Nocera, Inc. — Q3 2019 Form 10-Q
Business context and period. Unaudited results cover the three and nine months ended September 30, 2019. Following its December 2018 reverse merger, Nocera operates an aquaculture consulting and management business through subsidiaries and a PRC variable interest entity (VIE). The comparable 2018 periods had no reported sales; the company says it had received no orders by September 30, 2018.
Financial results and position
| Metric | Q3 2019 | Nine months 2019 |
|---|---|---|
| Net sales | $1,010,964 | $1,033,700 |
| Gross profit / margin | $960,985 / 95.1% | $983,721 / 95.2% |
| General and administrative expenses | $122,418 | $462,963 |
| Other expense | $27,570 | $34,826 |
| Net income (loss) attributable to Nocera | $792,404 | $496,730 |
| Basic / diluted EPS | $0.0641 / $0.0453 | $0.0402 / $0.0324 |
Sales were mainly exclusive agency license revenue from JCD for Asia-Pacific sales of fish-farming containers. One customer represented 96.74% of Q3 revenue and 98.92% of nine-month revenue. The reported gross margin reflects a small $49,979 cost of sales relative to revenue; the filing does not provide a breakdown of the license revenue amount.
For the nine months, operating cash flow was $308,185, investing cash flow was negative $717,251, and financing cash flow was $419,313. Cash increased by $12,541 to $19,748. Investing outflows primarily included $545,173 for intangible assets and $172,078 for property and equipment.
At September 30, current assets were $3,488,623, including accounts receivable of $2,517,583 and a $767,982 related-party receivable; current liabilities were $1,831,111, leaving net current assets of $1,657,512. Total liabilities were $1,831,111 and equity was $2,513,210. Current debt included $15,128 of bank borrowing; the $10,000 convertible note was repaid in January 2019. Amounts due to related parties were $430,451. The company adopted lease accounting and reported $123,769 in right-of-use assets and $8,226 in current lease liabilities.
Changes versus the prior comparable period
- Sales and profitability turned positive from zero sales and losses in 2018, primarily due to the new Asia-Pacific agency license revenue. Given the reverse merger and the lack of prior-period sales, comparisons may not reflect an established operating trend.
- Nine-month G&A increased to $462,963 from $124,628, attributed mainly to higher legal, accounting, consulting, and research and development expenses.
- Operating cash flow improved from a $524,550 outflow to a $308,185 inflow, while investing cash outflow rose to $717,251 from $71,339.
- Accounts receivable declined from $3,548,613 at December 31, 2018 to $2,517,583; cash remained limited at $19,748. Intangible assets of $484,176 were recorded, principally software for monitoring fish-farming conditions.
Outlook, risks, and unusual items
- Management plans demonstration sites in the U.S., Taiwan, Japan, and Thailand and expects to seek shareholder support or additional equity or debt financing. Shareholders are described as committed to provide financing while the company seeks third-party capital, but there is no assurance of successful fundraising.
- Management expected the related-party receivable and accounts receivable to convert to cash within three months after filing. Collection timing and liquidity are important to monitor.
- The filing reports ineffective disclosure controls and internal control over financial reporting, citing insufficient trained accounting personnel, lack of written control procedures and an independent audit committee, weak close-process review, and inadequate segregation of duties. Management proposed adding independent directors and experienced finance staff and using outside consultants.
- Other significant risks include customer and supplier concentration, reliance on related-party funding and transactions, foreign-currency translation losses, and reliance on contractual VIE arrangements to consolidate the PRC business. One supplier accounted for 71.61% of nine-month purchases; the top two accounted for 87.36%.
- The filing reports no material legal proceedings and no subsequent events requiring disclosure. It provides no numerical forward guidance.
Key facts for investors to verify
- Whether the agency-license revenue is recurring, how it is recognized, and whether the concentrated customer has made subsequent payments or placed further orders.
- Collection and reconciliation of the $2.52 million accounts receivable and $767,982 related-party receivable, including the filing’s descriptions of payments collected and receivables assumed or netted by the chairman.
- Cash availability, related-party support, and financing progress relative to planned demonstration sites and ongoing operating needs.
- The reported profit and tax details, including the $466,319 GILTI inclusion and the stated nine-month income-tax benefit of $842.
- Remediation of the disclosed control weaknesses and whether financial reporting processes are sufficiently reliable.