SGOCO Group, Ltd. — FY2020 Form 20-F
Filing identity and period: The supplied filing is SGOCO Group, Ltd.’s annual report for the fiscal year ended December 31, 2020, filed July 7, 2021—not a standalone 2020 Q4 report. The request metadata names Troops, Inc.; the filing itself identifies SGOCO as the registrant. It mentions a deposit for a proposed TROOPS, Inc. acquisition, but the provided text does not establish that this filing is Troops, Inc.’s report.
SGOCO reported under U.S. GAAP. Its businesses included Hong Kong money lending and property investment, plus financial technology and IT services following its January 2020 acquisition of Giant Financial Services (GFS). The company also acquired Apiguru in 2020 and disposed of Boca during the year; Century Skyway was classified as discontinued operations following its 2019 disposal.
Key financial results
Amounts below are U.S. dollars; financial statement amounts are in thousands unless shown as millions.
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $4.293 million | $5.115 million |
| Gross profit (loss) | $(1.066) million | $2.734 million |
| Operating loss, continuing operations | $(67.342) million | $(0.732) million |
| Net loss | $(67.918) million | $(37.059) million |
| Net loss per share, basic and diluted | $(0.69) | $(0.24) |
| Cash and cash equivalents at year-end | $3.028 million | $5.126 million |
| Total assets | $90.130 million | $139.717 million |
| Total liabilities | $19.503 million | $19.952 million |
| Total equity | $70.627 million | $119.765 million |
Revenue mix: Loan interest was $1.667 million versus $3.930 million in 2019; property lease and management revenue was $1.130 million versus $1.185 million; and fintech solutions and services contributed $1.496 million, with no comparable 2019 revenue. Revenue fell 16.1% overall. The filing attributes the gross loss largely to $2.70 million of amortization of GFS trademarks and service contracts.
Major loss items: FY2020 included $59.440 million of goodwill impairment, $1.230 million of intangible-asset impairment, $0.970 million of property, plant and equipment impairment, and $1.980 million of loan and interest receivable provision. General and administrative expenses declined 37.5% to $2.617 million. Discontinued operations reported a $5,000 profit in 2020, compared with a $36.116 million loss in 2019.
Cash flow and liquidity: Cash from continuing operating activities was $21.639 million; investing activities used $27.170 million and financing activities provided $3.431 million. Total cash decreased by $2.133 million. Management reported $18.21 million of working capital and said available cash and financing should cover anticipated needs for at least 12 months. The operating cash inflow included significant noncash impairment and amortization adjustments and changes in loan and other receivables.
Debt: At December 31, 2020, bank loans totaled $6.241 million, including a $6.040 million long-term balance; the bank facility was secured by company buildings. The balance sheet also showed a $5.192 million current unsecured promissory note due to a shareholder and $0.160 million in convertible notes. The filing says the GFS acquisition note was fully repaid by March 30, 2021 and the bank loan by March 2021. It reports no default on indebtedness.
Material changes and unusual items
- GFS was acquired for $64.341 million, including $21.795 million cash consideration, a $28.473 million promissory note, and share consideration. The acquisition generated $60.103 million of goodwill; the filing recorded substantial goodwill impairment in 2020.
- Apiguru was acquired in 2020 for reported final consideration of $0.59 million, satisfied with shares. SGOCO sold its remaining 51% interest in Boca in August 2020 for an agreed value of approximately $0.19 million.
- Loan receivables, net, fell to $23.717 million from $41.179 million. The year-end portfolio included $15.023 million of past-due loans, including $14.482 million over one year past due. The filing says certain borrower loans were assigned and settled in 2021.
- Related-party lending was significant: loans to the GFS seller and two other parties totaled $9.47 million at year-end, or 39.9% of total loans receivable. A portion was assigned to an unrelated party in February 2021.
- 2019 comparative financial statements were restated for an error in accounting for unvested restricted shares, reducing reported 2019 other receivables and prepayments, assets and equity by $0.861 million.
- The auditor issued an unqualified opinion on the 2020 financial statements and identified goodwill impairment assessment and expected-credit-loss allowance estimates as critical audit matters.
Outlook, risks and controls
The filing gives no quantified revenue or earnings guidance. Management cited COVID-19-related business disruption, slower loan collections, additional credit allowances and asset impairments; it said the 2021 impact could not be reasonably estimated. Other key risks include lending losses and borrower concentration, annual licensing and regulatory requirements for Hong Kong money lenders, property-market and rental risks, fintech competition, privacy and cybersecurity, and access to future financing.
Management disclosed material weaknesses in internal control, including inadequate loan-risk monitoring and controls over past-due loans, restructurings and related-party lending, as well as insufficient U.S. GAAP and SEC-reporting personnel. Remediation was underway, but completion was not assured. The filing’s internal-control discussion is inconsistent: it says controls were ineffective as of year-end, but elsewhere states they were “not ineffective.” The company also received a Nasdaq filing-compliance deficiency notice after filing its annual report late; the notice date is inconsistent within the text (May 18, 2021 in the main filing and May 18, 2020 in a note).
SGOCO said it did not expect to pay dividends in the foreseeable future. It also disclosed cash deposits at a bank owned 75% by the GFS seller, a related party, and warned that deposits in Vanuatu lacked deposit-protection coverage.
Important facts for investors to verify
- Confirm the registrant and security are the intended investment: this is SGOCO Group’s 2020 Form 20-F, not a filing identifying Troops, Inc. as registrant.
- Review the detailed goodwill impairment allocation and valuation assumptions; the filing reports $59.440 million total goodwill impairment and attributes significant amounts to fintech and money-lending reporting units.
- Assess loan aging, expected-credit-loss assumptions, recoveries and concentration, especially the related-party borrower exposure and 2021 assignments and settlements.
- Confirm the status and dates of repayment of the GFS promissory note and bank loan, and reconcile these with the December 2020 balance sheet and subsequent-event disclosures.
- Check the restated 2019 figures and resolve the filing’s conflicting statements about internal-control effectiveness and the Nasdaq notice date.