Business context and reporting period
This is SGOCO Group, Ltd.’s audited Form 20-F for the fiscal year ended December 31, 2019, filed June 15, 2020—not a standalone 2019 Q4 report. The filing does not provide separate Q4 financial results. The request metadata names Troops, Inc., which does not match the registrant identified in the filing.
SGOCO, headquartered in Hong Kong, reported activities in money lending, Hong Kong property investment, energy-saving products and services, and—after year-end—fintech and IT services. Financial statements are prepared under U.S. GAAP; figures below are U.S. dollars.
Key financial metrics
Amounts are in millions unless stated otherwise.
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $5.525 | $1.580 |
| Gross profit (loss) | $1.406 | $(1.055) |
| Gross margin | 25.4% | Negative |
| Operating loss, continuing operations | $(41.673) | $(14.318) |
| Net loss | $(37.059) | $(21.064) |
| Net loss attributable to SGOCO ordinary shareholders | $(19.402) | $(12.372) |
| Basic and diluted loss per share | $(0.24) | $(0.35) |
| Cash flow from operating activities | $3.115 | $(36.174) |
| Cash flow from investing activities | $(19.265) | $(10.402) |
| Cash flow from financing activities | $6.964 | $56.146 |
| Cash and cash equivalents at year-end | $5.161 | $14.342 |
| Total assets | $140.578 | $190.841 |
| Total liabilities | $19.952 | $22.667 |
| Total equity | $120.626 | $168.174 |
| Working capital | $40.74 | Not clearly stated |
Revenue comprised $3.930 million of loan interest, $1.185 million of property lease and management income, $0.402 million of energy-saving services, and $0.008 million of product sales. Loan interest and property income were the principal sources of revenue.
Year-end debt disclosures include $6.410 million of bank borrowings, a $0.191 million convertible-note liability component, $4.257 million of other loans, and approximately $0.837 million of advances. The bank facility is secured by buildings and carries a floating rate; the filing gives a current rate of 4.23%. The filing reports $3.480 million of future interest on bank loans in its contractual-obligations table.
Material changes versus the prior comparable period
- Revenue rose 249.7% from 2018, with higher lending and rental income and the addition of energy-saving service revenue.
- Gross results improved from a $1.055 million loss to $1.406 million profit, but operating and net losses widened substantially.
- 2019 included $20.556 million of goodwill impairment and $18.893 million of intangible-asset impairment, primarily related to Boca’s green-energy business. Goodwill impairment was $10.330 million in 2018.
- Operating cash flow improved from a $36.174 million outflow to a $3.115 million inflow; cash nevertheless fell by $9.186 million during 2019, principally as investing outflows exceeded operating and financing inflows.
- Total assets declined by $50.263 million, while cash fell by $9.181 million. The 2018 balance sheet included $29.283 million of assets held for sale relating to Century Skyway.
- Century Skyway was treated as discontinued operations; the company recorded a $7.513 million discontinued-operations loss in 2018 versus $0.007 million in 2019. The sale was recorded effective December 31, 2019, for stated consideration of $12.75 million.
Outlook, risks and unusual items
- Management said cash and available financing should meet anticipated needs for at least 12 months, while warning additional financing may not be available on acceptable terms. No numerical revenue or earnings guidance was provided.
- The company entered into the GFS acquisition agreement in December 2019 and closed the acquisition on January 31, 2020. The deal adds fintech and IT services, but the filing describes consideration inconsistently as approximately $64.3 million and $64.7 million; it also gives a preliminary purchase-price allocation of $58.228 million. Consideration included cash, shares and a promissory note.
- COVID-19 disrupted operations and delayed the annual report. Management warned that the pandemic could materially affect 2020 results and potentially impair assets. The filing was submitted in reliance on SEC relief for COVID-related delays.
- Lending risks include borrower defaults, license renewal and regulation, interest-rate exposure, and concentration. At year-end, one borrower—Victor Or, the GFS seller and a shareholder—accounted for 52% of loans receivable. Related-party and affiliated-party loans and advances are disclosed.
- The filing states $21.3 million of loans to Mr. Or and two unrelated parties remained outstanding at year-end, with $7.8 million repaid subsequently. It also describes $22.194 million of overdue loans, of which $20.577 million had extended terms, while the aging table reports total past-due loans of $1.617 million.
- Internal control over financial reporting and disclosure controls were reported as ineffective, citing insufficient qualified accounting personnel and limited written documentation for loan-risk monitoring. Management described remediation plans; the auditor did not provide an ICFR attestation. The filing also notes limits on PCAOB inspection access for audit work in mainland China.
- The independent auditor gave an unqualified opinion on the financial statements. Management reported no material pending or threatened litigation and no planned dividends. No material off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Confirm the filing and issuer identity: this document is SGOCO Group, Ltd., not Troops, Inc.; obtain separate quarterly data if the intended period is 2019 Q4.
- Reconcile the stated overdue-loan amount of $22.194 million with the aging table’s $1.617 million past due, and assess recoverability, extensions, collateral and subsequent collections.
- Review the concentration and governance implications of the Victor Or-related loan exposure, including the $7.8 million subsequent repayment and the remaining balance.
- Confirm the GFS acquisition’s final consideration, share issuance, promissory-note terms and purchase-price allocation, and assess integration and dilution effects.
- Assess whether cash, working capital and financing are sufficient given the $5.161 million year-end cash balance, debt maturities, investment commitments and continuing losses.
- Monitor implementation and independent validation of internal-control remediation, impairment assumptions for Boca, and the effects of COVID-19 on 2020 operations.