Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019

 

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.)

 

2030 POWERS FERRY ROAD SE, SUITE #212

ATLANTA, GA 30339

(Address of principal executive offices and zip code)

 

(404) 816-8240

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which
registered
 Common Stock, par value $0.001  NCRA OTC Markets Pink

 

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 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 June 30, 2018 based on $0.26 per share, the price at which the registrant’s common stock was last sold on June 30, 2018, was approximately $93,548.

 

There were 12,354,200 shares outstanding of the registrant’s common stock, par value $0.001 per share, as of August 14, 2019.

 

     

 

 

TABLE OF CONTENTS

 

NOCERA, INC.

TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-Q

 

PART I FINANCIAL INFORMATION 3
     
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20
ITEM 4. CONTROLS AND PROCEDURES 20
     
PART II OTHER INFORMATION 23
     
ITEM 1. LEGAL PROCEEDINGS 23
ITEM 1A. RISK FACTORS 23
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 23
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 23
ITEM 4 MINE SAFETY DISCLOSURES 23
ITEM 5 OTHER INFORMATION 23
ITEM 6 EXHIBITS 24
     
SIGNATURES   25

 

 

 

 

 

 

 

 

 

  2  

 

 

PART I FINANCIAL INFORMATION

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

 

NOCERA, INC.

INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

(Stated in US Dollars except for Number of Shares)

 

  June 30,
2019 		    December 31,
2018 		 
  (Unaudited)        
    $     $  
ASSETS                
Current assets                
Cash and cash equivalents     2,567       7,207  
Account receivables, net     2,603,985       3,548,613  
Inventories     236,777       63,401  
Advance to suppliers     18,747       73,012  
Prepaid expenses and other current assets, net     491,972       490,418  
Total current assets     3,354,048       4,182,651  
                 
Deferred tax assets, net     9,954       –  
Property and equipment, net     222,192       58,702  
Right-of-use asset     140,057       –  
Intangible assets, net     525,306       –  
Total assets     4,251,557       4,241,353  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Liabilities                
Current liabilities                
Account payables     325,262       233,492  
Advance from customers     106,261       106,673  
Other payables and accrued liabilities     241,425       421,784  
Convertible note     –       3,465  
Due to related parties     1,216,591       819,351  
Income tax payable     616,413       624,276  
Bank borrowing     15,564       –  
Total current liabilities     2,521,516       2,209,041  
                 
Deferred tax liabilities, net     –       14,676  
Deferred revenue     42,986       65,633  
Operating lease liabilities     8,334       –  
Total liabilities     2,572,836       2,289,350  
                 
Stockholders' equity                
Common stock ($0.001 par value; authorized 200,000,000 shares; 12,354,200 shares and 12,349,200 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively)     12,354       12,349  
Additional paid-in capital     148,904       115,311  
Statutory and other reserves     191,219       191,219  
Retained earnings     1,300,281       1,595,955  
Accumulated other comprehensive loss     (67,941 )     (61,508 )
Total Nocera, Inc.’s stockholders’ equity     1,584,817       1,853,326  
Non-controlling interests     93,904       98,677  
Total stockholders' equity     1,678,721       1,952,003  
                 
Total liabilities and stockholders' equity     4,251,557       4,241,353  

 

See notes to the condensed consolidated financial statements.

 

 

  3  

 

 

NOCERA, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Stated in US Dollars except for Number of Shares)

(UNAUDITED)

 

 

    Three months ended
June 30, 		    Six months ended
June 30, 		 
    2019     2018     2019     2018  
    $     $     $     $  
Net sales     11,262       –       22,736       –  
Cost of sales     –       –       –          
Gross profit     11,262       –       22,736       –  
                                 
Operating expenses                                
General and administrative expenses     (177,029 )     (46,412 )     (340,545 )     (60,978 )
Total operating expenses     (177,029 )     (46,412 )     (340,545 )     (60,978 )
                                 
Loss from operations     (165,767 )     (46,412 )     (317,809 )     (60,978 )
                                 
Interest expense     (52 )     –       (7,256 )     –  
Loss before income taxes     (165,819 )     (46,412 )     (325,065 )     (60,978 )
                                 
Income tax benefit     24,769       10,457       24,948       13,967  
Net loss     (141,050 )     (35,955 )     (300,117 )     (47,011 )
                                 
Less: Net loss attributable to non-controlling interests     (3,755 )     (6,886 )     (4,443 )     (9,064 )
Net loss attributable to the company     (137,295 )     (29,069 )     (295,674 )     (37,947 )
                                 
Comprehensive loss                                
Net loss     (141,050 )     (35,955 )     (300,117 )     (47,011 )
Foreign currency translation gain (loss)     (42,040 )     1,674       (6,763 )     1,614  
Total comprehensive loss     (183,090 )     (34,281 )     (306,880 )     (45,397 )
                                 
Less: comprehensive gain (loss) attributable to non-controlling interest     (5,840 )     (6,886 )     (4,773 )     (9,064 )
Comprehensive loss attributable to the Company     (177,250 )     (27,395 )     (302,107 )     (36,333 )
                                 
Loss per share                                
Basic     (0.0111 )     (0.0029 )     (0.0239 )     (0.0038 )
Diluted     (0.0111 )     (0.0029 )     (0.0239 )     (0.0038 )
                                 
Weighted average number of common shares outstanding                                
Basic     12,354,200       10,000,000       12,352,228       10,000,000  
Diluted     12,354,200       10,000,000       12,352,228       10,000,000  

 

 

See notes to the condensed consolidated financial statements.

