Nocera, Inc 10-Q for FY2021 Q3
Nocera, Inc. (NCRA)
About this 10-Q
Nocera, Inc filed this 10-Q on November 15, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $18.37K
- up 546.2% from $2842 a year earlier
- Net loss
- $275.12K
- compared with a net loss of $715.58K a year earlier
- Diluted EPS
- -$0.03
- compared with -$0.05 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
FOR THE QUARTERLY PERIOD ENDED
OR
FOR THE TRANSITION PERIOD FROM _______ TO ___________
COMMISSION FILE NO.:
(Exact name of registrant as specified in charter)
| (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
(Address of principal executive offices and zip code)
(Registrant’s telephone number, including area code)
_____________________________________
(Former name or former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| N/A | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “small reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
☐
The aggregate market value of the registrant's issued and outstanding shares of common stock held by non-affiliates of the registrant as of June 29, 2020 based on $0.26 per share, the price at which the registrant’s common stock was last sold on June 29, 2020, was approximately $93,548.
There were shares outstanding of the registrant’s common stock, par value $0.001 per share, as of November 12, 2021.
TABLE OF CONTENTS
| PART I | FINANCIAL INFORMATION | 3 |
| ITEM 1. | INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | 3 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 20 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 24 |
| ITEM 4. | CONTROLS AND PROCEDURES | 24 |
| PART II | OTHER INFORMATION | 27 |
| ITEM 1. | LEGAL PROCEEDINGS | 27 |
| ITEM 1A. | RISK FACTORS | 27 |
| ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 27 |
| ITEM 3 | DEFAULTS UPON SENIOR SECURITIES | 27 |
| ITEM 4 | MINE SAFETY DISCLOSURES | 27 |
| ITEM 5 | OTHER INFORMATION | 27 |
| ITEM 6 | EXHIBITS | 28 |
| SIGNATURES | 29 | |
| 2 |
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NOCERA, INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars except for Number of Shares)
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | ||||||||
| Account receivables, net | ||||||||
| Inventories | ||||||||
| Advance to suppliers | ||||||||
| Prepaid expenses and other assets, net | ||||||||
| Due from a related party | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Retention receivables | ||||||||
| Deferred tax asset, net | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| LIABILITIES | ||||||||
| Current liabilities | ||||||||
| Notes payable | ||||||||
| Accounts payable | ||||||||
| Other payables and accrued liabilities | ||||||||
| Advance receipts | ||||||||
| Due to related parties | ||||||||
| Warrant liability | ||||||||
| Income tax payable | ||||||||
| Bank borrowing | ||||||||
| Total current liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies | ||||||||
| EQUITY | ||||||||
| Common stock ($ par value; authorized shares; shares and shares issued and outstanding as of September 30, 2021 and December 31, 2020) | ||||||||
| Preferred stock ($ par value; authorized shares; shares issued and outstanding as of September 30, 2021) | ||||||||
| Additional paid-in capital | ||||||||
| Statutory and other reserves | ||||||||
| Retained earnings | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL NOCERA, INC.’S STOCKHOLDERS’ EQUITY | ||||||||
| Non-controlling interests | ||||||||
| TOTAL STOCKHOLDER EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDER EQUITY | ||||||||
See notes to the condensed consolidated financial statements.
| 3 |
NOCERA, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Stated in US Dollars except for Number of Shares)
(UNAUDITED)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Net sales | ||||||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross (loss) profit | ( | ) | ||||||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income | ( | ) | ( | ) | ||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Net loss attributable to non-controlling interests | ( | ) | ||||||||||||||
| Net loss attributable to the company | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive (loss) income | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign currency translation (loss) gain | ( | ) | ( | ) | ||||||||||||
| Total comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: comprehensive loss attributable to non-controlling interest | ( | ) | ||||||||||||||
| Comprehensive (loss) income attributable to the Company | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss per share | ||||||||||||||||
| Basic | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Diluted | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See notes to the condensed consolidated financial statements.
| 4 |
NOCERA, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in US Dollars except for Number of Shares)
(UNAUDITED)
| Nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| $ | $ | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation expenses | ||||||||
| Amortization | ||||||||
| Impairment of GZWFH | ||||||||
| Deferred income tax | ||||||||
| Share-based compensation | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Advance to suppliers | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets, net | ( | ) | ( | ) | ||||
| Operating lease right-of-use asset | ||||||||
| Retention receivables | ||||||||
| Accounts payable | ||||||||
| Notes payable | ||||||||
| Advance from customers | ||||||||
| Advance receipts | ||||||||
| Warrant Liability | ||||||||
| Other payables and accrued liabilities | ||||||||
| Income tax payable | ||||||||
| Deferred revenue | ( | ) | ||||||
| Operating lease liability | ( | ) | ||||||
| Amount due from a related party | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash paid for purchase of property | ( | ) | ( | ) | ||||
| Cash paid for intangible assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Bank borrowing | ( | ) | ( | ) | ||||
| Proceeds from related parties | ||||||||
| Repayment to related parties | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ) | ||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of year | ||||||||
| Cash and cash equivalents at end of year | ||||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest expenses | ||||||||
| Cash paid for Income taxes | ||||||||
See notes to the condensed consolidated financial statements.
| 5 |
NOCERA, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Stated in US Dollars except Number of Shares)
(UNAUDITED)
| Additional | Statutory and | Accumulated Other | Total Nocera, Inc.’s Stockholders’ | Non- | Total Stockholders’ | |||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid in | other | Retained | Comprehensive | Equity | controlling | Equity | ||||||||||||||||||||||||||||||||
| Stock | Amount | Stock | Amount | Capital | Reserves | Earnings | Loss | (Deficit) | Interests | (Deficit) | ||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Balance, January 1, 2020 | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | ( | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Share based compensation | – | – | ||||||||||||||||||||||||||||||||||||||
| Net income (loss) | – | – | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | ||||||||||||||||||||||||||||||||||||||
| Issuance of new shares | – | ( | ) | |||||||||||||||||||||||||||||||||||||
| Share based compensation | – | – | ||||||||||||||||||||||||||||||||||||||
| Net income (loss) | – | – | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | ( | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | ||||||||||||||||||||||||||||||||||||||
| Share based compensation | – | – | ||||||||||||||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2020 | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2021 | ( | ) | ( | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | ( | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Share based compensation | – | – | ||||||||||||||||||||||||||||||||||||||
| Net income | – | – | ||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ) | ( | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | ||||||||||||||||||||||||||||||||||||||
| Share based compensation | – | – | ||||||||||||||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | ( | ) | ( | |||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | ||||||||||||||||||||||||||||||||||||||
| Share based compensation | – | |||||||||||||||||||||||||||||||||||||||
| Common stock and warrant issuance | – | |||||||||||||||||||||||||||||||||||||||
| Preferred stock and warrant issuance | – | |||||||||||||||||||||||||||||||||||||||
| Changes in fair value of warranty liabilities | – | – | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | ( | ) | ( | |||||||||||||||||||||||||||||||||||||
See notes to the condensed consolidated financial statements.
