Nocera, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022; filed August 15, 2022. Financial statements are unaudited and stated in U.S. dollars. Nocera provides recirculating aquaculture systems, related services, and fish trading, with operations primarily in Taiwan. Management says it ceased operations in China in 2020.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Net sales | $2.185 million | $1.268 million | $5.104 million | $2.847 million |
| Gross profit | $53,549 | $73,490 | $108,791 | $422,134 |
| Gross margin | 2.5% | 5.8% | 2.1% | 14.8% |
| Operating loss | $(383,815) | $(261,501) | $(1,189,526) | $(148,092) |
| Net loss | $(383,977) | $(272,133) | $(1,189,697) | $(222,643) |
| Basic and diluted loss per share | $(0.0359) | $(0.0298) | $(0.1113) | $(0.0244) |
- For the first half, operating cash flow was negative $641,848, versus negative $98,108 a year earlier. Investing cash flow was nil; financing cash flow was negative $26,845, mainly bank-loan repayment. Cash declined $843,913, including a negative $175,220 exchange-rate effect, to $1,600,096.
- At June 30, cash was $1.60 million, current assets $4.83 million, current liabilities $979,616, total liabilities $979,616, and stockholders’ equity $4.27 million. Current liabilities included $27,757 of bank borrowing, $12,921 of notes payable, and a $312,320 warrant liability; no non-current liabilities were reported.
- Accounts receivable from a related party were $1.96 million, about 41% of current assets. Total accounts receivable were $548,035, and three customers represented 99.76% of receivables. Five customers accounted for 97% of first-half revenue.
- Common shares outstanding were 10,707,150 at June 30. The company reported issuing 100,000 shares for consulting services during the first half, valued at $503,000.
Changes versus the prior comparable period
- First-half revenue rose 79%, but gross profit fell 74% and gross margin contracted to 2.1% from 14.8%. Management attributes revenue growth primarily to higher demand in Taiwan fish trading and the gross-profit decline to higher fish-trading costs associated with decreased fish harvesting.
- First-half general and administrative expense increased to $1.30 million from $570,226, which management attributed mainly to higher legal, accounting, and consulting costs related to SEC filings and other matters. The resulting first-half net loss widened to $1.19 million from $222,643.
- Cash used in operations increased to $641,848 from $98,108. The filing highlights lower customer advance receipts as a significant cash-flow factor.
- From December 31, 2021 to June 30, 2022, cash fell from $2.44 million to $1.60 million and total assets fell from $6.87 million to $5.25 million. Current liabilities declined from $2.10 million to $979,616.
Outlook, risks, and notable items
- Management says available cash and anticipated operating cash flows should fund operations for at least one year from issuance, but cautions that future needs may exceed cash generation and additional capital may be required. Planned fish-farm demonstration sites and growth initiatives are expected to require funding; management says financing could involve shareholders or equity or debt offerings, with no assurance of acceptable financing.
- The company targets sales of more than 5,000 tanks over five years and planned demonstration sites in Taiwan and the U.S. by year-end 2022 and Brazil in 2023. These are plans, not guaranteed results.
- After quarter-end, Nocera effected a 2-for-3 reverse stock split, began trading on Nasdaq Capital Market under “NCRA” on August 11, 2022, and said its firm-commitment public offering was expected to close on or about August 15. The filing does not clearly confirm the offering’s closing or proceeds.
- Management identifies inflation in materials and freight, geopolitical disruption, COVID-19, customer and geographic concentration, foreign-exchange movements, and Taiwan regulatory or country risks. The company states that substantially all revenue was concentrated in Taiwan.
- Disclosure controls and procedures were ineffective at June 30 due to material weaknesses: lack of documented internal controls, inadequate monitoring and review of financial reporting, and insufficient segregation of duties. Management describes remediation steps, including adding experienced personnel, engaging consultants, and establishing an audit committee, but says further work may be needed.
- The filing says the company was identified under the Holding Foreign Companies Accountable Act in May 2022 because its Hong Kong-based auditor was subject to PCAOB inspection restrictions. It warns of potential trading prohibition or delisting if identification continues for the applicable consecutive years; the filing also discusses proposed legislation that could shorten that period.
- No material legal proceedings were reported. The company reported no material changes to its previously disclosed risk factors. Its auditor-related HFCAA exposure and ineffective controls remain notable risks.
Important facts for investors to verify
- Whether the August 2022 public offering closed, its gross and net proceeds, and resulting dilution; also confirm the post-split share and warrant counts.
- Collection timing and recoverability of the $1.96 million related-party receivable, and the concentration and payment quality of major customers.
- Whether fish-trading cost increases and very low gross margins persist, and whether planned aquaculture-system sales and demonstration sites develop as expected.
- Progress in remediating the material weaknesses and whether subsequent filings report effective disclosure controls.
- Current PCAOB inspection status of the auditor and the company’s HFCAA identification and listing exposure.
- Reconciliation of share-based compensation disclosures: the notes report $709,376 of first-half expense, while the cash-flow statement separately presents $503,000 of equity-settled consulting services and $206,476 of share-based compensation.