Form 10-K NOCERA, INC. For: Dec 31
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ___________
COMMISSION FILE NO. 000-52103
NOCERA, INC.
(Exact name of registrant as specified in charter)
| Nevada | 16-1626611 | |
| (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
3F (Building B), No. 185, Sec. 1, Datong Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.)
(Address of principal executive offices and zip code)
(886)-910-163-358
(Registrant’s telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| Title of each class | Name of each exchange on which registered |
| N/A | N/a |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.001 par value.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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. Yes x No ¨
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). Yes x No ¨
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 ¨ | |
| Non-accelerated filer x | Smaller reporting company x | |
| Emerging growth company x |
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the registrant's issued and outstanding shares of common stock held by non-affiliates of the registrant as of April 28, 2020 based on $2.60 per share, the price at which the registrant’s common stock was last sold on April 28, 2020, was approximately $777,400.
There were 9,131,786 shares outstanding of the registrant’s common stock, par value $0.001 per share, as of April 12, 2021.
NOCERA, INC.
TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2020
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that involve assumptions, and describe our future plans, strategies, and expectations. Such statements are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished.
Such forward-looking statements include statements regarding, among other things, (a) the potential markets for our products, our potential profitability, and cash flows (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans and (e) our anticipated needs for working capital. This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. These statements may be found under “Item 1. Business” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in this Annual Report on Form 10-K generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors as described in this Annual Report on Form 10-K generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Annual Report on Form 10-K will in fact occur. In addition to the information expressly required to be included in this filing, we will provide such further material information, if any, as may be necessary to ensure that the required statements, in light of the circumstances under which they are made, are not misleading.
Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.
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| ITEM 1. | BUSINESS |
Business Overview
With respect to this discussion, the terms, the “Company” “we,” “us,” and “our” refer to Nocera, Inc. (“Nocera”), and its 100%-owned subsidiary Grand Smooth Inc Limited. (“GSI”), GSI’s wholly-owned subsidiary Guizhou Grand Smooth Technology Ltd. (“GZ GST”), the Company’s Variable Interest Entities (“VIE”), Guizhou Wan Feng Hu Intelligent Aquatic Technology Co. Limited. (“GZ WFH”) and Xin Feng Construction Co., Ltd. (“XFC”).
Our History
Nocera, Inc. was organized on February 1, 2002 under the laws of the State of Nevada.
On February 12, 2002, we acquired Felice Conserve, an Italian corporation, as a wholly- owned subsidiary in exchange for 20 million shares of our common stock. The principal business of Felice Conserve was the production and processing of agricultural products in Italy. The principal product was canned tomatoes.
In 2003, we established two subsidiaries in Uruguay; Sontemar, SA (“Sontemar”), and Noldicor, SA (“Noldicor”). The principal business of Noldicor was the production of tomatoes. The principal business of Sontemar was the processing and sale of packaged tomatoes. On April 23, 2004, we paid a 4 for 1 stock dividend to our stockholders.
The Company abandoned operations in 2005. In 2006, due to financial difficulties, Noldicor and Sontemar ceased operations. As a result of this, our operations in Uruguay ceased. Additionally, during 2006, Felice Conserve was divested back to its original stockholders. This resulted in our returning to development stage status.
On approximately November 3, 2017, we effected a reverse-split of our common stock as follows:
| · | A 1 for 40,000 reverse-split of the Company’s common stock, followed immediately by; |
| · | All fractional shares shall be rounded upwards to the nearest whole share, followed immediately by; |
| · | A 200 for 1 forward stock split. |
The net effect of these actions was a 1 for 200 reverse-split of the Company’s common stock, with no stockholder being reduced below 200 shares. All stockholders who prior to the reverse-split had 40,000 or less of the pre-split shares received 200 of the new, post-split shares.
Effective December 31, 2018, we completed an Agreement and Plan of Merger (the “Agreement”), with (i) Grand Smooth Inc Limited, a company organized under the laws of Hong Kong, China (“GSI”), (ii) GSI’s stockholders, 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 Stockholders transferred to us all of the GSI Shares in exchange for the issuance of 10,000,000 shares (the “Shares”) of our common stock (the “Share Exchange”). As a result of the Share Exchange, we are a public company holding a subsidiary in the People’s Republic of China (the “PRC”) engaged in aquaculture consulting and management business. We did not cancel or retire any shares of our issued and outstanding common stock and as a result, we have 12,349,200 shares of common stock issued and outstanding following the Share Exchange.
As of the Effective Date of December 31, 2018 of the Agreement and Plan of Merger, we are deemed to have consummated the transactions contemplated by the Agreement, pursuant to which we acquired all of the GSI Shares in exchange for the issuance of the shares to the GSI Stockholders. As a result of the Share Exchange, we emerged from shell status with our subsidiary, GSI, in Hong Kong engaged in the aquaculture consulting and management business through VIE in PRC under legal and accounting principles.
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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.
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.
On December 31, 2020, Nocera, Inc. (“Nocera”) and Xin Feng Construction Co., Ltd. (“XFC”), a domestic 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.
On December 31, 2020, Nocera, Inc. (“Nocera”) and Shunda Feed Co., Ltd. (“SFC”), 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 Shunda Feed Co., Ltd. However, The Company has received no communications or information from SFC regarding its financial conditions or operations for the purpose of the annual audit and the close of the VIE acquisition. Therefore, on March 18, 2021, the Company rescinded the acquisition of SFC and as a result of the rescission, the 300,000 common shares previously issued to the shareholders of SFC per the VIE Agreements have been cancelled by action of the Board of Directors.
Corporate Structure
Our current corporate structure is set forth below:
Until we consummated on the Agreement and Plan of Merger effective December 31, 2018, we were a shell company that had no or nominal operations and either no or nominal assets. Our wholly owned subsidiary, GSI, was incorporated in Hong Kong, China on August 1, 2014. GSI is the parent holding company of GZ GST, which was established on November 13, 2018 as a wholly foreign-owned enterprise (“WFOE”) established in the People’s Republic of China.
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On December 31, 2020, the Company and XFC entered into VIE contracts whereby the Company 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 – namely the Company has the majority interest in the VIE and through execution of VIE contracts, Nocera has contract commitments that the financial information of the VIE should be consolidated based on the Variable Interest Ownership percentage owned by the Company.
The VIE structure was adopted mainly because the Taiwan operating company may in the future engage in business that may require special licenses in Taiwan and which can be an industry that prohibits foreign investment. Nocera has entered into the following contractual arrangements with shareholders 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 shareholders.
VIE contracts are as follows:
| 1. | Voting Rights Proxy Agreement |
| 2. | Equity Pledge Agreement |
| 3. | Exclusive Business Cooperation Agreement |
| 4. | Exclusive Call Option Agreement |
Services
We intend to provide consulting services and solutions in aquaculture projects in China and Taiwan (R.O.C.) to increase revenues, reduce costs, operate more efficiently, increase production, provide expertise, advise on operating more strategically with new diversified aquaculture species, and importantly, to reduce water pollution and decrease the disease problems of fisheries.
We believe that our offerings of Services provide the following:
| i. | Design, install, build and manage aquaculture investment and projects for qualified investors or part of an investment group who is interested in the great potential of the aquaculture industry and whom want to develop or take part of a new commercial fish farming or shrimp farming project but lack the experience. |
| ii. | A full range of pilot and management services to aquaculture companies and new aquaculture projects throughout China and potentially international. From the fish farm to the table, we intend to encourage and support clean water and clean fish products. |
| iii. | We intend to offer some equipment and materials from suppliers as part of our services offerings, which we will markup a reasonable amount. |
We believe our experience and innovation from working closely with our clients in the aquaculture industry in China and Taiwan (R.O.C.) gives us the competitive advantages to provide innovative aquaculture management solutions that will generate positive results for our future client companies, however, there can be no assurances we will be successful.
Market Overview
The fish farming industry in China was predominately regulated by state and local government allowing local fish farmers to set up fish nests in public water including water dams, rivers, lakes and etc. It is the dominant source of freshwater fish for both domestic demands and exports. Since the clean water policy was implemented in China in 2017 by the central government, the state and local governments are tasked with cleaning up local water sources and banning all fish nets and fish nests in public waters. The City of Xing Yi, for example, used to produce 15,000 tons of freshwater fish a year, however, that has been all banned and the government subsidy terminated so that now the 300 million pounds of freshwater fish are no longer produced.
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This is a countrywide effort where some ponds or lakes are removed immediately and some will phase out gradually in 2 to 3 years. Nevertheless, under China’s government clean water policy of “retreating from lakes to lands” for fish farming, we believe that this presents to us a great opportunity for introducing our land-based recirculating aquaculture systems (“RAS”). It was introduced in 2015 as a new and extremely simple way for local farmers to breed fish in China. It is also known as “container fish-farming for dummies”. Generating up to 35 times of fish harvest per square meter compared to traditional fish farms in the pond, it also conserves the ecosystem of lakes, reduces local poverty, and protects the species from natural disasters.
Domestic demand in China and Taiwan (R.O.C.) is increasing the number of aquaculture projects and investment, therein. Our Aquaculture solution is innovative and environmentally friendly using a state-of-the-art water recycling and filtration system. We estimate the demand in China and in Taiwan (R.O.C.) could be over 5,000 RAS in the next 5 years. And globally, we believe that there could be a demand for 10,000 RAS.
Today, the world is faced with the growing challenge of reducing and controlling water pollution that presents serious health risks to its population and damages the environment. We believe that our Aquaculture container fish farm represents a large-scale, environmentally friendly and economically feasible form for bringing clean fish to the table and bringing clean water back to the people. In our opinion, our service is cost competitive, reduces water pollution and recycles fish waste and will help make for a greener and better world in the years to come.
Strategy
We aim to become a global leader, starting from China and Taiwan (R.O.C.), in the field of land-based aquaculture business. We believe following strategies are the critical to achieve this goal:
Focus on the countries with growing population and growing demand for food
By 2050 we’ll need to double the global food supply to feed the world’s growing population. There is a growing need for new ways to produce high-quality local fish without putting more pressure on our natural ecosystems. Like China, there are also many countries with growing population and growing demand for high-protein food. We plan to go global through building demo sites promoting our RAS and selling our price-competitive systems in these countries for their demand for food and greener environment.
Customers
Currently we have a firm order to build 800 sets of 2 meters high by 8 meters wide cylindrical fish farming containers that we received from Dong Guan CIMC Intelligent Technology Co. Ltd (“DG CIMC”), which holds 5% non-controlling interest of GZ WFH, and Shen Zhen CIMC Intelligent Technology Co. Ltd (“SZ CIMC”) in 2018. Both DG CIMC and SZ CIMC are subsidiaries of China International Marine Container Corporation (“CIMC”). We estimate this order to be valued at approximately $8.2 million and we have already delivered 473 sets during the year ended December 31, 2018. We expect to deliver these sets throughout 2020.
In July 2019, we entered into a sales agreement of 400 sets RAS tanks with Dongguan CIMC, amounting to approximately $5.7 million (RMB 40 million). According to the agreement, the customer shall make 40% of the consideration as down payment before we start the manufacturing. We expect to receive the down payment in the third quarter of 2020, and target to complete the manufacturing of the 400 sets in the fourth quarter of 2020.
In September 2019, we entered into an exclusive distribution agreement (“distribution agreement”) with JC Development, Co. Ltd. in Taiwan, which is an independent third-party company. JC Development Co, Ltd. agrees to pay Nocera a total amount of $5 million over 5 years starting September 2019 to be our perpetual exclusive sales agent in Asia Pacific. We agreed to pay 8% commission of total sales excluding sales made by CIMC Smart Science & Technology CO., Ltd. (“CIMC SSC”) in China.
In March 2020 we entered into an agreement with the People’s Government of Wujiang Town, Bozhou District, Zunyi City to supply 58 tank systems. This contract is for $573,029 (RMB 3.99 million 1).
In 2021, we intend to target customers in a variety of markets, such as individual investors, government supported or funded companies and international customers. We have received interest from areas like Japan, Taiwan, Thailand, Jordan, South Africa and the United States. In addition, an increasing amount of Chinese state and local offices are faced with environmental challenges in public waters and are under regulatory directives and political pressure to reduce water pollution, so our potential target customers are significant. During the year ended December 31, 2020 and 2019, the net sales were approximately $1.2 million and approximately $0.5 million, respectively.
______________________
1 The exchange rate as of December 31, 2019 is approximately $1.00 per 6.963 RMB.
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Suppliers
We intend to purchase raw materials and electrical parts and equipment from third parties in the PRC and Taiwan (R.O.C.) and resell and install to customers. We are not directly involved in the production or manufacturing of this equipment and we do not take a risk in the repair and maintenance of this equipment because of the manufacturer’s maintenance policy but may provide maintenance personnel. Our suppliers are concentrated with one supplier which accounted for 100% in total purchase during the year ended December 31, 2020; and concentrated with two suppliers which accounted for 92.08% in total purchase during the year ended December 31, 2019; presently, our relationships with suppliers are generally good and we expect that our suppliers will be able to meet the anticipated demand for our products in the future.
Competition
The market for aquaculture projects and services is highly competitive. Many of the producers and sellers are large entities that have significantly greater resources than we have. Therefore, we signed VIE contracts to partner with XFC to use their local resources in Taixi township, Taiwan (R.O.C.) to develop land-based RAS fish farms in Taiwan and hopefully gain a more competitive advantage. We also compete with small suppliers which provide smaller alternative aquaculture solutions regionally but due to the size of our projects, we believe that we should have a better price point.
Trademarks and Patents
None
Government Regulation
Our business depends in part on environmental regulations and programs in China and Taiwan (R.O.C.) that promote cleaner water sources to restore clean water back to people. Our customers may be encouraged with incentives by the local governments relating to aquaculture investment. The approvals of land, licenses or permits, are required from relevant central and local government authorities. In addition, from time to time, relevant government authorities may impose new regulations at a local level regulating fish farming. We believe that we have skills to help our customers obtain all necessary licenses, registrations, and permits to comply with all requirements necessary to allow our customers and investors to conduct aquaculture business in the PRC and Taiwan (R.O.C.).
Legal Proceedings
We are currently not a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.
Property
We do not own any real property.
Seasonality
Since the global growing demand from aquaculture production along with the decreasing production from wild fisheries and our fish farming systems provide a controlled and traceable environment for species, our business rarely suffers a seasonal impact.
Employees
As of December 31, 2020, we have 18 full-time employees. We are compliant with local prevailing wage, contractor licensing, and have good relations with our employees.
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Corporation Information
Our principal executive offices are located at 3F (Building B), No. 185, Sec. 1, Datong Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.). Our telephone number at this address is (886)-910-163-358.
| ITEM 1A. | RISK FACTORS |
Our board of directors recently concluded that we needed to restate previously issued financial statements as a result of a change in accounting for a certain revenue recognition.
Our board of directors (which currently acts as our audit committee) concluded, after consultation with management, that our previously issued unaudited financial statements for the periods ended September 30, 2019, included in the Company’s Quarterly Reports of Form 10-Q for the period ended September 30, 2019, should no longer be relied upon as a result of the change in accounting for a certain revenue recognition. We concluded that an exclusive sales agency fee recognized at a point in time during the third quarter of 2019 should have been recognized over an estimated economic life. Specifically, on September 20, 2019, we entered into an exclusive distribution agreement (“distribution agreement”) with JC Development Co. Ltd. (“JCD”) in Taiwan, which is an independent third-party company. JCD agrees to pay Nocera a total amount of $5 million over 5 years starting September 20, 2019 to be our perpetual exclusive sales agent in Asia Pacific. We agreed to pay JCD 8% commission of total sales excluding the sales made to CIMC Smart Science & Technology CO., Ltd. (“CIMC SSC”) in China. We recognized the $1 million consideration paid by JCD as revenue at a point in time when we received the payment in September 2019, which we recently concluded should have been recognized over an estimated economic life. The adjustments resulting therefrom, change the revenue, tax (expense) benefit, net income into net loss, deferred tax assets, net, income tax payable, and deferred revenue that we previously reported, but has no impact on previously reported cash. Such restatement could cause investors in our securities to lose confidence in our financial statements and management which could result in a decrease in our stock price and negative sentiment in the investment community.
Risks Related to Our Business
Outbreak of COVID-19 in 2020
The coronavirus pandemic (COVID-19) is above all a global human tragedy. The spread of the pandemic also is having serious economic implications.
Since our main PE sheet supplier, SIMONA, has still been under suspension due to the ongoing virus situation, the estimated completed dates of several RAS projects in China have been postponed, which will also postpone the revenue recognition from these projects.
We expect that as the COVID-19 expands as a pandemic and is spreading throughout the world that are disrupting commerce at all levels of industry, there will be various adverse effects experienced by companies such as ours. Although the Company is taking measures to mitigate the effect as much as possible, there is no assurance that the steps will be sufficient. In most respects, it is too early in the pandemic to be able to quantify all the ramifications.