| 6 |
NOCERA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1 PRINCIPAL ACTIVITIES AND ORGANIZATION
The consolidated financial statements include the financial statements of Nocera, Inc. (“Nocera” or the “Company”) and its subsidiaries, Grand Smooth Inc Limited (“GSI”) and Guizhou Grand Smooth Technology Ltd. (“GZ GST” or “WFOE”), and Xin Feng Construction Co., Ltd. (“XFC”) that is controlled through contractual arrangements. Nocera, GSI, GZ GST and XFC are collectively referred to as the “Company”.
Nocera was incorporated in the State of Nevada on February 1, 2002 and is based in New Taipei City, Taiwan (R.O.C). It did not engage in any operations and was dormant from its inception until its reverse merger of GSI on December 31, 2018.
The Company currently provides Land-Based Recirculation Aquaculture Systems (“RAS”) for fish farming. Our primary business operations consist of the design, development and production of RAS large scale fish tank systems, for fish farms along with expert consulting, technology transfer, and aquaculture project management services to new and existing aquaculture management business services.
Reverse merger
Effective December 31, 2018, Nocera completed a reverse merger transaction (the “Transaction”) pursuant to an Agreement and Plan of Merger (the “Agreement”), with (i) GSI, (ii) GSI’s shareholders, Yin-Chieh Cheng and Bi Zhang, who together owned shares constituting 100% of the issued and outstanding ordinary shares of GSI (the “GSI Shares”) and (iii) GSI Acquisition Corp. Under the terms of the Agreement, the GSI Shareholders transferred to Nocera all of the GSI Shares in exchange for the issuance of 10,000,000 shares (the “Shares”) of Nocera’s common stock (the “Share Exchange”). As a result of the reverse merger, GSI became Nocera’s wholly-owned subsidiary and Yin-Chieh Cheng and Bi Zhang, the former shareholders of GSI, became Nocera’s controlling shareholders. The share exchange transaction with GSI was treated as a reverse merger, with GSI as the accounting acquirer and Nocera as the acquired party.
GSI is a limited company established under the laws and regulations of Hong Kong on August 1, 2014, and is a holding company without any operation.
GZ WFH was incorporated in Xingyi City, Guizhou Province, People’s Republic of China (“PRC”) on October 25, 2017, and is engaged in providing fish farming containers service, which integrates sales, installments, and maintenance of aquaculture equipment. The registered capital of GZ WFH is RMB$5,000,000 (equal to US$733,138).
On November 13, 2018, GSI incorporated GZ GST in PRC with registered capital of US$15,000.
Divestiture
On September 21, 2020, the Company filed a current report on Form 8-K outlining the lack of communication that leads to the termination by Nocera, Inc. of its relationship with Guizhou Wan Feng Hu Intelligent Aquatic Technology Co. Limited (“GZ WFH”) and its management, and termination of the Variable Interest Entity agreements between the parties.
Subsequently on October 8, 2020, Zhang Bi and GZ WFH entered into a Settlement Agreement and Release with Nocera, Inc. wherein all claims as to GZ WFH’s debt (claim to shares in Nocera, Inc. or GZ GST) were compromised, settled, and otherwise resolved as to any and all claims or causes of action whatsoever against Nocera for any matter, action, or representation as to Nocera, and any debt to ownership of Nocera or GZ GST up to the date of the agreement. The consideration for the agreement was mutual waiver of any and all claims against each other and GZ GST, and GZ WFH (including Zhang Bi) waives any claims to Nocera stock, meaning the 4,750,000 shares of common stock of Nocera owned by Zhang Bi were cancelled as part of the agreement. The Settlement Agreement and Release is attached hereto as Exhibit _____.
| 7 |
The VIE Agreements
On December 31, 2020, Nocera and XFC, a domestic funded limited liability company registered in Taiwan (R.O.C), entered into a series of contractual agreements (“VIE Agreements”) whereby Nocera, Inc. agreed to provide technical consulting and related services to XFC. As a result, Nocera has been determined to be the primary beneficiary of XFC and XFC became VIE (Variable Interest Entity) of Nocera.
On December 31, 2020, Nocera exchanged 700,000 shares of the Company’s restricted common stock to Shareholders of XFC in exchange for 100% controlling interest in XFC.
The VIE structure was adopted mainly because the China and Taiwan (R.O.C.) operating company may in the future engage in business that may require special licenses in China and which can be an industry that prohibits foreign investment. WFOE has entered into the following contractual arrangements with a stockholder of XFC, that enable the Company to (1) have the power to direct the activities that most significantly affects the economic performance of XFC, and (2) receive the economic benefits of XFC that could be significant to XFC. The Company is fully and exclusively responsible for the management of XFC, assumes all of the risk of losses of XFC and has the exclusive right to exercise all voting rights of XFC’s stockholder. Therefore, in accordance with ASC 810 "Consolidation", the Company is considered the primary beneficiary of XFC and has consolidated XFC’s assets, liabilities, results of operations, and cash flows in the accompanying consolidated financial statements.
