10-K/A: Nocera, Inc. Restates 2024 Interim Financials Amidst Significant Losses and Nasdaq Delisting Concerns

Nocera, Inc. has filed an amended annual report for 2024, restating prior interim financial statements due to errors in warrant liability calculations and asset misclassifications, revealing continued net losses and raising substantial doubt about its ability to continue as a going concern.

Summary

• Nocera, Inc. filed an Amendment No. 1 to its Annual Report on Form 10-K for the fiscal year ended December 31, 2024, restating unaudited interim condensed consolidated financial statements for the quarters ended March 31, June 30, and September 30, 2024.
• The restatement corrects errors related to the fair value calculation of warrant liabilities, which were not appropriately remeasured, and non-current asset and liability misclassifications.
• The company inadvertently recognized an e-commerce business contract as other non-current assets and accounts payable instead of revenue, which has now been corrected.
• Nocera reported a net loss of $2,393,803 for the year ended December 31, 2024, an improvement from a net loss of $4,159,354 in 2023.
• Net sales decreased by 28.3% to approximately $17.01 million in 2024, down from $23.9 million in 2023, primarily due to a downturn in the fish market and significant loss of eel fry.
• The company's gross profit increased to $334,261 in 2024 from $194,959 in 2023, driven by increased demand in the e-commerce business.
• Nocera recognized a non-cash goodwill impairment charge of $1,159,172 in 2024, primarily related to the Meixin reporting unit due to the loss of a major customer.
• As of December 31, 2024, Nocera had an accumulated deficit of $21,238,881 and net cash used in operating activities of $1,574,709.
• The company received a Nasdaq deficiency letter for its common stock closing bid price falling below $1.00, with a compliance date of July 14, 2025.
• Nocera plans to raise approximately $40 million through equity issuance, a leveraged buyout, and debt financing to support strategic initiatives and cover an estimated $5.9 million in operating activities and $30 million in capital expenditures over the next twelve months.

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative due to significant financial distress, including substantial net losses, negative operating cash flow, accumulated deficit, and explicit auditor concerns about going concern. The Nasdaq delisting risk, internal control weaknesses leading to restatements, and revenue decline further contribute to a very poor outlook, despite some strategic growth plans and a capital raise attempt.

Positives

• The company's net loss decreased to $2.39 million in 2024 from $4.16 million in 2023, indicating an improvement in overall profitability.
• Gross profit increased to $334,261 in 2024 from $194,959 in 2023, primarily due to increased demand in the e-commerce business.
• General and administrative expenses decreased to $2.1 million in 2024 from $2.3 million in 2023, reflecting better cost control.
• The company recorded a non-cash gain of $797,269 related to the fair value measurement of warrant liabilities in 2024, compared to $305,652 in 2023.
• Nocera has diversified its business into e-commerce and catering services, with SY Culture and Xinca generating revenue and gross profit in 2024.
• Management has developed a liquidity plan and obtained a financial support letter from a principal stockholder's estate, aiming to meet anticipated cash needs for at least the next 12 months.
• The company has established a new auditor, Enrome LLP, as of October 16, 2024, which may signal a commitment to improved financial oversight.

Negatives

• The company incurred a net loss of $2,393,803 in 2024 and has an accumulated deficit of $21,238,881 as of December 31, 2024, raising substantial doubt about its ability to continue as a going concern.
• Net sales decreased significantly by 28.3% to $17.01 million in 2024 from $23.9 million in 2023, primarily due to a downturn in the fish market and a significant loss of eel fry.
• The fish trading business experienced a decrease in volume from 1,083 tons in 2023 to 770 tons in 2024.
• The catering business saw a decrease in bento box volume from 80,640 to 65,376 boxes and a decrease in fruit and vegetable processing volume from 438,310 kg to 310,302 kg.
• The company recognized a substantial non-cash goodwill impairment charge of $1,159,172 in 2024, reflecting a reduced long-term outlook for the Meixin reporting unit.
• Net cash used in operating activities increased to $1,574,709 in 2024 from $1,084,595 in 2023, indicating a worsening cash burn from core operations.
• Cash and cash equivalents decreased significantly to $484,161 as of December 31, 2024, from $1,229,580 in 2023.
• The company received a Nasdaq deficiency letter for its common stock bid price falling below $1.00, indicating a risk of delisting.
• The restatement of previously issued interim financial statements highlights material weaknesses in internal control over financial reporting, including a lack of sufficient personnel with GAAP/SEC experience, inadequate accounting systems, and insufficient oversight of cash balances.
• The company's reliance on a single product (eel) for approximately 98% of its revenues makes it highly susceptible to market demand changes and environmental factors.
• The inability to provide complete financial information for the 2022 Meixin acquisition previously restricted the company from using Form S-3 for securities offerings until after February 2025, potentially hindering future capital access.