We are currently delinquent on our statutory obligations to make social insurance and housing provident fund contributions for our employees in China, which may subject us to fines or other penalties by government authorities.
We have not adequately paid social insurance and housing provident fund contributions for our employees. According to the Social Insurance Law of the People’s Republic of China, we may be ordered to pay the outstanding social insurance contributions within a prescribed deadline and liable for a late payment fee equal to 0.05% of the outstanding amount for each day of delay. Further, we may be liable for a fine of one to three times the amount of the outstanding contributions, provided that we still fail to pay the outstanding social insurance contributions within the prescribed deadline. In addition, according to the Regulations on the Administration of Housing Provident Fund, we may be ordered by the Housing Accumulation Fund Management Center to deposit the outstanding funds within a time limit. If we fail to deposit such amounts within the time limit, the Center may petition a people’s court to enforce the payment. As of the date of the Form 10-K, we are not aware of any action, claim, investigation or penalties being conducted or threatened by any government authorities. However, if we are fined or otherwise penalized by government authorities due to our failure to adequately pay social insurance and housing provident fund contributions for our employees, our financial condition may be negatively impacted.
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Our operating history makes it difficult to evaluate our future business prospects and to make decisions based on our historical performance.
We have a very short operating history, which makes it difficult to evaluate our business on the basis of historical operations. As a consequence, it is difficult to forecast our future results based upon our limited historical data. Because of the uncertainties related to our lack of historical operations, we may be hindered in our ability to anticipate and timely adapt to increases or decreases in sales, services costs or expenses. If we make poor budgetary decisions as a result of unreliable historical data, we could incur greater losses, which may result in a negative effect on our stock price.
Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.
Our operating results may fluctuate as a result of a number of factors, many outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our quarterly, year-to-date and annual expenses as a percentage of our revenues may differ significantly from our historical or projected rates. Our operating results in future quarters may fall below expectations. Any of these events could cause our stock price to fall. Each of the risk factors listed in this section and the following factors may affect our operating results:
| · | Our ability to continue to attract customers; |
| · | Our ability to generate revenue from the services we offer; |
| · | The amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our businesses; and |
| · | Our focus on long-term goals over short-term results. |
Because our business is changing and evolving, our historical operating results may not be useful to you in predicting our future operating results.
We may not be successful in implementing important strategic initiatives, which may have a material adverse impact on our business and financial results.
There is no assurance that we will be able to implement important strategic initiatives in accordance with our expectations, which may result in a material adverse impact on our business and financial results. These strategic initiatives are designed to drive long-term stockholder value and improve our Company’s results of operations.
Our success depends substantially on the value of our reputation.
Reputation value is based in part on client perceptions as to a variety of subjective qualities. Even isolated business incidents that erode client trust, particularly if the incidents receive considerable publicity or result in litigation, can significantly reduce our reputation. Demand for our services could diminish significantly if we fail to preserve quality or fail to deliver a consistently positive client experience.
Effectively managing our growth into new geographic areas will be challenging.
Effectively managing growth can be challenging, particularly as we expand into new markets geographically where we must balance the need for flexibility and a degree of autonomy for local management against the need for consistency with our goals, philosophy, and standards. Growth can make it increasingly difficult to locate and hire sufficient numbers of key employees to meet our financial targets, to maintain an effective system of internal controls, and to train employees nationally to deliver a consistently high-quality service and customer experience.
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We face significant competition, and if we do not compete successfully against new and existing competitors, we may lose our market share, and our profitability may be adversely affected.
Increased competition could reduce our profitability and result in the inability to achieve any market share. Some of our existing and potential competitors may have competitive advantages, such as significantly greater financial, marketing or other resources, and may successfully mimic and adopt our business models. We cannot assure you that we will be able to successfully compete against new or existing competitors.
Failure to manage our growth could strain our management, operational and other resources, which could materially and adversely affect our business and prospects.
We intend to expand our operations and plan to expand in China and outside of China. The continued growth of our business will result in, substantial demand on our management, operational and other resources. In particular, the management of our growth will require, among other things:
| · | increased sales and sales support activities; |
| · | improved administrative and operational systems; |
| · | enhancements to our information technology system; |
| · | stringent cost controls and sufficient working capital; |
| · | strengthening of financial and management controls; and |
| · | hiring and training of new personnel. |
As we continue this effort, we may incur substantial costs and expend substantial resources. We may not be able to manage our current or future operations effectively and efficiently or compete effectively in new markets we enter. If we are not able to manage our growth successfully, our business and prospects would be materially and adversely affected.
Key employees are essential to growing our business.
Mr. Yin-Chieh Chen is essential to our ability to continue to grow our business. He has established relationships within the industries in which we will operate. If he was to leave us, our growth strategy might be hindered, which could limit our ability to increase revenue.
In addition, we face competition for attracting skilled personnel. If we fail to attract and retain qualified personnel to meet current and future needs, this could slow our ability to grow our business, which could result in a decrease in market share.
We may need additional capital and we may not be able to obtain it at acceptable terms, or at all, which could adversely affect our liquidity and financial position.
We may need additional cash resources due to changed business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The occurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.
Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:
| · | investors’ perception of, and demand for, our securities; |
| · | conditions of the U.S. and other capital markets in which we may seek to raise funds; |
| · | our future results of operations, financial condition, and cash flow; |
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| · | PRC governmental regulation of foreign investment in China; |
| · | economic, political and other conditions in China; and |
| · | PRC governmental policies relating to foreign currency borrowings. |
We may be dependent on various suppliers which may be unable to supply our orders, from time to time, and which may affect our ability to complete our client contracts timely.
We will not obtain our raw materials and electrical equipment and parts from only one local primary supplier. Our ability to deliver the services to the end user is dependent on a sufficient supply and better price point and if we cannot obtain a sufficient supply from several sources, we may be prevented from making timely deliveries to our customers. Any failure to obtain supplies of equipment for implementation of aquaculture installations could prevent us from delivering our services to our customers on a timely basis, or an economic basis, and could have a material adverse effect on our business and financial conditions.
We do not have a majority of independent directors serving on our board of directors, which could present the potential for conflicts of interest.
We do not have a majority of independent directors serving on our board of directors. In the absence of a majority of independent directors, our executive officers could establish policies and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest between us and our stockholders, generally, and the controlling officers, stockholders or directors.
We have limited insurance coverage.
The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited insurance services. We have determined that the risks of disruption or liability from our business, the loss or damage to our property, including our facilities, equipment, and office furniture, the cost of insuring for these risks, and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we do not have any business liability, disruption, litigation or property insurance coverage for our operations in China except for insurance on some company-owned vehicles. Any uninsured occurrence of loss or damage to property, or litigation or business disruption may result in the incurrence of substantial costs and the diversion of resources, which could have an adverse effect on our operating results.
If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, 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.
As a public company, we will have significant additional requirements for enhanced financial reporting and internal controls. We will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.
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We cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
We may have inadvertently violated Section 13(k) of the Exchange Act (implementing Section 402 of the Sarbanes-Oxley Act of 2002) and may be subject to sanctions as a result.
Section 13(k) of the Exchange Act provides that it is unlawful for a company that has a class of securities registered under Section 12 of the Exchange Act to, directly or indirectly, including through any subsidiary, extend or maintain credit in the form of a personal loan to or for any director or executive officer of the company. In 2019, our principle shareholder as well as chief executive officer, Mr. Yin Chieh Cheng collected money from a customer on behalf of us, which may have violated Section 13(k) of the Exchange Act. The receivable was repaid to us in January 2020. Issuers that are found to have violated Section 13(k) of the Exchange Act may be subject to civil sanctions, including injunctive remedies and monetary penalties, as well as criminal sanctions. The imposition of any of such sanctions on us could have a material adverse effect on our business, financial position, results of operations or cash flows.
Lack of experienced officers of publicly-traded companies may hinder our ability to comply with the Sarbanes-Oxley Act.
We do not have highly experienced officers in the financial operations of publicly traded companies, and it may be time-consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal controls and other finance staff or consultants in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with internal controls requirements, we may not be able to obtain the independent auditor certifications that the Securities Exchange Act of 1934 requires publicly-traded companies to obtain, for each fiscal year.
We will incur increased costs as a result of being a public company.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as new rules subsequently implemented by the Securities and Exchange Commission (the “SEC”), has required changes in corporate governance practices of public companies. Our foreign operations involving audits of the WFOE and the VIE will involve substantial additional time and expense, due to our being a public company. We expect these rules and regulations to increase our legal, accounting and financial compliance costs and to make public corporate activities more time-consuming and costly.
Risks Associated With Doing Business in China
Our operations and assets in China are subject to significant political and economic uncertainties.
Changes in PRC laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business, results of operations and financial condition. Under its current leadership, the Chinese government has been pursuing economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the Chinese government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice. This presents a continuing potential uncertainty for our investors
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The primary substantial portion of our revenues initially will be derived from China.
We anticipate that sales of our services in China will represent our primary revenues in the near future. Any significant decline in the condition of the PRC economy could adversely affect consumer demand of our services, among other things, which in turn would have a material adverse effect on our business and financial condition.
Currency fluctuations and restrictions on currency exchange may adversely affect our business, including limiting our ability to convert Chinese Renminbi into foreign currencies and, if Chinese Renminbi were to decline in value, reducing our revenue in U.S. dollar terms.
Our reporting currency is the U.S. dollar and our operations in China use their local currency as their functional currencies. Substantially, all of our revenue and expenses are in Chinese Renminbi. We are subject to the effects of exchange rate fluctuations with respect to any of these currencies. For example, the value of the Renminbi depends to a large extent on Chinese government policies and China’s domestic and international economic and political developments, as well as supply and demand in the local market. Since 1994, the official exchange rate for the conversion of Renminbi to the U.S. dollar had generally been stable and the Renminbi had appreciated slightly against the U.S. dollar. However, on July 21, 2005, the Chinese government changed its policy of pegging the value of the Chinese Renminbi to the U.S. dollar. Under the new policy, Chinese Renminbi may fluctuate within a narrow and managed band against a basket of certain foreign currencies. It is possible that the Chinese government could adopt a more flexible currency policy, which could result in more significant fluctuation of Chinese Renminbi against the U.S. dollar. We can offer no assurance that the Chinese Renminbi will be stable against the U.S. dollar or any other foreign currency.
The income statements of our operations are translated into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens against foreign currencies, the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income for our international operations. Similarly, to the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions results in increased revenue, operating expenses and net income for our international operations. We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial statements into U.S. dollars will lead to a translation gain or loss which is recorded as a component of other comprehensive income. In addition, we have certain assets and liabilities that are denominated in currencies other than the relevant entity’s functional currency. Changes in the functional currency value of these assets and liabilities create fluctuations that will lead to a transaction gain or loss. We have not entered into agreements or purchased instruments to hedge our exchange rate risks, although we may do so in the future. The availability and effectiveness of any hedging transaction may be limited, and we may not be able to successfully hedge our exchange rate risks.
Although Chinese governmental policies were introduced in 1996 to allow the convertibility of Chinese Renminbi into foreign currency for current account items, conversion of Chinese Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange, or the SAFE. These approvals, however, do not guarantee the availability of foreign currency conversion. We cannot be sure that we will be able to obtain all required conversion approvals for our operations or that Chinese regulatory authorities will not impose greater restrictions on the convertibility of Chinese Renminbi in the future. Because a significant amount of our future revenue may be in the form of Chinese Renminbi, our inability to obtain the requisite approvals or any future restrictions on currency exchanges could limit our ability to utilize revenue generated in Chinese Renminbi to fund our business activities outside of China, or to repay foreign currency obligations, including our debt obligations, which would have a material adverse effect on our financial condition and results of operations.
We may rely on dividends and other distributions from our PRC subsidiary to fund our cash and financing requirements and any limitation on the ability of our subsidiary to make payments to us could materially and adversely affect our ability to conduct our business.
As an offshore holding company (based in the USA), we will rely principally on dividends from the WFOE, our PRC subsidiary, for our cash requirements, dividends payments and other distributions to our stockholders, and to service any debt that we may incur and pay our operating expenses. The payment of dividends by entities organized in China is subject to limitations. In particular, PRC regulations permit the WFOE to pay dividends only out of its accumulated profits, if any, as determined in accordance with Chinese accounting standards and regulations. In addition, the WFOE is required each year to set aside at least 10% of its annual after-tax profits (as determined under PRC accounting standards) into its statutory reserve fund until the aggregate amount of that reserve reaches 50% of such entity’s registered capital. These reserves are not distributable as cash dividends.
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If the WFOE incurs debt on its own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Any limitation on the ability of the WFOE to distribute dividends or other payments to us could materially and adversely limit our ability to grow, make investments or acquisitions, pay dividends and otherwise fund and conduct our business.
We may be subject to product liability claims if people or properties are harmed by the services sold by us.
The products intended to be sold by us, as part of our services, are manufactured by third parties. The products may be defectively designed or manufactured. As a result, sales of the products could expose us to liability claims relating to personal injury or property damage and may require products recalls or other actions. Third parties subject to such injury or damage may bring claims or legal proceedings against us as the reseller of the products. We do not currently maintain any third-party liability insurance or products liability insurance in relation to products we intend to sell in conjunction with our services. As a result, any material products liability claim or litigation could have a material and adverse effect on our business, financial condition and results of operations. Even unsuccessful claims could result in the expenditure of funds and managerial efforts in defending them and could have a negative impact on our reputation.
We may have limited legal recourse under PRC laws if disputes arise under our contracts with third parties.
The Chinese government has enacted laws and regulations dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation, and trade. However, their experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes is unpredictable. If our new business ventures are unsuccessful, or other adverse circumstances arise from these transactions, we face the risk that the parties to these ventures may seek ways to terminate the transactions, or, may hinder or prevent us from accessing important information regarding the financial and business operations of these acquired companies. The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. Any rights we may have to specific performance, or to seek an injunction under PRC law, in either of these cases, are severely limited, and without a means of recourse by virtue of the Chinese legal system, we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect on our business, financial condition and results of operations.
We must comply with the Foreign Corrupt Practices Act.
We are required to comply with the United States Foreign Corrupt Practices Act, which prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in mainland China. If our competitors engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage. Although we inform our personnel that such practices are illegal, we cannot assure you that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties.
Changes in foreign exchange regulations in the PRC may affect our ability to pay dividends in foreign currency or conduct other foreign exchange business.
The Renminbi is not a freely convertible currency currently, and the restrictions on currency exchanges may limit our ability to use revenues generated in Renminbi to fund our business activities outside the PRC or to make dividends or other payments in United States dollars. The PRC government strictly regulates the conversion of Renminbi into foreign currencies. Over the years, foreign exchange regulations in the PRC have significantly reduced the government’s control over routine foreign exchange transactions under current accounts. In the PRC, the SAFE regulates the conversion of the Renminbi into foreign currencies. Pursuant to applicable PRC laws and regulations, foreign-invested enterprises incorporated in the PRC are required to apply for foreign exchange registration. Currently, conversion within the scope of the “current account” (e.g. remittance of foreign currencies for payment of dividends, etc.) can be effected without requiring the approval of SAFE. However, conversion of currency in the “capital account” (e.g. for capital items such as direct investments, loans, securities, etc.) still requires the approval of SAFE.
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PRC regulation of loans to and direct investments in PRC entities by offshore holding companies may delay or prevent us from using the proceeds of any offering to make loans or capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and ability to fund and expand our business.
We may transfer funds to or finance the WFOE, our PRC subsidiary, by means of stockholder’s loans or capital contributions. Any loans to the WFOE, which is a foreign-invested enterprise, cannot exceed statutory limits based on the amount of our investments in the WFOE, and shall be registered with the SAFE or its local counterparts. Furthermore, any capital contributions we make to the WFOE shall be approved by the Ministry of Commerce, or the MOFCOM, or its local counterparts. We may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to receive such registrations or approvals, our ability to provide loans or capital contributions to the WFOE may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
In addition, the SAFE promulgated the Circular on the Relevant Operating Issues concerning Administration Improvement of Payment and Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or SAFE Circular No. 142, on August 29, 2008. Under SAFE Circular No. 142, registered capital of a foreign-invested company settled in Renminbi converted from foreign currencies may only be used within the business scope approved by the applicable governmental authority and may not be used for equity investments in the PRC, unless otherwise provided by other PRC laws or regulations. In addition, foreign-invested enterprises may not change how they use such capital without SAFE’s approval and may not, in any case, use such capital to repay Renminbi loans if they have not used the proceeds of such loans. SAFE further promulgated the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses, or SAFE Circular No. 45, on November 16, 2011, which expressly prohibits foreign-invested enterprises from using the registered capital settled in Renminbi converted from foreign currencies to grant loans through entrustment arrangements with a bank, repay inter-company loans or repay bank loans that have been transferred to a third party. SAFE Circular No. 142 and SAFE Circular No. 45 may significantly limit our ability to transfer the net proceeds from an offshore offering to the WFOE and convert the net proceeds into Renminbi to invest in or acquire any other PRC companies, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.