(1) Voting Rights Proxy Agreement & Power of Attorney. Mr. Tsai, Wen-Chih, Ms. Tu, Hui-Min, Mr. Tsai, Chin-Yao, and Mr. Tsai, Chin-Chao (Existing Stockholders) hereby irrevocably undertake that they authorize Nocera or the individual then designated by Nocera (“Attorney”) to exercise, on his behalf, the following rights available to them in their capacity as a stockholder of the XFC under the then effective articles of association of the XFC (collectively, “Powers”): (a) to propose the convening of, and attend, stockholders’ meetings in accordance with the articles of association of the XFC on behalf of the Existing Stockholder; (b) to exercise voting rights on behalf of the Existing Stockholder on all matters required to be deliberated and resolved by the stockholders’ meeting, including without limitation the appointment and election of the directors and other executives to be appointed and removed by the stockholders, of the XFC the sale or transfer of all or part of the equity held by stockholders in the XFC; (c) to exercise other stockholders’ voting rights under the articles of association of the XFC (including any other stockholders’ voting rights stipulated upon an amendment to such articles of association); (d) other voting rights that stockholders shall enjoy under the Taiwan (R.O.C.) laws, as amended, revised, supplemented and re-enacted, no matter whether they take effect before or after the conclusion of this Agreement. The Existing Stockholders shall not revoke the authorization and entrustment accorded to the Attorney other than in the case where Nocera gives the Existing Stockholders a written notice requesting the replacement of the Attorney, in which event the Existing Stockholders shall immediately appoint such other person as then designated by Nocera to exercise the foregoing Powers and such new authorization and entrustment shall supersede, immediately upon its grant, the original authorization, and entrustment.
(2) Exclusive Business Cooperation Agreement. Nocera agrees to provide technical consulting and services including management consulting services, general and financial advisory service and various general and administrative service, for the specific content thereof (hereinafter referred to as the “Target Business”) to the XFC as the technical consulting and service provider of the XFC in accordance with the conditions set forth herein during the term of this Agreement. XFC agrees to accept the technical consulting and services provided by Nocera. XFC further agrees that, without the prior written consent of Nocera, during the term of this Agreement, it shall not accept any technical consulting and services identical or similar to Target Business that are provided by any third party.
(3) Equity Pledge Agreement. Under the Equity Interest Pledge Agreement between Nocera and Mr. Tsai, Wen-Chih, Ms. Tu, Hui-Min, Mr. Tsai, Chin-Yao, and Mr. Tsai, Chin-Chao, the stockholder of XFC, stockholder pledged all of his equity interests in XFC to Nocera to guarantee the performance of XFC’s obligations under the Exclusive Business Cooperation Agreement. Under the terms of the agreement, in the event that XFC or stockholders breach their respective contractual obligations under the Exclusive Business Cooperation Agreement, Nocera, as pledge, will be entitled to certain rights, including, but not limited to, the right to collect dividends generated by the pledged equity interests. Zhang Bi also agreed that upon the occurrence of any event of default, as set forth in the Equity Interest Pledge Agreement, Nocera is entitled to claim indemnity.
(4) Exclusive Call Option Agreement. XFC and its stockholders, Mr. Tsai, Wen-Chih, Ms. Tu, Hui-Min, Mr. Tsai, Chin-Yao, and Mr. Tsai, Chin-Chao, have entered into an Exclusive Call Option Agreement with Nocera. Under the Exclusive Call Option Agreement, the XFC stockholders irrevocably granted Nocera (or its designee) an exclusive option to purchase, to the extent permitted under Taiwan (R.O.C.) law, part or all of their equity interests in XFC. According to the Exclusive Call Option Agreement, the purchase price shall be the minimum price permitted by applicable Taiwan (R.O.C.) Law at the time when such share transfer occurs.
| 8 |
Note 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required for complete financial statements and should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on May 14, 2021.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair presentation of the Company’s unaudited condensed consolidated financial position as of September 30, 2021, its consolidated results of operations for the nine months ended September 30, 2021, cash flows for the nine months ended September 30, 2021 and change in equity for the nine months ended September 30, 2021, as applicable, have been made. Operating results for the nine months ended September 30, 2021 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2020 or any future periods.
Concentrations of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of accounts receivable. The Company conducts credit evaluations of its customers and suppliers, and generally does not require collateral or other security from them. The Company evaluates its collection experience and long outstanding balances to determine the need for an allowance for doubtful accounts. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.
There were two customers who represent
The following table sets forth a summary of single customers who represent 10% or more of the Company’s total accounts receivable, net:
| Concentrations of credit risk | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| Percentage of the Company’s accounts receivable | ||||||||
| Customer A | ||||||||
| Customer B | ||||||||
| Customer C | ||||||||
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the Company applies the following steps:
| 9 |
| • | Step 1: Identify the contract (s) with a customer | |
| • | Step 2: Identify the performance obligations in the contract | |
| • | Step 3: Determine the transaction price | |
| • | Step 4: Allocate the transaction price to the performance obligation in the contract | |
| • | Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation |
The Company considered revenue is recognized when (or as) the Company satisfies performance obligations by transferring promised goods or services to its customers. Revenue is measured at the transaction price which is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised goods or services to its customers. Contracts with customers are comprised of invoices and written contracts.
The Company does not have arrangements for returns from customers and does not have any future obligations directly or indirectly related to services resale by customers. The Company has no sales incentive programs.
The Company provides goods, maintenance service warranties for the goods sold with a period vary from 18 months to 72 months, which majority are 18 months, and exclusive sales agency license to its customers. For performance obligation related to providing products, the Company expects to recognize the revenue according to the delivery of products. For performance obligation related to maintenance service warranties, the Company expects to recognize the revenue on a ratable basis using a time-based output method. The performance obligations are typically satisfied as services are rendered on a straight-line basis over the contract term, which is generally for 18 months as majority of the maintenance service warranties periods provided are 18 months. For performance obligation related to exclusive agency license, the Company recognizes the revenue ratably upon the satisfaction over the estimated economic life of the license.
The Company does not have amounts of contract assets since revenue is recognized as control of goods is transferred. The contract liabilities consist of advance payments from customers and deferred revenue. Advance payments from customer are expected to be recognized as revenue within 12 months. Deferred revenue is expected to be recognized as revenue within 12 months.
Recent Accounting Pronouncements
The FASB issued several updates during the period, none of these standards are either applicable to the Company or require adoption at a future date and none are expected to have a material impact on the consolidated financial statements upon adoption.
Note 3 ACCOUNTS RECEIVABLE, NET
As of September 30, 2021 and December 31, 2020, accounts receivable consisted of the following:
| Schedule of accounts receivable | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| Accounts receivable | ||||||||
| Less: Allowance for doubtful accounts | ||||||||
| Total | ||||||||
| 10 |
For the nine months ended September 30, 2021 and for the years ended December 31, 2020, the Company has recorded provision for doubtful accounts of nil.