Risks

• There is substantial doubt about the company's ability to continue as a going concern due to incurred net losses, accumulated deficit of $21,238,881, and negative cash flow from operations.
• The company has a limited operating history in an evolving industry, making it difficult to evaluate future prospects and increasing the risk of failure.
• Failure to raise additional capital when needed would have a material adverse effect on the business, financial condition, and results of operations.
• The company may not generate the same level of revenues from its shift away from general construction projects to fish farms and fish trading.
• There is no assurance that the company will be profitable in the future or that profitability will be sustained.
• The company may not have the ability to effectively manage its anticipated significant expansion, which could strain management, operational, and financial resources.
• The company relies heavily on its executive officers, and the loss of key personnel could impair its business.
• The company may have inadvertently violated Section 13(k) of the Exchange Act by depositing funds into a former executive's personal account, potentially leading to civil or criminal sanctions.
• Future acquisitions may have an adverse effect on the company's ability to manage its business due to integration challenges, unforeseen liabilities, and diversion of resources.
• The value of seafood, particularly eel, which accounts for approximately 98% of revenues, is subject to fluctuation, leading to volatility in results of operations.
• Risks associated with outsourced production, such as delivery delays, product defects, and inadequate capacity, could decrease profit.
• The company has limited insurance coverage for its operations in Taiwan, exposing it to substantial costs in case of loss or litigation.
• Competitors may develop products and technologies that make Nocera's offerings obsolete or garner greater market share, especially as Nocera does not own any trademarks or patents.
• The company is subject to certain risks by virtue of its international operations, including compliance with foreign laws, currency fluctuations, political instability, and trade disputes.
• A significant disruption in the operations of suppliers in Taiwan, due to natural disasters, trade wars, or political unrest, could materially adversely affect the business.
• The company faces a risk of delisting from Nasdaq if it remains identified as a Commission-Identified Issuer for three consecutive years (or two years if the AHFCAA is enacted) due to its auditor being located in Hong Kong, which was previously inaccessible for PCAOB inspection.
• The company has identified material weaknesses in its internal control over financial reporting, including a lack of sufficient personnel with GAAP/SEC experience, inadequate accounting systems, and insufficient oversight of cash balances, which could lead to inaccurate financial reporting or fraud.
• The large number of authorized but unissued shares of common stock (approximately 178 million) could dilute current ownership positions if issued.
• Future sales or perceived sales of currently issued and outstanding shares, particularly restricted securities becoming freely tradable under Rule 144, could depress the trading price of the common stock.
• The company's common stock may continue to be subject to illiquidity and price fluctuations, and an active, liquid, and orderly market may not develop or be sustained.
• The company's inability to use Form S-3 for securities offerings due to past financial reporting issues (e.g., Meixin acquisition) could adversely affect its ability to access capital and hinder growth strategies.

Future Outlook

Nocera plans to grow its existing operations in Taiwan and expand into the development and management of land-based fish farms in Taiwan, North America, and South America, with no current intentions of operating in China or Hong Kong. The company aims to become a global leader in land-based aquaculture, expecting to sell over five thousand tanks in the next five years. It intends to establish production facilities in Taiwan to serve American and European markets and build fish farming demo sites in the U.S., Japan, and Thailand. The company also plans to enhance market penetration through its own fish farms and diversify revenue streams via various sales channels, including expanding its e-commerce business in China using platforms like Douyin. Management anticipates that adverse factors such as limited eel fry catch and increased natural disasters may continue to impact operating results in the near term, but is actively developing alternative aquaculture species and strengthening sales channels to mitigate these challenges. The company expects to raise approximately $40 million through equity issuance, a leveraged buyout, and debt financing to support capital-intensive strategic initiatives, including business combinations and acquisitions, and to fund estimated operating costs and capital expenditures over the next twelve months.

Management Comments

• "Our current mission is to provide consulting services and solutions in aquaculture projects to reduce water pollution and decrease the disease problems of fisheries."
• "Our goal is to become a global leader in the land-based aquaculture business."
• "We are now poised to grow our existing operations in Taiwan and expand into the development and management of land-based fish farms in Taiwan and North and South America."
• "We do not currently have any intentions of conducting operations in China or Hong Kong."
• "We believe that the RASs, with its proven advantage in producing more fish in a more cost-effective and environmentally friendly manner while offering greater location flexibility and the potential for a solar-fish sharing mode, is a perfect solution to address the opportunities highlighted above."
• "We are confident that profitability can be achieved by optimizing management expenses and enhancing profit margins."
• "Management believes that its current cash balances coupled with anticipated cash flow from operating activities will be sufficient to meet its working capital requirements for at least one year from the date of issuance of the accompanying consolidated financial statements."
• "Management has concluded there is no substantial doubt about the Company's ability to continue as a going concern."

