10-Q/A: Nocera, Inc. Amends Quarterly Report to Include Segment Data Amidst Ongoing Losses and Internal Control Concerns

Nocera, Inc. filed an amended quarterly report for Q1 2025 to add segment reporting disclosures, revealing continued net losses, a decline in overall revenue and gross profit, and persistent material weaknesses in internal controls, despite some improvements in operating cash flow and e-commerce performance.

Summary

• Nocera, Inc. filed an Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, to include segment reporting disclosures as required by ASC Topic 280.
• The company reported a net loss attributable to the company of $248,017 for the three months ended March 31, 2025, an improvement from a net loss of $288,576 in the comparable period of 2024.
• Overall net sales decreased to $4,534,128 for Q1 2025, down from $4,899,880 in Q1 2024.
• Gross profit declined to $50,950 in Q1 2025 from $83,961 in Q1 2024.
• Operating expenses, specifically general and administrative expenses, decreased to $334,371 in Q1 2025 from $451,464 in Q1 2024.
• Net cash used in operating activities significantly improved, decreasing to $115,102 in Q1 2025 from $460,994 in Q1 2024.
• The company's accumulated deficit increased to $21,486,898 as of March 31, 2025.
• Auditors expressed concern about the company's ability to continue as a going concern.
• Material weaknesses in internal controls over financial reporting were identified, including lack of written documentation, insufficient monitoring, inadequate segregation of duties, and issues with cash handling.
• The company plans to raise approximately $40 million through equity issuance, leveraged buyout, and debt financing to support strategic initiatives and acquisitions.
• Segment analysis showed Fish Trading revenue decreased to $4,474,206 (from $4,764,517) and Catering revenue significantly decreased to $2,089 (from $86,373), while E-Commerce revenue increased to $57,833 (from $48,990).
• Operating losses increased for Fish Trading and Catering segments, but significantly decreased for the E-Commerce segment.

Sentiment

Score: 3

Explanation: While there are some positive trends in reducing net loss and operating cash burn, the company continues to operate at a significant loss, has a large accumulated deficit, and faces a going concern warning from auditors. The identified material weaknesses in internal controls are a serious concern, and the success of the planned capital raise is not guaranteed. The overall financial health remains precarious.

Positives

• Net loss attributable to the company decreased to $248,017 in Q1 2025 from $288,576 in Q1 2024, indicating a reduction in the rate of loss.
• Loss from operations decreased to $283,421 in Q1 2025 from $367,503 in Q1 2024.
• General and administrative expenses decreased by over $117,000, reflecting cost control efforts.
• Net cash used in operating activities significantly decreased to $115,102 in Q1 2025 from $460,994 in Q1 2024, indicating improved operational cash burn.
• The E-commerce segment showed revenue growth to $57,833 in Q1 2025 and a substantial reduction in operating loss to $37,210 from $225,406 in Q1 2024.
• The company plans to raise approximately $40 million through various financing activities to fund strategic initiatives and acquisitions, which could provide necessary capital for growth.
• Shareholders exercised warrants, leading to the issuance of 200,000 shares of common stock and contributing to cash inflow from financing activities.

Negatives

• Overall net sales decreased to $4.53 million in Q1 2025 from $4.89 million in Q1 2024.
• Gross profit declined to $50,950 in Q1 2025 from $83,961 in Q1 2024.
• Loss before income taxes increased to $257,617 in Q1 2025 from $171,930 in Q1 2024.
• The Fish Trading business experienced a decrease in volume and an increase in operating loss.
• The Catering business saw a significant decrease in revenue and an increase in operating loss.
• The company's accumulated deficit grew to $21,486,898 as of March 31, 2025.
• Auditors expressed concern about the company's ability to continue as a going concern, highlighting significant financial challenges.
• Material weaknesses in internal controls over financial reporting were identified, including a lack of written documentation, insufficient monitoring, inadequate segregation of duties, and issues with cash handling and verification.
• The company has a high concentration of revenue from a few customers (84.6% from four customers in Q1 2025) and purchases from a few suppliers (52.08% from nine suppliers in Q1 2025), posing concentration risks.

Risks

• The company's ability to continue as a going concern is dependent on generating cash flows from operations and obtaining additional financing, which is not assured.
• Inflation and volatile commodity prices (raw materials, freight, fuel) could negatively affect profit margins if cost increases cannot be mitigated.
• Geopolitical conditions, trade disputes, international boycotts, sanctions, political/social instability, acts of war, and terrorist activity could disrupt operations, increase costs, reduce sales, and impair capital raising ability.
• Foreign currency exchange rate fluctuations, particularly involving the NT dollar, HK dollar, and RMB against the U.S. dollar, can impact reported revenue, operating expenses, and net income.
• Material weaknesses in internal controls over financial reporting, including lack of written policies, insufficient monitoring, inadequate segregation of duties, and issues with cash management, increase the risk of financial misstatement, misappropriation, or loss.
• The company faces a risk of delisting from Nasdaq and prohibition of trading over-the-counter if it remains identified as a Commission-Identified Issuer under the Holding Foreign Companies Accountable Act (HFCAA) for three consecutive years, due to its auditor being located in Hong Kong.
• Uncertainty regarding the PRC government's expansion of authority in Hong Kong and rapid changes in China's rules and regulations could impact the company's operations and financial condition.