A failure by the beneficial owners of our shares who are PRC residents to comply with certain PRC foreign exchange regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities and subject us to liability under PRC law.
The SAFE has promulgated regulations, including the Notice on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip Investment through Special Purpose Vehicles, or SAFE Circular No. 37, effective on July 14, 2018, and its appendixes, that require PRC residents, including PRC institutions and individuals, to register with local branches of the SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular No. 37 as a “special purpose vehicle.” SAFE Circular No. 37 further requires an amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as an increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or another material event. In the event that a PRC stockholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in their ability to contribute additional capital into its PRC subsidiary. Further, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for foreign exchange evasion.
These regulations apply to our direct and indirect stockholders who are PRC residents and may apply to any offshore acquisitions or share transfers that we make in the future if our shares are issued to PRC residents. Mr. Bi Zhang is a PRC resident, and if he is deemed to be beneficially holding interests in us without making appropriate registration pursuant to SAFE Circular No. 37, the WFOE, as our PRC subsidiary, could be subject to fines and legal penalties, and the SAFE could restrict our cross-border investment activities and our foreign exchange activities, including restricting the WFOE’s ability to distribute dividends to or obtain loans denominated in foreign currencies from us, or prevent us from paying dividends. As a result, our business operations and our profitability could be materially and adversely affected.
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PRC regulations relating to mergers and acquisitions and overseas listings of domestic enterprises by foreign investors may increase the administrative burden we face and create regulatory uncertainties.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rule, which became effective in September 2006 and were further amended in June 2009, requires that if an overseas company is established or controlled by PRC domestic companies or citizens intends to acquire equity interests or assets of any other PRC domestic company affiliated with the PRC domestic companies or citizens, such acquisition must be submitted to the MOFCOM, rather than local regulators, for approval. In addition, the M&A Rule requires that an overseas company controlled directly or indirectly by PRC companies or citizens and holding equity interests of PRC domestic companies needs to obtain the approval of the China Securities Regulatory Commission, or CSRC, prior to listing its securities on an overseas stock exchange. On September 21, 2006, the CSRC published a notice on its official website specifying the documents and materials required to be submitted by overseas special purpose companies seeking CSRC’s approval of their overseas listings.
While the application of the M&A Rule remains unclear, based on our understanding of current PRC laws, regulations, and the notice published on September 21, 2006, since the WFOE, our operating entity, was established by means of direct investment, rather than by merger or acquisition of the equity interest or assets of any “domestic company” as defined under the M&A Rules, we believe we are not required to submit an application to the MOFCOM or the CSRC for its approval for any of our transactions.
However, we cannot assure you that PRC governmental authorities, including the MOFCOM and the CSRC, will reach the same conclusion as us. If the MOFCOM, the CSRC and/or other PRC regulatory agencies subsequently determine that the approvals from the MOFCOM and/or CSRC and/or other PRC regulatory agencies were required, our PRC business could be challenged, and we may need to apply for a remedial approval and may be subject to certain administrative punishments or other sanctions from PRC regulatory agencies. The regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of our foreign currency in our offshore bank accounts into the PRC, or take other actions that could materially and adversely affect our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ordinary shares.
The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.
China only recently has permitted provincial and local economic autonomy and private economic activities, and, as a result, we are dependent on our relationship with the local government in the province in which we operate our business. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, product liabilities, environmental regulations, property, and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in PRC subsidiaries.
Future inflation in China may inhibit our activity to conduct business in China.
In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our services.
We may have difficulty establishing adequate management, legal and financial controls in the PRC.
We may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards. We may have difficulty establishing adequate management, legal and financial controls in the PRC.
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We may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on the United States or other foreign laws against us and our management.
We conduct substantially all our operations in China and substantially all our assets are located in China. In addition, some of our directors and executive officers reside in China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon some of our directors and senior executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. It would also be difficult for investors to bring an original lawsuit against us or our directors or executive officers before a Chinese court based on U.S. federal securities laws or otherwise. Moreover, China does not have treaties with the United States or any other countries providing for the reciprocal recognition and enforcement of the judgment of courts.
Under the EIT Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and holders of our securities.
Under the EIT Law, an enterprise established outside of China with its “de facto management body” in China is considered a “resident enterprise,” meaning that it can be treated the same as a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define “de facto management body” as an organization that exercises “substantial and overall management and control over the services and operations, personnel, accounting, and properties” of an enterprise. On April 22, 2009, the SAT, issued a circular, or SAT Circular No. 82, providing certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China, which include all of the following conditions: (a) the location where senior management members responsible for an enterprise’s daily operations discharge their duties; (b) the location where financial and human resource decisions are made or approved by organizations or persons; (c) the location where the major assets and corporate documents are kept, and (d) the location where more than half (inclusive) of all directors with voting rights or senior management have their habitual residence.
If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we will be subject to enterprise income tax at a rate of 25% on our worldwide income as well as PRC enterprise income tax reporting obligations. This would mean that income such as interest in offering proceeds and other non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to us by our PRC subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that a 10% withholding tax is imposed on dividends we pay to our non-PRC enterprise stockholders and with respect to gains derived by our non-PRC enterprise stockholders from transferring our shares, and a 20% withholding tax is imposed on dividends we pay to our non-PRC individual stockholders and with respect to gains derived by our non-PRC individual stockholders from transferring our shares.
We face uncertainties with respect to the application of the Circular on Strengthening the Administration of Enterprise Income Tax for Share Transfer by Non-PRC Resident Enterprises.
Pursuant to the Circular on Strengthening the Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular No. 698, issued by the SAT in December 2009 with retroactive effect from January 1, 2008, if a non-resident enterprise indirectly transfers the equity interests of a PRC resident enterprise by transferring equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (ⅰ) has an effective tax rate of less than 12.5% or (ii) does not impose income tax on foreign income of its residents, the transferring nonresident enterprise must report this Indirect Transfer to the competent PRC tax authority of the PRC resident enterprise. The PRC tax authority will apply the “substance over form” principle, and as a result may disregard the existence of the overseas holding company if such overseas holding company lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such an Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular No. 698 also provides that where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.
There is uncertainty as to the application of SAT Circular No. 698. While the term “Indirect Transfer” is not clearly defined, it is understood that the relevant PRC tax authorities have broad jurisdiction over requests for information regarding foreign companies having remote contact with the PRC. Moreover, the relevant authority has not yet promulgated any formal provisions or made any formal interpretation as to the procedures or format for reporting an Indirect Transfer. In addition, there have not been any formal declarations concerning how to determine whether a foreign investor has adopted an arrangement for the purpose of reducing, avoiding or deferring PRC tax. As a result, we and our non-resident investors or non-resident enterprise stockholders may be at risk of being taxed under SAT Circular No. 698 and may be required to expend valuable resources to comply with SAT Circular No. 698 or to establish that we and our non-resident enterprise investors or non-resident enterprise stockholders should not be taxed under SAT Circular No. 698, which may have a material adverse effect on our financial condition and results of operations or such non-resident investors’ or such non-resident enterprise stockholders’ investments in us.
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Our Chinese operating companies are obligated to withhold and pay PRC individual income tax in respect of the salaries and other income received by their employees who are subject to PRC individual income tax. If they fail to withhold or pay such individual income tax in accordance with applicable PRC regulations, they may be subject to certain sanctions and other penalties, which could have a material adverse impact on our business.
Under PRC laws, the WFOE will be obligated to withhold and pay individual income tax in respect of the salaries and other income received by their employees who are subject to PRC individual income tax. The WFOE may be subject to certain sanctions and other liabilities under PRC laws in case of failure to withhold and pay individual income taxes for its employees in accordance with the applicable laws.
In addition, the SAT has issued several circulars concerning employee stock options. Under these circulars, employees working in the PRC (which could include both PRC employees and expatriate employees subject to PRC individual income tax) are required to pay PRC individual income tax in respect of their income derived from exercising or otherwise disposing of their stock options. If we implement employee stock options plan, the WFOE will be obligated to file documents related to employee stock options with relevant tax authorities and withhold and pay individual income taxes for those employees who exercise their stock options. While tax authorities may advise us that our policy is compliant, they may change their policy, and we could be subject to sanctions.
The enforcement of labor contract law and an increase in labor costs in the PRC may adversely affect our business and our profitability.
China adopted a labor contract law and its implementation rules effective on January 1, 2008 and September 18, 2008, respectively. The labor contract law was further amended on December 28, 2012. The labor contract law and its implementation rules impose more stringent requirements on employers with regard to, among others, severance payment upon permitted termination of the employment by an employer and non-fixed term employment contracts, time limits for probation period as well as the duration and the times that an employee can be placed on a fixed-term employment contract. Due to the limited period of effectiveness of the labor contract law and its implementation rules, and the lack of clarity with respect to their implementation, potential penalties and fines, it is uncertain how they will impact our current employment policies and practices. Our employment policies and practices may violate the labor contract law or its implementation rules and we may be subject to related penalties, fines or legal fees. Compliance with the labor contract law and its implementation rules may increase our operating expenses, in particular, our personnel expenses, as the continued success of our business depends significantly on our ability to attract and retain qualified personnel. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the labor contract law and its implementation rules may also limit our ability to effect those changes in a manner that we believe to be cost-effective or desirable, which could adversely affect our business and results of operations.
Additionally, PRC companies are subject to various laws and regulations regarding social insurance and housing funds, under which the WFOE is required to pay employees’ pension contributions, work-related injury benefits, maternity insurances, medical and unemployment benefit plans, housing funds and other welfare-oriented payments. The WFOE has not contributed social insurance premiums and housing funds for its employees in full compliance with applicable PRC laws. As such, the WFOE may be ordered to compensate the cumulative amount of the under-contributed social insurance premiums and housing fund contributions and be subject to administrative penalties, including fines, and as such our business and reputation may be adversely affected.
Because Chinese laws will govern almost all our business material agreements, we may not be able to enforce our rights within the PRC or elsewhere, which could result in a significant loss of business, business opportunities or capital.
The Chinese legal system is similar to a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. Although legislation in the PRC over the past 25 years has significantly improved the protection afforded to various forms of foreign investment and contractual arrangements in the PRC, these laws, regulations and legal requirements are relatively new. Due to the limited volume of published judicial decisions, their non-binding nature, the short history since their enactments, the discrete understanding of the judges or government agencies of the same legal provision, inconsistent professional abilities of the judicators, and the inclination to protect local interest in the courtrooms, interpretation, and enforcement of PRC laws and regulations involve uncertainties, which could limit the legal protection available to us, and foreign investors, including you. The inability to enforce or obtain a remedy under any of our future agreements could result in a significant loss of business, business opportunities or capital and could have a material adverse impact on our business, prospects, financial condition, and results of operations. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition, any litigation in the PRC, regardless of the outcome, may be protracted and result in substantial costs and diversion of resources and management attention.
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Risks Relating to Our Securities
Insiders have substantial control over us, and they could delay or prevent a change in our corporate control even if our other stockholders wanted it to occur.
Our executive officers, directors, and principal stockholders hold approximately 99% of our outstanding common stock. Accordingly, these stockholders are able to control all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay or prevent an outside party from acquiring or merging with us even if our other stockholders wanted it to occur.
There may not be sufficient liquidity in the market for our securities in order for investors to sell their securities.
There is currently only a limited public market for our common stock, which is listed on the Over-the-Counter Bulletin Board, and there can be no assurance that a trading market will develop further or be maintained in the future. As of March 30, 2021, the closing trade price of our common stock was $2.60 per share.
The market price of our common stock may be volatile.
The market price of our common stock has been and will likely continue to be highly volatile, as is the stock market in general, and the market for OTC Bulletin Board quoted stocks in particular. Some of the factors that may materially affect the market price of our common stock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate or sales of our common stock. These factors may materially adversely affect the market price of our common stock, regardless of our performance. In addition, the public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
Our common stock may be considered a “penny stock” and may be difficult to sell.
The SEC has adopted regulations which generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and, therefore, it may be designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.
The market for penny stocks has experienced numerous frauds and abuses, which could adversely impact investors in our stock.
OTCBB securities are frequent targets of fraud or market manipulation, both because of their generally low prices and because OTCBB reporting requirements are less stringent than those of the stock exchanges or NASDAQ.
Patterns of fraud and abuse include:
| · | Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; |
| · | Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; |
| · | “Boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced salespersons; |
| · | Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and |
| · | Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to the desired level, along with the inevitable collapse of those prices with consequent investor losses. |
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Our management is aware of the abuses that have occurred historically in the penny stock market.
We have not paid dividends in the past and do not expect to pay dividends in the foreseeable future and any return on investment may be limited to the value of our stock.
We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future and any return on investment may be limited to the value of our stock. We plan to retain any future earnings to finance growth.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None
| ITEM 2. | PROPERTIES |
Our headquarter is located at 3F (Building B), No. 185, Sec. 1, Datong Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.). The office is rented by Taiwan Grand Smooth Enterprise Co., Ltd., company 100% controlled by Yin-Chieh Cheng, our President CEO and Chairman of the board. Mr. Cheng sub-leases this space to us, which is free of charge.
Prior to the termination of VIE agreement with GZ WFH on October 8 2020, we also leased approximately 370 square meters of space in Xing Yi City, Guizhou Qian Xi Nan, PRC, with a period of 10 years, which will expire on May 10, 2028. The rental expense is approximately $242 per month for the first five years, and it is subject to a market adjustment for the second five years. We believe that our existing facilities are adequate for our current requirements and we will be able to enter into lease arrangements on commercially reasonable terms for future expansion.
We do not own any real property.
| ITEM 3. | LEGAL PROCEEDINGS |
We are currently not a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
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| ITEM 5. | MARKET FOR REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our common stock, par value $0.001, is listed for quotation in the OTC Pink Market under the symbol “NCRA”
| 2020 | 2019 | |||||||||||||||
| Quarter Ended | High | Low | High | Low | ||||||||||||
| March 31 | $ | 4.49 | 2.56 | $ | 0.95 | 0.40 | ||||||||||
| June 30 | $ | 3.90 | 1.99 | $ | 2.70 | 0.47 | ||||||||||
| September 30 | $ | 3.75 | 2.25 | $ | 4.35 | 1.75 | ||||||||||
| December 31 | $ | 4.40 | 2.03 | $ | 5.30 | 2.00 | ||||||||||
Stockholders
As of March 31, 2021 we had approximately 440 stockholders of record of our common stock, not including shares held in street name.
Dividends
We do not expect to declare or pay any cash dividends on our common stock in the foreseeable future, and we currently intend to retain future earnings, if any, to finance the expansion of our business. The decision whether to pay cash dividends on our common stock will be made by our board of directors, at its discretion, and will depend on our financial condition, operating results, capital requirements and other factors that the board of directors considers significant.
We did not pay cash dividends in the years ended December 31, 2020 or 2019.
Transfer Agent
The transfer agent and registrar for our common stock is Mountain Share Transfer, LLC.
Securities Authorized for Issuance under Equity Compensation Plans
The Company has not declared any dividends since inception and does not anticipate paying any dividends in the foreseeable future. The payment of dividends is within the discretion of the Board of Directors and will depend on the Company’s earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit the Company’s ability to pay dividends on its common stock other than those generally imposed by applicable state law.
| ITEM 6. | SELECTED CONSOLIDATED FINANCIAL DATA |
Not applicable for a smaller reporting company.
| ITEM 7. | 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.
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Operations Overview
As of December 31, 2019, we provide Land-Based Recirculating 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.
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.
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 throughout 2020. 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.
Critical Accounting Policies, Estimates and Assumptions
We prepare our financial statements in conformity with U.S. 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 SEC defines critical accounting policies as those that are, in management's view, most important to the portrayal of our financial condition and results of operations and those that require significant judgments and estimates.
The accounting principles we utilized in preparing our consolidated financial statements conform in all material respects to U.S GAAP.
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 US 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 “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.
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Fair Value Measurement
The Company applies 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:
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. Unobservable inputs are valuation technique inputs that reflect the Company’s 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, the Company uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company measures fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates.
As of December 31, 2020 and 2019, there are no assets or liabilities that are measured and reported at fair value on a recurring basis.
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 December 31, 2020 and 2019 were $1,023,531 and $28,539, respectively.
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 the Company will not be able to collect all amounts due according to the original terms of the receivables. The Company analyzes 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 a concert, prepaid rent and 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.
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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 | ||
| Leasehold improvements | Shorter of the remaining lease terms 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.
Intangible Assets, Net
The intangible assets are a series of software that are surveillance app connecting smart phones, achieving smart fish farming. It reports a real time data of water in our fish farming tanks, such as temperature, PH value, and dissolved oxygen, to the smart phones of fish farmers, helping fish farmers to understand the water condition in a timely manner.
