Nocera, Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
The unaudited report covers the quarter and six months ended June 30, 2021. Nocera designs and supplies land-based recirculating aquaculture systems (RAS), along with related consulting and project-management services. The results consolidate Xin Feng Construction Co., Ltd. (XFC) through a variable-interest-entity structure established at the end of 2020.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue, 2021 | $1.268 million | $2.847 million |
| Revenue, 2020 | $469,078 | $1.160 million |
| Gross profit, 2021 / 2020 | $73,490 / $257,258 | $422,134 / $655,396 |
| Gross margin, 2021 / 2020 | 5.8% / 54.8% | 14.8% / 56.5% |
| Net income (loss), 2021 / 2020 | $(272,133) / $30,002 | $(222,643) / $246,088 |
| Basic earnings (loss) per share, 2021 / 2020 | $(0.0298) / $0.0025 | $(0.0244) / $0.0192 |
- Six-month operating expenses were $570,226, including $206,476 of share-based compensation. Operating loss was $148,092; income tax expense was $70,839.
- Six-month operating cash outflow was $98,108, investing outflow $25,068, and financing outflow $271,432, primarily reflecting bank-loan repayments. Cash fell by $376,453 to $647,078.
- At June 30, current assets were $4.882 million and current liabilities $2.951 million, a current ratio of approximately 1.66. Total liabilities were $2.951 million. Notes payable and bank borrowings together were approximately $506,000.
- Total assets were $5.531 million and stockholders’ equity $2.581 million. Receivables included $1.181 million due from related parties, of which $1.165 million was from Taisi Electrical & Plumbing Co. Pte Ltd.
Material changes versus the prior comparable period
- Revenue increased approximately 170% in Q2 and 145% for the first half, primarily because of construction revenue from XFC.
- Gross profit declined in both comparisons as XFC construction costs increased; prior-year periods included revenue with little or no direct cost and fish brokerage and distribution activity.
- General and administrative expense increased to $334,991 in Q2 and $570,226 for the first half, mainly due to higher legal, accounting, and consulting fees. The company moved from prior-year profit to losses in both periods.
- Customer concentration remains high: four customers accounted for 99% of first-half 2021 revenue. One customer represented 68.21% of accounts receivable at June 30.
Outlook, risks, contingencies, and unusual items
- No quantified revenue or earnings guidance was provided. Management said it is testing its first Taiwan RAS demonstration site with eel and promoting the system in Taiwan, while seeking solar-industry partners and expansion opportunities in the U.S.
- The company expects to need additional capital for demonstration sites, marketing, and operations. It anticipates seeking shareholder support or equity/debt financing but cautions that additional capital may not be available.
- Management cited COVID-19-related business disruption and uncertainty about its duration. The filing also describes risks associated with the XFC VIE arrangements and operations across multiple jurisdictions.
- Disclosure controls and internal control over financial reporting were deemed ineffective as of June 30, 2021. Reported material weaknesses include no written control procedures, no independent audit committee, insufficient financial-reporting review and GAAP expertise, and inadequate segregation of duties. Management described planned remediation, including adding independent directors and accounting resources.
- The filing reports no material legal proceedings and no off-balance-sheet arrangements. It says no subsequent events requiring adjustment or disclosure were identified.
- Unusual corporate changes include the 2020 cancellation of 4.75 million shares in a settlement related to GZ WFH and the December 2020 XFC transaction. Shares outstanding at June 30 were 9,131,786; the notes report 5.56 million warrants outstanding.
Important facts for investors to verify
- Whether XFC construction revenue can produce sustainable margins, given the sharp year-over-year gross-margin decline.
- Collectability and terms of the substantial related-party receivable, and the company’s high customer and receivables concentration.
- Funding needs, access to financing, and the cash impact of planned demonstration sites and expansion.
- Progress addressing the disclosed material weaknesses and whether financial reporting controls improve.
- The filing’s liquidity discussion cites net assets of $2,539,293, while the balance sheet reports stockholders’ equity of $2,580,900; investors should clarify the difference. The filing also contains differing diluted EPS figures in its statements and EPS note for the six-month 2021 period; the clear value should be confirmed against the filed financial statements.