Note 4 INVENTORIES
As of September 30, 2021 and December 31, 2020, inventories consisted of the following:
| Schedule of inventory | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| Raw materials | ||||||||
| Work in process | ||||||||
| Total | ||||||||
Note 5 PREPAID EXPENSES AND OTHER ASSETS, NET
| Schedule of prepaid expenses and other assets | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| Other receivables from third party | ||||||||
| Prepaid expenses and other assets, net | ||||||||
Note 6 PROPERTY AND EQUIPMENT, NET
As of September 30, 2021 and December 31, 2020, property and equipment consisted of the following:
| Schedule of property and equipment | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| Furniture and fixtures | ||||||||
| Equipment | ||||||||
| Leasehold improvement | ||||||||
| Vehicle | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | ||||||||
The Company recorded depreciation expenses of
$
| 11 |
Note 7 GOODWILL
As of September 30, 2021 and December 31, 2020, goodwill consisted of the following:
| Schedule of goodwill | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| Goodwill - XFC | ||||||||
| Less: Accumulated amortization | ||||||||
| Intangible assets, net | ||||||||
Note 8 LEASES
The Company has two non-cancelable lease agreements for certain of the office and accommodation as well as fish farming containers for research and develop advanced technology for water circulation applying in fishery with original lease periods expiring between 2022 and 2023. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise that option. The Company recognizes rental expense on a straight-line basis over the lease term.
The components of lease expense for the nine months ended September 30, 2021 and September 30, 2020 were as follows:
| Components of lease expenses | ||||||||||
| Statement of Income Location | Nine months ended September 30, 2021 |
Nine months ended September 30, 2020 | ||||||||
| (Unaudited) | (Unaudited) | |||||||||
| $ | $ | |||||||||
| Lease Costs | ||||||||||
| Operating lease expense | General and administrative expenses | |||||||||
| Total net lease costs | ||||||||||
Maturity of lease liabilities under our non-cancelable operating leases as of December 31, 2020 and September 30, 2021 are US$ nil.
Note 9 OTHER PAYABLES AND ACCRUED LIABILITIES
| Schedule of payables | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| VAT payable | ||||||||
| Salary payable | ||||||||
| Others | ||||||||
| Total | ||||||||
Note 10 WARRANTS
On April 1, 2021, the Company entered in a securities purchase agreement with certain investors for an aggregate of 80,000 shares of its preferred stock at a per share purchase price of $2.50. As part of the transaction, the investors received one C Warrant and one D Warrants for the subscription of each preferred share. The C Warrants consist of the right to purchase up to 80,000 shares of the Company’s common stock at an exercise price of $2.50 per share exercisable for 36 months from the date of inception. The D Warrants consist of the right to purchase up to 80,000 shares of the Company’s common stock at an exercise price of $5.00 per share exercisable for 36 months from the date of inception. The subscription was completed on August 10, 2021.
| 12 |
On September 27, 2021 the Company entered into another securities purchase agreement with the same investors, pursuant to which the Company issued in a registered direct offering, an aggregate of 48,000 shares of common stock of the Company at a per share purchase price of $2.50. In addition, the investors also received one C Warrant and one D Warrants for the subscription of each preferred share. The C Warrants consist of the right to purchase up to 48,000 shares of the Company’s common stock at an exercise price of $2.50 per share exercisable for 36 months from the date of inception. The D Warrants consist of the right to purchase up to 48,000 shares of the Company’s common stock at an exercise price of $5.00 per share exercisable for 36 months from the date of inception.
| Schedule Assumption used | ||||||||
| Appraisal Date (Inception Date) |
C Warrant 2021 |
D Warrant 2021 |
||||||
| (Unaudited) | (Unaudited) | |||||||
| $ | $ | |||||||
| Market price per share (USD/share) | ||||||||
| Exercise price (USD/price) | ||||||||
| Risk free rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected term/ Contractual life (years) | ||||||||
| Expected volatility | % | % | ||||||
| Appraisal Date (Inception Date) | C Warrant September 27, 2021 |
D Warrant September 27, 2021 |
||||||
| (Unaudited) | (Unaudited) | |||||||
| $ | $ | |||||||
| Market price per share (USD/share) | ||||||||
| Exercise price (USD/price) | ||||||||
| Risk free rate | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected term/ Contractual life (years) | ||||||||
| Expected volatility | % | % | ||||||
The following is a reconciliation of the beginning and ending balances of warrants liability measured at fair value on a recurring basis using Level 3 inputs:
| Schedule of Warranty Liability | ||||||||
| September
30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| Balance at the beginning of period | ||||||||
| Warrants issued to investors | ||||||||
| Warrants redeemed | ||||||||
| Fair value change of warrants included in earnings | ||||||||
| Total | ||||||||
The following is a summary of the warrant activity:
| Schedule of warrant activity | ||||||||||||
Number of Warrants | Average Exercise Price | Weighted Average Remaining Contractual Term in Years | ||||||||||
| Outstanding at January 1, 2021 | – | |||||||||||
| Exercisable at January 1, 2021 | – | |||||||||||
| Granted | ||||||||||||
| Exercised / surrendered | – | |||||||||||
| Expired | – | |||||||||||
| Outstanding at June 30, 2021 | ||||||||||||
| Exercisable at June 30, 2021 | ||||||||||||
| 13 |
Note 11 FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. Certain current assets and current liabilities are financial instruments. Management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and, if applicable, their current interest rates are equivalent to interest rates currently available. The three levels of valuation hierarchy are defined as follows:
| • | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. | |
| • |
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. | |
| • | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, pledged deposits, trade accounts and bills receivable and payable, other receivables, balances with former subsidiaries, other short-term loans, short-term and long-term bank loans and other payables approximate their fair values because of the short maturity of these instruments or the rate of interest of these instruments approximate the market rate of interest.
Note 12 PREFERRED STOCK
In August 2021, the Company issued 80,000 shares of preferred shares of $1.00 each at an issue price of $2.50 per share to certain investors credited as fully paid. The preferred shares are non-voting and non-redeemable. The holder of the preferred shares will have priority over the holders of ordinary shares of the Company on the assets and funds of the Company available for distribution in a distribution of assets on liquidation, winding up or dissolution of the Company. The holder of the preferred shares shall not have the right to attend or vote at any general meeting of the Company (except a general meeting for winding up of the Company or a resolution is to be proposed which if passed would vary or abrogate the rights or privileges of such holder).
Note 13 INCOME TAXES
The Company and its subsidiary, and the consolidated VIE file tax returns separately.