Intangible assets are stated at cost less accumulated amortization and impairment losses. Intangible assets are amortized over estimated useful lives, and are reviewed annually for impairment. The estimated useful life of the intangible assets is 5 years.
Goodwill
Goodwill is recorded as the difference between the aggregate consideration in a business combination and the fair value of the acquired net assets acquired. The Company evaluates goodwill for impairment on an annual basis in the fourth quarter or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Based on that qualitative assessment, if it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company conducts a quantitative goodwill impairment test, which involves comparing the estimated fair value of the reporting unit with its carrying value, including goodwill. The Company estimates the fair value of a reporting unit using a combination of the income and market approach. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment loss is recorded for the difference. The Company performed its qualitative assessment and determined that no impairment indicators were present during the years ended December 31, 2020 and 2019.
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Impairment of Long-lived Assets
The Company reviews its 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, the Company measures 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, the Company 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, the Company is subject to contingencies, including legal proceedings and claims arising out of its business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical and the specific facts and circumstances of each matter.
Revenue Recognition
The Company has early adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified ASC 606 on January 1, 2017.
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:
| 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 |
The Company considered revenue is recognized when (or as) the Company satisfies performance obligations by transferring a promised goods and provide maintenance service to a customer. 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 and providing maintenance service to the customer. 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.
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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.
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
The Company recognizes 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 February 2016, the FASB issued ASU 2016-12, Leases (ASC Topic 842), which amends the leases requirements in ASC Topic 840, Leases. Under the new lease accounting standard, a lessee will be required to recognize a right-of-use asset and lease liability for most leases on the balance sheet. The new standard also modifies the classification criteria and accounting for sales-type and direct financing leases, and enhances the disclosure requirements. Leases will continue to be classified as either finance or operating leases.
The Company adopted ASC Topic 842 using the modified retrospective transition method effective January 1, 2019. There was no cumulative effect of initially applying ASC Topic 842 that required an adjustment to the opening retained earnings on the adoption date nor revision of the balances in comparative periods. As a result of the adoption, The Company recognized a lease liability and right-of-use asset for each of our existing lease arrangement. The adoption of the new lease standard does not have a material impact on our consolidated income statement or our consolidated statement of cash flow.
Uncertain Tax Positions
The Company accounts 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 PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. The Company records interest and penalties on uncertain tax provisions as income tax expense. There are no uncertain tax positions as of December 31, 2019 and 2018, and the Company has no accrued interest or penalties related to uncertain tax positions. The company does not believe that the unrecognized tax benefits will change over the next twelve months.
Comprehensive (Loss) Income
Comprehensive income or loss is comprised of the Company’s 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.
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Foreign Currency Translation and Transactions
The Company’s reporting currency is the U.S. dollar (“US$”). The functional currency of the Company’s subsidiary and the consolidated VIE is RMB. In the consolidated financial statements, the financial information of the Company’s subsidiary and the consolidated VIE has been translated into US$. Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at historical exchange rates, except for changes in accumulated deficit during the year which is the result of income statement translation process, and revenue, expense, gains or losses are translated using the average exchange rate during the year. Translation adjustments are reported as foreign currency translation adjustments and are shown as a separate component of other comprehensive income or loss in the consolidated statements of changes in equity and comprehensive (loss) income. The exchange rates as of December 31, 2020 and 2019 are 6.5249 and 6.9630, respectively. The annual average exchange rates for the year ended December 31, 2020 and 2019 are 6.8996 and 6.8937, respectively.
(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 common shares outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares.
Recently Issued Accounting Standards
See Note 3 to the Consolidated Financial Statements included herewith.
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Results of Operations
The following table sets forth the consolidated statements of operations of the Company for the years ended December 31, 2020 and 2019.
Consolidated Statements of Operations
| For the years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net Sales | $ | 1,170,156 | $ | 456,860 | ||||
| Cost of sales | (526,343 | ) | (104,237 | ) | ||||
| Gross profit | 643,813 | 352,623 | ||||||
| Operating expenses | ||||||||
| General and administrative expenses | (1,325,696 | ) | (1,733,092 | ) | ||||
| Total operating expenses | (1,325,696 | ) | (1,733,092 | ) | ||||
| Loss from operations | (681,883 | ) | (1,380,469 | ) | ||||
| Other income (expense) | 36 | (34,842 | ) | |||||
| Loss before income taxes | (681,847 | ) | (1,415,311 | ) | ||||
| Income tax benefit | 42,777 | 89,968 | ||||||
| Net loss | (639,070 | ) | (1,325,343 | ) | ||||
| Less: Net loss attributable to non-controlling interests | (6,705 | ) | (68,591 | ) | ||||
| Net loss attributable to the Company | $ | (632,365 | ) | $ | (1,256,752 | ) | ||
| Comprehensive (loss) income | ||||||||
| Net loss | (639,070 | ) | (1,325,343 | ) | ||||
| Foreign currency translation income (loss) | 31,081 | (20,856 | ) | |||||
| Total comprehensive loss | (607,989 | ) | (1,346,199 | ) | ||||
| Less: Net loss attributable to non-controlling interest | (6,705 | ) | (68,591 | ) | ||||
| Less: Foreign currency translation loss attributable to non-controlling interest | (499 | ) | (1,014 | ) | ||||
| Comprehensive loss attributable to the Company | $ | (600,785 | ) | $ | (1,276,594 | ) | ||
| Loss per share | ||||||||
| Basic | $ | (0.0538 | ) | $ | (0.1017 | ) | ||
| Diluted | $ | (0.0538 | ) | $ | (0.1017 | ) | ||
| Weighted average number of common shares outstanding | ||||||||
| Basic | 11,752,447 | 12,353,227 | ||||||
| Diluted | 11,752,447 | 12,353,227 | ||||||
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Comparison of Results of Operations for the years ended December 31, 2020 and December 31, 2019
Revenue
Revenue for the year ended December 31, 2020 was approximately $1.2 million compared to approximately $0.5 million for the comparable period in 2019. The revenue for the year ended December 31, 2020 was driven by the deferred revenue recognition of the exclusive sales agency license revenue from JC Development Co., Ltd (“JCD”) of selling our fish farming containers in Asia Pacific. The revenue for the year ended December 31, 2019 was mainly generated from the exclusive sales agency license revenue from our exclusive franchise, JCD.
Gross profit
Gross profit for the year ended December 31, 2020 was approximately $0.6 million, compared to approximately $0.4 million for the comparable period in 2019. This increase of gross profit margin was mainly because in 2020 we recognized the deferred revenue generated from JCD’s first franchise payment.
General and administrative expenses
General and administrative expenses were $1.3 million, for the year ended December 31, 2020, compared to $1.7 million for the comparable period in 2019.
Other income (expense)
Other income were $36 for the year ended December 31, 2020, compared to other expense of $(34,842) for the comparable period in 2019. The expenses for the year ended December 31, 2020 was mainly due to the loss from disposal of property and equipment.
During the year ended December 31, 2020, we recorded an income tax benefit of $42,777 as compared to $89,968 for the comparable period in 2019.
Net loss attributable to the Company
Net loss attributable to the Company (excluding net loss attributable to non-controlling interest) for the year ended December 31, 2020 was approximately $0.64 million compared to net loss attributable to the Company (excluding net income attributable to non-controlling interest) approximately of $1.26 million for the comparable period in 2019. The significant decrease was due to plunged in equipment sales and bad debt provision in 2019.
Liquidity and Capital Resources
The Company had net loss of $0.6 million for the year ended December 31, 2020 and the net cash used in operating activities was $0.1 million, which raise substantial doubt as to the Company’s ability to continue as a going concern. Management believes that it has developed a liquidity plan, as summarized below, that, if executed successfully, would enable to meet presently anticipated cash needs for at least the next 12 months after the date that the financial statements are issued and it has prepared the consolidated financial statements on a going concern basis.
| a) | The Company started its business operation in 2018 and is continuing to focus on its business development and ultimately to attain profitable operations. It receives sales orders and delivers the goods to customers continuously. The Company expects to receive $1 million from JC Development Co, Ltd on or before June 1, 2020, according to the exclusive distribution agreement entered into in September 2019. |
| b) | The Company obtained a financial support letter from Mr. Yin-Chieh Cheng, the chief executive officer, also the chairman of the board of directors and a principle shareholder of the Company. |
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However, the Company continues to have ongoing obligations and it expects that it will require additional capital in order to execute its longer-term business plan. If the Company encounters unforeseen circumstances that place constraints on its capital resources, management will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing the Company’s business development activities, suspending the pursuit of its business plan, controlling overhead expenses and seeking to further dispose of non-core assets. Management cannot provide any assurance that the Company will raise additional capital if needed.
The following table provides detailed information about our net cash flows for the periods indicated:
| For the years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net cash (used in) provided by operating activities | $ | (129,824 | ) | $ | 266,825 | |||
| Net cash provided by (used in) investing activities | 770,943 | (712,975 | ) | |||||
| Net cash provided by financing activities | 217,479 | 468,390 | ||||||
| Effect of the exchange rate change on cash and cash equivalents | 136,394 | (908 | ) | |||||
| Increase in cash and cash equivalents | $ | 994,992 | $ | 21,332 | ||||
Net cash (used in) provided by operating activities
Net cash used in operating activities amounted to $129,824 for the year ended December 31, 2020. This reflected a net loss of $639,070, as adjusted for non-cash items primarily including impairment of GZWFH of $522,291, depreciation of $74,958 and share based compensation of $265,758, and offset by effect of changes in working capital including an increase of $268,285 of inventories.
Net cash provided by operating activities amounted to $266,825 for the year ended December 31, 2019. This reflected a net loss of $1,325,343, as adjusted for non-cash items bad debt provision $1,084,534 and the effect of changes in operating assets and liabilities including decreases of account receivable in the amount of $942,165, and increase of amount due from related party in the amount of $1,000,000.
Net cash provided by (used in) investing activities
Net cash provided by investing activities was $770,943 for the year ended December 31, 2020 which were primarily attributable to the net cash acquired from the merger of XFC.
Net cash used in investing activities was $712,975 for the year ended December 31, 2019 which were primarily attributable to the purchase of equipment and intangible asset.
Net cash provided by financing activities
Net cash provided by financing activities amounted to $217,479 and $468,390 for the year ended December 31, 2020 and 2019, respectively, which was attributable to the proceeds from our stockholders primarily for our daily operation. See “Note 14 to the consolidated financial statements included herewith”.
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 stockholders or raise additional capital through, among other things, the sale of equity or debt securities. The stockholders 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.
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Restatement of Previously Issued Financial Statements (Unaudited)
Our board of directors (which currently acts as our audit committee) concluded, after consultation with management, that our previously issued unaudited financial statements for the periods ended September 30, 2019, included in the Company’s Quarterly Reports of Form 10-Q for the periods ended September 30, 2019, should no longer be relied upon as a result of the change in accounting for a certain revenue recognition. We concluded that an exclusive sales agency fee recognized at a point in time during the third quarter of 2020 should have been recognized over an estimated economic life. Specifically, on September 20, 2019, we entered into an exclusive distribution agreement (“distribution agreement”) with JC Development Co. Ltd. (“JCD”) in Taiwan, which is an independent third-party company. JCD agrees to pay Nocera a total amount of $5 million over 5 years starting September 20, 2019 to be our perpetual exclusive sales agent in Asia Pacific. We agreed to pay JCD 8% commission of total sales excluding the sales made to CIMC Smart Science & Technology CO., Ltd. (“CIMC SSC”) in China. We recognized the $1 million consideration paid by JCD as revenue at a point in time when we received the payment in September 2019, which we recently concluded should have been recognized over an estimated economic life. The adjustments resulting therefrom, change the revenue, tax (expense) benefit, net income into net loss, deferred tax assets, net, income tax payable, and deferred revenue that we previously reported, but has no impact on previously reported cash. For further information including the impact of this adjustment, please see Notes 20 to the audited consolidated financial statements included in this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
Recently Issued Accounting Pronouncements
Please refer to the Note 3 to the Consolidated Financial Statements included herewith.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Credit Risk
We are exposed to credit risk from our cash at bank and accounts receivable. The credit risk on cash at bank is limited because the counterparts are recognized financial institutions. Accounts receivable are subject to credit evaluations. We periodically record a provision for doubtful collections based on an evaluation of the collectability of accounts receivable by assessing, among other factors, the customer’s willingness or ability to pay, repayment history, general economic conditions and our ongoing relationship with the customers.
Foreign Currency and Exchange Risk
The functional currency of the Company is United States dollars (“US$”), and the functional currency of our Hong Kong subsidiary in Hong Kong dollars (“HK$”). The functional currency of PRC companies is the Renminbi. The PRC is the primary economic environment in which we operate.
For financial reporting purposes, the financial statements of PRC companies, which are prepared using the Renminbi, are translated into our reporting currency, the US$. Assets and liabilities are translated using the exchange rate at each balance sheet date. Revenue and expenses are translated using average rates prevailing during each reporting period, and stockholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income/loss in stockholders’ equity.
Transactions denominated in currencies other than the reporting currency are translated into the reporting currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange differences are included in the determination of net loss of the consolidated financial statements for the respective periods.
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Exchange rates applied are as follows.
| Year ended December 31, 2020 |
Year ended December 31, 2019 |
|||||||
| Period end RMB exchange rate | 6.5249 | 6.9630 | ||||||
| Average RMB exchange rate | 6.8996 | 6.8937 | ||||||
| Period end HK$ exchange rate | 7.7539 | 7.7731 | ||||||
| Average HK$ exchange rate | 7.7577 | 7.8338 | ||||||
No representation is made that the HK$ and RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.
Country Risk
The substantial portion of our business, assets, and operations are located and conducted in mainland China. While the economy has experienced significant growth in the past twenty years, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall economy of mainland China, but may also have a negative effect on Nocera, Inc. For example, Nocera, Inc.’s operating results and financial condition may be adversely affected by government control over capital investments or changes in tax regulations applicable to Nocera, Inc. If there are any changes in any policies by the Chinese government and Nocera, Inc.’s business is negatively affected as a result, then Nocera, Inc.’s financial results, including our ability to generate revenues and profits, will also be negatively affected.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements and supplementary financial information required by this Item are set forth immediately following the signature page and are incorporated herein by reference.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision of our Chief Executive Officer and Interim 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 December 31, 2020, due to the presence of material weaknesses described below, our disclosure controls and procedures were not effective.
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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:
| · | 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 December 31, 2020. 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 December 31, 2020. 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 December 31, 2020:
| · | 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; and |
| · | inadequate segregation of duties. |
| 31 |
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.
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.
Attestation Report of the Independent Registered Public Accounting Firm
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the Dodd-Frank Act that permanently exempted smaller reporting companies from the auditor attestation requirement.
Changes in Internal Control Over Financial Reporting
An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Interim 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 December 31, 2020. 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 fourth fiscal quarter ended December 31, 2020 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 Annual Report are the Certifications of the Chief Executive Officer and the Interim 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.
| ITEM 9B. | OTHER INFORMATION |
None.
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| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
The following individuals constitute our board of directors (“Board”) and executive management:
| Name | Age | Position | ||||
| Yin-Chieh Cheng | 42 | Chairman of the Board, CEO, President, Director | ||||
| Shun-Chih Chuang | 32 | Chief Financial Officer | ||||
| Hsien-Wen Yu (1) | 28 | Chief Operating Officer | ||||
| Erik Nelson | 53 | Director, Corporate Secretary | ||||
| David Yu-Lung Kou | 51 | Director | ||||
| Thomas A. Steele | 73 | Director | ||||
| Hui-Ying Zhuang | 48 | Director | ||||
(1) Hsien-Wen Yu was appointed Chief Operating Officer effective after filing Form 8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on March 10, 2020.
Yin-Chieh Cheng, Chairman of the Board and Chief Executive Officer and President and Director
Currently, Mr. Cheng serves as Chairman of the Board, Chief Executive Officer, President and Director of the Company. Mr. Cheng served as our Chief Financial Officer and Treasurer from December 27, 2018 until October 28, 2019. Prior to that role, from December 1, 2014, to present, Mr. Yin-Chieh Cheng acted as a director of Shengbo Accounting Firm in Shanghai. Mr. Yin-Chieh Cheng holds a bachelor’s degree in Accounting from George Mason University in Virginia.
Shun-Chih Chuang, Chief Financial Officer
Mr. Chuang was appointed as Chief Financial Officer on October 28, 2019. Prior to that role, Mr. Chuang was a project manager at Deloitte Financial Advisory where he was part of the Transaction Support practice. Mr. Chuang has a marketing degree from UC-Berkeley Extension, and a BS in Accounting from Soochow University, Taiwan. He currently holds Certified Public Accounting (CPA) licenses from the United States and Taiwan.