 

 

  4  

 

 

NOCERA, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars except for Number of Shares)

(UNAUDITED)

 

    Six months ended June 30,  
    2019     2018  
    $     $  
Cash flows from operating activities:                
Net cash provided by operating activities     305,078       315,743  
                 
Cash flows from investing activities                
Cash paid for purchase of property     (174,142 )     (69,465 )
Cash paid for intangible assets     (551,710 )     –  
Net cash used in investing activities     (725,852 )     (69,465 )
                 
Cash flows from financing activities:                
Proceeds from related parties     423,465       173,295  
Repayment to related parties     (23,249 )     (189,524 )
Repayment for convertible note     (3,465 )     –  
Proceeds from issuance of common stock     250       –  
Bank borrowing     15,801       –  
Net cash provided by (used in) financing activities     412,802       (16,229 )
                 
Effect of exchange rate changes on cash and cash equivalents     3,332       (8,065 )
Net (decrease) increase in cash and cash equivalents     (4,640 )     221,984  
Cash and cash equivalents beginning balance     7,207       1,432  
Cash and cash equivalents ending balance     2,567       223,416  
                 
Supplemental disclosures of cash flow information                
Interest expenses paid     7,931       –  
Income taxes paid     5,541       –  

 

See notes to the condensed consolidated financial statements

 

 

 

  5  

 

NOCERA, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Stated in US Dollars except Number of Shares)

(UNAUDITED)

 

                      Additional       Statutory and               Accumulated Other       Total Nocera, Inc.’s Stockholders’       Non-       Total Stockholders’  
      Common Stock       Paid in       other       Retained       Comprehensive       Equity       controlling       Equity  
      Stock       Amount       Capital       Reserves       Earnings       Loss       (Deficit)       Interests       (Deficit)  
              $       $       $       $       $       $       $       $  
Balance, December 31, 2017     10,000,000       10,000       (10,000 )     –       (4,175 )     (8 )     (4,183 )     (43 )     (4,226 )
Net loss attribute to non-controlling interest     –       –       –       –       –       –       –       (2,178 )     (2,178 )
Foreign currency translation adjustments     –       –       –       –       –       (60 )     (60 )     –       (60 )
Net loss     –       –       –       –       (8,878 )     –       (8,878 )     –       (8,878 )
Balance, March 31, 2018     10,000,000       10,000       (10,000 )     –       (13,053 )     (68 )     (13,121 )     (2,221 )     (15,342 )
Net loss attribute to non-controlling interest     –       –       –       –       –       –       –       (6,886 )     (6,886 )
Foreign currency translation adjustments     –       –       –       –       –       1,674       1,674       –       1,674  
Net loss     –       –       –       –       (29,069 )     –       (29,069 )     –       (29,069 )
Balance, June 30, 2018     10,000,000       10,000       (10,000 )     –       (42,122 )     1,606       (40,516 )     (9,107 )     (49,623 )
                                                                         
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  
Net loss attribute to non-controlling interest     –       –       –       –       –       –       –       (688 )     (688 )
Foreign currency translation adjustment     –       –       –       –       –       33,522       33,522       1,755       35,277  
Issuance of new shares     5,000       5       3,595       –       –       –       3,600       –       3,600  
Share based compensation     –       –       14,999       –       –       –       14,999       –       14,999  
Net loss     –       –       –       –       (158,379 )     –       (158,379 )     –       (158,379 )
Balance, March 31, 2019     12,354,200       12,354       133,905       191,219       1,437,576       (27,986 )     1,747,068       99,744       1,846,812  
Net loss attribute to non-controlling interest     –       –       –       –       –       –       –       (3,755 )     (3,755 )
Foreign currency translation adjustments     –       –       –       –       –       (39,955 )     (39,955 )     (2,085 )       (42,040 )
Share based compensation     –       –       14,999       –       –       –       14,999       –       14,999  
Net loss     –       –       –       –       (137,295 )     –       (137,295 )     –       (137,295 )
Balance, June 30, 2019     12,354,200       12,354       148,904       191,219       1,300,281       (67,941 )     1,584,817       93,904       1,678,721  

 

 

See notes to the condensed consolidated financial statements.

 

  6  

 

 

 

NOCERA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 1      PRINCIPAL ACTIVITIES AND ORGANIZATION

 

The consolidated financial statements include the financial statements of Nocera, Inc. (“Nocera”) and its subsidiaries, Grand Smooth Inc Limited (“GSI”) and Guizhou Grand Smooth Technology Ltd. (“GZ GST” or “WFOE”), and Guizhou Wan Feng Hu Intelligent Aquatic Technology Co. Limited (“GZ WFH”) that is controlled through contractual arrangements. Nocera, GSI, GZ GST and GZ WFH are collectively referred to as the “Company”.