1) Value-added tax (“VAT”)
PRC
Pursuant to the Provisional Regulation of the
PRC on VAT and the related implementing rules, all entities and individuals ("taxpayers") that are engaged in the sale of products
in the PRC are generally required to pay VAT, at a rate of which was changed from
Taiwan
Pursuant to the Value-added and Non-value-added Business Tax Act and the related implementing rules, all entities and individuals ("taxpayers") that are engaged in the sale of products in the Taiwan are generally required to pay VAT, at a rate of 5%.
2) Income tax
| 14 |
United States
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into legislation. The 2017 Tax Act significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 34% to 21%, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries, introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SABF21 118") was issued to provide guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. The Company has completed the assessment of the income tax effect of the Tax Act and there were no adjustments recorded to the provisional amounts.
The Coronavirus Aid, Relief and Economy Security (CARES) Act (“the CARES Act, H.R. 748”) was signed into law on 27 March 2020. The CARES Act temporarily eliminates the 80% taxable income limitation (as enacted under the Tax Cuts and Jobs Act of 2017) for NOL deductions for 2018-2020 tax years and reinstated NOL carrybacks for the 2018-2020 tax years. Moreover, the CARES Act also temporarily increases the business interest deduction limitations from 30% to 50% of adjusted taxable income for the 2019 and 2020 taxable year. Lastly, the Tax Act technical correction classifies qualified improvement property as 15-year recovery period, allowing the bonus depreciation deduction to be claimed for such property retroactively as if it was included in the Tax Act at the time of enactment. The Company does not anticipate a significant tax impact on its financial statements and will continue to examine the impact the CARES Act may have on its business.
The Company evaluated the Global Intangible Low
Taxed Income ("GILTI") inclusion on current earnings and profits of greater than 10% owned foreign controlled corporations.
The Company has evaluated whether it has additional provision amount resulted by the GILTI inclusion on current earnings and profits of
its foreign controlled corporations. The law also provides that corporate taxpayers may benefit from a 50% reduction in the GILTI inclusion,
which effectively reduces the
The reverse merger was completed on December 31,
2018 and the tax losses of US subsidiary was not in the scope as of December 31, 2018. As of December 31, 2019, net operating loss carried
forward which was available to offset future taxable income for the Company in the United States was $
Hong Kong
The HK tax reform has introduced two-tiered profits
tax rates for corporations. Under the two-tiered profits tax rates regime, the profits tax rate for the first HK$2 million (approximately
$257,931) of assessable profits will be lowered to
As of December 31, 2019, The Company’s subsidiary in Hong Kong had net operating loss carry forwards available to offset future taxable income. The net operating losses will be carryforward indefinitely under Hong Kong Profits Tax regulation. There is a full valuation allowance applied against these loss carry forward as management determined it was not more likely than not that these net operating losses would be utilized in the foreseeable future.
PRC
WFOE and the consolidated VIE established in the
PRC are subject to the PRC statutory income tax rate of
| 15 |
Taiwan
The corporate income tax rate in Taiwan is 20%. Corporate income taxes payable, however, are subject to an alternative minimum tax. The Taiwan government enacted the Taiwan Alternative Minimum Tax Act, or the AMT Act, on January 1, 2006. Under the AMT Act, a taxpayer must pay the higher of its taxable income multiplied by the corporate income tax rate or the alternative minimum tax, or AMT. In calculating the AMT amount, the taxpayer must include income that would otherwise be exempt from taxation pursuant to various tax holidays or investment tax credits, other than certain exemptions or tax credits that have been grandfathered for the purposes of calculating AMT. The AMT rate for business entities is 12%. In addition to the statutory corporate taxes payable, or the AMT, corporate taxpayers in Taiwan are subject to an additional tax on distributable retained earnings (after statutory legal reserves) to the extent that such earnings are not distributed prior to the end of the subsequent year. This undistributed earnings surtax is determined in the subsequent year when the distribution plan relating to earnings attributable to the prior year is approved by a company’s stockholders and is payable in the subsequent year. The surtax rate in Taiwan is 5%.
The components of the income tax provision are:
| Income tax components | ||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Current | ( | ) | ( | ) | ||||||||||||
| Deferred | ||||||||||||||||
| Total income tax benefit | ( | ) | ||||||||||||||
The reconciliation of income taxes expenses computed at the PRC statutory tax rate applicable to income tax expense is as follows:
| Reconciliation of income tax expense | ||||||||
Nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| PRC income tax statutory rate | ||||||||
| Impact of different tax rates in other jurisdictions | ( | ) | ||||||
| Tax effect of non-deductible items | ||||||||
| Tax effect of non- deductible impairment loss | ( | ) | ||||||
| Tax effect of non-taxable income | ||||||||
| Tax effect of utilization of tax losses previously recognized | ||||||||
| GILTI Tax impact | ( | ) | ||||||
| Changes in valuation allowance | ( | ) | ( | ) | ||||
| Effective tax rate | ( | ) | ( | ) | ||||
3) Deferred tax assets, net
The tax effects of temporary differences representing deferred income tax assets and liabilities result principally from the following:
| Schedule of deferred income taxes | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| Deferred tax assets | ||||||||
| Tax loss carried forward | ||||||||
| Allowance for doubtful receivables | ||||||||
| Total deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ||||||
| Total deferred tax assets, net | ||||||||
| 16 |
The valuation allowance as of September 30, 2021 and December 31, 2020 was primarily provided for the deferred income tax assets if it is more likely than not that these items will expire before the Company is able to realize its benefits, or that the future deductibility is uncertain. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible or utilizable. Management considers projected future taxable income and tax planning strategies in making this assessment. The movement for the valuation allowance is as following.
| Movement in valuation allowance | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| Balance at beginning of the year | ( | ) | ||||||
| Additions of valuation allowance | ||||||||
| Reductions of valuation allowance | ||||||||
| Balance at the end of the year | ||||||||
PRC Withholding Tax on Dividends
The current PRC Enterprise Income Tax Law imposes a 10% withholding income tax for dividends distributed by foreign-invested enterprises to their immediate holding companies outside the PRC. A lower withholding tax rate will be applied if there is a tax treaty arrangement between the PRC and the jurisdiction of the foreign holding company. Distributions to holding companies in Hong Kong that satisfy certain requirements specified by PRC tax authorities, for example, will be subject to a 5% withholding tax rate.
