corporate Governance and Other Disclosures This section covers corporate governance, including the audit committee financial expert, code of ethics, $300,000 in FY2024 audit fees, adherence to Cayman Islands governance practices as a foreign private issuer, an insider trading policy, and a board-overseen cybersecurity risk management framework - The Board of Directors has designated Mr. Wenbin Wu as the audit committee financial expert569 Principal Accountant Fees (Audit Alliance LLP) | Fee Category | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Audit fees | $300,000 | $300,000 | $350,000 | | Total | $300,000 | $300,000 | $350,000 | - The company has adopted an insider trading policy that prohibits trading on material nonpublic information and tipping582583584 - A comprehensive cybersecurity risk management framework has been implemented, with oversight from the board of directors and daily management led by the CEO, to protect company assets and data588590592 PART III ITEM 18. FINANCIAL STATEMENTS This section presents the company's audited consolidated financial statements for FY2024 and FY2023, with an unqualified audit opinion from Audit Alliance LLP, highlighting critical audit matters related to CECL on receivables and inventory impairment - The independent registered public accounting firm, Audit Alliance LLP, issued an unqualified audit opinion on the consolidated financial statements for the years ended December 31, 2024 and 2023597 - Critical audit matters identified were the allowance for current expected credit losses (CECL) on accounts and other receivables, and the impairment of inventories, due to the significant management judgment and estimation uncertainty involved601602606 Consolidated Balance Sheet Summary (As of Dec 31) | (US$ thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Total Assets | 482,354 | 483,892 | | Cash and cash equivalents | 237,484 | 279,177 | | Other receivables, net | 150,281 | 79,970 | | Total Liabilities | 46,664 | 61,519 | | Total Shareholders' Equity | 435,690 | 422,373 | Consolidated Statement of Profit Summary (For the Year Ended Dec 31) | (US$ thousands) | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Revenues | 231,424 | 92,416 | 260,026 | | Gross Profit/(Loss) | 7,041 | 14,182 | (10,571) | | (Loss) from Operations | (21,604) | (4,812) | (214,545) | | Net Loss Attributable to SOS Limited | (13,605) | (3,651) | (229,447) | | Loss Per Share (Basic) | (0.0299) | (0.0269) | (2.9564) | ITEM 19. EXHIBITS This section lists exhibits filed with the annual report, including the company's Memorandum and Articles of Association, various securities agreements, subsidiary lists, code of conduct, and CEO/CFO certifications - Key exhibits filed include the Sixth Amended and Restated Memorandum and Articles of Association820 - The filing includes forms of various warrants and securities purchase agreements related to offerings in 2021, 2023, 2024, and 2025820821822 - Certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act are included as exhibits822