 

Nocera was incorporated in the State of Nevada on February 1, 2002 and is based in Atlanta, Georgia. 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 shareholders, Yin-Chieh Cheng and Bi Zhang, who together owned shares constituting 100% of the issued and outstanding ordinary shares of GSI (the “GSI Shares”) and (iii) GSI Acquisition Corp. Under the terms of the Agreement, the GSI Shareholders transferred to Nocera all of the GSI Shares in exchange for the issuance of 10,000,000 shares (the “Shares”) of Nocera’s common stock (the “Share Exchange”). As a result of the reverse merger, GSI became Nocera’s wholly-owned subsidiary and Yin-Chieh Cheng and Bi Zhang, the former shareholders of GSI, became Nocera’s controlling shareholders. The share exchange transaction with GSI was treated as a reverse merger, with GSI as the accounting acquirer and Nocera as the acquired party.

 

GSI is a limited company established under the laws and regulations of Hong Kong on August 1, 2014, and is a holding company without any operation.

 

GZ WFH was incorporated in Xingyi City, Guizhou Province, People’s Republic of China (“PRC”) on October 25, 2017, and is engaged in providing fish farming containers service, which integrates sales, installments, and maintenance of aquaculture equipment. The registered capital of GZ WFH is RMB5,000,000 (equal to US$733,138).

 

On November 13, 2018, GSI incorporated GZ GST in PRC with registered capital of US$15,000.

 

Reorganization

 

In anticipation of the reverse merger, GSI undertook a reorganization and became the ultimate holding company of WFOE and GZ WFH, which were all controlled by the same shareholders before and after the Reorganization.

 

Effective on December 31, 2018, shareholders of GZ WFH and WFOE entered into a series of contractual agreements (“VIE Agreements” which are described below). As a result, GSI, through WFOE, has been determined to be the primary beneficiary of GZ WFH and GZ WFH became VIE of GSI. Accordingly, GSI consolidates GZ WFH’s operations, assets, and liabilities.

 

Immediately before and after reorganization completed on December 31, 2018 as described above, GSI together with WFOE and its VIE were effectively controlled by the same shareholders, therefore, the reorganization was accounted for as a recapitalization. The accompanying consolidated financial statements have been prepared as if the current corporate structure has been in existence throughout the periods presented. The consolidation of the GSI and its subsidiary and VIE has been accounted for at historical cost as of the beginning of the first period presented in the accompanying financial statements.

 

 

 

  7  

 

 

Note 2      SUMMARY OF SIGNIFICANT ACCOUNTING POLICY

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required for complete financial statements and should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on April 15, 2019.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair presentation of the Company’s unaudited condensed consolidated financial position as of June 30, 2019, its consolidated results of operations for the three and six months ended June 30, 2019, cash flows for the six months ended June 30, 2019 and change in equity for the three months ended June 30, 2019, as applicable, have been made. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2019 or any future periods.

 

Concentrations of Credit Risk

 

There were two customers accounted for 100% of net sales for the three and six months ended June 30, 2019. Net sales for the three and six months ended June 30, 2018 was nil, as the Company started to deliver goods to customers since November 2018.

 

Three customers accounted for 99.32% and 99.29% of accounts receivables as of June 30, 2019 and December 31, 2018, respectively.

 

There was one supplier accounted for 77.73% and 28.64% respectively of the total purchase amount during the three months ended June 30, 2019 and 2018.

 

There were two suppliers accounted for 72.37% and 15.92% respectively of the total purchase amount during the six months ended June 30, 2019. And two suppliers accounted for 39.41% and 21.70% respectively of the total purchase amount during the six months ended June 30, 2018.

 

Recently Issued Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

ASU No. 2016-02. In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, “Lease (Topic 842)” , a new lease standard requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating leases under previous U.S. GAAP. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset (“ROU” asset) representing its right to use the underlying asset for the lease term. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company has adopted this standard effective January 1, 2019. The Company elected the optional transition method that permits adoption of the new standard prospectively, as of the effective date, without adjusting comparative periods presented. Adoption of the standard resulted in the recognition of $140,057 of ROU assets and $8,334 of lease liabilities on the condensed consolidated balance sheet as of June 30, 2019 at adoption related to office space, and fish farming facilities.

 

See Note 7 for disclosure required by ASC 842.

 

Except for the ASUs issued but not yet adopted disclosed in Note 3 to the financial statements on Form 10-K for the fiscal year ended December 31, 2018, previously filed with the SEC, there is no ASU issued by the FASB that is expected to have a material impact on the condensed consolidated financial statements upon adoption.

 

 

  8  

 

 

Note 3      INVENTORIES

 

As of June 30, 2019 and December 31, 2018, inventory consisted of the following:

 

    June 30,
2019 		    December 31,
2018 		 
    (Unaudited)        
    $     $  
Raw materials     205,980       63,401  
WIP     30,797       –  
Total     236,777       63,401  

 

Note 4      PREPAID EXPENSES AND OTHER ASSETS, NET

 

    June 30,
2019 		    December 31,
2018 		 
    (Unaudited)        
    $     $  
Receivable from a third party (1)   552,769     551,464  
Other receivables from third party     16,225       15,565  
Prepaid rent expense     –       3,895  
Others     5,893       2,214  
      574,887       573,138  
Allowance for doubtful accounts     (82,915 )     (82,720 )
Prepaid expenses and other assets, net     491,972       490,418  

 

(1) The balance as of June 30, 2019 represented the receivable from a concert host. The Company sponsored a concert which was held in Taiwan in November 2018 for branding purpose. As of June 30, 2019 and December 31, 2018, the Company provided bad debt provision amounting to $82,915 and $82,720, respectively. The difference was caused by exchange rate fluctuation.

