Nocera, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2022; financial statements are unaudited. Unless stated otherwise, amounts are in U.S. dollars. Nocera operates primarily in Taiwan, with businesses involving aquaculture systems and services, fish trading, and food processing and catering following its acquisition of Meixin.
Financial performance and position
| Metric | Three months ended September 30, 2022 | Nine months ended September 30, 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $1.374 million | $6.478 million | $18,366 for Q3; $2.865 million for nine months |
| Gross profit (loss) | $8,793; 0.6% margin | $117,584; 1.8% margin | Q3: ($52,136); nine months: $369,998 |
| General and administrative expenses | $880,006 | $2.178 million | Q3: $239,462; nine months: $809,688 |
| Net loss attributable to Nocera | ($865,490) | ($2.055 million) | Q3: ($275,123); nine months: ($497,766) |
| Loss per share, basic and diluted | ($0.1069) | ($0.2757) | Q3: ($0.0449); nine months: ($0.0811) |
Management attributed revenue growth mainly to increased demand in Taiwan fish trading. It said higher costs associated with reduced fish harvesting pressured gross profit. Higher legal, accounting, and consulting fees related to SEC filings contributed to increased overhead. Nine-month gross profit fell despite higher sales, and losses increased substantially year over year.
- Cash flow: For the nine months, operating cash use was $669,080, investing cash use was $5.129 million, and financing provided $5.611 million. Cash decreased $240,417 to $2.204 million.
- Liquidity: Current assets were $4.929 million and current liabilities $4.671 million, or approximately $258,000 of working capital. Management said available capital was sufficient for at least 12 months, but also warned it may need additional capital and cannot assure financing will be available on acceptable terms.
- Debt and other obligations: The balance sheet reported no notes payable or bank borrowings at September 30. It included a $4.009 million current warrant liability, up from $312,320 at year-end; this is a derivative liability, not bank debt.
- Equity: Stockholders’ equity was $5.544 million. The company raised approximately $6.58 million gross and $5.3 million net in its August public offering. Common shares outstanding were 9,018,587 at quarter-end. A 2-for-3 reverse stock split took effect August 11, 2022.
Material changes and significant transactions
- On September 7, Nocera acquired an 80% controlling interest in Taiwan food processor and caterer Meixin for $4.3 million cash. The acquisition added $4.041 million of goodwill; the filing reports $4.292 million of net cash outflow upon acquisition. Meixin’s assets and liabilities were consolidated from the acquisition date.
- Nocera’s public offering supported its Nasdaq Capital Market listing under ticker NCRA. The offering included warrants to purchase two shares per unit; the underwriters also purchased additional warrants for $2,820.
- The Alabama land purchase agreement covered 229 acres for intended fish-farm development. Nocera had paid a $10,000 deposit, with $865,000 due at closing; the purchase had not closed as of September 30.
- After quarter-end, the warrants’ exercise price reset from $3.85 to $1.925 on November 14, 2022. A proposed acquisition of 51% of iTake was terminated October 31 because the company could not access accounting records needed for consolidation and audit purposes.
Outlook, risks, and unusual items
- Management described plans to expand aquaculture operations and develop demonstration sites in Taiwan and the United States, with Brazil also cited as a target market. It projected sales of more than 5,000 tanks over five years. These are plans, not guaranteed results.
- The filing identifies inflation in materials and freight, COVID-19 effects, geopolitical disruption, currency movements, and Taiwan-related political and regulatory risks. Operations, assets, and substantially all revenue were concentrated in Taiwan.
- Four customers accounted for 83% of nine-month 2022 revenue; four customers represented 92.1% of accounts receivable at September 30. A related-party receivable from JC Development was $1.827 million; management expected collection in full and had not recorded impairment.
- Management concluded disclosure controls were ineffective because of material weaknesses: inadequate written control documentation, insufficient financial-close review and GAAP expertise, and inadequate segregation of duties. The company cited prior financial-statement restatement, and expected remediation in Q4 2022, while noting it might take longer or require further measures.
- The company disclosed that its Hong Kong-based auditor was subject to the PCAOB inspection determination and that Nocera had been added to the SEC’s HFCAA list of Commission-Identified Issuers. The filing warned of possible delisting or trading restrictions if the status persisted for the applicable period.
- No material legal proceedings were reported, and the company said there had been no material changes to previously disclosed risk factors. Warrant valuation and the Meixin acquisition’s goodwill and fair-value estimates are notable judgment-sensitive items.
Important facts for investors to verify
- Whether Meixin’s acquired operations contribute sustainable revenue and margins, and whether the $4.041 million goodwill remains recoverable.
- Whether the company converts revenue growth into positive gross margins and reduces operating losses and cash consumption.
- Collection timing and credit quality of the $1.827 million related-party receivable and exposure to concentrated customers.
- Completion, cost, financing, and development status of the Alabama land plan and other proposed expansion projects.
- Current warrant terms, potential dilution, and the effects of the November 2022 exercise-price reset.
- Whether disclosure-control weaknesses were remediated and whether auditor inspection or HFCAA status creates a continuing listing risk.