10-Q: Nocera Reports Steep Q2 Loss Amid Revenue Decline

Nocera, Inc. reported a significant net loss and revenue decline for the second quarter and first half of 2025, alongside ongoing liquidity concerns and internal control weaknesses.

Summary

• Revenue for the six months ended June 30, 2025, decreased to $8,505,844 from $11,652,992 in the comparable period of 2024, primarily due to decreases in the Meixin catering business and fish trading.
• Gross profit for the six months ended June 30, 2025, was $83,404, down from $129,748 in the prior year period.
• Net loss attributable to the company for the six months ended June 30, 2025, significantly widened to $739,725, compared to a net loss of $204,153 for the same period in 2024.
• Cash and cash equivalents stood at $150,130 as of June 30, 2025, a substantial decrease from $484,161 at December 31, 2024.
• The company reported an accumulated deficit of $21,978,606 as of June 30, 2025.
• Net cash used in operating activities improved to $320,289 for the six months ended June 30, 2025, from $700,577 in the prior year period.
• Nocera sold its controlling interest in SY Culture for $550,000 cash, recognizing a loss of $87,332.
• The company acquired a 35% equity interest in Tachyonext Inc., an e-commerce operator, for $500,000 cash.

Sentiment

Score: 2

Explanation: The company faces severe financial challenges, including significant losses, declining revenue, and a going concern warning. While there are strategic growth plans and efforts to address internal controls, the current financial state and high operational risks, compounded by HFCAA delisting risk, indicate a very negative outlook.

Positives

• Net cash used in operating activities decreased to $320,289 for the six months ended June 30, 2025, from $700,577 in the comparable prior year period, indicating improved operational cash efficiency.
• General and administrative expenses decreased to $570,693 for the six months ended June 30, 2025, from $805,906 in the comparable prior year period, reflecting cost control efforts.
• Strategic acquisition of a 35% equity interest in Tachyonext Inc. for $500,000 diversifies the company's e-commerce operations.
• The company is actively planning to expand its land-based fish farming demo sites in Taiwan and build a catfish farm in the U.S. by the end of 2024, indicating future growth initiatives.
• Management has taken steps to address internal control weaknesses, including establishing an audit committee with independent directors and hiring experienced accounting personnel.

Negatives

• Revenue for the six months ended June 30, 2025, significantly decreased by 27% to $8,505,844 from $11,652,992 in the comparable period of 2024.
• Net loss attributable to the company widened substantially to $739,725 for the six months ended June 30, 2025, compared to a net loss of $204,153 in the prior year period.
• Cash and cash equivalents declined sharply to $150,130 as of June 30, 2025, from $484,161 at December 31, 2024.
• The company has an accumulated deficit of $21,978,606 as of June 30, 2025, and auditors have expressed concern about its ability to continue as a going concern.
• Gross profit decreased to $83,404 for the six months ended June 30, 2025, from $129,748 in the comparable period of 2024.
• The company recognized a loss of $87,332 on the disposal of its SY Culture subsidiary.
• Significant customer concentration exists, with one customer (Customer A) representing 95.33% of total accounts receivable as of June 30, 2025.

Risks

• The company's auditors have expressed concern about its ability to continue as a going concern due to accumulated deficit and net losses.
• Exposure to inflation, including volatile commodity prices, freight, and fuel costs, which could negatively affect profit margins.
• Geopolitical conditions, trade disputes, and acts of war (e.g., Russia-Ukraine conflict) could disrupt operations, increase costs, and reduce sales.
• Foreign currency exchange rate fluctuations (NTD, HKD, RMB against USD) can impact reported revenue, operating expenses, and net income.
• Material weaknesses in disclosure controls and procedures, including lack of written documentation, insufficient monitoring of financial reporting, and inadequate segregation of duties.
• Risk of delisting from Nasdaq and prohibition of trading if the company remains identified as a Commission-Identified Issuer under the Holding Foreign Companies Accountable Act (HFCAA) for three consecutive years (or two years if AHFCAA is enacted), due to its auditor being located in Hong Kong and subject to PCAOB inspection limitations.
• Dependence on raising approximately $40 million in additional capital through equity issuance, leveraged buyout, and debt financing to support strategic initiatives and ongoing operations, with no assurance of success.

Future Outlook

The company plans to expand its sales and marketing model through online marketing, data intelligence, and establishing a distributor network, aiming to sell and develop fish farms in Taiwan, the U.S., and Brazil. It expects to sell over five thousand tanks in the next five years and intends to establish production facilities in Taiwan to serve American and European markets. The company also plans to enhance market penetration by establishing its own fish farms and diversifying revenue streams through various sales channels, including its e-commerce business in China utilizing platforms like Douyin.

