NOCERA, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited consolidated
financial statements and the related notes included elsewhere in this Quarterly
Report on Form 10-Q. Our consolidated financial statements have been prepared in
accordance with GAAP. In addition, our unaudited consolidated financial
statements and the financial data included in this Quarterly Report on Form 10-Q
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 under the section captioned "Cautionary Statement
Regarding Forward-Looking Statements" herein and the section captioned "Risk
Factors" as well as any other cautionary language contained in our Annual Report
on Form 10-K for the year ended
Operations Overview
As of
In
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
Effective
In 2021, we established a Nocera Taiwan Branch ("NTB") to focus on customers in
a variety of sectors, such as individual investors, government supported or
funded companies and international customers. We have received interest from
areas such as
As of
We employ a sales and marketing strategy targeting the
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We plan to sell and develop fish farms in
We also intend to build fish farming demo sites in
Business Developments
The following highlights material business developments in our business during
the quarter ended
Ÿ In the third quarter of 2022, our total revenues totaled approximately
$1,374,417 as compared to approximately $18,366 in the same period in
2021.
Ÿ In September 2022 , we announced that our seafood porridge bowl will be
launched at Ning Xia Night Market with a soft opening on September 26,
2022 . We selected Nan Kang District of Taipei City for our flagship
bento box store to serve grilled eel rice and super value bento boxes.
The target date for the official opening of our flagship bento store is
December 1, 2022 .
Ÿ In the third quarter of 2022, we raised a total of approximately $6.58
million in gross proceeds in registered equity offerings.
Recent Developments
On
On
On
In connection with the Public Offering and pursuant to the underwriting
agreement between us and the underwriters named therein, we granted the
underwriters a 45-day option to purchase up to 282,000 additional shares of
common stock and warrants, equivalent to 15% of the Units sold in the Public
Offering, at the public offering price per Unit, less underwriting discounts and
commissions, to cover over-allotments, if any. On
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Key Factors Affecting our Performance
As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations.
Known Trends and Uncertainties
Inflation
Prices of certain commodity products, including raw materials, are historically
volatile and are subject to fluctuations arising from changes in domestic and
international supply and demand, labor costs, competition, market speculation,
government regulations, trade restrictions and tariffs. Increasing prices in the
component materials for our goods may impact the availability, the quality and
the price of our products, as suppliers search for alternatives to existing
materials and increase the prices they charge. Our suppliers may also fail to
provide consistent quality of product as they may substitute lower cost
materials to maintain pricing levels. Nocera's cost base also reflects
significant elements for freight, including fuel, which has significantly
increased due to the effects of the coronavirus (COVID-19) pandemic and
Geopolitical Conditions
Our operations could be disrupted by geopolitical conditions, trade disputes, international boycotts and sanctions, political and social instability, acts of war, terrorist activity or other similar events. From time to time, we could have a large revenue stream associated with a particular customer or a large number of customers located in a particular geographic region. Decreased demand from a discrete event impacting a specific customer, industry, or region in which we have a concentrated exposure could negatively impact our results of operations.
Recently,
Effects of the COVID-19 Pandemic
The current outbreak of COVID-19 has globally resulted in the loss of life,
business closures, restrictions on travel, and widespread cancellation of social
gatherings. The initial spread of COVID-19 in
The extent to which the COVID-19 pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted at this time, including:
Ÿ new information which may emerge concerning the severity of the
disease;
Ÿ the duration and spread of the outbreak;
Ÿ the severity of travel restrictions imposed by geographic areas in
which we operate, mandatory or voluntary business closures;
Ÿ regulatory actions taken in response to the pandemic, which may impact
merchant operations, consumer and merchant pricing, and our product
offerings;
Ÿ other business disruptions that affect our workforce;
Ÿ the impact on capital and financial markets; and
Ÿ actions taken throughout the world, including in markets in which we
operate, to contain the COVID-19 outbreak or treat its impact.
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In addition, the current outbreak of COVID-19 has resulted in a widespread global health crisis and adversely affected global economies and financial markets, and similar public health threats could do so in the future.
