Nocera, Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited quarter ended March 31, 2023, with comparison to Q1 2022. Nocera reports aquaculture-related businesses, including eel sales and recirculating aquaculture systems (RAS), and, following its 2022 acquisition of an 80% controlling interest in Meixin, food processing and catering. The company says it operates from Taiwan and is pursuing expansion in the United States and other markets.
Financial performance and liquidity
Amounts are in U.S. dollars. Income statement and cash-flow comparisons are for the three months ended March 31; balance-sheet comparisons are to December 31, 2022.
| Metric | Q1 2023 / March 31, 2023 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $3.838 million | $2.919 million, Q1 2022; up 31.5% |
| Gross profit and margin | $68,656; 1.8% | $55,242; 1.9%, Q1 2022 |
| General and administrative expenses | $1.059 million | $860,953, Q1 2022 |
| Operating loss | $990,681 | $805,711, Q1 2022 |
| Net loss | $1.002 million total; $987,648 attributable to Nocera | $805,720, Q1 2022 |
| Basic and diluted loss per share | $0.1063 | $0.1132, Q1 2022 |
| Operating cash flow | $(364,370) | $(553,267), Q1 2022 |
| Cash and cash equivalents | $1.461 million | $2.906 million at December 31, 2022 |
| Current assets / current liabilities | $1.969 million / $1.487 million | Working capital: $481,819 |
| Total liabilities / equity | $1.887 million / $5.828 million | At March 31, 2023 |
| Secured borrowing | $617,564, including $217,105 current and $400,459 long-term | 6% annual interest rate disclosed |
Revenue rose primarily with more mature eel sales, increased sales locations, and customer demand, according to management. Gross profit increased, but the gross margin remained very low and declined slightly. G&A growth was attributed mainly to legal, accounting, and consulting costs. Cash used in investing was $1.059 million, mainly for the Alabama land purchase and investment funds; financing cash outflow was $41,137. Cash fell by $1.446 million during the quarter.
Material changes and notable items
- Nocera completed the purchase of 229 acres in Montgomery County, Alabama, on February 16, 2023, intending to develop RAS fish farming facilities. The filing reports $857,870 paid to complete the land purchase, following a $20,000 deposit.
- Property and equipment increased to $1.686 million from $844,613, principally reflecting the land acquisition.
- The company issued 450,000 common shares to Hanover International for services, recording $521,100 of consultancy services settled in equity. It also recorded $103,155 of share-based compensation. Common shares outstanding increased to 9,693,587 from 9,243,587 at year-end.
- A $1.180 million warrant liability remained unchanged. The company reported 2,418,000 warrants outstanding and exercisable at March 31.
- Meixin-related goodwill was $3.906 million, with no impairment reported. The filing reports no material legal proceedings and no material changes to the risk factors in the 2022 Form 10-K.
Outlook, risks, and controls
- Management describes plans to sell more than 5,000 tanks over five years, expand demo sites in Taiwan by the end of 2023, and build a U.S. catfish farm by the end of 2024. These are plans, not assured forecasts; the filing provides no quantified revenue or earnings guidance.
- The company expects to need additional capital for farm development, construction, marketing, and operations. Management says current cash and anticipated operating cash flow should fund working capital for at least one year, while also warning that additional financing may be needed and may not be available on acceptable terms.
- Revenue was concentrated: four customers accounted for 95% of Q1 2023 revenue. Four customers together represented approximately 95% of accounts receivable at March 31, 2023.
- Management cites inflation and input costs, foreign-exchange exposure, geopolitical conditions, and potential economic or pandemic disruptions as risks. It also identifies dependence on Taiwan revenue and the need to expand into other markets.
- Disclosure controls and procedures were deemed ineffective at March 31, 2023 because of material weaknesses, including insufficient written control documentation, inadequate monitoring and review of financial reporting, and inadequate segregation of duties. Management targeted remediation during Q2 2023 but cautioned that it may take longer.
- The company states its Hong Kong-based auditor is subject to the PCAOB inspection limitation and that Nocera was identified under the HFCAA in May 2022. The filing warns of potential trading consequences if it remains identified for the applicable consecutive-year period.
Important facts for investors to verify
- Reconcile the cash-flow statement’s reported $364,370 of cash used in operations with MD&A language that says operating cash was “provided.” The cash-flow statement shows an outflow.
- Review the explanation for the loss comparison: MD&A attributes the increase in Nocera’s attributable net loss to foreign-currency translation, although translation is presented in other comprehensive loss rather than net loss.
- Confirm the funding and classification of the Alabama land purchase against the disclosed $650,000 borrowing, the $617,564 secured-loan balance, and the investing cash outflow. The filing does not clearly reconcile these figures.
- Check the classification of the $200,951 financial asset: the balance sheet presents it among current assets, while the note describes it as non-current.
- Assess customer concentration, collection exposure, and the sustainability of the roughly 1.8% gross margin, particularly as the business expands.
- Monitor cash consumption, financing needs, planned farm development, the carrying value of Meixin goodwill, and progress in remediating the disclosed control weaknesses.