Industry Context

Nocera operates within the global aquaculture industry, which is experiencing rising fish consumption rates, outpacing other animal protein sources. This trend, coupled with overfishing concerns, is driving a shift towards farm-raised seafood. The company's focus on Recirculating Aquaculture Systems (RASs) aligns with the industry's need for more sustainable, controlled, and environmentally friendly seafood production methods, especially given the global transition towards net-zero carbon emissions and the potential for solar-fish sharing. The trade conflict between the U.S. and China also creates demand for non-Chinese origin seafood, which Nocera aims to capitalize on by expanding into North and South American markets. The company's diversification into e-commerce and catering reflects broader trends in food distribution and consumer preferences for direct-to-consumer channels and prepared foods.

Comparison to Industry Standards

• The document does not provide specific comparable companies, projects, or results to assess Nocera's performance against global industry benchmarks. Therefore, a direct comparison is not possible based on the provided information.
• Nocera's RASs are described as cylindrical tanks holding approximately 15,000 U.S. gallons of water, which the company believes makes them among the largest systems in the market, but no specific industry benchmarks for size or efficiency are provided for direct comparison.
• The company states that the market for aquaculture projects and services is highly competitive, with many large entities having significantly greater resources, implying Nocera operates at a disadvantage compared to larger, established players.
• Nocera's strategy to sell RASs at a 'better price point' due to the size of its projects suggests a competitive advantage in cost, but no specific pricing benchmarks or competitor pricing data are provided.

Management Changes

Corporate Governance

Legal Proceedings

• The company is currently not a party to any legal or administrative proceedings and is not aware of any pending or threatened legal or administrative proceedings against it in all material aspects.

Related Party Transactions

• As of December 31, 2024, $7,681 was due to Mountain Share Transfer, LLC, a company 100% controlled by Erik S. Nelson, a former corporate secretary and director.
• As of December 31, 2024, $19,435 was due to the Estate of Mr. Yin-Chieh Cheng, the former President, Chief Executive Officer, Chairman of the Board, and principal stockholder.
• On January 25, 2025, the company obtained a financial support letter from Ms. Min-Huay Cheng Lu, the estate of Mr. Yin-Chieh Cheng, agreeing to settle loans, debt, and other liabilities owed to the estate over a 12-month period starting January 25, 2025.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from potential future equity issuances (up to $40 million capital raise) and the large pool of authorized but unissued shares. The Nasdaq delisting risk could severely impair their ability to trade shares and negatively impact share price. The material weaknesses in internal controls and financial restatements may erode confidence and affect investment value. No dividends are expected in the foreseeable future, meaning returns depend solely on stock appreciation.
• **Employees**: The company's ability to continue as a going concern directly impacts job security. The focus on attracting, retaining, and incentivizing qualified personnel, along with equity and cash incentive plans, suggests efforts to maintain employee morale and performance despite financial challenges.
• **Customers**: The downturn in the fish market and loss of eel fry could affect product availability and consistency. However, the company's efforts to diversify aquaculture species and expand sales channels aim to ensure continued service and product offerings. The shift away from general construction services means certain customer segments will no longer be served.
• **Suppliers**: The company's reliance on local Taiwanese suppliers and plans for global expansion suggest continued demand for raw materials and equipment. However, the company's financial instability and need for additional capital could pose payment risks to suppliers if not managed effectively.
• **Creditors**: The company's accumulated deficit, net losses, and negative operating cash flow raise concerns about its ability to meet financial obligations. The plan to raise $40 million through debt financing, among other means, indicates a reliance on new creditors, who will face the inherent risks of a company with going concern doubts.

Next Steps

• Regain compliance with Nasdaq's minimum bid price rule by July 14, 2025, potentially through a reverse stock split.
• Continue to improve and develop the scale of operations, focusing on growing existing product offerings and customer base.
• Execute plans to secure funding, reduce costs, and improve liquidity, including raising approximately $40 million through equity issuance, leveraged buyout, and debt financing.
• Allocate approximately $5.9 million to support operating activities over the next twelve months, including $5.0 million for the fish business, $0.7 million for G&A, and $0.2 million for e-commerce marketing.
• Allocate approximately $30 million toward capital expenditures, primarily for business combination and acquisition transactions.
• Actively develop the cultivation of alternative aquaculture species to diversify product offerings and mitigate impacts from eel fry availability.
• Expand and strengthen various sales channels to enhance market reach and drive revenue growth.
• Establish production facilities in Taiwan and build land-based fish farming demo sites in the U.S., Japan, and Thailand to promote fish farming systems globally.
• 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 IT systems to ensure reliable information for financial reporting.
• Add experienced accounting and financial personnel and retain third-party consultants to review internal controls and recommend improvements, aiming to remediate material weaknesses in 2025.

Key Dates

Recommendation

Keywords

Aquaculture, Recirculating Aquaculture Systems, RAS, Fish Farming, Eel Trading, Catering Services, E-commerce, SEC Filing, 10-K/A, Financial Restatement, Going Concern, Nasdaq Listing, Warrant Liabilities, Goodwill Impairment, Taiwan, China, Corporate Governance, Internal Controls