Nocera, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2023; filed August 21, 2023. Financial statements are unaudited and presented in U.S. dollars.
Business context
Nocera reports Taiwan-based fish trading and Meixin food processing and catering, alongside plans to develop recirculating aquaculture systems (RAS) and expand into international markets. Management says the company ceased China operations in 2020. Second-quarter sales were primarily fish trading and Meixin catering. The company completed purchase of 229 acres in Alabama in February 2023 for planned fish-farming RAS development.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $5.33 million | $2.18 million | $9.17 million | $5.10 million |
| Gross profit | $37,235 | $53,549 | $105,891 | $108,791 |
| Gross margin | 0.7% | 2.5% | 1.2% | 2.1% |
| Operating loss | $(331,432) | $(383,815) | $(1.32) million | $(1.19) million |
| Net loss | $(332,312) | $(383,977) | $(1.33) million | $(1.19) million |
| Net loss per share, basic and diluted | $(0.0321) | $(0.1129) | $(0.1368) | $(0.1669) |
- Revenue rose approximately 144% year over year in Q2 and 80% for the first half. Management attributed growth principally to more mature eel sales, additional sales locations, and customer demand.
- Gross profit declined despite higher revenue. Management cited lower fish-fry harvesting and higher feed costs in fish trading. Q2 Meixin catering recorded a gross loss of $14,197; fish trading generated gross profit of $51,611.
- First-half G&A expense increased to $1.43 million from $1.30 million, mainly due to legal and audit fees. Q2 G&A fell to $368,667 from $437,364, mainly due to lower audit fees.
- Operating cash use was $649,888 in the first half, versus $641,848 a year earlier. Investing cash use was $1.06 million, mainly for land and financial assets; financing cash use was $81,034, primarily loan repayment. Cash fell $1.79 million to $1.12 million.
Financial position and liquidity
- At June 30, cash and cash equivalents were $1.12 million, current assets $1.62 million, and current liabilities $1.42 million. Total assets were $7.30 million and total liabilities $1.82 million.
- Secured borrowings totaled $563,838, including $169,434 current and $394,404 long-term. The balance was a Chailease loan bearing 6% annual interest, secured by a bank deposit, and due to expire in December 2024. A $1.18 million warrant liability was also reported.
- Total equity was $5.48 million. Management said cash plus anticipated operating cash flow should cover working capital for at least one year from issuance of the statements, but also warned that additional capital may be needed and that financing may not be available on acceptable terms, or at all.
Outlook, risks, and notable matters
- No formal financial guidance is provided. Management plans to sell more than 5,000 RAS tanks over five years; expand Taiwan eel-farming demonstration capacity by 20 units by year-end 2023; and develop U.S. demonstration and catfish-farming projects by 2024. These are plans, not reported results.
- Management identifies exposure to raw-material, feed, freight and fuel cost inflation; customer and geographic concentration; foreign-exchange movements; geopolitical disruption; and public-health events. Five customers accounted for 99% of first-half 2023 revenue. Four customers represented approximately 99% of receivables at June 30.
- The company reported three material weaknesses in disclosure controls: no written internal-control policies and procedures, insufficient monitoring and review of financial reporting, and inadequate segregation of duties. Management expected remediation in the second half of 2023. Controls were judged ineffective as of June 30.
- After quarter-end, CEO, President and Chairman Yin-Chieh Cheng died. Andy Ching-An Jin was appointed CEO effective July 31, 2023. Nasdaq notified the company that its audit committee did not meet listing requirements after a member resigned; the company must evidence compliance by January 23, 2024 or face potential delisting proceedings. The notice had no immediate effect on listing.
- The filing describes a June 1, 2023 agreement for GZ GST to acquire Zhe Jiang in exchange for 1.5 million Nocera shares, but also says closing complexities remained and that an 8-K would be filed if the acquisition is consummated. The acquisition’s closing status is therefore unclear from the filing text.
- The cover page marks “No” for having filed all required reports during the preceding 12 months. This is a significant compliance disclosure to investigate. The filing also contains an apparent inconsistency in the company-attributable Q2 net loss: the financial statements report $311,374, while one MD&A table reports $331,374; the statements and other MD&A text report $311,374.
Most important facts to verify
- Whether all required SEC reports were timely filed and whether any filing-compliance issue remains outstanding.
- Whether the Zhe Jiang acquisition closed, what consideration was issued, and the resulting ownership and financial impact.
- Plans and funding for Alabama and other RAS projects, given cash burn, narrow gross margins, and stated potential need for additional capital.
- Progress in remediating material weaknesses and restoring Nasdaq audit committee compliance by the stated deadline.
- Customer concentration, fish-trading cost trends, and the discrepancy in reported Q2 company-attributable loss.