Future Outlook

Nocera aims to become a global leader in the land-based aquaculture business, planning to grow existing operations in Taiwan and expand into North and South America. The company expects to sell over five thousand tanks in the next five years and intends to establish a production facility in Taiwan to serve American and European markets. They plan to expand fish farming demo sites in Taiwan by adding 20 units of RAS eel farming equipment and build a catfish farm in the U.S. by the end of 2024. Management anticipates raising approximately $40 million over the next twelve months (from December 31, 2024) through equity issuance, a leveraged buyout, and debt financing to support capital-intensive strategic initiatives, including business combinations and acquisitions. They expect to utilize about $5.9 million for operating activities and $30 million for capital expenditures in the same period, believing these financing arrangements will provide sufficient liquidity.

Management Comments

• "Management is focused on growing our existing product offering, as well as our customer base, to increase our revenues."
• "Our ability to continue as a going concern is dependent upon our ability to generate cashflows from operations and obtain financing."
• "We cannot give assurance that we can increase our cash balances or limit our cash consumption and thus maintain sufficient cash balances for our planned operations or future acquisitions."
• "We may need to raise additional capital in the future. However, we cannot assure that we will be able to raise additional capital on acceptable terms, or at all."
• "Subject to the foregoing, however, management believes that our current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet our working capital requirements for at least one year from the date of issuance of the accompanying consolidated financial statements."
• "The shareholders are committed to provide additional financing required when we try to raise additional capital from third party investors or banks."
• "Management believes that the anticipated financing arrangements will provide sufficient liquidity to meet our obligations as they come due and to fund the Companys ongoing and planned strategic initiatives over the next twelve months."

Industry Context

Nocera operates in the aquaculture, food processing/catering, and e-commerce live streaming sectors. Its strategic shift to Taiwan in 2020 was influenced by the Taiwan government's support for 'Green Power and Solar Sharing Fish Farms.' The company's expansion plans into North and South America for land-based fish farming indicate a global ambition within the aquaculture industry. The adoption of e-commerce live streaming platforms like Douyin in China reflects a move towards modern social commerce trends. The company acknowledges industry-wide challenges such as commodity price volatility (e.g., for eels and raw materials) and broader geopolitical risks, including the Russia-Ukraine conflict, which can impact global trade, costs, and financial stability.

Management Changes

Corporate Governance

Related Party Transactions

• Outstanding balance of $7,681 due to Mountain Share Transfer, LLC (100% controlled by Erik S. Nelson, previous corporate secretary and director) as of March 31, 2025, for daily operation purposes.
• Outstanding balance of $19,435 due to the Estate of Mr. Yin-Chieh Cheng (former CEO, Chairman, principal shareholder) as of March 31, 2025, related to a prior arrangement. The company is evaluating settlement of loans, debt, and other liabilities over a 12-month period beginning January 25, 2025.
• Outstanding balance of $11,402 due to Feng-Hua Chen (Chief Operating Officer) as of March 31, 2025, for daily operation purposes.
• All related party balances are non-trade in nature, unsecured, non-interest bearing, and repayable on demand.

Stakeholder Impact

• **Shareholders**: Face potential dilution from future equity issuance for capital raise, risk of delisting from Nasdaq due to HFCAA, and impact of ongoing losses and the going concern warning. Potential benefit from successful strategic acquisitions.
• **Employees**: Experienced accounting and financial personnel have been added. Loans to certain employees from Xinca and SY Media totaling $15,326 and $187,646, respectively, are outstanding. Plans for an office and dormitory in Alabama indicate future employee expansion.
• **Customers**: Revenue concentration risk exists, with four customers representing 84.6% of total revenue in Q1 2025. Changes in business segments (decreased fish trading and catering, increased e-commerce) may affect customer relationships.
• **Suppliers**: High concentration of purchases from a few suppliers (52.08% from nine suppliers in Q1 2025) poses a risk to supply chain stability.
• **Creditors**: The auditors' going concern warning indicates increased risk for creditors. The company is evaluating settlement of obligations to the former CEO's estate.
• **Regulatory Bodies (SEC, PCAOB)**: The company is actively responding to SEC comments by filing this amendment. It is subject to the HFCAA and PCAOB inspection issues, which could lead to delisting, indicating ongoing regulatory scrutiny.

Next Steps

• Actively work with Zhe Jiang to resolve complexities and challenges to consummate the Zhe Jiang Acquisition, with a Current Report on Form 8-K to be filed upon consummation.
• Remediate identified material weaknesses in internal controls over financial reporting, with an expectation to complete this in the second quarter of 2024.
• Invest in information technology systems to enhance operational and financial reporting and internal controls.
• Enhance the organizational structure to support financial reporting processes and internal controls.
• Provide guidance, education, and training to employees relating to accounting policies and procedures.
• Further develop and document detailed policies and procedures regarding business processes for significant accounts, critical accounting policies, and critical accounting estimates.
• Establish effective general controls over information technology systems.
• Raise approximately $40 million through equity issuance, leveraged buyout, and debt financing to support strategic initiatives and acquisitions.
• Utilize approximately $5.9 million for operating activities and $30 million for capital expenditures over the next twelve months (from December 31, 2024).
• Expand fish farming demo sites in Taiwan by adding 20 units of RAS eel farming equipment.
• Build a catfish farm in the U.S. by the end of 2024.
• Continue to promote fish farming systems to the global market and seek more customers from various countries.
• Evaluate settlement with the estate of Mr. Yin-Chieh Cheng for outstanding obligations over a 12-month period beginning January 25, 2025.

Key Dates

Recommendation

Keywords

Nocera, SEC filing, 10-Q/A, quarterly report, financial results, aquaculture, fish farming, RAS, Recirculation Aquaculture Systems, e-commerce, catering, fish trading, Taiwan, China, financial performance, net loss, revenue, gross profit, operating expenses, cash flow, liquidity, going concern, internal controls, material weaknesses, capital raise, SEC compliance, HFCAA, delisting risk, corporate governance, financial reporting