 

Note 5      PROPERTY AND EQUIPMENT, NET

 

As of June 30, 2019 and December 31, 2018, property and equipment consisted of the following:

 

    June 30,
2019 		    December 31,
2018 		 
    (Unaudited)        
    $     $  
Furniture and fixtures     3,778       3,793  
Equipment     184,088       12,612  
Leasehold improvement     10,027       10,066  
Vehicle     41,505       41,665  
      239,398       68,136  
Accumulated depreciation     (17,206 )     (9,434 )
Property and equipment, net     222,192       58,702  

 

 

 

  9  

 

 

The Company recorded depreciation expenses of $7,927 and $2,380 for the six months ended June 30, 2019 and 2018, respectively, and $4,211 and $2,356 for the three months ended June 30, 2019 and 2018, respectively.

 

Note 6     INTANGIBLE ASSETS, NET

 

As of June 30, 2019 and December 31, 2018, intangible assets consisted of the following:

  

    June 30,
2019 		    December 31,
2018 		 
    (Unaudited)        
    $     $  
Intangible assets     543,420       –  
      543,420       –  
Accumulated amortization     (18,114 )     –  
Intangible assets, net     525,306       –  

  

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 $18,390 and nil for both six months and three months ended June 30, 2019 and 2018, respectively.

 

Note 7      LEASES

 

The Company has two non-cancelable lease agreements for certain of the office and accommodation as well as fish farming containers for research and develop advanced technology for water circulation applying in fishery with original lease periods expiring between 2022 and 2023. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise that option. The Company recognizes rental expense on a straight-line basis over the lease term.

 

The following table provides a summary of leases by balance sheet location as of June 30, 2019:

 

    Balance Sheet Location   June 30, 2019  
        (Unaudited)  
        $  
Assets            
Operating- noncurrent   Operating lease right-of-use assets     140,057  
Total leased assets         140,057  
             
Liabilities            
Operating – noncurrent   Operating lease liabilities, non-current     8,334  
Total lease liabilities         8,334  

 

The components of lease expense for the six and three months ended June 30, 2019 were as follows:

 

    Statement of Income Location

Six months ended
June 30, 2019

Three months ended June 30, 2019  
      (Unaudited) (Unaudited)  
      $ $  
Lease Costs            
Operating lease expense   General and administrative expenses 17,886    13,000  
Total net lease costs     17,886    13,000  

 

 

 

  10  

 

 

Maturity of lease liabilities under our non-cancelable operating leases as of June 30, 2019 are as follows:

 

    Operating  
    (Unaudited)  
    $  
Remaining 2019     –  
2020     8,728  
2021     –  
2022     –  
2023     –  
Total lease payments     8,728  
Less: interest     (394 )
Present value of lease liabilities     8,334  

 

Future minimum rental payments under our non-cancelable operating leases as of December 31, 2018 were as follows:

  

    Leases (1)  
    $  
2019     –  
2020     8,728  
2021     –  
2022     –  
2023     –  
Total     8,728  

   

(1) Amounts are based on ASC 840, Leases that was superseded upon our adoption of ASC 842, Leases on January 1, 2019.

 

Following table provides a summary of the lease terms and discount rates for the six months ended June 30, 2019:

 

    June 30, 2019  
Weighted Average Remaining Lease Term        
Operating leases     3.25 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 six months ended June 30, 2019 is as follows:

 

    Six months ended June 30, 2019  
    (Unaudited)  
    $  
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows from operating leases     147,680  
         
Right-of-use assets obtained in exchange for new lease obligations:        
Operating leases     145,461  

 

 

 

  11  

 

 

Note 8     CONVERTIBLE NOTE

 

On September 20, 2018, Nocera, Inc. entered into a one year $10,000 Convertible Note (“Note”) with Coral Investment Partners, LP. (“CIP”), an entity controlled by Erik Nelson, the Company’s corporate secretary and director. The Note carries an interest rate of twenty-four percent (24%), and is convertible into shares of the Company’s common stock at a price of $0.01 per share. As an inducement to issue the Note, CIP received 150,000 Class A Warrants and 150,000 Class B warrants at strike prices of $0.50 and $1.00, respectively.

 

The Company evaluates convertible instruments, such as the warrants issued in connection with the Note under Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for at fair value with changes in fair value recorded in earnings. The Company determined that the conversion features in the warrants should not be treated as an embedded derivative, and therefore ASC 815 was not applicable.

 

If the conversion feature does not require derivative treatment under ASC 815, the instrument is then evaluated under ASC 470-20 “Debt with Conversion and other Options” for consideration of any beneficial conversion features (“BCF”) requiring separate recognition. The Company determined that a BCF existed because the conversion price on the Note was lower than the market price of the Company’s common stock.

