Nocera, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The interim consolidated financial statements are unaudited. Figures are in U.S. dollars unless noted.
Business context and reporting period
Nocera operates in aquaculture systems and related services, fish trading, and food processing and catering. Q1 revenue was primarily from fish trading ($3.2 million) and Meixin’s catering business ($1.6 million). The company also consolidated Xinca, a China-based VIE focused on entertainment and livestream commerce, following a January 2024 agreement under which it issued 1.8 million restricted shares for a 100% controlling interest. Management describes Taiwan as its operating base and says it does not intend to conduct operations in China or Hong Kong, a statement investors may wish to reconcile with the Xinca VIE.
Financial performance and position
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Net sales | $4.900 million | $3.838 million; up 27.7% |
| Gross profit / margin | $83,961 / 1.7% | $68,656 / 1.8% |
| Operating expenses | $575,611 | $1.059 million |
| Operating loss | $491,650 | $990,681 |
| Net loss attributable to Nocera | $486,420; $0.0407 per share | $987,648; $0.1063 per share |
| Operating cash flow | Cash used: $460,993 | Cash used: $364,370 |
| Cash and cash equivalents, March 31 | $961,777 | $1,460,504 at March 31, 2023 |
Gross margin remained very low despite higher revenue; the company attributed improved gross profit partly to increased fish trading and Xinca’s livestream sales potential. Foreign currency translation contributed a $57,307 gain to comprehensive income, while net loss was $493,920 before the non-controlling interest allocation.
At March 31, 2024, total assets were $6.972 million, current assets $1.940 million, total liabilities $2.268 million, and equity $4.704 million. Current liabilities of $2.232 million exceeded current assets by about $292,000; the current ratio was approximately 0.87. The balance sheet reported secured borrowing of $426,322 current and $36,087 long-term, and a $1.180 million warrant liability. Cash declined $267,803 during the quarter. Goodwill rose to $3.007 million, including $1.352 million recorded for Xinca.
Material changes and notable transactions
- Revenue increased $1.062 million year over year, while the reported company-attributable net loss narrowed by approximately 51%.
- General and administrative expenses fell year over year; the filing attributes the decline to lower legal, accounting, and consulting fees than in Q1 2023.
- The company issued 1.8 million common shares in Q1 in connection with the Xinca transaction. Common shares outstanding were 12,956,987 at March 31 and 13,556,987 as of May 15, 2024.
- After quarter-end, on April 14, 2024, a subsidiary acquired all of SY Culture for 600,000 unregistered Nocera shares.
- There were 2,255,146 warrants outstanding and exercisable at March 31, with a weighted-average exercise price of $2.14.
Outlook, risks, controls, and contingencies
Nocera gave no formal financial guidance. Management describes plans to expand aquaculture operations, including adding 20 eel-farming RAS units and developing a U.S. catfish farm by the end of 2024; it also states a goal of selling more than 5,000 tanks over five years. The filing says these plans may require additional capital and that there is no assurance financing will be available on acceptable terms or at all. Management says existing cash and anticipated operating cash flow should cover working capital for at least one year, but also identifies the ability to generate operating cash and obtain financing as important to continued operations.
Risks discussed include customer and geographic concentration, inflation and input costs, foreign-exchange movements, geopolitical disruption, and uncertainty around expansion and acquisitions. Five customers represented 93% of Q1 revenue; three customers accounted for approximately 99.5% of receivables at March 31. The filing reports no material legal proceedings and no material changes to the risk factors in the 2023 Form 10-K.
Management concluded disclosure controls and procedures were ineffective at March 31 because of material weaknesses: undocumented control policies, insufficient financial-close review and GAAP expertise, and inadequate segregation of duties. It planned remediation during Q2 2024 and reported steps including forming an audit committee, adding experienced finance personnel, and retaining consultants.
Important facts for investors to verify
- Conflicting reported figures: The statements show Q1 operating expenses of $575,611, while the MD&A says general and administrative expenses were $451,465. The balance sheet and cash-flow statement report quarter-end cash of $961,777, while the MD&A cites $461,515. The cash-flow statement shows cash used in operations, despite MD&A language stating cash was provided by operations.
- Debt classification: The balance sheet lists $36,087 of long-term secured borrowing, while the borrowing note describes the secured loan as wholly repayable within one year.
- Liquidity and funding: Reconcile management’s one-year liquidity assertion with negative working capital and quarterly operating cash use; assess financing needs for planned projects and acquisitions.
- Acquisitions and VIEs: Review the Xinca and SY Culture transactions, related share dilution, control arrangements, business prospects, and goodwill valuation and impairment assumptions.
- Concentration and execution: Assess reliance on a small number of customers, collection risk, low gross margins, and the feasibility and funding of management’s expansion targets.
- Reporting reliability: Monitor remediation of the disclosed material weaknesses and the effect of the filing’s internal numerical inconsistencies.