Guardforce AI Co., Ltd. — FY2020 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2020; this is an annual report, not a standalone fourth-quarter filing. The company reports under IFRS in U.S. dollars. Its established business is Thailand cash logistics and cash handling, with robotics introduced during 2020. Financial statements received an unqualified audit opinion.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $37.65 million | $38.57 million |
| Gross profit / margin | $6.27 million / 16.7% | $4.64 million / 12.0% |
| Operating loss | $2.12 million | $0.11 million |
| Net income (loss) | ($3.14 million) | $0.06 million |
| Operating cash flow | $4.91 million | $4.99 million |
| Investing cash flow | ($1.43 million) | ($0.45 million) |
| Financing cash flow | ($1.13 million) | ($1.73 million) |
- Revenue declined 2.4%, which management attributed primarily to COVID-related customer closures and reduced service orders, plus price reductions of approximately 3%–5% on contracts renewed with a major customer.
- Cost of revenue fell 7.5%; gross margin improved as the company reduced direct labor, including by laying off approximately 6% of direct labor during May–July 2020.
- Administrative expenses rose 40.4% to $6.67 million, reflecting higher staff costs, professional and SEC-related fees, and stock-based compensation. A $1.72 million charge for provision and write-off of withholding-tax receivables also weighed on operating results.
- Cash and cash equivalents were $8.41 million; restricted cash was $1.72 million. Net current assets were $8.94 million. Total liabilities were $38.13 million against total assets of $35.97 million, leaving a $2.16 million equity deficit and accumulated deficit of $4.72 million.
- Long-term related-party borrowings totaled $19.09 million, including $13.51 million principal owed to Profit Raider; accrued interest on that loan was approximately $1.14 million. The Profit Raider loan was extended to December 31, 2022. Financial-institution borrowings were $1.49 million; operating- and finance-lease liabilities were also material.
- Management’s non-IFRS adjusted net income was $4.70 million, versus IFRS net loss of $3.14 million. The adjustment excludes finance costs, taxes, depreciation and amortization, and the withholding-tax provision and write-off; it is not a substitute for IFRS results.
Business, changes and outlook
- Secure logistics remained the core business, including cash-in-transit, ATM management, cash processing and cash-center operations. Core services represented approximately 94.2% of revenue. Robotics generated about $0.22 million, or 0.6%, of FY2020 revenue.
- ATM management revenue fell to $12.54 million from $14.02 million; cash processing rose to $2.84 million from $2.28 million. The company reported that recurring revenue was approximately 99% of total revenue and that most service contracts run three years with renewal options.
- Customer concentration is high: the Government Savings Bank accounted for 27.2% of 2020 revenue, and the next four largest customers together contributed 45.2%; management reported the top five at 72.4%. Banks represented 69% of revenue.
- Management planned to expand robotics and cybersecurity alongside the traditional business. It estimated about $3.0 million per year would be needed to execute its growth strategy and disclosed estimated 2021 capital expenditures of $2.06 million. No specific revenue or earnings guidance was provided.
- After year-end, the company was appointed operator of a consolidated cash center in Khon Kaen for five years beginning April 19, 2021. It also completed the acquisition of 51% of Hong Kong cybersecurity company Handshake in March 2021, issuing shares subject to revenue and profit-related clawback conditions.
- Management warned that COVID-19 could materially affect 2021 results, with the duration and effects uncertain. The filing states that recurring losses and the equity deficit raise substantial doubt about the company’s ability to continue as a going concern; management nevertheless believed available resources and financing could support operations for at least 12 months.
Risks, contingencies and unusual items
- Funding and debt: continued operations depend on cash generation and access to financing. The Profit Raider loan maturity, related-party financing dependence and ability to refinance are key liquidity risks.
- Controls: management concluded disclosure controls and internal control over financial reporting were ineffective at year-end, citing inadequate segregation of duties, policies for new business, account analyses and accounting staff training. The auditor did not attest to internal controls.
- Concentration and operations: loss or repricing of major bank customers could materially affect results. Other exposures include competition, labor and fuel costs, declining cash usage, foreign exchange, COVID-19 and the success of new technology businesses.
- Thailand ownership structure: the company relies on a tiered shareholding arrangement to comply with foreign-ownership and security-industry rules; authorities could reach a different conclusion from its legal counsel.
- Contingencies: the company disclosed labor-related lawsuits totaling approximately $773,858, considered them without merit and recorded no provision. It also had approximately $3.16 million of bank guarantees outstanding.
- Unusual items and related parties: withholding-tax receivables were written down and provided against; related-party loans, robot purchases and other transactions are significant. The company also reported a $325,000 advisory fee related to the VCAB merger and a $0.30 million related-party loan write-off recorded as a capital distribution.
Most important facts for investors to verify
- Whether the company can sustain operations and refinance or repay the Profit Raider loan by its December 2022 maturity, and the terms and availability of related-party or bank funding.
- Collection and recoverability of withholding-tax receivables, including the basis for the approximately $1.06 million provision and write-off charges.
- Customer concentration: the operating discussion reports top-five revenue concentration of 72.4%, while the financial-statement concentration table lists customers representing 65.9% in aggregate; reconcile the disclosures.
- Progress in remediating ineffective disclosure and financial-reporting controls, and the reliability of future reporting as robotics and cybersecurity operations expand.
- Actual COVID-19 effects, 2021 cash generation and capital spending, and whether robotics and the Handshake acquisition meet the stated commercial objectives.