As of September 30, 2021 and December 31, 2020, the Company had not recorded any withholding tax on the retained earnings of its foreign-invested enterprises in the PRC, since the Company intends to reinvest its earnings to further expand its business in mainland China, and its foreign-invested enterprises do not intend to declare dividends to their immediate foreign holding companies.
Note 14 RELATED PARTY BALANCES AND TRANSACTIONS
Due to related parties
The balance due to related parties was as following:
| Schedule of related party transactions | ||||||||
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| Mountain Share Transfer, LLC (2) | ||||||||
Due from a related party
The balance due from a related party was as following:
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| $ | $ | |||||||
| Mr. Yin-Chieh Cheng (1) | ||||||||
| Taisi Electrical & Plumbing Co. Pte Ltd. (3) | ||||||||
| Total | ||||||||
| 17 |
Note:
| (1) |
| (2) |
|
| (3) |
Related party transactions
The details of the related party transactions were as follows:
For three months ended September 30, | For nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Paid on behalf of the Company | ||||||||||||||||
| Mr. Zhang Bi (1) | ||||||||||||||||
| Mr. Yin-Chieh Cheng (1) | ||||||||||||||||
| Mountain Share Transfer, LLC (1) | ||||||||||||||||
| Repayment to related party | ||||||||||||||||
| Mr. Yin-Chieh Cheng | ||||||||||||||||
Note:
| (1) |
| 18 |
The following table sets forth the computation of basic and diluted (loss) income per common share for the three and nine months ended September 30, 2021 and 2020.
| Schedule of income (loss) per share | ||||||||||||||||
For three months ended September 30, | For nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Numerator: | ||||||||||||||||
| Net (loss) income attributable to the Company | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Denominator: | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| - Basic | ||||||||||||||||
| - Diluted | ||||||||||||||||
| (Loss) income per share: | ||||||||||||||||
| - Basic | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| - Diluted | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Basic net (loss) income per common share is computed using the weighted average number of the common shares outstanding during the period. Diluted (loss) income per share is computed using the weighted average number of ordinary shares and ordinary equivalent shares outstanding which include warrants outstanding as of September 30, 2021.
Note 16 SUBSEQUENT EVENT
The Company has evaluated subsequent events through the issuance of the unaudited condensed consolidated financial statements and no other subsequent event is identified that would have required adjustment or disclosure in the consolidated financial statements.
| 19 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Current Report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. In addition, our consolidated financial statements and the financial data included in this Current Report reflect our reorganization and have been prepared as if our current corporate structure had been in place throughout the relevant periods. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these and other risks and uncertainties, please see the items listed above under the section captioned “Risk Factors”, as well as any other cautionary language contained in this Current Report. Except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events after the date of this Current Report.
Operations Overview
As of December 31, 2019, we provide Land-Based Recirculation Aquaculture Systems (“RAS”) for fish farming. Our primary business operations consist of the design, development and production of RAS large scale fish tank systems, for fish farms along with expert consulting, technology transfer, and aquaculture project management services to new and existing aquaculture management business services.
On September 21, 2020, the Company filed a current report on Form 8-K outlining the lack of communication that leads to the termination by Nocera, Inc. of its relationship with GZ WFH and its management, and termination of the Variable Interest Entity agreements between the parties.
On October 8, 2020, Zhang Bi and GZ WFH entered into a Settlement Agreement and Release with Nocera, Inc. wherein all claims as to GZ WFH’s debt (claim to shares in Nocera, Inc. or GZ GST) were compromised, settled, and otherwise resolved as to any and all claims or causes of action whatsoever against Nocera for any matter, action, or representation as to Nocera, and any debt to ownership of Nocera or GZ GST up to the date of the agreement. The consideration for the agreement was mutual waiver of any and all claims against each other and GZ GST, and GZ WFH (including Zhang Bi) waives any claims to Nocera stock, meaning the 4,750,000 shares of common stock of Nocera owned by Zhang Bi were cancelled as part of the agreement.
Effective December 31, 2020, Nocera, Inc. (“Nocera”) and Xin Feng Construction Co., Ltd. (“XFC”), a funded limited liability company registered in Taiwan (R.O.C.), (collectively “the Parties”) entered into a series of contractual agreements (“VIE Agreements”) whereby Nocera, Inc. agreed to provide technical consulting and related services to Xin Feng Construction Co., Ltd. As a result, Nocera has been determined to be the primary beneficiary of XFC and XFC became VIE (Variable Interest Entity) of Nocera, and XFC will shift focus to support the construction activities of RAS fish farms of our clients and the development of the Company-owned and operated fish farms.
The spread of COVID-19 has begun to cause some business disruption resulting in reduced net revenue in December 2019. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration. Therefore, the Company expects this matter to negatively impact its operating results.
As of September 30, 2021, the Company launched its first RAS demo site in Taiwan and engaged the demo site into the testing phase to raise eel. Currently, we are promoting our RAS in Taiwan and looking for opportunities to cooperate with local solar energy industry and to expand our business into the U.S. The Company’s current principal office is based in New Taipei City, Taiwan.
Critical Accounting Policies, Estimates and Assumptions
See Note 2 to the accompanying unaudited condensed consolidated financial statements for our critical accounting policies.
| 20 |
Results of Operations
The following table sets forth the consolidated statements of operations of the Company for the three and nine months ended September 30, 2021 and 2020.