 

The intrinsic value of the BCF was determined to be approximately $330,000. In accordance with ASC 470-20-30-8, the amount of the discount assigned to the BCF equal to the lower amount of either i) the Intrinsic Value of the BCF or ii) the proceeds realized upon the issuance of the note, therefore the Company recorded the discount assigned to the BCF of $10,000. Under the guidelines of ASC 470-20-55-11, the Company determined based on a $10,000 value of the Note and a $7,095 value for the Warrants; that approximately 58.5% of the Note should be allocated to the BCF, or $5,850. The BCF was recognized as note discount, and amortized through the maturity of the Note, with a corresponding increase to additional paid-in capital. For the year ended December 31, 2018, the interest accretion of the BCF was $1,635. The remaining 41.5% of the Note or $7,095 should be allocated to the warrants. Since the allocation cannot exceed the Note value, the value of the warrants was determined to be $4,150, and it was recognized as note discount to be amortized during the period of Note. The interest accretion of the warrants was $1,160.

 

As of December 31, 2018, the remaining principle amount of the Note was $10,000, and the remaining unamortized note discount was $7,205. The aggregate effective interest rate on the Note is approximately 24%. For the year ended December 31, 2018, the interest accretion and the contractual interest coupon of the Note was $2,795 and $671, respectively.

 

The fair value of 150,000 Class A Warrants and 150,000 Class B warrants issued on September 20, 2018 were measured by the Black-Scholes pricing model with the following assumptions.

 

    September 20, 2018
     
Dividend yield     –  
Risk-free interest rate     2.96%  
Expected term (in years)     4.57  
Volatility     25.3%  

 

The Company has repaid the Note together with the interest on January 3, 2019.

 

Note 9      INCOME TAXES

 

The Company and its subsidiary, and the consolidated VIE file tax returns separately.

 

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.

 

 

 

  12  

 

 

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.

 

Since the VIE suffered loss during the six months ended June 30, 2019, it has no additional provision amount resulted by the Global Intangible Low Taxed Income inclusion on current earnings and profits of its foreign controlled corporations as. The Company has no transition tax for the same reason.

 

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 $2 million 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 $2 million will continue to be subject to the rate of 16.5% for corporations. The Company assessed that the HK entity will not earned profit greater than $2 million, it is subject to a corporate income tax rate of 8.25%.

 

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.

 

The components of the income tax provision are:

  

   

Three months ended

June 30,

   

Six months ended

June 30,

 
    2019     2018     2019     2018  
    $     $     $     $  
Current     (750 )     –       –       –  
Deferred     (24,019 )     (10,457 )     (24,948 )     (13,967 )
Total income tax benefit     (24,769 )     (10,457 )     (24,948 )     (13,967 )

 

 

The reconciliation of income taxes expenses computed at the PRC statutory tax rate applicable to income tax expense is as follows:

 

  T hree months ended
June 30, 		    Six months ended
June 30, 		 
    2019     2018     2019     2018  
PRC income tax statutory rate     25.00%       25.00%       25.00%       25.00%  
Tax effect of non-deductible items     (0.42% )     (1.93% )     (1.23% )     (1.68% )
Tax effect of different tax rates in other jurisdictions     (5.30% )     (0.36% )     (9.15% )     (0.27% )
Changes in valuation allowance     (4.34% )     (0.18% )     (6.95% )     (0.14% )
Effective tax rate     14.94%       22.53%       7.67%       22.91%  

 

 

 

Note 10     RELATED PARTY BALANCES AND TRANSACTIONS

 

Due to related parties

 

The balance due to related parties was as following:

    June 30,
2019 		    December 31,
2018 		 
    $     $  
Mr. Zhang Bi (1)     438,894       245,545  
Mr. Yin-Chieh Cheng (2)     777,697       556,464  
Coral Capital Partners (3)     –       10,718  
Mountain Share Transfer, LLC (3)     –       6,624  
Total     1,216,591       819,351  

 

 

 

  13  

 

 

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.

 

(2) Mr. Cheng Yin-Chieh is the chief financial officer of the Company, and he holds 42.5% shares of the Company. The balance represented the amount paid by Mr. Cheng on behalf of the Company for its daily operation purpose.

 

(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 as of December 31, 2018 had been paid off in 2019 Q1.

 

Related party transactions

 

The details of the related party transactions were as follows:

 

   

For three months ended

June 30,

   

 

For six months ended

June 30,

 
    2019     2018     2019     2018  
    $     $     $     $  
Purchase from related party                                
Mr. Zhang Bi (1)     –       –       –       172,295  
                                 
Paid on behalf of the Company                                
Mr. Zhang Bi (2)     29,005       –       203,167       –  
Mr. Yin-Chieh Cheng (2)     81,699       1,000       220,299       1,000  

 

Note:

 

(1) The transaction represents the inventory sold by Mr. Zhang Bi to the Company at the market value.

 

(2) The transactions represent the amount paid by Mr. Zhang Bi, Mr. Cheng Yin-Chieh on behalf of the Company for its daily operation.

 

Note 11      LOSS PER SHARE

 

The following table sets forth the computation of basic and diluted loss per common share for the three and six months ended June 30, 2019 and 2018.

