
Preliminary Information Forward-Looking Statements 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 19959 - Key risks highlighted include regulatory scrutiny, competition, technological changes, data security breaches, credit risks in the lending business, and economic downturns121315 - Risks related to operating in Hong Kong and China include potential government intervention, legal system uncertainties, and changes in policy1920 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 entity28 - Key operating subsidiaries include Giant Financial Services Limited (GFS), First Asia Finance Limited (FAF), and Giant Credit Limited (GCL)27 - 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 PART I Item 1. Identity of Directors, Senior Management and Advisers This section is marked as 'Not applicable' in the report Item 2. Offer Statistics and Expected Timetable This section is marked as 'Not applicable' in the report Item 3. Key Information 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, China35 - 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 years303234 - The company has not utilized cash from one subsidiary to fund another since 2018 and has never issued dividends to the holding company363839 A. Selected Financial Data 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 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 business536381 - Jurisdictional Risks: Operations are subject to the economic and political policies of China and Hong Kong, with risks of government intervention and legal system uncertainties118122126 - 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)149164165 - The company has identified several material weaknesses in its internal control over financial reporting, including inadequate documentation and a lack of qualified accounting personnel9899 Item 4. Information on the Company This section details the company's history, business operations, organizational structure, and property holdings A. History and Development of the Company 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 2010183185 - The company shifted its business model through strategic sales, including the disposal of its manufacturing arm Honesty Group in 2011 and SGOCO (Fujian) in 2014195199 - 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 services210212215 B. Business Overview 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 services218 - Money Lending: Operates through licensed entities Giant Credit Limited and First Asia Finance Limited in Hong Kong, providing personal and corporate loans219220 - Property Investment: Generates rental income from four real properties and a 19-storey building in Hong Kong221 - Fintech & IT: Provides an online financial marketplace via its subsidiary GFS, leveraging AI, big data, and blockchain, and offers API consulting through Apiguru221224 D. Organizational Structure 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 jurisdictions231232 E. Property, Plant and Equipment 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 This section provides management's analysis of financial condition and results of operations, liquidity, capital resources, and critical accounting policies A. Operating Results 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 expenses301304308 - 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 recur308313315316 B. Liquidity and Capital Resources 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 million317 - In 2023, financing activities included a $1.92 million loan from a shareholder, Ms Kwok Kai Kai Clara327330 F. Tabular Disclosure of Contractual Obligations 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 This section provides information on the company's leadership, board structure, compensation practices, and employee base A. Directors and Senior Management 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 President337 - Chung Hang Lui serves as the Chief Financial Officer337339 - The Board of Directors consists of five members, three of whom are independent directors337360 B. Compensation 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, 2023347 - The company has a 2016 Omnibus Equity Plan which allows for the granting of up to 2,500,000 ordinary shares as equity compensation350 C. Board Practices 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 Li360 - The company has three board committees: Audit, Compensation, and Nominating, with defined memberships and responsibilities362363364 - A clawback policy was adopted on November 17, 2023, allowing the company to recoup incentive compensation following an accounting restatement372 D. Employees This subsection provides information on the company's workforce size and labor relations - The company had 19 full-time employees as of December 31, 2023373 E. Share Ownership 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 | * | (1) Beneficially owned by Ms Kwok Kai Kai Clara. * Indicates less than 1% Item 7. Major Shareholders and Related Party Transactions 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 Limited377 Item 8. Financial Information 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 place379381382 - The company does not anticipate paying any cash dividends in the foreseeable future, intending to retain earnings to finance business expansion383 Item 10. Additional Information 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 exist389 - Hong Kong Taxation: No tax on dividends or capital gains; trading gains may be subject to profits tax (16.5% for corporations)392393 - 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)394407408409 Item 11. Quantitative and Qualitative Disclosure About Market Risk 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 Kong431433 - For FY 2023, there was a significant customer concentration, with two major customers accounting for 23% and 11% of total revenues439 - 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 2022434 - 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 scheme443 PART II Item 15. Controls and Procedures 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, 2023447 - 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 expertise449450 - The independent registered public accounting firm, Audit Alliance LLP, issued an adverse opinion on the company's internal control over financial reporting456 - Remediation plans include hiring additional accounting staff, providing more training, and implementing better control procedures451452 Item 16C. Principal Accountant Fees and Services 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 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.467470 - On March 3, 2023, the company dismissed WWC, P.C. and appointed Audit Alliance LLP as its new independent registered public accounting firm471472 PART III Item 18. Financial Statements 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 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 2023598 Note 9 - Goodwill 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 unit662 Note 17 - Segment Information 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 |