Nocera, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Unless otherwise stated, amounts are U.S. dollars. Nocera designs and supplies recirculating aquaculture systems, related services, and fish trading. It says it moved operations from China to Taiwan in 2020 and currently operates only in Taiwan.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Net sales | $2.919 million | $1.579 million; up about 85% |
| Gross profit and margin | $55,242; about 1.9% | $348,644; about 22.1% |
| General and administrative expenses | $860,953 | $235,235 |
| Operating loss | $805,711 | Operating income of $113,409 |
| Net loss | $805,720; $0.0755 per basic share | Net income of $49,490; $0.0054 per basic share |
| Comprehensive loss | $934,951 | Comprehensive income of $51,159 |
| Operating cash flow | Cash used: $553,267 | Cash used: $258,573 |
| Cash and cash equivalents | $1.962 million on balance sheet | $2.444 million at Dec. 31, 2021 |
| Current assets / current liabilities | $6.226 million / $1.975 million | $6.398 million / $2.101 million at Dec. 31, 2021 |
| Total liabilities / stockholders’ equity | $1.975 million / $4.700 million | $2.101 million / $4.770 million at Dec. 31, 2021 |
Cash used in investing activities was nil; cash used in financing activities was $3,453. Bank borrowing was $50,565 at quarter-end, with no notes payable reported. Advance receipts were $1.408 million. No interest or income tax payments were reported in the supplemental cash-flow disclosure.
Material changes and management commentary
- Revenue growth was attributed mainly to revenue from NTB’s fish trading business. Despite higher sales, gross profit fell sharply; management attributed this to increased cost of sales associated with that business.
- G&A expense increased substantially, primarily due to legal, accounting, and consulting fees related to securities filings and other matters. Management also cited issuance of 100,000 shares for legal services in explaining the net loss.
- A $2.073 million receivable from a related party increased from $1.615 million at year-end. Management says it expects full collection and recorded no impairment. Three customers represented 97% of quarterly revenue; three customers accounted for 99.74% of receivables at March 31.
- The company reported 10,707,150 common shares outstanding at March 31 and May 12, 2022. It issued 100,000 shares to outside counsel on January 28. The balance sheet shows common shares increased by 100,000 during the quarter.
Outlook, risks, and unusual items
- No specific financial forecast was provided. Management described plans to expand aquaculture-system sales and farm development in Taiwan and international markets, including the Americas; it expects to sell more than 5,000 tanks over five years and planned demonstration sites in the U.S. and Taiwan by the end of 2022 and Brazil in 2023.
- Management said existing cash and anticipated operating cash flow should fund operations for at least one year from issuance of the statements, while acknowledging possible need for additional capital and no assurance of obtaining it on acceptable terms. It cited potential shareholder support.
- Risks discussed include inflation in materials and freight, Russia-Ukraine-related disruption, COVID-19 effects, customer and geographic concentration, foreign-exchange exposure, and reliance on Taiwan. The company noted that substantially all revenue was concentrated in Taiwan pending international expansion.
- Management concluded there was no substantial doubt about going concern. The filing also states the company does not intend to resume operations in China or Hong Kong.
- Disclosure controls were deemed ineffective at March 31 because of material weaknesses: lack of written control procedures, insufficient financial-close monitoring and GAAP expertise, and inadequate segregation of duties. The filing notes that prior financial statements had been restated. Remediation included establishing an audit committee, adding finance personnel, and engaging third-party consultants; management cautioned that these steps may not fully resolve the weaknesses.
- The filing reports no material legal proceedings and no material changes to previously disclosed risk factors.
Important facts to verify
- Cash is reported as $1,961,777 on the balance sheet and cash-flow statement, but MD&A also gives $1,916,777. The cash-flow statement reports $553,267 used in operations and $3,453 used in financing, while MD&A prose gives $553,367 and $3,353 and elsewhere incorrectly describes operating cash flow as provided. Confirm the intended figures.
- Share-based compensation amounts appear inconsistent: the cash-flow statement and equity statement show $103,155, while Note 14 says $606,055 for the three months ended March 31, 2022. Reconcile the amount and related expense treatment.
- Assess collectability and terms of the $2.073 million related-party receivable, which is a significant portion of current assets, and the company’s customer and receivable concentrations.
- Evaluate whether the very low gross margin, higher operating costs, and ongoing operating cash burn are consistent with management’s expansion plans and stated liquidity outlook.
- Review progress in remediating ineffective disclosure controls and the effect of the cited prior financial-statement restatement.