  

   

For three months ended

June 30,

   

For six months ended

June 30,

 
    2019     2018     2019     2018  
    $     $     $     $  
Numerator:                                
Net loss attributable to the Company     (137,295 )     (29,069 )     (295,674 )     (37,947 )
                                 
Denominator:                                
Weighted-average shares outstanding                                
- Basic     12,354,200       10,000,000       12,352,228       10,000,000  
- Diluted     12,354,200       10,000,000       12,352,228       10,000,000  
                                 
Loss per share:                                
- Basic     (0.0111 )     (0.0029 )     (0.0239 )     (0.0038 )
- Diluted     (0.0111 )     (0.0029 )     (0.0239 )     (0.0038 )
                                 

 

  14  

 

 

Basic net loss per common share is computed using the weighted average number of the common shares outstanding during the period. Diluted loss 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 continued operations, approximately 6,000,000 warrants were excluded from the calculation of diluted net loss per share for both three months and six months ended June 30, 2019, respectively. No warrants or options were outstanding for both three months or six months ended June 30, 2018.

 

Note 12      SUBSEQUENT EVENT

 

The Company has evaluated subsequent events through the issuance of the unaudited condensed consolidated financial statements and no subsequent event is identified that would have required adjustment or disclosure in the consolidated financial statements.

 

 

 

 

 

 

 

  15  

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Current Report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. In addition, our consolidated financial statements and the financial data included in this Current Report reflect our reorganization and have been prepared as if our current corporate structure had been in place throughout the relevant periods. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these and other risks and uncertainties, please see the items listed above under the section captioned “Risk Factors”, as well as any other cautionary language contained in this Current Report. Except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events after the date of this Current Report.

 

Operations Overview

 

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 shareholders, Yin-Chieh Cheng and Bi Zhang, who together owned shares constituting 100% of the issued and outstanding ordinary shares of GSI (the “GSI Shares”) and (iii) GSI Acquisition Corp. Under the terms of the Agreement, the GSI Shareholders transferred to 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 Shareholders. 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 Variable Interest Entity (“VIE”) in PRC under legal and accounting principles.

 

Critical Accounting Policies, Estimates and Assumptions

 

See Note 2 to the accompanying unaudited condensed consolidated financial statements for our critical accounting policies.

 

 

 

 

 

  16  

 

 

Results of Operations

 

The following table sets forth the consolidated statements of operations of the Company for the three and six months ended June 30, 2019 and 2018.

 

Consolidated Statements of Operations

 

    Three months ended June 30,     S ix months ended June 30,  
    2019     2018     2019     2018  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
    $     $     $     $  
Net sales     11,262       –       22,736       –  
Cost of sales     –       –       –       –  
Gross profit     11,262       –       22,736       –  
                                 
Operating expenses                                
General and administrative expenses     (177,029 )     (46,412 )     (340,545 )     (60,978 )
Total operating expenses     (177,029 )     (46,412 )     (340,545 )     (60,978 )
                                 
Loss from operations     (165,767 )     (46,412 )     (317,809 )     (60,978 )
                                 
Interest expense     (52 )     –       (7,256 )     –  
Loss before income taxes     (165,819 )     (46,412 )     (325,065 )     (60,978 )
                                 
Income tax benefit     24,769       10,457       24,948       13,967  
Net loss     (141,050 )     (35,955 )     (300,117 )     (47,011 )
                                 
Less: Net loss attributable to non-controlling interests     (3,755 )     (6,886 )     (4,443 )     (9,064 )
Net loss attributable to the company     (137,295 )     (29,069 )     (295,674 )     (37,347 )
                                 
Comprehensive loss                                
Net loss     (141,050 )     (35,955 )     (300,117 )     (47,011 )
Foreign currency translation gain (loss)     (42,040 )     1,674       (6,763 )     1,614  
Total comprehensive loss     (183,090 )     (34,281 )     (306,880 )     (45,397 )
                                 
Less: comprehensive gain (loss) attributable to non-controlling interest     (5,840 )     (6,886 )     (4,773 )     (9,064 )
Comprehensive loss attributable to the Company     (177,250 )     (27,395 )     (302,107 )     (36,333 )
                                 
Loss per share                                
Basic     (0.0111 )     (0.0029 )     (0.0239 )     (0.0038 )
Diluted     (0.0111 )     (0.0029 )     (0.0239 )     (0.0038 )
                                 
Weighted average number of common shares outstanding                                
Basic     12,354,200       10,000,000       12,352,228       10,000,000  
Diluted     12,354,200       10,000,000       12,352,228       10,000,000  

 

 

 

  17  

 

 

Revenue

 

Revenue for the three months ended June 30, 2019 were $11,262 compared to nil for the comparable period in 2018, The $11,262 was the realized revenue of delivering after-sales service of our 473 sets of fish farming containers delivered in 2018 for the three months ended June 30, 2019. We hadn’t received any order as of June 30, 2018. Hence, the revenue of the comparable period in 2018 was nil.

 

Revenue for the six months ended June 30, 2019 were $22,736 compared to nil for the comparable period in 2018, The $22,736 was the realized revenue of delivering after-sales service of our 473 sets of fish farming containers delivered in 2018 for the six months ended June 30, 2019. We hadn’t received any order as of June 30, 2018. Hence, the revenue of the comparable period in 2018 was nil.