Hsien-Wen Yu, Chief Operating Officer
Mr. Yu was appointed as Chief Operating Officer on March 2, 2020. Prior to that role, Mr. Yu was the operations manager of the Company since 2019. Working as an entrepreneur since 2014, he was the founder and chairman of Revcovery, Corp., a fitness accessory company from 2017 to 2018 and an inventor of a self-myofascial release kit for shoulder injuries, RC Release, since 2014.
Erik Nelson, Secretary and Director
Mr. Nelson was appointed as Corporate Secretary and a member of the Board of Directors on September 19, 2011. Mr. Nelson is also the President of Coral Capital Advisors, LLC an advisory services firm founded in 1995 that provides services to privately held and publicly traded companies. Mr. Nelson is also the President of Mountain Share Transfer, LLC (“Mountain Share Transfer”), an SEC registered stock transfer agent since September 2012.
David Yu-Lung Kou, Director
Mr. Kou is an Executive with diversified experience in global business operations, product management, sales, marketing, and branding - including regional distribution and retail sales. He is experienced in (business) localization, product (roadmap) planning, business and operation establishment, restructuring, and crisis recovery. Mr. Kou has experiences in turn-around situations to achieve positive cash flow, strategic business planning and execution, and innovative product creation and launch planning. Mr. Kou is currently the Chief of Strategy and Planning for Wistron Corp. His former employment positions include General Manager of TP Vision from 2015-2018, Vice President – Branded Business Operations at TPV from 2015-2018, a Business Advisor/Consultant of HokangTek from 2014-2018, Business and Operations Advisor of Top Innovation from 2014-2018, and an Executive Director, Global Sales of HTC Corp. from 2012-2014. He attended the University of Southern California earning a MSc. Electrical Engineering in 1991.
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Thomas A. Steele, Director
Thomas A. Steele is currently retired. He was registered as a court interpreter Japanese to English and Japan marketing consultant from 2010-2019. Mr. Steele served as a Foreign Service Officer with the U.S. Department of State, Washington, DC for more than 21 years (1980-2001). After retiring from the State Department, he also served as corporate secretary for Anbusa USA, at the 2005 and 2010 World’s Fair. He obtained a BA in Political Science, Music, Radio & TV Broadcasting from the University of California, Los Angeles while attending from 1965-1969.
Hui-Ying Zhuang, Director
Mr. Zhuang works as Vice President of Sales at Clyde Bergemann Power Group (2018-current) with experience in technology and sales management, especially in solution-based consultative selling. Other positions he has held at Clyde Bergemann Power Group include Vice President, Product and Sales Support, Air Pollution Control Products (2013-2018), Director of Technology and Product Management, Air Pollution Control Product Division (2012-2013), Regional Sales Manager from 2006-2012 and a Boiler Process Engineer from 2004-2006. He is experienced in product management, sales, plant operations and contract negotiation. Mr. Zhuang has leadership experience in building and developing management teams and extensive international business working experience. He attended University of South Carolina earning an MBA in 2005.
Board of Directors
As of December 31, 2020, there were no changes in our Board of Directors.
Board Committees
As of this date, our Board of Directors has not appointed an audit committee, compensation committee or nominating committee, however, we are not currently required to have such committees. Accordingly, we do not have an “audit committee financial expert” as such term is defined in the rules promulgated under the Securities Act of 1933, as amended and the Exchange Act. The functions ordinarily handled by these committees are currently handled by our entire Board of Directors. Our Board of Directors intends, however, to review our governance structure and institute board committees as necessary and advisable in the future, to facilitate the management of our business.
Code of Ethics
A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote:
| · | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| · | full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the SEC and in other public communications made by an issuer; |
| · | compliance with applicable governmental laws, rules, and regulations; |
| · | the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and |
| · | accountability for adherence to the code. |
We have not adopted a code of ethics because, to date, we have had no meaningful operations. However, we plan to adopt a code of ethics in the future.
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Director Independence
We do not have any independent directors and our board of directors is in the process of searching for suitable candidates. Our board of directors does not have any committees, as companies whose securities are traded on the OTC Pink Market are not required to have board committees. However, at such time in the future that we appoint independent directors on our board, we expect to form the appropriate board committees.
Compliance with Section 16(a) of the Exchange Act
Based solely on a review of the copies of such forms furnished to the Company, or written representations that no reports were required, the Company believes that for the year ended December 31, 2020, our directors and executive officers did not comply with Section 16(a) filing requirements applicable to them because of the late filings of certain Form 3’s.
| ITEM 11. | EXECUTIVE COMPENSATION |
Summary Compensation Table
The following table sets forth all cash compensation paid by us, as well as certain other compensation paid or accrued, in 2020 and 2019 to each of the following named executive officers.
| Name and Principal Position | Fiscal Year | Salary ($) | Equity Awards ($) | Total ($) | ||||||||||||
| $ | $ | $ | ||||||||||||||
| Erik Nelson | 2020 | – | – | – | ||||||||||||
| Director and Corporate Secretary | 2019 | – | – | – | ||||||||||||
| Yin-Chieh Cheng | 2020 | – | 60,831 | 60,831 | ||||||||||||
| President and Chief Executive Officer and Director | 2019 | – | 60,831 | 60,831 | ||||||||||||
| Shun-Chih Chuang | 2020 | 42,000 | 39,558 | 81,558 | ||||||||||||
| Chief Financial Officer | 2019 | 3,000 | – | 3,000 | ||||||||||||
| Hsien-Wen Yu | 2020 | 20,000 | 47,469 | 67,469 | ||||||||||||
| Chief Operating Officer | 2019 | – | – | – | ||||||||||||
| David Yu-Lung Kou | 2020 | – | – | – | ||||||||||||
| Director | 2019 | – | – | – | ||||||||||||
| Thomas A. Steele | 2020 | – | – | – | ||||||||||||
| Director | 2019 | – | – | – | ||||||||||||
| Hui-Ying Zhuang | 2020 | – | – | – | ||||||||||||
| Director | 2019 | – | – | – | ||||||||||||
Employment Agreements
We have entered into a consulting agreement with Mr. Yin-Chieh Cheng on December 27, 2018. Mr. Cheng received a stock option award of 5,000,000 shares with 250,000 options vesting every Quarter for a period of 5 years. This award was valued at $304,155 in total using Black Scholes methodology. The award for the year ended December 31, 2020 and 2019, respectively was $60,831 and $60,831.
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Director Compensation
Our directors are reimbursed for expenses incurred by them in connection with attending Board of Directors’ meetings, but they do not receive any other compensation for serving on the Board of Directors.
Indemnification
The Company shall indemnify any and all of its directors, officers, former directors, former officers and any person who may have served at its request as a director or officer of another company in which it owns shares or of which it is a creditor, who were or are made a party or are threatened to be made a party to or are involved in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative (each a “Proceeding”), or any appeal in such a Proceeding or any inquiry or investigation that could lead to such a Proceeding, against any and all liabilities, damages, reasonable and documented expenses (including reasonably incurred and substantiated attorneys’ fees), financial effects of judgments, fines, penalties (including excise and similar taxes and punitive damages) and amounts paid in settlement in connection with such Proceeding by any of them. Such indemnification shall not be deemed exclusive of any other rights to which those indemnified may be entitled otherwise.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth certain information regarding beneficial ownership of our common stock as of December 31, 2020 (after giving effect to the Share Exchange, due to the Merger described in Item 2.01 of this Current Report) by (ⅰ) each person (or group of affiliated persons) who is known by us to own more than five percent of the outstanding shares of our common stock, (ii) each director, executive officer and director nominee, and (iii) all of our directors, executive officers and director nominees as a group. As of December 31, 2020, we had 9,131,786 shares of common stock issued and outstanding.
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Unless otherwise noted, the principal address of each of the stockholders, directors, and officers listed below is at 3F (Building B), No. 185, Sec. 1, Datong Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.).
All share ownership figures include shares of our common stock issuable upon securities convertible or exchangeable into shares of our common stock within sixty (60) days of January 1, 2020, which are deemed outstanding and beneficially owned by such person for purposes of computing his or her percentage ownership, but not for purposes of computing the percentage ownership of any other person. The table assumes 9,131,786 shares outstanding as of December 31, 2020.
| Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership |
Percentage of Outstanding Shares of Common Stock |
||||||
| Owner of more than 5% of Class | ||||||||
| Yin-Chieh Cheng, Chairman of the Board, President and Chief Executive Officer (1) | 5,292,586 | 57.96% | ||||||
| Erik Nelson, Corporate Secretary and Director (2) | 652,600 | 7.15% | ||||||
| Marina S. Fiorino (3) | 1,043,600 | 11.43% | ||||||
| Shun-Chih Chuang | 500,000 | 5.48% | ||||||
| Directors and Executive Officers | ||||||||
| Yin-Chieh Cheng, Chairman of the Board, President and Chief Executive Officer (1) | 5,292,586 | 57.96% | ||||||
| Erik Nelson, Corporate Secretary and Director (4) | 652,600 | 7.15% | ||||||
| Shun-Chih Chuang, Chief Financial Officer (5) | 500,000 | 5.48% | ||||||
| Hsien-Wen Yu, Chief Operating Officer (6) | – | – | ||||||
| David Yu-Lung Kou (7) | – | – | ||||||
| Thomas A. Steele, Director (7) | – | – | ||||||
| Hui-Ying Zhuang, Director (7) | – | – | ||||||
| All Directors, Executive Officers, and Director Nominees, as a group (6 persons) | 6,445,186 | 70.58% | ||||||
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| (1) | Mr. Cheng, our Chairman, also serves as the general manager of GSI in Hong Kong and legal representative of the WFOE and has sole voting and investment power over the shares. The 5,292,586 shares do not include up to 5,000,000 Series “A” Warrants exercisable until 2023 at $0.50 which are subject to performance under Mr. Cheng’s Consulting Agreement and vesting at 250,000 per quarter. The business address of Yin-Chieh Cheng is 3F (Building B), No. 185, Sec. 1, Datong Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.). | |
| (2) | An aggregate of 652,600 shares beneficially owned by Erik Nelson, which includes 500,000 shares held by Nelson Fiorino Holdings, LLC., which is 50% owned by Mr. Nelson; 150,000 shares held by Coral Investment Partners, LP, which is 100% owned by Erik Nelson; and 2,600 shares held by Mr. Nelson personally. Mr. Nelson’s business address is 2030 Powers Ferry Road SE, Suite 212, Atlanta, GA 30339. | |
| (3) | An aggregate of 1,043,000 shares beneficially owned by Marina S. Fiorino, which includes 500,000 shares held by Nelson Fiorino Holdings, LLC., which is 50% owned by Ms. Fiorino; and 543,000 shares held by Ms. Fiorino personally. The business address of Ms. Fiorino is 2030 Powers Ferry Road SE, Suite 212, Atlanta, GA 30339. | |
| (4) | An aggregate of 652,600 shares beneficially owned by Erik Nelson, which includes 500,000 shares held by Nelson Fiorino Holdings, LLC., which is 50% owned by Mr. Nelson; 150,000 shares held by Coral Investment Partners, LP, which is 100% owned by Erik Nelson; and 2,600 shares held by Mr. Nelson personally. Mr. Nelson’s business address is 2030 Powers Ferry Road SE, Suite 212, Atlanta, GA 30339 | |
|
(5)
(6) |
Mr. Chuang was appointed as Chief Financial Officer on October 28, 2019. The business address of Mr. Chuang is 3F (Building B), No. 185, Sec. 1, Datong Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.). Mr. Yu was appointed as Chief Operating Officer on March 10, 2020. The business address of Mr. Yu is 3F (Building B), No. 185, Sec. 1, Datong Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.). | |
| (7) | David Yu-Lung Kou, Thomas A. Steele and Hui-Ying Zhuang are appointed directors effective after filing Form 8-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 on December 17, 2019. The business address of Mr. Kou, Mr. Steele, and Mr. Zhuang is 2030 Powers Ferry Road SE, Suite 212, Atlanta, GA 30339. |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
We have not entered into any material transactions with any director, executive officer, and nominee for director, the beneficial owner of five percent or more of our common stock, or family members of such persons.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
During the fiscal year ended December 31, 2020, the total fees billed to Nocera for audit-related services was $23,400, for tax services was nil and for all other services was nil.
During the fiscal year ended December 31, 2019, the total fees billed to Nocera for audit-related services was $141,787, for tax services was nil and for all other services was nil.
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| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
1. Financial Statements: Please check “Index to Consolidated Financial Statements” of this annual report on Form 10-K.
2. Exhibits:
(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
(3) Incorporated herein by reference from the exhibits included in the Form 8-K filed on January 4, 2021
(4) Incorporated herein by reference from the exhibits included in the Form 10-Q filed on November 16, 2020
(**) Incorporated herein by reference as Exhibit “B” to Exhibit 2.1 included in this Form 8-K12G3 filing dated January 31, 2019.
| ITEM 16. | 10-K SUMMARY |
None.
| 38 |
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 and Chief Executive Officer | |
| Dated: | April 15, 2021 |
| By: | /s/ Shun-Chih Chuang | |
| Name: | Shun-Chih Chuang | |
| Title: | Chief Financial Officer | |
| Dated: | April 15, 2021 |
| 39 |
NOCERA, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Nocera, Inc:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Nocera, Inc and its subsidiaries (the "Group") as of December 31, 2020, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows, for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group at December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with the U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on the Group's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Centurion ZD CPA & Co.
Centurion ZD CPA & Co.
We have served as the Group's auditor since 2020.
Hong Kong, China
April 14, 2021
| F-2 |
 |
Beijing Office |
 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Nocera, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Nocera, Inc. and Subsidiaries (the “Company”) as of December 31, 2019, the related consolidated statements of operations and comprehensive loss, changes in equity and cash flows for the year ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Restatement of Previously Issued Unaudited Financial Statements
As discussed in Note 20 to the consolidated financial statements, the unaudited financial statements previously included in the Company’s Quarterly Report of Form 10-Q for the periods ended September 30, 2019 have been restated to correct a misstatement.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Marcum Bernstein & Pinchuk llp
Marcum Bernstein & Pinchuk llp
We have served as the Company’s auditor from 2018 to 2020.
Beijing, China
May 14, 2020
| F-3 |
NOCERA, INC.
(Stated in US Dollars)
| December 31, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 1,023,531 | $ | 28,539 | ||||
| Accounts receivable, net | 432,309 | 1,483,583 | ||||||
| Inventories, net | 1,723,674 | 287,409 | ||||||
| Advance to suppliers | 1,732 | 2,440 | ||||||
| Prepaid expenses and other assets, net | 3,161 | 17,148 | ||||||
| Due from related parties | 896,876 | 683,521 | ||||||
| Total current assets | 4,081,283 | 2,502,640 | ||||||
| Retention receivables | 458,392 | – | ||||||
| Deferred tax assets, net | 2,300 | 74,639 | ||||||
| Property and equipment, net | 50,926 | 194,809 | ||||||
| Operating lease right-of-use assets | – | 113,166 | ||||||
| Intangible assets, net | – | 473,935 | ||||||
| Goodwill | 332,040 | – | ||||||
| Total assets | 4,924,941 | 3,359,189 | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Liabilities | ||||||||
| Current liabilities | ||||||||
| Notes payable | 187,447 | – | ||||||
| Accounts payable | 18,798 | 251,603 | ||||||
| Advance from customers | – | 392,148 | ||||||
| Other payables and accrued liabilities | 56,836 | 294,472 | ||||||
| Advance receipts | 1,285,777 | – | ||||||
| Due to related parties | 7,681 | 405,772 | ||||||
| Income tax payable | 285,186 | 608,598 | ||||||
| Bank borrowing | 532,824 | 15,367 | ||||||
| Deferred revenue-current portion | – | 620,331 | ||||||
| Operating lease liabilities-current | – | 8,485 | ||||||
| Total current liabilities | 2,374,549 | 2,596,776 | ||||||
| Deferred tax liabilities, net | – | – | ||||||
| Total liabilities | 2,374,549 | 2,596,776 | ||||||
| Commitments and contingencies | – | – | ||||||
| Equity | ||||||||
| Common stock ($0.001 par value; authorized 200,000,000 shares; 9,131,786 shares and 12,354,200 shares issued and outstanding as of December 31, 2020 and, 2019, respectively) | 9,132 | 12,354 | ||||||
| Additional paid-in capital | 2,692,973 | 271,915 | ||||||
| Statutory and other reserves | 191,219 | 191,219 | ||||||
| (Accumulated losses) retained earnings | (293,162 | ) | 339,203 | |||||
| Accumulated other comprehensive loss | (49,770 | ) | (81,350 | ) | ||||
| Total Nocera, Inc.’s stockholders’ equity | 2,550,392 | 733,341 | ||||||
| Non-controlling interests | – | 29,072 | ||||||
| Total equity | 2,550,392 | 762,413 | ||||||
| Total liabilities and equity | $ | 4,924,941 | $ | 3,359,189 | ||||
See notes to the consolidated financial statements.