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 currently expect to raise approximately $40 million through a combination of equity issuance, a leveraged buyout transaction, and debt financing."
• "These funds are intended to support our capital-intensive strategic initiatives, including business combinations and acquisitions aligned with our long-term growth strategy."
• "We expect to utilize approximately $5.9 million to support operating activities over the next twelve months."
• "We plan to allocate approximately $30 million toward capital expenditures, primarily for business combination and acquisition transactions."
• "Management believes that the anticipated financing arrangements will provide sufficient liquidity to meet our obligations as they come due and to fund the Company’s ongoing and planned strategic initiatives over the next twelve months."

Industry Context

Nocera operates in the aquaculture and food processing sectors, with a growing emphasis on Recirculation Aquaculture Systems (RAS) and e-commerce. The aquaculture industry is experiencing global demand growth due to decreasing wild fisheries production, positioning RAS as a sustainable solution. The company's expansion into e-commerce live streaming aligns with broader trends in digital retail and social commerce, particularly in markets like China (Douyin). The focus on land-based fish farming also taps into the 'Green Power and Solar Sharing Fish Farms' initiative in Taiwan, reflecting a move towards environmentally conscious and technologically advanced food production.

Comparison to Industry Standards

• The company's significant net losses and accumulated deficit, coupled with a going concern warning, indicate performance well below industry standards for sustainable operations.
• Customer concentration, with one customer accounting for 95.33% of accounts receivable, is a high risk compared to diversified industry benchmarks, making the company vulnerable to changes in that customer relationship.
• The identified material weaknesses in internal controls over financial reporting are a significant deviation from best practices in corporate governance and financial transparency, which are standard for publicly traded companies.
• While the company is pursuing growth in RAS technology, a sector with high growth potential, its current financial instability and limited cash reserves ($150,130) are far below the capital requirements typically seen for large-scale aquaculture expansion projects by established industry players like AquaBounty Technologies or Atlantic Sapphire, which require substantial capital for facility construction and operational scaling.
• The sale of SY Culture at a loss, shortly after its acquisition, suggests potential issues with integration or strategic fit, contrasting with successful acquisition strategies seen in more mature industry consolidations.

Management Changes

Corporate Governance

Related Party Transactions

• Outstanding balance of $7,681 due to Mountain Share Transfer, LLC, a company 100% controlled by Erik S. Nelson, a stockholder, for daily operation purposes.
• Outstanding balance of $19,435 due to the Estate of Mr. Yin-Chieh Cheng, former CEO/Chairman, related to a prior arrangement, with settlement being evaluated over a 12-month period starting January 25, 2025.
• Outstanding balance of $946 due to Feng-Hua Chen, the Chief Operating Officer, for daily operation purposes.

Stakeholder Impact

• **Shareholders:** Significant dilution risk from potential equity issuance for capital raise. Existing shareholders face substantial losses due to declining financial performance and accumulated deficit. The HFCAA delisting risk poses a direct threat to the liquidity and value of their holdings.
• **Employees:** The company's going concern doubt and financial instability could lead to job insecurity or impact future compensation and benefits, despite efforts to enhance organizational structure and provide training.
• **Customers:** Potential impact on product availability or service quality if financial difficulties persist or if the company's strategic shifts affect operational stability. High customer concentration in certain segments creates dependency.
• **Suppliers:** Risk of delayed payments or renegotiated terms due to the company's liquidity challenges and reliance on future capital raises.
• **Creditors:** Increased risk of default given the going concern warning and the need for significant new financing. Existing debt holders may face challenges in repayment.

Next Steps

• Remediate material weaknesses in disclosure controls and procedures in the second half of 2025.
• Invest in information technology systems to enhance operational and financial reporting and internal controls.
• Enhance 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.
• Continue efforts to raise approximately $40 million through equity issuance, leveraged buyout, and debt financing.
• Continue ensuring all requirements and evaluations are thoroughly addressed prior to constructing any RASs on the Alabama land.
• Progress with the design of RAS equipment in alignment with project timelines.
• Expand land-based 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 to promote fish farming systems to the global market.
• Evaluate settlement with the estate of Mr. Yin-Chieh Cheng for prior arrangements.

Key Dates

Recommendation

The company's financial performance is severely deteriorating, marked by a significant decline in revenue, widening net losses, and a sharp drop in cash reserves. The auditors' explicit 'going concern' warning highlights fundamental doubts about the company's ability to continue operations. Furthermore, the identified material weaknesses in internal controls indicate significant governance and financial reporting risks. The ongoing threat of delisting due to the HFCAA adds substantial regulatory risk and uncertainty to the stock's future liquidity and value. While management plans a large capital raise and strategic expansions, the current financial distress and operational challenges make the success of these initiatives highly speculative and risky for investors. The negatives overwhelmingly outweigh any potential positives, warranting a strong sell recommendation.

Keywords

Aquaculture, Fish Farming, RAS, Recirculation Aquaculture Systems, E-commerce, Food Processing, Catering, Taiwan, China, SEC Filing, 10-Q, Financial Results, Going Concern, Internal Controls, HFCAA