 

Gross profit

 

Gross profit for the three months ended June 30, 2019 were $11,262 compared to nil for the comparable period in 2018, Since there was no direct cost of delivering after-sales service for the three months ended June 30, 2019, the gross profit for the period is the same amount as $11,262. We hadn’t received any order as of June 30, 2018. Hence, the gross profit of the comparable period in 2018 was nil.

 

Gross profit for the six months ended June 30, 2019 were $22,736 compared to nil for the comparable period in 2018, Since there was no direct cost of delivering after-sales service for the six months ended June 30, 2019, the gross profit for the period is the same amount as $22,736. We hadn’t received any order as of June 30, 2018. Hence, the gross profit of the comparable period in 2018 was nil.

 

General and administrative expenses

 

General and administrative expenses were $177,029, for the three months ended June 30, 2019, compared to approximately $46,412 for the comparable period in 2018. This increase was primarily due to the legal, accounting, and consulting fees from our Hong Kong-based entity, GSI, and research and development expense for advanced technology as well, for the three months ended June 30, 2019.

 

General and administrative expenses were $340,545, for the six months ended June 30, 2019, compared to approximately $60,978 for the comparable period in 2018. This increase was primarily due to the legal, accounting, and consulting fees from our Hong Kong-based entity, GSI, and research and development expense for advanced technology as well, for the six months ended June 30, 2019.

 

Interest expense

 

Since the Company paid off the convertible note in advance on January 3, 2019, the unamortized note discount should be recognized as interest expense for the six months ended June 30, 2019.

 

The Company had a short-term bank loan started in May 2019, thus recorded interest expense relating to this for the three and six months ended June 30, 2019.

 

Income tax benefit

 

During the three months ended June 30, 2019, we recorded an income tax benefit of $24,769 as compared to $10,457 for the comparable period in 2018.

 

During the six months ended June 30, 2019, we recorded an income tax benefit of $24,948 as compared to $13,967 for the comparable period in 2018.

 

Net loss attributable to the Company

 

Net loss attributable to the Company (excluding net loss attributable to non-controlling interest) for the three months ended June 30, 2019 was $137,295 compared to net loss attributable to the Company (excluding net loss attributable to non-controlling interest) of $29,069 for the comparable period in 2018. The increase of loss was due to the Company didn’t provide fish farming containers to customers for the three months ended June 30, 2019, and there are the legal, accounting, and consulting fees from our Hong Kong-based entity, GSI, and research and development expense for advanced technology for the period ended June 30, 2019.

 

 

 

  18  

 

 

Net loss attributable to the Company (excluding net loss attributable to non-controlling interest) for the six months ended June 30, 2019 was $295,674 compared to net loss attributable to the Company (excluding net loss attributable to non-controlling interest) of $37,947 for the comparable period in 2018. The increase of loss was due to the Company didn’t provide fish farming containers to customers for the six months ended June 30, 2019, and there are the legal, accounting, and consulting fees from our Hong Kong-based entity, GSI, and research and development expense for advanced technology for the period ended June 30, 2019.

 

Liquidity and Capital Resources

 

The Company had operating cash inflows for the six months ended June 30, 2019 and the cash balance was $2,567 as of June 30, 2019. The net current asset as of June 30, 2019 was $832,532, and the Company had significant accounts receivable balance as of June 30, 2019 related to the sale of fish farming containers, amounting to $2.6M, which was in good condition since the Company had collected about $945,000 in first half of 2019, and expected to collect the rest of it in the next 12 months. And therefore there is no substantial doubt as to the Company’s ability to continue as a going concern.

 

The following table provides detailed information about our net cash flows for the periods indicated:

 

   

For the six months ended

June 30,

 
    2019     2018  
    $     $  
Net cash provided by operating activities     305,078       315,743  
Net cash used in investing activities     (725,852 )     (69,465 )
Net cash provided by financing activities     412,802       (16,229 )
Effect of the exchange rate change on cash and cash equivalents     3,332       (8,065 )
(Decrease) increase   in cash and cash equivalents     (4,640 )     221,984  

 

Net cash    provided by operating activities

 

Net cash provided by operating activities amounted to $315,743 for the six months ended June 30, 2018. This reflected a net loss of $47,011, and the effect of changes in operating assets and liabilities including decrease of advanced from customer in the amount of $1,069,389 and the increase of inventory in the amount of $793,996.

 

Net cash provided by operating activities amounted to $305,078 for the six months ended June 30, 2019. This reflected a net loss of $300,117, and the effect of changes in operating assets and liabilities including decreases of account receivable in the amount of $945,151 and other payable and accrued liabilities in the amount of 181,460, and increases of inventories in the amount of 176,269 and right-of-use asset in the amount of $138,255.

 

Net cash used in investing activities

 

Net cash used in investing activities was $725,852 for the six months ended June 30, 2019, which was cash paid for intangible asset and for purchase of property, and $69,465 for the six months ended June 30, 2018, which was cash paid for purchase of property.

 

Net cash provided by (used in) financing activities

 

Net cash provided by, and used in, financing activities amounted to $412,802 and $16,229 for the six months ended June 30, 2019 and 2018, respectively, which were attributable to the proceeds from our shareholders primarily for our operation and repayment to our shareholders. See “Related Party Transactions”.