| F-4 |
NOCERA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(Stated in US Dollars)
| For the years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Net sales | $ | 1,170,156 | $ | 456,860 | ||||
| Cost of sales | (526,343 | ) | (104,237 | ) | ||||
| Gross profit | 643,813 | 352,623 | ||||||
| Operating expenses | ||||||||
| General and administrative expenses | (1,325,696 | ) | (1,733,092 | ) | ||||
| Total operating expenses | (1,325,696 | ) | (1,733,092 | ) | ||||
| Loss from operations | (681,883 | ) | (1,380,469 | ) | ||||
| Other income (expense) | 36 | (34,842 | ) | |||||
| Loss before income taxes | (681,847 | ) | (1,415,311 | ) | ||||
| Income tax benefit | 42,777 | 89,968 | ||||||
| Net loss | (639,070 | ) | (1,325,343 | ) | ||||
| Less: Net loss attributable to non-controlling interests | (6,705 | ) | (68,591 | ) | ||||
| Net loss attributable to the company | (632,365 | ) | (1,256,752 | ) | ||||
| Comprehensive loss | ||||||||
| Net loss | (639,070 | ) | (1,325,343 | ) | ||||
| Foreign currency translation loss | 31,081 | (20,856 | ) | |||||
| Total comprehensive loss | (607,989 | ) | (1,346,199 | ) | ||||
| Less: Net loss attributable to non-controlling interest | (6,705 | ) | (68,591 | ) | ||||
| Less: Foreign currency translation loss attributable to non-controlling interest | (499 | ) | (1,014 | ) | ||||
| Comprehensive loss attributable to the Company | (600,785 | ) | (1,276,594 | ) | ||||
| Loss per share | ||||||||
| Basic | (0.0538 | ) | (0.1017 | ) | ||||
| Diluted | $ | (0.0538 | ) | $ | (0.1017 | ) | ||
| Weighted average number of common shares outstanding | ||||||||
| Basic | 11,752,447 | 12,353,227 | ||||||
| Diluted | 11,752,447 | 12,353,227 | ||||||
See notes to the consolidated financial statements.
| F-5 |
NOCERA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Stated in US Dollars)
| Common Stock | Additional Paid-in | Statutory and other | Retained | Accumulated Other Comprehensive | Total Nocera Inc.’s Stockholders’ Equity | Non- controlling | Total Equity | |||||||||||||||||||||||||||||
| Stock | Amount | Capital | Reserves | Earnings | Loss | (Deficit) | Interests | (Deficit) | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 12,349,200 | 12,349 | 115,311 | 191,219 | 1,595,955 | (61,508 | ) | 1,853,326 | 98,677 | 1,952,003 | ||||||||||||||||||||||||||
| Foreign currency translation adjustments | – | – | – | – | – | (19,842 | ) | (19,842 | ) | (1,014 | ) | (20,856 | ) | |||||||||||||||||||||||
| Issuance of new shares | 5,000 | 5 | 3,595 | – | – | – | 3,600 | – | 3,600 | |||||||||||||||||||||||||||
| Share-based compensation | – | – | 60,831 | – | – | – | 60,831 | – | 60,831 | |||||||||||||||||||||||||||
| Stockholder contribution by assuming liabilities | – | – | 83,364 | – | – | – | 83,364 | – | 83,364 | |||||||||||||||||||||||||||
| Free rent provided by stockholder | – | – | 2,214 | – | – | – | 2,214 | – | 2,214 | |||||||||||||||||||||||||||
| Free service provided by employees | – | – | 6,600 | – | – | – | 6,600 | – | 6,600 | |||||||||||||||||||||||||||
| Net loss | – | – | – | – | (1,256,752 | ) | – | (1,256,752 | ) | (68,591 | ) | (1,325,343 | ) | |||||||||||||||||||||||
| Balance, December 31, 2019 | 12,354,200 | 12,354 | 271,915 | 191,219 | 339,203 | (81,350 | ) | 733,341 | 29,072 | 762,413 | ||||||||||||||||||||||||||
| Termination of VIE agreements with GZWFH | (4,750,000 | ) | (4,750 | ) | – | – | – | – | (4,750 | ) | (21,868 | ) | (26,618 | ) | ||||||||||||||||||||||
| Issuance of new shares | 1,527,586 | 1,528 | 2,154,472 | – | – | – | 2,156,000 | – | 2,156,000 | |||||||||||||||||||||||||||
| Share-based compensation | – | – | 266,586 | – | – | – | 266,586 | – | 266,586 | |||||||||||||||||||||||||||
| Foreign currency translation adjustments | – | – | – | – | – | 31,580 | 31,580 | (499 | ) | 31,081 | ||||||||||||||||||||||||||
| Net loss | – | – | – | – | (632,365 | ) | – | (632,365 | ) | (6,705 | ) | (639,070 | ) | |||||||||||||||||||||||
| Balance, December 31, 2020 | 9,131,786 | 9,132 | 2,692,973 | 191,219 | (293,162 | ) | (49,770 | ) | 2,550,392 | – | 2,550,392 | |||||||||||||||||||||||||
See notes to the consolidated financial statements
| F-6 |
NOCERA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in US Dollars)
| December 31, 2020 | December 31, 2019 | |||||||
| $ | $ | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | (639,070 | ) | (1,325,343 | ) | ||||
| Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||
| Depreciation expenses | 74,958 | 32,600 | ||||||
| Amortization | 53,156 | 63,224 | ||||||
| Bad debt provision | – | 1,084,534 | ||||||
| Impairment of GZWFH | 522,291 | – | ||||||
| Inventories written down | – | 719 | ||||||
| Free rental expense offered by a stockholder | – | 2,214 | ||||||
| Interest expense | – | 7,205 | ||||||
| Deferred income tax | 73,150 | (89,968 | ) | |||||
| Share-based compensation | 265,758 | 64,181 | ||||||
| Free service from employee | – | 6,600 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | 1,406,867 | 942,165 | ||||||
| Inventories | 268,285 | (228,034 | ) | |||||
| Advance to suppliers | 824 | 70,066 | ||||||
| Prepaid expenses and other assets, net | 61,987 | 1,768 | ||||||
| Operating lease right-of-use asset | – | (114,303 | ) | |||||
| Retention receivables | 24,894 | – | ||||||
| Notes payable | (10,180 | ) | – | |||||
| Accounts payable | (236,137 | ) | 22,182 | |||||
| Advance from customers | (395,751 | ) | 290,119 | |||||
| Other payables and accrued liabilities | (299,345 | ) | (121,569 | ) | ||||
| Income tax payable | (629,676 | ) | (5,441 | ) | ||||
| Deferred revenue | (593,445 | ) | 555,336 | |||||
| Operating lease liability | (8,563 | ) | 8,570 | |||||
| Advance receipts | (69,827 | ) | – | |||||
| Amount due from a related party | – | (1,000,000 | ) | |||||
| Net cash (used in) provided by operating activities | (129,824 | ) | 266,825 | |||||
| Cash flows from investing activities | ||||||||
| Purchase of property and equipment | (57,153 | ) | (171,053 | ) | ||||
| Purchase of intangible assets | (25,360 | ) | (541,922 | ) | ||||
| Disposal of GZ WFH | (4,099 | ) | – | |||||
| Cash acquired from merger | 857,555 | – | ||||||
| Net cash provided by (used in) investing activities | 770,943 | (712,975 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from related parties | 664,454 | 527,284 | ||||||
| Repayment to related parties | (402,531 | ) | (74,665 | ) | ||||
| Proceeds from issuance of common stock | – | 250 | ||||||
| Proceeds from short-term bank loan | – | 15,521 | ||||||
| Repayment of short-term bank loan | (44,444 | ) | ||||||
| Net cash provided by financing activities | 217,479 | 468,390 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 136,394 | (908 | ) | |||||
| Net increase in cash and cash equivalents | 994,992 | 21,332 | ||||||
| Cash and cash equivalents at beginning of year | 28,539 | 7,207 | ||||||
| Cash and cash equivalents at end of year | 1,023,531 | 28,539 | ||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest expenses | – | 8,325 | ||||||
| Cash paid for Income taxes | – | 5,442 | ||||||
See notes to the consolidated financial statements.
| F-7 |
NOCERA, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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. The Company, 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.
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 stockholders, 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 Stockholders 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 stockholders of GSI, became Nocera’s controlling stockholders. 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.
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.
| F-8 |
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.
| F-9 |
Risks in relation to the VIE structure
The Company believes that the contractual arrangements with its VIE and their respective stockholder are in compliance with Taiwan (R.O.C.) laws and regulations and are legally enforceable. However, uncertainties in the Taiwan (R.O.C.) legal system could limit the Company’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of Taiwan (R.O.C.) laws and regulations, the Taiwan (R.O.C.) government could:
| • | revoke the business and operating licenses of the Company’s Taiwan (R.O.C.) subsidiary and VIE; |
| • | discontinue or restrict the operations of any related-party transactions between the Company’s Taiwan (R.O.C.) subsidiary and VIE; |
| • | limit the Company’s business expansion in Taiwan (R.O.C.) by way of entering into contractual arrangements; |
| • | impose fines or other requirements with which the Company’s Taiwan (R.O.C.) subsidiary and VIE may not be able to comply; |
| • | require the Company or the Company’s Taiwan (R.O.C.) subsidiary and VIE to restructure the relevant ownership structure or operations; or |
| • |
restrict or prohibit the Company’s use of the proceeds of the additional public offering to finance the Company’s business and operations in Taiwan (R.O.C.). |
The Company’s ability to conduct its private equity investment management business may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, the Company may not be able to consolidate its VIE in its consolidated financial statements as it may lose the ability to exert effective control over the VIE and their respective stockholders and it may lose the ability to receive economic benefits from the VIE. The Company, however, does not believe such actions would result in the liquidation or dissolution of the Company, its PRC subsidiary, and VIE.
The interests of the stockholders of VIE may diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms. The Company cannot assure that when conflicts of interest arise, stockholders of VIE will act in the best interests of the Company or that conflicts of interests will be resolved in the Company’s favor. Currently, the Company does not have existing arrangements to address potential conflicts of interest the stockholders of VIE may encounter in its capacity as beneficial owners and directors of VIE, on the one hand, and as beneficial owners and directors of the Company, on the other hand. The Company believes the stockholders of VIE will not act contrary to any of the contractual arrangements and the exclusive option agreements provide the Company with a mechanism to remove the current stockholders of VIE should they act to the detriment of the Company. The Company relies on certain current stockholders of VIE to fulfill their fiduciary duties and abide by laws of the PRC and act in the best interest of the Company. If the Company cannot resolve any conflicts of interest or disputes between the Company and the stockholders of VIE, the Company would have to rely on legal proceedings, which could result in disruption of its business, and there is substantial uncertainty as to the outcome of any such legal proceedings. Total assets and liabilities presented on the Company’s Consolidated Balance Sheets and expense, net income (loss) presented on Consolidated Statement of Operations and Comprehensive Income (Loss) as well as the cash flow from operating, investing and financing activities presented on the Consolidated Statement of Cash Flows are substantially the financial position, operation and cash flow of the Company’s VIE XFC and GZ WFH. The following financial statements amounts and balances of the VIE were included in the accompanying consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020 and 2019.
| December 31, 2020 | December 31, 2019 | |||||||
| $ | $ | |||||||
| Cash | 857,555 | 27,155 | ||||||
| Total assets | 4,171,110 | 2,671,275 | ||||||
| Total liabilities | 2,347,150 | 2,005,371 | ||||||
| For the years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| $ | $ | |||||||
| Revenue | 41,662 | 56,860 | ||||||
| Net loss | (136,604 | ) | (1,371,825 | ) | ||||
| Net cash provided (used) in operating activities | 30,728 | 538,427 | ||||||
| Net cash used in investing activities | (1,885 | ) | (712,293 | ) | ||||
| Net cash (used in) provided by financing activities | (15,508 | ) | 196,049 | |||||
| F-10 |
Note 2 GOING CONCERN
The Company had net loss of $0.6 million for the year ended December 31, 2020 and the net cash used in operating activities was $0.1 million, which raise substantial doubt as to the Company’s ability to continue as a going concern. Management believes that it has developed a liquidity plan, as summarized below, that, if executed successfully, would enable to meet presently anticipated cash needs for at least the next 12 months after the date that the financial statements are issued and it has prepared the consolidated financial statements on a going concern basis.
| a) | The Company started its business operation in 2018 and is continuing to focus on its business development and ultimately to attain profitable operations. It receives sales orders and delivers the goods to customers continuously. The Company expects to receive $1 million from JC Development Co, Ltd.(“JCD”) on or before June 1, 2020, according to the exclusive distribution agreement entered into in September 2019. |
| b) | The Company obtained a financial support letter from Mr. Yin-Chieh Cheng, the chief executive officer, also the chairman of the board of directors and a principle shareholder of the Company. |
However, the Company continues to have ongoing obligations and it expects that it will require additional capital in order to execute its longer-term business plan. If the Company encounters unforeseen circumstances that place constraints on its capital resources, management will be required to take various measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing the Company’s business development activities, suspending the pursuit of its business plan, controlling overhead expenses and seeking to further dispose of non-core assets. Management cannot provide any assurance that the Company will raise additional capital if needed.
Note 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
Change of Reporting Entity and Basis of Presentation
As a result of the Share Exchange on December 31, 2018, GSI became a wholly owned subsidiary of Nocera, Inc. The former GSI’s stockholders owned a majority of the common stock of the Company. The Transaction was regarded as a reverse merger whereby GSI was considered to be the accounting acquirer as its stockholders retained control of the Company after the Share Exchange, although Nocera, Inc. is the legal parent company. The Share Exchange was treated as a recapitalization of the Company.
As a result, the assets and liabilities and the historical operations that will be reflected in the Nocera’s financial statements after consummation of the Transaction will be those of GSI and will be recorded at the historical cost basis of GSI. Nocera’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of GSI upon consummation of the Transaction. As such, GSI is the continuing entity for financial reporting purpose. In a reverse merger, the historical stockholder’s equity of the accounting acquirer prior to the merger is retroactively reclassified (a recapitalization) for the equivalent number of shares received in the merger after giving effect to any difference in par value of the registrant’s and the accounting acquirer’s stock by an offset in paid-in-capital. Therefore, the financial statements have been prepared as if GSI had always been the reporting company and then on the share exchange date, had changed its name and reorganized its capital stock.
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information.
The consolidated financial statements included the financial statements of all subsidiaries and the VIE of the Company. All transactions and balances between the Company and its subsidiary and VIE have been eliminated in consolidation.
Reclassification
Certain prior period amounts have been reclassified to conform with current year presentation.
| F-11 |
Use of Estimates
The preparation of financial statements in conformity with US 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 “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.
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 represents 96.44% of the Company's total revenue during the years ended December 31, 2020. There was one customer who represents 87.55% of the Company's total revenue during the years ended December 31, 2019.
The following table sets forth a summary of single customers who represent 10% or more of the Company’s total accounts receivable, net:
| December 31, 2020 |
December 31, 2019 |
|||||||
| Percentage of the Company’s accounts receivable | ||||||||
| Customer A | - | 38.97% | ||||||
| Customer B | - | 32.24% | ||||||
| Customer C | - | 28.79% | ||||||
| Customer D | 26.33% | - | ||||||
| Customer E | 73,67% | - | ||||||
| 100.00% | 100.00% | |||||||
The following table sets forth a summary of single suppliers who represent 10% or more of the Company’s total purchase:
| For the years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| Percentage of the Company’s purchase | ||||||||
| Supplier A | - | 50.50% | ||||||
| Supplier B | - | 41.58% | ||||||
| Supplier C | 100% | - | ||||||
| 100% | 92.08% | |||||||
Fair Value Measurement
The Company applies 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.
| F-12 |
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:
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. Unobservable inputs are valuation technique inputs that reflect the Company’s 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, the Company uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company measures fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates.
As of December 31, 2020 and 2019, there are no assets or liabilities that are measured and reported at fair value on a recurring basis.
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 December 31, 2020 and 2019 were $1,023,531 and $28,539, respectively.
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 the Company will not be able to collect all amounts due according to the original terms of the receivables. The Company analyzes 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 investment, prepaid rent and 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.
Inventories, net
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.
| F-13 |
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 | ||
| Leasehold improvements | Shorter of the remaining lease terms 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.
Goodwill
Goodwill is recorded as the difference between the aggregate consideration in a business combination and the fair value of the acquired net assets acquired. The Company evaluates goodwill for impairment on an annual basis in the fourth quarter or more frequently if indicators of impairment exist that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Based on that qualitative assessment, if it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company conducts a quantitative goodwill impairment test, which involves comparing the estimated fair value of the reporting unit with its carrying value, including goodwill. The Company estimates the fair value of a reporting unit using a combination of the income and market approach. If the carrying value of the reporting unit exceeds its estimated fair value, an impairment loss is recorded for the difference. The Company performed its qualitative assessment and determined that no impairment indicators were present during the years ended December 31, 2020 and 2019.