Since 2021, substantially all our revenues are concentrated in
To the extent the COVID-19 pandemic or a similar public health threat has an
impact on our business, it is likely to also have the effect of heightening many
of the other risks described in the "Risk Factors" section in Part I, Item 1A of
our Annual Report on Form 10-K for the fiscal year ended
Seasonality
Since the global growing demand for aquaculture production along with the decreasing production from wild fisheries, our fish farming systems provide a controlled and traceable environment for fish species, and therefore our business rarely suffers a seasonal impact.
Critical Accounting Policies, Estimates and Assumptions
We prepare our financial statements in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements.
The
The accounting principles we utilized in preparing our consolidated financial
statements conform in all material respects to
Reclassification
Certain prior period amounts have been reclassified to conform with current year presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, the allowance for doubtful receivables; the useful lives of property and equipment and intangible assets; impairment of long-lived assets; recoverability of the carrying amount of inventory; fair value of financial instruments; provisional amounts based on reasonable estimates for certain income tax effects of the Tax Cuts and Jobs Act (the "Tax Act") and the assessment of deferred tax assets or liabilities. These estimates are often based on complex judgments and assumptions that management believes to be reasonable but are inherently uncertain and unpredictable. Actual results could differ from these estimates.
26 Fair Value Measurement
We apply ASC Topic 820, Fair Value Measurements and Disclosures which defines fair value, establishes a framework for measuring fair value and expands financial statement disclosure requirements for fair value measurements.
ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability.
ASC Topic 820 specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:
Ÿ Level 1 inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active markets.
Ÿ 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.
Ÿ Level 3 inputs to the valuation methodology are unobservable and
significant to the fair value. Unobservable inputs are valuation
technique inputs that reflect our own assumptions about the assumptions
that market participants would use in pricing an asset or liability.
Management of the Company is responsible for determining the assets acquired, liabilities assumed and intangibles identified as of the acquisition date and considered a number of factors including valuations from an independent appraiser.
When available, we use quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, we measure fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates.
Cash and Cash Equivalents
Cash and cash equivalents include all cash on hand and cash in bank with no
restrictions. The balance of cash as of
Accounts Receivable, Net
Accounts receivable are stated at the original amount less an allowance for doubtful accounts, if any, based on a review of all outstanding amounts at period end. An allowance is also made when there is objective evidence that we will not be able to collect all amounts due according to the original terms of the receivables. We analyze the aging of the customer accounts, coverage of credit insurance, customer concentrations, customer credit-worthiness, historical and current economic trends and changes in its customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts.
Prepaid Expenses and Other Assets, Net
Prepaid expense and other assets, net consist of receivable from prepaid rent, etc. Management reviews its receivable balance each reporting period to determine if an allowance for doubtful accounts is required. An allowance for doubtful account is recorded in the period in which loss is determined to be probable based on an assessment of specific evidence indicating doubtful collection, historical experience, account balance aging, and prevailing economic conditions. Bad debts are written off against the allowance after all collection efforts have ceased.
27 Inventories
Inventories are stated at lower of cost or net realizable value. Cost is determined using the weighted average method. Inventories include raw materials, work in progress and finished goods. The variable production overhead is allocated to each unit of product on the basis of the actual use of the production facilities. The allocation of fixed production overhead to the costs of conversion is based on the normal capacity of the production facilities.
Where there is evidence that the utility of inventories, in their disposal in the ordinary course of business, will be less than cost, whether due to physical deterioration, obsolescence, changes in price levels, or other causes, the inventories are written down to net realizable value.
Property and Equipment, Net
Property and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs, and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized.
Depreciation of property and equipment is provided using the straight-line method over their estimated useful lives, which are shown as follows.
Useful life
Shorter of the remaining lease terms
Leasehold improvements and estimated useful lives
Furniture and fixture 5 years
Equipment 3 years
Vehicle 5 years
Upon sale or disposal, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to income.
We recognize goodwill in accordance with ASC 350, Intangibles-Goodwill and
Other.
We recognize intangible assets in accordance with ASC 350, Intangibles-Goodwill and Other. Acquired intangible assets subject to amortization are stated at cost and are amortized using the straight-line method over the estimated useful lives of the assets. Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Assets not subject to amortization are tested for impairment at least annually.
The estimates of fair value are based on the best information available as of the date of the assessment, which primarily incorporates management assumptions about expected future cash flows. Although these assets are not currently impaired, there can be no assurance that future impairments will not occur.