Consolidated Statements of Operations
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Net sales | 18,366 | 2,842 | 2,865,399 | 1,162,573 | ||||||||||||
| Cost of sales | (70,502 | ) | (2,559 | ) | (2,495,401 | ) | (506,894 | ) | ||||||||
| Gross (loss) profit | (52,136 | ) | 283 | 369,998 | 655,679 | |||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative expenses | (239,462 | ) | (604,566 | ) | (809,688 | ) | (1,032,613 | ) | ||||||||
| Total operating expenses | (239,462 | ) | (604,566 | ) | (809,688 | ) | (1,032,613 | ) | ||||||||
| Loss from operations | (291,598 | ) | (604,283 | ) | (439,690 | ) | (376,934 | ) | ||||||||
| Other (expense) income | (85 | ) | – | (3,797 | ) | 3 | ||||||||||
| Loss before income taxes | (291,683 | ) | (604,283 | ) | (443,487 | ) | (376,931 | ) | ||||||||
| Income tax benefit (expense) | 16,560 | (111,298 | ) | (54,279 | ) | (92,562 | ) | |||||||||
| Net loss | (275,123 | ) | (715,581 | ) | (497,766 | ) | (469,493 | ) | ||||||||
| Less: Net loss attributable to non-controlling interests | – | – | – | (6,705 | ) | |||||||||||
| Net loss attributable to the company | (275,123 | ) | (715,581 | ) | (497,766 | ) | (462,788 | ) | ||||||||
| Comprehensive (loss) income | ||||||||||||||||
| Net loss | (275,123 | ) | (715,581 | ) | (497,766 | ) | (469,493 | ) | ||||||||
| Foreign currency translation (loss) gain | (384 | ) | 10,781 | (47,059 | ) | 14,899 | ||||||||||
| Total comprehensive loss | (275,507 | ) | (704,800 | ) | (544,825 | ) | (454,594 | ) | ||||||||
| Less: comprehensive loss attributable to non-controlling interest | – | – | – | (7,204 | ) | |||||||||||
| Comprehensive loss attributable to the Company | (275,507 | ) | (704,800 | ) | (544,825 | ) | (447,390 | ) | ||||||||
| Loss per share | ||||||||||||||||
| Basic | (0.0297 | ) | (0.0543 | ) | (0.0537 | ) | (0.0351 | ) | ||||||||
| Diluted | (0.0297 | ) | (0.0543 | ) | (0.0537 | ) | (0.0351 | ) | ||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic | 9,266,150 | 13,181,786 | 9,266,150 | 13,181,786 | ||||||||||||
| Diluted | 9,266,150 | 17,822,728 | 9,266,150 | 17,703,568 | ||||||||||||
| 21 |
Revenue
Revenue for the three months ended September 30, 2021 was $18,366 compared to $2,842 for the comparable period in 2020. The increase was mainly because of the revenue recognition of the construction revenue from Xin Feng Construction Co., Ltd for the three months ended September 30, 2021.
Revenue for the nine months ended September 30, 2021 was $2,865,399 compared to $1,162,573 for the comparable period in 2020. The increase was mainly because of the revenue recognition of the construction revenue from Xin Feng Construction Co., Ltd for the nine months ended September 30, 2021.
Gross profit
Gross loss for the three months ended September 30, 2021 was $52,136, compared to gross profit $283 for the comparable period in 2020. The decrease was primarily because there was a significant increase in cost of sales from Xin Feng Construction Co., Ltd for the three months ended September 30, 2021; whereas there was no direct cost of the deferred revenue from the franchise fee of JC Development Co, Ltd, and we operated fish brokerage & distribution business with Pan Li, one of our former customers and strategic partner in Guizhou, for the comparable period three months ended September 30, 2020.
Gross profit for the nine months ended September 30, 2021 was $369,998, compared to $655,679 for the comparable period in 2020. The decrease was primarily because there was a significant increase in cost of sales from Xin Feng Construction Co., Ltd for the nine months ended September 30, 2021; whereas there was no direct cost of the deferred revenue from the franchise fee of JC Development Co, Ltd, and we operated fish brokerage & distribution business with Pan Li, one of our former customers and strategic partner in Guizhou, for the comparable period nine months ended September 30, 2020.
General and administrative expenses
General and administrative expenses were $239,462, for the three months ended September 30, 2021, compared to approximately $604,566 for the comparable period in 2020. This decrease was primarily due to the decrease of legal, accounting, and consulting fees for the three months ended September 30, 2021.
General and administrative expenses were $809,688, for the nine months ended September 30, 2021, compared to approximately $1,032,613 for the comparable period in 2020. This decrease was primarily due to the decrease of legal, accounting, and consulting fees for the nine months ended September 30, 2021.
Other income (expense)
Other expense was $85, for the three months ended September 30, 2021, compared to other expense $nil for the comparable period in 2020. The other income was interest revenue of bank deposits. The other expense was interest expense for bank loan.
Other expense was $3,797, for the nine months ended September 30, 2021, compared to other income $3 for the comparable period in 2020. The other expense was interest expense for bank loan.
Income tax (expense) benefit
During the three months ended September 30, 2021, we recorded an income tax benefit of $16,560 compared to income tax expense $111,298 for the comparable period in 2020. The decrease of income tax expense is because we evaluated the income tax impact from Xin Feng Construction Co., Ltd for the period ended September 30, 2021.
During the nine months ended September 30, 2021, we recorded an income tax expense of $54,279 as compared to $92,562 for the comparable period in 2020. The decrease of income tax expense is because we evaluated the income tax impact from Xin Feng Construction Co., Ltd for the period ended September 30, 2021.
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Net (loss) income attributable to the Company
Net loss attributable to the Company (excluding net loss attributable to non-controlling interest) for the three months ended September 30, 2021 was $275,123 compared to net loss attributable to the Company (excluding net loss attributable to non-controlling interest) of $715,581 for the comparable period in 2020. The increase of loss was because the Company’s gross profit, derived from the XFC’s construction revenue for the three months ended September 30, 2021, significantly decreased due to its higher cost of sales, and the Company recognized greater general and administrative expenses over the same period.
Net loss attributable to the Company (excluding net loss attributable to non-controlling interest) for the nine months ended September 30, 2021 was $497,766 compared to net loss attributable to the Company (excluding net loss attributable to non-controlling interest) of $462,788 for the comparable period in 2020. The increase of loss was because the Company’s gross profit, derived from the XFC’s construction revenue for the nine months ended September 30, 2021, significantly decreased due to its higher cost of sales, and the Company recognized greater general and administrative expenses over the same period.
Liquidity and Capital Resources
The Company had operating cash outflows for the nine months ended September 30, 2021 and the cash balance was $675,740 as of September 30, 2021. Since the net asset balance as of September 30, 2021 was $2,409,649, there is no substantial doubt as to the Company’s ability to continue as a going concern.
The following table provides detailed information about our net cash flows for the periods indicated:
For the nine months ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| $ | $ | |||||||
| Net cash used in operating activities | (36,401 | ) | (435,833 | ) | ||||
| Net cash used in investing activities | (25,062 | ) | (17,264 | ) | ||||
| Net cash (used in) provided by financing activities | (301,488 | ) | 682,247 | |||||
| Effect of the exchange rate change on cash | 15,160 | (5,823 | ) | |||||
| (Decrease) increase in cash | (347,791 | ) | 223,237 | |||||
Net cash used in operating activities
Net cash used in operating activities amounted to $36,401 for the nine months ended September 30, 2021. This reflected the effect of changes in operating assets and liabilities including increase of account receivable in the amount of $159,417, increase of inventory in the amount of $1,280,808 and increase of advance receipts in the amount of $1,646,513.
