Nocera, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited U.S. GAAP consolidated results include subsidiaries and a PRC variable interest entity (VIE). Nocera provides land-based recirculating aquaculture systems and related services.
Financial performance
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $690,653 | $11,474 |
| Gross profit / gross margin | $398,138 / 57.6% | $11,474 / 100.0% |
| General and administrative expenses | $172,312 | $163,515 |
| Operating income (loss) | $225,826 | $(152,041) |
| Net income (loss) | $216,086 | $(159,067) |
| Net income (loss) attributable to Nocera | $219,318 | $(158,379) |
| Basic / diluted EPS | $0.0178 / $0.0124 | $(0.0128) / $(0.0128) |
| Operating cash flow | $(241,351) | $(266,994) |
| Financing cash flow | $693,195 | $292,205 |
Revenue growth reflected recognition of previously deferred franchise-fee revenue from JC Development, fish brokerage and distribution with customer/strategic partner Pan Li, and after-sales service for fish-farming containers. Management attributed the higher gross profit principally to the franchise-fee revenue having no direct cost and the start of brokerage operations. G&A increased mainly because of legal, accounting, and consulting fees. The prior-year other expense included a one-time $7,205 unamortized note discount.
Balance sheet and liquidity
- Cash was $496,495, up from $28,539 at year-end 2019. Total current assets were $2.55 million and current liabilities $2.37 million, implying working capital of approximately $180,000 and a current ratio of about 1.08.
- Total assets were $3.37 million; total liabilities $2.37 million; total equity $992,106.
- Bank borrowing was zero at March 31, versus $15,367 at December 31, 2019. The filing reports $423,343 due to related parties, including amounts paid on the company’s behalf. Q1 financing cash inflow included $708,538 of proceeds from related parties; no repayment to related parties appears in the cash-flow statement for the quarter.
- Operating cash outflow was $241,351 despite reported net income, with working-capital movements including a $212,665 cash use from accounts receivable and a $365,693 reduction in deferred revenue. Cash increased $467,956, also reflecting financing inflows and a $16,112 favorable exchange-rate effect.
- Net accounts receivable was $1.67 million, after a $1.06 million allowance for doubtful accounts. Four customers represented all reported receivables at quarter-end; the two largest accounted for 34.08% and 28.19%.
- Income tax payable was $615,712. Deferred revenue, current portion, fell to $259,116 from $620,331 at year-end.
Outlook, risks, and other notable matters
- Management said COVID-19 had caused business disruption and expected a negative operating impact; duration and extent were uncertain. The discussion also refers to reduced net revenue in December 2019.
- The company plans demonstration sites in the U.S., Taiwan, Japan, and Thailand and expects to need additional construction, marketing, and operating capital. It anticipates seeking shareholder support and potentially equity or debt financing, but gives no assurance financing will be available. No formal revenue or earnings guidance is provided.
- Management stated there was no substantial doubt about going concern, citing $496,495 cash and $992,106 net assets, while also reporting operating cash outflows and expected additional funding needs.
- Disclosure controls and internal control over financial reporting were deemed ineffective at March 31, 2020. Disclosed material weaknesses include no written control documentation, no independent audit committee, insufficient financial-close monitoring and GAAP expertise, and inadequate segregation of duties. Management cited a prior financial-statement restatement and plans to add independent directors and experienced accounting resources and use third-party consultants.
- Revenue was concentrated: two parties represented 100% of revenue in both comparative quarters. The filing describes the PRC business as operating through contractual VIE arrangements. No material legal proceedings or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- How much Q1 revenue and profit came from one-time recognition of the JC Development franchise fee, and whether brokerage and after-sales revenue can recur.
- Collectability of receivables, the adequacy of the $1.06 million allowance, and the concentration among a small number of customers.
- Terms, availability, and continued support of related-party funding, alongside the company’s stated need for additional capital.
- Progress in remediating material weaknesses and the implications of the referenced prior restatement.
- COVID-19’s subsequent effects on sales, cash generation, and planned demonstration-site investment; the filing provides no quantified forward outlook.