Intangible Assets, Net
The intangible assets are a series of software that are surveillance app connecting smart phones, achieving smart fish farming. It reports a real time data of water in our fish farming tanks, such as temperature, PH value, and dissolved oxygen, to the smart phones of fish farmers, helping fish farmers to understand the water condition in a timely manner.
Intangible assets are stated at cost less accumulated amortization and impairment losses. Intangible assets are amortized over estimated useful lives, and are reviewed annually for impairment. The estimated useful life of the intangible assets is 5 years.
Impairment of Long-lived Assets
The Company reviews its 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, the Company measures 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, the Company would recognize an impairment loss, which is the excess of carrying amount over the fair value of the assets.
| F-14 |
Commitments and Contingencies
In the normal course of business, the Company is subject to contingencies, including legal proceedings and claims arising out of its business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical and the specific facts and circumstances of each matter.
Revenue Recognition
The Company has early adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified ASC 606 on January 1, 2017.
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:
| 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 |
The Company considered revenue is recognized when (or as) the Company satisfies performance obligations by transferring a promised goods and provide maintenance service to a customer. 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 and providing maintenance service to the customer. 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.
| F-15 |
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
The Company recognizes 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 February 2016, the FASB issued ASU 2016-12, Leases (ASC Topic 842), which amends the leases requirements in ASC Topic 840, Leases. Under the new lease accounting standard, a lessee will be required to recognize a right-of-use asset and lease liability for most leases on the balance sheet. The new standard also modifies the classification criteria and accounting for sales-type and direct financing leases, and enhances the disclosure requirements. Leases will continue to be classified as either finance or operating leases.
The Company adopted ASC Topic 842 using the modified retrospective transition method effective January 1, 2019. There was no cumulative effect of initially applying ASC Topic 842 that required an adjustment to the opening retained earnings on the adoption date nor revision of the balances in comparative periods. As a result of the adoption, The Company recognized a lease liability and right-of-use asset for each of our existing lease arrangement. The adoption of the new lease standard does not have a material impact on our consolidated income statement or our consolidated statement of cash flow.
Uncertain Tax Positions
The Company accounts 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 PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. The Company records interest and penalties on uncertain tax provisions as income tax expense. There are no uncertain tax positions as of December 31, 2019 and 2018, and the Company has no accrued interest or penalties related to uncertain tax positions. The company does not believe that the unrecognized tax benefits will change over the next twelve months.
Comprehensive (Loss) Income
Comprehensive income or loss is comprised of the Company’s 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
The Company’s reporting currency is the U.S. dollar (“US$”). The functional currency of the Company’s subsidiary and the consolidated VIE is RMB. In the consolidated financial statements, the financial information of the Company’s subsidiary and the consolidated VIE has been translated into US$. Assets and liabilities are translated at the exchange rates on the balance sheet date, equity amounts are translated at historical exchange rates, except for changes in accumulated deficit during the year which is the result of income statement translation process, and revenue, expense, gains or losses are translated using the average exchange rate during the year. Translation adjustments are reported as foreign currency translation adjustments and are shown as a separate component of other comprehensive income or loss in the consolidated statements of changes in equity and comprehensive (loss) income. The exchange rates as of December 31, 2020 and 2019 are 6.5249 and 6.9630, respectively. The annual average exchange rates for the year ended December 31, 2020 and 2019 are 6.8996 and 6.8937, respectively.
| F-16 |
(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 common shares outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares.
Recent Accounting Pronouncements
Recently Adopted Accounting Standards
Adoption of ASC Topic 606, “Revenue from Contracts with Customers
ASU 2018-13. In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments in this update is to improve the effectiveness of disclosures in the notes to the financial statements by facilitating clear communication of the information required by GAAP that is most important to users of each entity’s financial statements. The amendments in this update apply to all entities that are required, under existing GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. There was no impact of the standard on the Company’s consolidated financial statements.
Accounting Pronouncements Issued But Not Yet Adopted
ASU 2019-12. On December 18, 2019, the FASB issued ASU No. 2019-12, Income taxes (Topic 740), Simplifying the Accounting for Income Taxes. This guidance amends ASC Topic 740 and addresses several aspects including 1) evaluation of step-up tax basis of goodwill when there is not a business combination, 2) policy election to not allocate consolidated taxes on a separate entity basis to entities not subject to income tax, 3) accounting for tax law changes or rates during interim periods, 4) ownership changes from equity method investment to subsidiary or vice versa, 5) elimination of exception to intraperiod allocation when there is gain in discontinued operations and a loss from continuing operations, 6) treatment of franchise taxes that are partially based on income. The guidance is effective for calendar year-end public entities on January 1, 2021 and other entities on January 1, 2022. The Company is evaluating the impact of this guidance on its consolidated financial statements.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position, statements of operations and cash flows.
Note 4 ACCOUNTS RECEIVABLE, NET
As of December 31, 2020 and 2019, accounts receivable consisted of the following:
| December 31, 2020 |
December 31, 2019 |
|||||||
| $ | $ | |||||||
| Accounts receivable | 432,309 | 2,557,326 | ||||||
| Less: Allowance for doubtful accounts | – | (1,073,743 | ) | |||||
| Total | 432,309 | 1,483,583 | ||||||
For the years ended December 31, 2020 and 2019, the Company has recorded provision for doubtful accounts of nil and $1,084,534, respectively.
| F-17 |
Note 5 INVENTORIES, NET
As of December 31, 2020 and 2019, inventories consisted of the following:
| December 31, 2020 |
December 31, 2019 |
|||||||
| $ | $ | |||||||
| Raw materials | 115,373 | 248,743 | ||||||
| Work in process | 1,608,301 | 38,666 | ||||||
| Total | 1,723,674 | 287,409 | ||||||
The inventory write downs were $nil and $719 for the years ended December 31, 2020 and December 31, 2019, respectively.
Note 6 ADVANCE TO SUPPLIERS
Balances of advances to suppliers were $1,732 and $2,440 as of December 31, 2020 and 2019, respectively, which represented prepayments to suppliers for raw materials.
Note 7 PREPAID EXPENSES AND OTHER ASSETS, NET
| December 31, 2020 |
December 31, 2019 | |||||||
| $ | $ | |||||||
| Other receivables from third party | 3,161 | 15,559 | ||||||
| Others | – | 1,589 | ||||||
| 3,161 | 17,148 | |||||||
| Less: Allowance for doubtful accounts | – | – | ||||||
| Prepaid expenses and other assets, net | 3,161 | 17,148 | ||||||
Note 8 PROPERTY AND EQUIPMENT, NET
As of December 31, 2020 and December 31, 2019, property and equipment consisted of the following:
| December 31, 2020 |
December 31, 2019 | |||||||
| $ | $ | |||||||
| Furniture and fixtures | – | 3,730 | ||||||
| Equipment | 51,287 | 181,754 | ||||||
| Leasehold improvement | – | 9,900 | ||||||
| Vehicle | – | 40,979 | ||||||
| 51,287 | 236,363 | |||||||
| Less: Accumulated depreciation | (361 | ) | (41,554 | ) | ||||
| Property and equipment, net | 50,926 | 194,809 | ||||||
Depreciation expenses for the years ended December 31, 2020 and 2019 were $74,958 and $32,600, respectively.
| F-18 |
Note 9 Goodwill
As of December 31, 2020 and December 31, 2019, goodwill consisted of the followings:
| December 31, 2020 |
December 31, 2019 |
|||||||
| $ | $ | |||||||
| Goodwill - XFC | 332,040 | – | ||||||
| Accumulated amortization | – | – | ||||||
| Balance at end of year | 332,040 | |||||||
Note 10 INTANGIBLE ASSETS, NET
As of December 31, 2020 and December 31, 2019, intangible assets consisted of the following:
| December 31, 2020 |
December 31, 2019 |
|||||||
| $ | $ | |||||||
| Intangible assets | – | 536,530 | ||||||
| – | 536,530 | |||||||
| Less: Accumulated amortization | – | (62,595 | ) | |||||
| Intangible assets, net | – | 473,935 | ||||||
The intangible assets are a series of software that are surveillance app connecting smart phones, achieving smart fish farming. It reports a real time data of water in our fish farming tanks, such as temperature, PH value, and dissolved oxygen, to the smart phones of fish farmers, helping fish farmers to understand the water condition in a timely manner.
The Company recorded amortization expenses of $53,156 and $63,224 for the years ended December 31, 2020 and 2019, respectively.
Note 11 LEASES
The Company has two non-cancelable lease agreements for certain 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 following table provides a summary of leases by balance sheet location as of December 31, 2020 and December 31, 2019:
| Balance Sheet Location | December 31, 2020 | December 31, 2019 | ||||||||
| $ | $ | |||||||||
| Assets | ||||||||||
| Operating- noncurrent | Operating lease right-of-use assets | – | 113,166 | |||||||
| Total leased assets | – | 113,166 | ||||||||
| Liabilities | ||||||||||
| Operating – current | Operating lease liabilities-current | – | 8,485 | |||||||
| Total lease liabilities | – | 8,485 | ||||||||
| F-19 |
The components of lease expenses for the year ended December 31, 2020 and December 31, 2019 were as follows:
| Statement of Income Location | For the year ended December 31, 2020 | For the year ended December 31, 2019 | ||||||||
| $ | $ | |||||||||
| Lease Costs | ||||||||||
| Operating lease expense | General and administrative expenses | 26,224 | 45,408 | |||||||
| Total net lease costs | 26,224 | 45,408 | ||||||||
Maturity of lease liabilities under our non-cancelable operating leases as of December 31, 2020 are US$ nil.
Maturity of lease liabilities under our non-cancelable operating leases as of December 31, 2019 are as follows:
| Operating | ||||
| (Unaudited) | ||||
| $ | ||||
| 2020 | 8,617 | |||
| 2021 | – | |||
| 2022 | – | |||
| 2023 | – | |||
| Total lease payments | 8,617 | |||
| Less: interest | (132 | ) | ||
| Present value of lease liabilities | 8,485 | |||
Following table provides a summary of the lease terms and discount rates for the year ended December 31, 2020 and December 31, 2019:
| December 31, 2020 | December 31, 2019 | |||||||
| Weighted Average Remaining Lease Term | ||||||||
| Operating leases | – | 2.75 years | ||||||
| Weighted Average Discount Rate | ||||||||
| Operating leases | – | 6.18% | ||||||
As most of the leases do not provide an implicit rate, the Company use the incremental borrowing rate based on the information available at the lease commencement date to determine the present value of lease payments.
Supplemental information related to the leases for the year ended December 31, 2019 and 2020 are as follows:
| For the year ended December 31, 2020 | For the year ended December 31, 2019 | |||||||
| $ | $ | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | 8,537 | 145,060 | ||||||
| Right-of-use assets obtained in exchange for new lease obligations: | ||||||||
| Operating leases | – | 143,616 | ||||||
| F-20 |
Note 12 OTHER PAYABLES AND ACCRUED LIABILITIES
| December 31, 2020 |
December 31, 2019 |
|||||||
| $ | $ | |||||||
| VAT payable | 12,235 | 208,219 | ||||||
| Accrued expenses | – | 5,000 | ||||||
| Salary payable | 920 | 35,840 | ||||||
| Short-term advance from staff | – | 2,086 | ||||||
| Others | 43,681 | 43,327 | ||||||
| Total | 56,836 | 294,472 | ||||||
Note 13 TAXATION
The Company and its subsidiary, and the consolidated VIE file tax returns separately.
1) Value-added tax (“VAT”)
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 16% to 13% on April 1, 2019 of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayers. GZ WFH also subjected to 10% for the installment service provided.
2) Income tax
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 ("SAB 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 21% U.S. corporate tax rate on the foreign income to an effective rate of 10.5%. The GILTI inclusion further provides for a foreign tax credit in connection with the foreign taxes paid. In 2019, the Company recorded a GILTI inclusion of $152,829. The Company has elected to treat the financial statement impact of GILTI as current period expenses.
| F-21 |
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. 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.
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 $255,304) of assessable profits will be lowered to 8.25% (half of the rate specified in Schedule 8 to the Inland Revenue Ordinance (IRO)) for corporations. Assessable profits above HK$2 million (approximately $255,304) will continue to be subject to the rate of 16.5% for corporations. The Company assessed that the HK entity will not earn a profit greater than HK$2 million (approximately $255,304), it is subject to a corporate income tax rate of 8.25%. The Company does not have assessable profits in Hong Kong through 2019.
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 25%, according to the PRC Enterprise Income Tax (“EIT”) law.
In accordance with the relevant tax laws and regulations of the PRC, a company registered in the PRC is subject to income taxes within the PRC at the applicable tax rate on taxable income. All the PRC subsidiaries were subject to income tax at a rate of 25% for the year ended December 31, 2019 and 2018. According to PRC tax regulations, the PRC net operating loss can generally carry forward for no longer than five years starting from the year subsequent to the year in which the loss was incurred.
The components of the income tax (benefit) expense are:
| For the years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| $ | $ | |||||||
| Current | – | – | ||||||
| Deferred | (42,777 | ) | (89,968 | ) | ||||
| Total income tax (benefit) expense | (42,777 | ) | (89,968 | ) | ||||
The reconciliation of income taxes expenses computed at the PRC statutory tax rate applicable to income tax expense is as follows:
| For the years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| PRC income tax statutory rate | 25.00% | 25.00% | ||||||
| Tax effect of non-deductible expense | – | (0.41% | ) | |||||
| Tax effect of non-taxable income | – | 2.33% | ||||||
| Tax effect of different tax rates in other jurisdictions | – | 2.90% | ||||||
| GILTI Tax impact | – | (2.27% | ) | |||||
| Changes in valuation allowance | (18.73% | ) | (21.19% | ) | ||||
| Effective tax rate | 6.27% | 6.36% | ||||||
| F-22 |
3) Deferred tax assets (liabilities), net
The tax effects of temporary differences representing deferred income tax assets and liabilities result principally from the following:
| December 31, 2020 | December 31, 2019 | |||||||
| $ | $ | |||||||
| Deferred tax assets | ||||||||
| Tax loss carried forward | 2,300 | 103,797 | ||||||
| Allowance for doubtful receivables | – | 275,260 | ||||||
| 2,300 | 379,057 | |||||||
| Valuation allowance | – | (304,418 | ) | |||||
| Total deferred tax assets, net | 2,300 | 74,639 | ||||||
| Deferred tax liabilities | ||||||||
| Property and equipment, difference in depreciation | – | – | ||||||
| Deferred tax liabilities, net | – | – | ||||||
The valuation allowance as of December 31, 2020 and 2019 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.
| December 31, 2020 | December 31, 2019 | |||||||
| $ | $ | |||||||
| Balance at beginning of the year | (304,418 | ) | (7,567 | ) | ||||
| Additions of valuation allowance | – | (296,851 | ) | |||||
| Reductions of valuation allowance | 304,418 | – | ||||||
| Balance at the end of the year | – | (304,418 | ) | |||||
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 December 31, 2020 and 2019, 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:
| December 31, 2020 |
December 31, 2019 |
|||||||
| $ | $ | |||||||
| Mr. Zhang Bi (1) | – | 399,091 | ||||||
| Mr. Yin-Chieh Cheng (2) | – | – | ||||||
| Coral Capital Partners (3) | – | – | ||||||
| Mountain Share Transfer, LLC (3) | 7,681 | 6,681 | ||||||
| Total | 7,681 | 405,772 | ||||||
| F-23 |
Due from a related party
The balance due from a related party was as following:
| December 31, 2020 |
December 31, 2019 |
|||||||
| $ | $ | |||||||
| Mr. Yin-Chieh Cheng (2) | 19,067 | 683,521 | ||||||
| Taixi Electrical & Plumbing Co. Pte Ltd. (4) | 877,809 | – | ||||||
| Total | 896,876 | 683,521 | ||||||
Note:
| (1) | Mr. Zhang Bi is the chief executive officer of GZ WFH, and he holds 38.5% shares of the Company. The balance represented the amount paid by Mr. Zhang on behalf of the Company for purchase of the raw materials and for other daily operation. |
| (2) | Mr. Yin-Chieh Cheng (“Mr. Cheng”) is the chairman the Company, and he holds 42.5% shares of the Company. The balance due to Mr. Cheng as of December 31, 2018 mainly represented the amount paid by Mr. Cheng on behalf of the Company. In September 2019, Mr. Cheng took over the receivable amount of the concert the Company invested in November 2018, and assumed the liability of $551,457 related to such receivable to the Company. In September 2019, Mr. Cheng collected the payment of $1,000,000 from JCD, our exclusive sales agent in Asia Pacific, on behalf of the Company. As agreed between Mr. Cheng and the Company, the due from balance was netted off by due to balances. |
| (3) | Coral Capital Partners and Mountain Share Transfer, LLC are companies 100% controlled by Erik S. Nelson, the corporate secretary and director of the Company. The balances represented the amount paid on behalf of the Company for its daily operation purpose. |
| (4) | Mr. Tsai Wen-Chih is the director of XFC and has control power over Taixi Electrical & Plumbing Co. Pte Ltd. The Company took over the receivable amount of $877,809 from acquisition of XFC in December 2020. None of the receivables have been impaired and it is expected that the full contractual amounts can be collected. |
Related party transactions
The details of the related party transactions were as follows:
| For the years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| $ | $ | |||||||
| Paid on behalf of the Company | ||||||||
| Mr. Zhang Bi (5) | 3,455 | 205,830 | ||||||
| Mr. Yin-Chieh Cheng (5) | 86,320 | 314,773 | ||||||
| Mountain Share Transfer, LLC (5) | 7,000 | 6,681 | ||||||
| Repayment to related party | ||||||||
| Mr. Zhang Bi | – | 46,653 | ||||||
| Coral Capital Partners | – | 10,718 | ||||||
| Mountain Share Transfer, LLC | – | 6,624 | ||||||
| Mr. Yin-Chieh Cheng | 665,000 | – | ||||||
| Received on behalf of the Company | ||||||||
| Mr. Yin-Chieh Cheng (2) | – | 1,000,000 | ||||||
| Related party assumed payable due to the Company | ||||||||
| Mr. Yin-Chieh Cheng (2) | – | 551,457 | ||||||
Note:
| (5) | The transactions represent the amount paid by Mr. Zhang Bi, Mr. Yin-Chieh Cheng, Coral Capital Partners and Mountain Share Transfer, LLC on behalf of the Company for its daily operation. |
| F-24 |
Note 15 COMMON STOCK
The Company’s authorized number of common stock is 200,000,000 shares with par value of $0.001 each, and issued ordinary shares were 9,131,786 and 12,354,200 as of December 31, 2020 and 2019, respectively.
