Nocera, Inc. — Q3 2023 Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2023. Financial statements are unaudited and stated in U.S. dollars. Nocera operates primarily in Taiwan, with activities including Meixin’s catering business, eel/fish trading, and aquaculture systems and services.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $7.283 million | $0.679 million | $16.448 million | $4.202 million |
| Gross profit | $51,369 | $44,606 | $157,260 | $83,862 |
| Gross margin | 0.7% | 6.6% | 1.0% | 2.0% |
| Operating expenses | $319,762 | $852,795 | $1.748 million | $2.093 million |
| Net loss attributable to Nocera | $264,059 | $865,490 | $1.563 million | $2.055 million |
| Operating cash flow | Not presented by quarter | $(1.052) million | $(0.669) million |
Revenue growth was mainly attributed to Meixin catering and fish trading: respectively $3.8 million and $3.4 million in Q3, and $11.3 million and $5.1 million for the nine-month period. Despite higher sales, fish trading costs rose as fish harvesting decreased, leaving very low gross margins. Lower general and administrative expenses contributed to reduced net losses. Basic and diluted loss per share from continuing operations was $0.0264 in Q3 and $0.1611 for the nine months.
Balance sheet, liquidity and capital
- At September 30, cash and cash equivalents were $1.281 million, down from $2.906 million at December 31, 2022. Current assets were $1.970 million and current liabilities $1.438 million (approximately 1.37 current ratio).
- Total assets were $7.578 million; total liabilities were $1.775 million; total equity was $5.803 million.
- Secured borrowing totaled $504,582, including $167,131 current and $337,451 long-term. The note reports a 6% annual interest rate and a pledged bank deposit as security.
- Nine-month investing cash outflow was $1.058 million, mainly land purchases and investment funds; financing provided $504,480, primarily from common-stock issuance. Cash declined by $1.625 million overall.
- Common shares outstanding increased from 9,243,587 at year-end 2022 to 10,019,295 at September 30, 2023. The company also recorded $521,100 of consultancy services settled in equity and $148,288 of share-based compensation during the nine months.
Management stated that cash and anticipated operating cash flows should cover working-capital needs for at least one year, while also noting that future growth, including U.S. farm demonstrations, may require additional capital and that financing cannot be assured.
Changes, outlook and risks
- Compared with 2022, revenue increased substantially, but gross margin fell sharply in Q3 and remained below 1% for the nine-month period. Operating expenses and net losses decreased.
- Nocera completed the purchase of 229 acres in Montgomery County, Alabama, in February 2023 and plans to develop U.S. fish-farming demonstrations in 2024. It also described plans for 20 additional eel-farming units in Taiwan by year-end 2023 and a U.S. catfish farm by year-end 2024. Management stated a goal of selling more than 5,000 tanks over five years; these are plans, not reported results.
- The filing describes a June 2023 agreement for GZ GST to acquire Zhe Jiang in exchange for 1.5 million Nocera shares, but also says the transaction faced closing challenges and that an 8-K would be filed if consummated. The status is unclear from the filing text.
- On October 13, 2023, Nocera decided to close its flagship bento store and shift retail emphasis to online sales and e-commerce. It also reported issuing 20,000 shares to a consultant on October 11.
- Management identified customer concentration: seven customers accounted for 99% of nine-month revenue. Four customers together represented 73.01% of accounts receivable at quarter-end. Other stated exposures include inflation and input costs, foreign-exchange movements, geopolitical disruption, and dependence on Taiwan while pursuing expansion.
- Disclosure controls were deemed ineffective due to material weaknesses involving undocumented controls, inadequate review and monitoring of financial reporting, insufficient GAAP expertise, and inadequate segregation of duties. The company reported remediation steps, including added personnel, an independent audit committee, and outside consultants.
- The filing reports no material legal proceedings and no material changes to previously disclosed risk factors. No specific financial guidance was provided.
Investor verification priorities
- Confirm the Zhe Jiang acquisition’s closing status, consideration, share issuance, and any required subsequent filing.
- Reconcile the warrant liability: the balance sheet reports $1,179,768, while the warrant note’s roll-forward reports $312,320.
- Reconcile the $205,902 financial asset classification: the balance sheet presents it among current assets, while Note 7 labels it non-current and also shows a current amount of nil.
- Assess whether the exceptionally low gross margins in fish trading and catering are sustainable, and review harvesting levels, customer concentration, receivable collections, and working-capital needs.
- Track cash burn, additional financing needs, Alabama project costs and timing, and progress in remediating the disclosed control weaknesses.