Share-Based Compensation
We determine our share-based compensation in accordance with ASC 718, Compensation-Stock Compensation (ASC 718), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees based on the grant date fair value of the award.
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Determining the appropriate fair value model and calculating the fair value of phantom award grants requires the input of subjective assumptions. We use the Black-Scholes pricing model to value our phantom awards. Share-based compensation expense is calculated using our best estimates, which involve inherent uncertainties and the application of management's judgment. Significant estimates include our expected volatility. If different estimates and assumptions had been used, our phantom unit valuations could be significantly different and related share-based compensation expense may be materially impacted.
The Black-Scholes pricing model requires inputs such as the risk-free interest
rate, expected term, expected volatility and expected dividend yield. We base
the risk-free interest rate that we use in the Black-Scholes pricing model on
zero coupon
In the opinion of management, all adjustments (which include normal recurring
adjustments) necessary to present a fair presentation of our unaudited condensed
consolidated financial position as of
Critical accounting policies are those that we consider the most critical to understanding our financial condition and results of operations.
Impairment of Long-lived Assets
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, we measure impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, we would recognize an impairment loss, which is the excess of carrying amount over the fair value of the assets.
Commitments and Contingencies
In the normal course of business, we are subject to contingencies, including legal proceedings and claims arising out of our business that relate to a wide range of matters, such as government investigations and tax matters. We recognize a liability for such contingency if we determine it is probable that a loss has occurred and a reasonable estimate of the loss can be made. We may consider many factors in making these assessments including historical and the specific facts and circumstances of each matter.
Revenue Recognition
We have early adopted ASU 2014-09, Revenue from Contracts with Customers (Topic
606) and all subsequent ASUs that modified ASC 606 on
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, we apply the following steps:
Ÿ Step 1: Identify the contract(s) with a customer
Ÿ Step 2: Identify the performance obligations in the contract
Ÿ Step 3: Determine the transaction price
Ÿ Step 4: Allocate the transaction price to the performance obligation in the
contract
Ÿ Step 5: Recognize revenue when (or as) the entity satisfies a performance
obligation
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We consider revenue is recognized when (or as) we satisfy performance obligations by transferring promised goods and providing maintenance services to a customer. Revenue is measured at the transaction price which is based on the amount of consideration that we expect to receive in exchange for transferring the promised goods and providing maintenance services to the customer. Contracts with customers are comprised of invoices and written contracts.
We do not have arrangements for returns from customers. We have no sales incentive programs.
We provide goods, maintenance service warranties for the goods sold with a period varying from 18 months to 72 months, with the majority of the periods being 18 months, and an exclusive sales agency license to our customers. For performance obligations related to providing products, we expect to recognize the revenue according to the delivery of products. For performance obligations related to maintenance service warranties, we expect 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 a majority of the maintenance service warranties periods provided are 18 months. For performance obligation related to exclusive agency licenses, we recognize the revenue ratably upon the satisfaction over the estimated economic life of the license.
We do 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 customers are expected to be recognized as revenue within 12 months. Deferred revenue is expected to be recognized as revenue within 12 months.
Cost of Sales
Cost of sales consists primarily of material costs, labor costs, depreciation, and related expenses, which are directly attributable to the production of the product. Write-down of inventories to lower of cost or net realizable value is also recorded in cost of sales.
Income Taxes
We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Leases
In
We adopted ASC Topic 842 using the modified retrospective transition method
effective
30 Uncertain Tax Positions
We account for uncertainty in income taxes using a two-step approach to
recognizing and measuring uncertain tax positions. The first step is to evaluate
the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest
amount that is more than 50% likely of being realized upon settlement. Interest
and penalties related to uncertain tax positions are recognized and recorded as
necessary in the provision for income taxes. According to the
Comprehensive (Loss) Income
Comprehensive income or loss is comprised of our net (loss) income and other comprehensive income or loss. The component of other comprehensive income or loss consists solely of foreign currency translation adjustments, net of the income tax effect.
Foreign Currency Translation and Transactions
Our reporting currency is
(Loss) Earnings per Share
Basic (loss) earnings per share is computed by dividing net (loss) income attributable to holders of common stock by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
Results of Operations
The following table sets forth our unaudited consolidated statements of
operations for the three and nine months ended
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