Net cash used in operating activities amounted to $435,833 for the nine months ended September 30, 2020. This reflected the effect of changes in operating assets and liabilities including increases of account receivable in the amount of $145,817, increase of inventory in the amount of $115,659 and increase of prepaid expense and other assets in the amount of $138,976.
Net cash used in investing activities
Net cash used in investing activities was $25,062 for the nine months ended September 30, 2021, which was cash paid for purchase of property, and $17,264 for the nine months ended September 30, 2020, which was cash paid for intangible assets.
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Net cash (used in) provided by financing activities
Net cash used in financing activities was $301,488 for the nine months ended September 30, 2021, which was repayment of bank loans.
Net cash provided by financing activities amounted to $682,247 for the nine months ended September 30, 2020, which was attributable to the proceeds from our shareholders primarily for our operation and repayment to our shareholders. See “Related Party Transactions”.
Since we plan to build our land-based fish farming demo sites in the US, Taiwan, Japan, and Thailand to promote our fish farming systems to the global market, we expect that we will require additional capital, which includes the construction cost, marketing cost, operation costs, and etc., to meet our long-term operating requirements. We expect to obtain financing from shareholders or raise additional capital through, among other things, the sale of equity or debt securities. The shareholders are committed to provide additional financing required when we try to raise additional capital from third party investors or banks. However, there can be no assurance that we will be successful in raising this additional capital.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
Recently Issued Accounting Pronouncements
Please refer to the Note 2 above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer performed an evaluation (the “Evaluation”) of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide a reasonable level of assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2021, due to the presence of material weaknesses described below, our disclosure controls and procedures were ineffective.
Notwithstanding the foregoing, there can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within our Company and our consolidated subsidiaries to disclose material information otherwise required to be set forth in our periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting for our Company. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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| • | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
| • | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
| • | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failure. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
We assessed the effectiveness of our internal control over financial reporting as of September 30, 2021. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission’s Internal Control-Integrated Framework. As a result of this assessment, we have determined that our internal control over financial reporting was ineffective as of September 30, 2021. We had neither the resources, nor the personnel, to provide an adequate control environment. The following material weaknesses in our internal control over financial reporting continued to exist at September 30, 2021:
| • | we do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act; |
| • | we do not have an independent audit committee of our board of directors; |
| • | there is insufficient monitoring and review controls over the financial reporting closing process, including the lack of individuals with current knowledge of GAAP that led to the restatement of our previously issued financial statements; and |
| • | inadequate segregation of duties. |
We believe that these material weaknesses primarily relate, in part, to our lack of sufficient staff with appropriate training in GAAP and SEC rules and regulations with respect to financial reporting functions, and the lack of robust accounting systems, as well as the lack of sufficient resources to hire such staff and implement these accounting systems.
Pending obtaining sufficient resources to implement these measures, we plan to take a number of actions to correct these material weaknesses, including, but not limited to, establishing an audit committee of our board of directors comprised of three independent directors, adding experienced accounting and financial personnel and retaining third-party consultants to review our internal controls and recommend improvements. However, we may need to take additional measures to fully mitigate these issues, and the measures we have taken, and expect to take, to improve our internal controls may not be sufficient to (1) address the issues identified, (2) ensure that our internal controls are effective or (3) ensure that the identified material weakness or other material weaknesses will not result in a material misstatement of our annual or interim financial statements.
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It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Changes in Internal Control Over Financial Reporting
An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, of whether any change in our internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the quarter ended September 30, 2021. Based on that evaluation, our management, including our Chief Executive Officer and Interim Chief Financial Officer, concluded that there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
CEO and CFO Certifications
Exhibits 31.1 and 31.2 to this Quarterly Report are the Certifications of the Chief Executive Officer and the Chief Financial Officer, respectively. These Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act (the “Section 302 Certifications”). This Item 9A. of this Annual Report, which you are currently reading, is the information concerning the Evaluation referred to above and in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We were not subject to any legal proceedings during the nine months ended September 30, 2021 and there are currently no legal proceedings, to which we are a party, which could have a material adverse effect on our business, financial condition or operating results.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
| Exhibit No. | Description | |
| 2.1 | Amended Agreement and Plan of Merger, dated December 27, 2018, and effective as of December 31, 2018, by and among Nocera, Inc., Grand Smooth Inc Limited and GSI Acquisition Corp. (2) | |
| 3.1 | Certificate of Incorporation of Nocera, Inc., as amended. (1) | |
| 3.2 | Bylaws of Nocera, Inc. (1) | |
| 3.3 | Articles of Incorporation of GSI Acquisition Corp., a Colorado Corporation (2) | |
| 3.4 | Articles of Grand Smooth Inc Limited, a Hong Kong, China Corporation (2) | |
| 3.5 | Statement of Merger – GSI Acquisition Corp. and Grand Smooth Inc Limited (2) | |
| 10.1 | Share Exchange Agreement (2) | |
| 10.2 | 2018 Nocera, Inc. Stock Option and Award Incentive Plan (2) | |
| 10.3 | Yin-Chieh Cheng Consulting Agreement (2)* | |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of the President and Chief Executive Officer of Nocera, Inc. | |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of Nocera, Inc. | |
| 32.1 | Section 1350 Certification of the President and Chief Executive Officer of Nocera, Inc. | |
| 32.2 | Section 1350 Certification of the Chief Financial Officer of Nocera, Inc. | |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted in IXBRL, and included in exhibit 101). |
(1) Incorporated herein by reference from the exhibits included in the Company’s Registration Statement on Form 10-12G dated October 19, 2018.
(2) Incorporated herein by reference from the exhibits included in the Form 8-K12G3 filed on January 31, 2019.
(*) Incorporated herein by reference as Exhibit “B” to Exhibit 2.1 included in the Form 8-K12G3 filing dated January 31, 2019
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| By: | /s/ Yin-Chieh Cheng | |
| Name: | Yin-Chieh Cheng | |
| Title: | President & Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Dated: | November 15, 2021 |
| By: | /s/ Shun-Chih Chuang | |
| Name: | Shun-Chih Chuang | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) | ||
| Dated: | November 15, 2021 |