 

 

 

  19  

 

 

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 to obtain financing from shareholders or raise additional capital through, among other things, the sale of equity or debt securities to meet our long-term operating requirements including construction, marketing, operation, and etc. The shareholders are committed to provide additional financing required when we try to raise additional capital from third party investors or banks. However, there can be no assurance that we will be successful in raising this additional capital.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements

 

Recently Issued Accounting Pronouncements

 

Please refer to the Note 2 above.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for a smaller reporting company.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, under the supervision of our Chief Executive Officer and 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 June 30, 2019, due to the presence of material weaknesses described below, our disclosure controls and procedures were ineffective.

 

Notwithstanding the foregoing, there can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within our Company and our consolidated subsidiaries to disclose material information otherwise required to be set forth in our periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable, not absolute, assurance of achieving their control objectives.

 

Management’s Report on Internal Control Over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal controls over financial reporting for our Company. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

 

 

  20  

 

 

● 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 June 30, 2019. 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 June 30, 2019. 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 June 30, 2019:

 

● we do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act;

 

● we do not have an independent audit committee of our board of directors;

 

● there is insufficient monitoring and review controls over the financial reporting closing process, including the lack of individuals with current knowledge of GAAP that led to the restatement of our previously issued financial statements; and

 

● inadequate segregation of duties.

 

We believe that these material weaknesses primarily relate, in part, to our lack of sufficient staff with appropriate training in GAAP and SEC rules and regulations with respect to financial reporting functions, and the lack of robust accounting systems, as well as the lack of sufficient resources to hire such staff and implement these accounting systems.

 

Pending obtaining sufficient resources to implement these measures, we plan to take a number of actions to correct these material weaknesses, including, but not limited to, establishing an audit committee of our board of directors comprised of three independent directors, adding experienced accounting and financial personnel and retaining third-party consultants to review our internal controls and recommend improvements. However, we may need to take additional measures to fully mitigate these issues, and the measures we have taken, and expect to take, to improve our internal controls may not be sufficient to (1) address the issues identified, (2) ensure that our internal controls are effective or (3) ensure that the identified material weakness or other material weaknesses will not result in a material misstatement of our annual or interim financial statements.

 

 

 

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It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

Changes in Internal Control Over Financial Reporting

 

An evaluation was performed under the supervision of our management, including our Chief Executive Officer and 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 June 30, 2019. Based on that evaluation, our management, including our Chief Executive Officer and Interim Chief Financial Officer, concluded that there were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

CEO and CFO Certifications

 

Exhibits 31.1 and 31.2 to this Quarterly Report are the Certifications of the Chief Executive Officer and the 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.

 

 

 

 

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PART II OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We were not subject to any legal proceedings during the six months ended June 30, 2019 and there are currently no legal proceedings, to which we are a party, which could have a material adverse effect on our business, financial condition or operating results.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5.  OTHER INFORMATION

 

None

 

 

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ITEM 6. EXHIBITS

 

Exhibit No.   Description
     
2.1   Amended Agreement and Plan of Merger, dated December 27, 2018, and effective as of December 31, 2018, by and among Nocera, Inc., Grand Smooth Inc Limited and GSI Acquisition Corp. (2)
     
3.1   Certificate of Incorporation of Nocera, Inc., as amended. (1)
     
3.2   Bylaws of Nocera, Inc. (1)
     
3.3   Articles of Incorporation of GSI Acquisition Corp., a Colorado Corporation (2)
     
3.4   Articles of Grand Smooth Inc Limited, a Hong Kong, China Corporation (2)
     
3.5   Statement of Merger – GSI Acquisition Corp. and Grand Smooth Inc Limited (2)
     
10.1   Share Exchange Agreement (2)
     
10.2   2018 Nocera, Inc. Stock Option and Award Incentive Plan (2)
     
10.3   Yin-Chieh Cheng Consulting Agreement (2)**
     
31.1   Rule 13a-14(a)/15d-14(a) Certification of the President and Chief Executive Officer of Nocera, Inc. *
31.2   Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer of Nocera, Inc. *
32.1   Section 1350 Certification of the President and Chief Executive Officer of Nocera, Inc. *
32.2   Section 1350 Certification of the Chief Financial Officer of Nocera, Inc. *
101.INS   XBRL Instance Document *
101.SCH   XBRL Schema Document *
101.CAL   XBRL Calculation Linkbase Document *
101.DEF   XBRL Definition Linkbase Document *
101.LAB   XBRL Label Linkbase Document *
101.PRE   XBRL Presentation Linkbase Document *

 

(1) Incorporated herein by reference from the exhibits included in the Company’s Registration Statement on Form 10-12g dated October 19, 2018.

(2) Incorporated herein by reference from the exhibits included in the Form 8-K12G3 filed on January 31, 2019

(**) Incorporated herein by reference as Exhibit “B” to Exhibit 2.1 included in this Form 8-K12G3 filing dated January 31, 2019  

 

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

By: /s/ Kuan-Yin Cheng                               
Name: Kuan-Yin Cheng  
Title: President & Chief Executive Officer  
     
Dated:  August 14, 2019  

 

By: /s/ Yin-Chieh Cheng                              
Name: Yin-Chieh Cheng  
Title: Chairman & Chief Financial Officer  
     
Dated:  August 14, 2019  

 

 

 

 

 

 

 

 

 

 

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