Effective December 31, 2018, the Transaction was consummated. Pursuant to the Agreement, Nocera acquired 100% of the issued and outstanding capital stock of GSI, in exchange for 10,000,000 shares of Nocera’s common stock. The shares were issued on January 6, 2019 to the former stockholders of GSI, Mr. Yin-Chieh Cheng and Mr. Bi Zhang. As a result of the Transaction, 12,349,200 common stock were issued and outstanding at January 6, 2019.
All number of shares, share amounts and per share data presented in the accompanying consolidated financial statements and related notes have been retroactively restated to reflect the reverse merger transaction and subsequent issuance of shares stated above, except for authorized common shares, which were not affected.
Note 16 SHARE-BASED COMPENSATION
On December 27, 2018, Nocera granted Mr. Yin-Chieh Cheng quarterly option awards of 250,000 Series “A” Warrants for 20 quarters (5 years) for a total of 5,000,000 series “A” Warrants with exercise price of $0.50 per share, subject to continued employment for services as Chairman of the Board and a Director.
On June 1, 2020, Nocera granted Mr. Shun-Chih Chuang and Mr. Hsien-Wen Yu 50,000 shares of Class “A” warrant and 60,000 shares of Class “A” warrant separately, each with exercise price of $0.5 per share, for serving as the Company’s Chief Financial Officer and Chief Operating Officer. The Company also granted 2 employees 50,000 shares of Class “A” warrant with exercise price of $0.5 per share.
On June 1, 2020, Nocera granted Mr. Michael A. Littman 50,000 shares of Class “A” warrant with exercise price of $0.5 per share and 50,000 shares of Class “B” warrant with exercise price of $1.0 per share.
The estimated fair value of share-based compensation for employees is recognized as a charge against income on a ratable basis over the requisite service period, which is generally the vesting period of the award. The fair value of stock option grant was estimated on the date of grant using the Black-Scholes option pricing model under the following assumptions:
| December 31, 2020 | December 31, 2019 | |||||||
| Dividend yield | N/A | N/A | ||||||
| Risk-free interest rate | N/A | N/A | ||||||
| Expected term (in years) | N/A | N/A | ||||||
| Volatility | N/A | N/A | ||||||
The Company estimated the grant date fair value of time-based stock option awards using the Black-Scholes option valuation model, which requires assumptions involving an estimate of the fair value of the underlying common stock on the date of grant, the expected term of the options, volatility, discount rate and dividend yield. The Company calculated expected option terms based on the “simplified” method for “plain vanilla” options due to the limited exercise information. The “simplified method” calculates the expected term as the average of the vesting term and the original contractual term of the options. The Company calculated volatility using the average adjusted volatility of quick companies feature of Capital IQ for a period of time reflective of the expected option term, while the discount rate was estimated using the interest rate for a treasury note with the same contractual term as the options granted. Dividend yield is estimated at our current dividend rate, which adjustments for any known future changes in the rate.
For the years ended December 31, 2020 and December 31, 2019, $266,586 and $60,831 share-based compensation expenses was recognized into additional paid-in capital of the Company, respectively.
| F-25 |
As of December 31, 2020, total unrecognized compensation cost related to unvested share-based compensation awards was $242,657. This amount is expected to be recognized as stock-based compensation expense in the Company’s consolidated statements of operations and comprehensive income over the remaining vesting period of 2.99 years.
As of December 31, 2019, total unrecognized compensation cost related to unvested share-based compensation awards was $242,657. This amount is expected to be recognized as stock-based compensation expense in the Company’s consolidated statements of operations and comprehensive income over the remaining vesting period of 3.99 years.\
Note 17 NON-CONTROLLING INTERESTS
As of December 31, 2019, the Company recognized non-controlling interests in the consolidated statements of operations and other comprehensive (loss) income to reflect the 5% economic interest in GZ WFH or VIE, that is attributable to the stockholders other than the Company.
On September 16, 2018, the Company purchased the 14.7% equity interest in GZ WFH from a minority stockholder at a consideration of RMB1. The difference between the consideration and the carrying amount of the non-controlling interest derecognized was recorded as an adjustment to additional paid-in capital.
For the years ended December 31, 2020 and 2019, non-controlling interests related to GZ WFH in the consolidated statements of operations was loss of $6,705 and income of $68,591, respectively.
Note 18 (LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss) earnings per common share for the years ended December 31, 2020 and 2019.
| For the years ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| $ | $ | |||||||
| Numerator: | ||||||||
| Net loss attributable to the Company | (632,365 | ) | (1,256,752 | ) | ||||
| Denominator: | ||||||||
| Weighted-average shares outstanding | ||||||||
| - Basic | 11,752,447 | 12,353,227 | ||||||
| - Diluted | 11,752,447 | 12,353,227 | ||||||
| Earnings (loss) per share: | ||||||||
| - Basic | (0.0538 | ) | (0.1017 | ) | ||||
| - Diluted | (0.0538 | ) | (0.1017 | ) | ||||
Basic (loss) earnings per share is computed using the weighted average number of the ordinary shares outstanding during the period. Diluted (loss) earnings per share is computed using the weighted average number of ordinary shares and ordinary equivalent shares outstanding during the period.
Due to the loss from Nocera, Inc. for the period, 6,000,000 warrants were excluded from the calculation of diluted earnings per share for the year ended December 31, 2019, because the effect would be anti-dilutive.
Note 19 COMMITMENTS AND CONTINGENCIES
Capital commitments
As of December 31, 2020 and 2019, the Company’s capital commitments contracted but not yet reflected in the consolidated financial statements amounted to $nil.
| F-26 |
Contingencies
In the ordinary course of business, the Company may be subject to legal proceeding regarding contractual and employment relationships and a variety of other matters. The Company records contingent liabilities resulting from such claims when a loss is assessed to be probable and the amount of the loss is reasonably estimable.
The Company has no significant pending litigation for the year ended December 31, 2020 and 2019.
Note 20 RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS(UNAUDITED)
The Company concluded that an exclusive sales agency fee recognized at a point in time during the third quarter of 2019 should have been recognized over an estimated economic life. On September 20, 2019, the Company entered into an exclusive distribution agreement (“distribution agreement”) with JCD in Taiwan, which is an independent third-party company. JCD agrees to pay the Company a total amount of $5 million over 5 years starting September 20, 2019 to be the Company’s perpetual exclusive sales agent in Asia Pacific. The Company agreed to pay JCD 8% commission of total sales excluding the sales made to CIMC Smart Science & Technology CO., Ltd. (“CIMC SSC”) in China. The Company recognized the $1 million consideration paid by JCD as revenue at a point in time when the Company received the payment in September 2019, which the Company recently concluded should have been recognized over an estimated economic life.
The following tables summarize the effects of the restatements on the specific items presented in the Company’s historical unaudited interim consolidated financial statements previously included in the Company’s Quarterly Reports on Form 10-Q as of and for the nine month period ended September 30, 2019:
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars except for Number of Shares)
| As of September 30, 2019 | ||||||||||||
| As previously reported | Adjustment | As restated | ||||||||||
| $ | $ | $ | ||||||||||
| ASSETS | ||||||||||||
| Deferred tax assets, net | 44,245 | 32,569 | 76,814 | |||||||||
| Total assets | 4,344,321 | 32,569 | 4,376,890 | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
| Liabilities | ||||||||||||
| Income tax payable | 658,631 | (59,491 | ) | 599,140 | ||||||||
| Deferred revenue-current portion | 30,898 | 960,784 | 991,682 | |||||||||
| Total liabilities | 1,831,111 | 901,293 | 2,732,404 | |||||||||
| Stockholders' equity | ||||||||||||
| Retained earnings | 2,092,685 | (868,724 | ) | 1,223,961 | ||||||||
| Total stockholders' equity | 2,513,210 | (868,724 | ) | 1,644,486 | ||||||||
| Total liabilities and stockholders' equity | 4,344,321 | 32,569 | 4,376,890 | |||||||||
| F-27 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Stated in US Dollars except for Number of Shares)
| Three months ended September 30, 2019 |
Nine months ended September 30, 2019 |
|||||||||||||||||||||||
| As previously reported | Adjustment | As restated |
As previously reported | Adjustment | As restated | |||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| Net sales | 1,010,964 | (960,784 | ) | 50,180 | 1,033,700 | (960,784 | ) | 72,916 | ||||||||||||||||
| Income (Loss) before income taxes | 810,997 | (960,784 | ) | (149,787 | ) | 485,932 | (960,784 | ) | (474,852 | ) | ||||||||||||||
| Income tax (expense) benefit | (24,106 | ) | 92,060 | 67,954 | 842 | 92,060 | 92,902 | |||||||||||||||||
| Net income (loss) | 786,891 | (868,724 | ) | (81,833 | ) | 486,774 | (868,724 | ) | (381,950 | ) | ||||||||||||||
| Net income (loss) attributable to the Company | 792,404 | (868,724 | ) | (76,320 | ) | 496,730 | (868,724 | ) | (371,994 | ) | ||||||||||||||
| Total comprehensive income (loss) | 734,690 | (868,724 | ) | (134,034 | ) | 427,810 | (868,724 | ) | (440,914 | ) | ||||||||||||||
| Earnings (losses) per share | ||||||||||||||||||||||||
| Basic | 0.0641 | (0.0703 | ) | (0.0062 | ) | 0.0402 | (0.0703 | ) | (0.0301 | ) | ||||||||||||||
| Diluted | 0.0453 | (0.0515 | ) | (0.0062 | ) | 0.0324 | (0.0625 | ) | (0.0301 | ) | ||||||||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||||||||||
| Basic | 12,354,200 | 12,354,200 | 12,352,881 | 12,352,881 | ||||||||||||||||||||
| Diluted | 17,496,357 | 12,354,200 | 15,323,673 | 12,352,881 | ||||||||||||||||||||
| F-28 |
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in US Dollars except for Number of Shares)
| Nine Months Ended September 30, 2019 | ||||||||||||
| As previously reported | Adjustment | As restated | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income (loss) | 486,774 | (868,724 | ) | (381,950 | ) | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||
| Deferred income tax | (28,442 | ) | (64,461 | ) | (92,903 | ) | ||||||
| Income tax payable | 55,930 | (61,405 | ) | (5,475 | ) | |||||||
| Deferred revenue | (65,591 | ) | 992,675 | 927,084 | ||||||||
| Net cash provided by (used in) operating activities | 308,185 | 1,044 | 309,229 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 2,294 | (1,044 | ) | 1,250 | ||||||||
| Net increase in cash and cash equivalents | 12,541 | – | 12,541 | |||||||||
| Cash and cash equivalents beginning balance | 7,207 | – | 7,207 | |||||||||
| Cash and cash equivalents ending balance | 19,748 | – | 19,748 | |||||||||
NOTE 21 BUSINESS COMBINATION
Xin Feng Construction Co., Ltd.
On December 31, 2020, the Company acquired substantially all of the assets of XFC. The fair values of assets acquired and liabilities assumed were as follows:
| Cash and bank balance | $ | 857,555 | ||
| Trade receivables | 318,487 | |||
| Inventory | 1,608,301 | |||
| Prepaid expenses and other current assets | 877,809 | |||
| Plant and equipment, net | 50,567 | |||
| Other non-current assets | 458,392 | |||
| Notes payable | (187,447 | ) | ||
| Bank borrowing | (532,824 | ) | ||
| Other payables and accrued liabilities | (55,917 | ) | ||
| Income tax payable | (285,186 | ) | ||
| Advance receipts | (1,285,777 | ) | ||
| Goodwill | 332,040 | |||
| Net assets acquired | $ | 2,156,000 |
| F-29 |
Guizhou Wan Feng Hu Intelligent Aquatic Technology Co. Limited.
On October 8, 2020, the Company terminated the VIE agreements with and settled all debt claims as to GZ WFH. The fair values of assets and liabilities of GZ WFH were as follows:
| Cash and bank balance | $ | 3,974 | ||
| Trade receivables | 1,534,961 | |||
| Inventory | 295,960 | |||
| Prepaid expenses and other current assets | 143,819 | |||
| Plant and equipment, net | 703,412 | |||
| Advance to suppliers | 3,996 | |||
| Deferred tax assets, net | 121,675 | |||
| Accounts payable | (264,622 | ) | ||
| Other payables and accrued liabilities | (312,562 | ) | ||
| Advance from customers | (637,455 | ) | ||
| Income tax payable | (629,666 | ) | ||
| Due to related parties | (414,583 | ) | ||
| Net assets acquired | 548,909 | |||
| Consideration received | (4,750 | ) | ||
| Non-controlling interest | (21,868 | ) | ||
| Cumulative exchange difference from translation of foreign operations | (62,174 | ) | ||
| Loss on disposal of subsidiary | $ | 460,117 |
Note 21 SUBSEQUENT EVENT2
Termination of VIE agreement with Shunda Feed Co., Ltd. (“SFC”)
On December 31, 2020, Nocera, Inc. (“Nocera”) and Shunda Feed Co., Ltd. (“SFC”), 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 Shunda Feed Co., Ltd. However, The Company has received no communications or information from SFC regarding its financial conditions or operations for the purpose of the annual audit and the close of the VIE acquisition. Therefore, on March 18, 2021, the Company rescinded the acquisition of SFC and as a result of the rescission, the 300,000 common shares previously issued to the shareholders of SFC per the VIE Agreements have been cancelled by action of the Board of Directors.
The Company has evaluated subsequent events through the date of issuance of the consolidated financial statements, there were no other subsequent events occurred that would require recognition or disclosure in the consolidated financial statements.
| F-30 |
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Yin-Chieh Cheng, President and Chief Executive Officer of Nocera, Inc. (the “Company”), certify that:
(1) I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2020;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods represented in this report;
(4) The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
(5) The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and to the audit committee of the board of directors (or persons fulfilling the equivalent function):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
April 15, 2021
| /s/ Yin-Chieh Cheng |
| Yin-Chieh Cheng |
| President and Chief Executive Officer |
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Shun-Chih Chuang, Chief Financial Officer of Nocera, Inc. (the “Company”), certify that:
(1) I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2020;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods represented in this report;
(4) The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
(5) The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and to the audit committee of the board of directors (or persons fulfilling the equivalent function):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
April 15, 2021
| /s/ Shun-Chih Chuang |
| Shun-Chih Chuang |
| Chief Financial Officer |
(Principal Financial Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Nocera, Inc. (the “Company”) for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Yin-Chieh Cheng, President and Chief Executive Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Yin-Chieh Cheng |
| Yin-Chieh Cheng |
| President and Chief Executive Officer |
(Principal Executive Officer)
April 15, 2021
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Nocera, Inc. (the “Company”) for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Shun-Chih Chuang, Chief Financial Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Shun-Chih Chuang |
| Shun-Chih Chuang |
| Chief Financial Officer |
(Principal Financial Officer)
April 15, 2021
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