Nocera, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; the filing is an annual report, not a standalone fourth-quarter report. Filed March 23, 2022. Nocera is a Taiwan-based aquaculture equipment, construction, consulting and seafood-trading business. It shifted its operating focus from China to Taiwan and operates in part through Xin Feng Construction Co., Ltd. (XFC), a variable interest entity (VIE).
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $9.945 million | $1.170 million |
| Gross profit / margin | $0.945 million / 9.5% | $0.644 million / 55.0% |
| General and administrative expenses | $10.420 million | $1.326 million |
| Operating loss | $9.475 million | $0.682 million |
| Net loss attributable to Nocera | $9.619 million | $0.632 million |
| Basic and diluted loss per share | $1.05 | $0.0538 |
| Cash from operating activities | $0.252 million | $(0.130) million |
- Revenue rose sharply, largely from XFC construction services. The company reported that one customer contributed 58.22% of FY2021 revenue; two customers accounted for 96.44% in FY2020.
- Gross profit increased in dollars, but gross margin contracted substantially. The filing attributes the $9.094 million increase in G&A principally to share-based compensation.
- FY2021 operating cash flow was positive despite the net loss, reflecting large noncash items, including $6.638 million of share-based compensation and $3.045 million of consulting services settled in equity.
- At year-end, cash was $2.444 million, total current assets were $6.398 million, and current liabilities were $2.101 million—working capital of approximately $4.297 million and a current ratio of about 3.0. Total assets were $6.871 million and total equity was $4.770 million.
- Current debt included $92,112 of notes payable and $52,292 of bank borrowing; the filing reports no long-term debt. Cash increased by $1.420 million during the year, with financing activities providing $1.204 million.
- Accounts receivable included $1.615 million due from a related party, Taisi Electrical & Plumbing Co. The filing says management expects collection in full.
Material changes and capital
- The business mix shifted: FY2021 revenue was mainly from XFC construction services, compared with FY2020 revenue primarily from recognition of an exclusive sales-agency license. Nocera and JC Development mutually terminated their agency agreement effective December 31, 2021.
- Nocera began eel trading in Taiwan in October 2021 and launched its first RAS demonstration site in Taiwan into testing in September 2021.
- Financing included a December private placement generating $2.09 million gross proceeds for 836,000 common shares, plus preferred-stock and warrant issuances. The company also issued 505,000 shares for consulting services.
- Share-based compensation and equity-settled consulting materially affected reported expenses and increased potential dilution. The filing reported 5,473,636 warrants outstanding at year-end.
Outlook, risks and unusual items
- Outlook, not formal guidance: Management’s going-concern plan anticipates $5 million of revenue from XFC and $5 million from Taiwan-branch fish brokerage over the next 12 months. The company also described plans for demonstration sites in the U.S. and Taiwan by the end of 2022 and Brazil in 2023, and a target of selling more than 5,000 tanks over five years. These are expectations, not assurances.
- The audited financial statements include a going-concern disclosure: the $9.6 million FY2021 net loss raises substantial doubt about the company’s ability to continue as a going concern. Management cites expected operating revenue and a financial-support letter from CEO and principal stockholder Yin-Chieh Cheng, but says additional capital may be needed and cannot be assured.
- Key risks include customer and geographic concentration, dependence on Taiwan operations and suppliers, eel-price and demand volatility, limited insurance, and the need for additional financing. The XFC VIE structure relies on contractual arrangements rather than direct ownership; failure to enforce them or retain required licenses could impair control of the business.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end, citing inadequate accounting staffing and GAAP expertise, insufficient review controls, lack of documented procedures and inadequate segregation of duties. Remediation was planned, with management expecting progress in the first half of 2022.
- The independent auditor gave an unqualified opinion on the financial statements, but did not provide an opinion on internal-control effectiveness. The auditor identified share-based compensation valuation as a critical audit matter due to significant judgment and estimates.
- The filing reports no significant pending litigation and no off-balance-sheet arrangements. It also identifies a potential historical Section 13(k) issue involving funds deposited into the CEO’s personal account in 2019; the receivable was repaid in January 2020.
Important facts for investors to verify
- Whether the $1.615 million related-party receivable is collectible on the expected terms, and the status of the major customer receivable balances.
- Whether projected revenue from XFC construction and eel brokerage is realized, given customer concentration and the planned business shift.
- The assumptions and valuation behind the large share-based compensation charges, equity-settled consulting costs, and outstanding warrants—and the resulting dilution.
- Whether management’s funding plan and CEO support are sufficient to address the going-concern risk and longer-term capital needs.
- Progress in remediating the disclosed material weaknesses, and whether the VIE arrangements and Taiwan construction license remain enforceable and in good standing.
- The filing’s cash-flow summary in MD&A differs from the audited cash-flow statement on the year-over-year cash increase; investors should rely on and reconcile to the audited statement and underlying notes.