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, 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.: 000-55993

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: None

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 29, 2020 based on $0.26 per share, the price at which the registrant’s common stock was last sold on June 29, 2020, was approximately $93,548.

There were 13,181,786 shares outstanding of the registrant’s common stock, par value $0.001 per share, as of June 29, 2020.

 

 

TABLE OF CONTENTS

 

 

PART I	FINANCIAL INFORMATION	3
ITEM 1.	INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22
ITEM 4.	CONTROLS AND PROCEDURES	22
PART II	OTHER INFORMATION	25
ITEM 1.	LEGAL PROCEEDINGS	25
ITEM 1A.	RISK FACTORS	25
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	25
ITEM 4	MINE SAFETY DISCLOSURES	25
ITEM 5	OTHER INFORMATION	25
ITEM 6	EXHIBITS	26
SIGNATURES		27

 

 

 

 

 

 

 

 

 

 

 

 

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, 2020				December 31, 2019
		(Unaudited)
		$				$
ASSETS
Current assets
Cash and cash equivalents			344,781				28,539
Account receivables, net			1,564,089				1,483,583
Inventories			387,684				287,409
Advance to suppliers			5,532				2,440
Prepaid expenses and other assets, net			141,566				17,148
Due from a related party			–				683,521
Total current assets			2,443,652				2,502,640
Non-current assets
Deferred tax asset, net			117,789				74,639
Property and equipment, net			167,442				194,809
Operating lease right-of-use asset			86,478				113,166
Intangible assets, net			415,202				473,935
Total non-current assets			786,911				856,549
TOTAL ASSETS			3,230,563				3,359,189
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities
Account payables			268,884				251,603
Advance from customers			605,985				392,148
Other payables and accrued liabilities			297,981				294,472
Due to related parties			382,009				405,772
Income tax payable			603,535				608,598
Bank borrowing			–				15,367
Deferred revenue - current portion			–				620,331
Operating lease liabilities - current			–				8,485
Total current liabilities			2,158,394				2,596,776
TOTAL LIABILITIES			2,158,394				2,596,776
Commitments and contingencies			–				–
EQUITY
Common stock ($0.001 par value; authorized 200,000,000 shares; 13,181,786 and 12,354,200 shares issued and outstanding as of June 30, 2020 and December 31, 2019 respectively)			13,182				12,354
Additional paid-in capital			330,637				271,915
Statutory and other reserves			191,219				191,219
Retained earnings			591,996				339,203
Accumulated other comprehensive loss			(76,733	)			(81,350	)
TOTAL NOCERA, INC.’S STOCKHOLDERS’ EQUITY			1,050,301				733,341
Non-controlling interests			21,868				29,072
TOTAL STOCKHOLDER EQUITY			1,072,169				762,413
TOTAL LIABILITIES AND STOCKHOLDER EQUITY			3,230,563				3,359,189

 

See notes to the condensed consolidated financial statements.

  

 

 

 

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,
		2020				2019				2020				2019
		$				$				$				$
Net sales		469,078				11,262				1,159,731				22,736
Cost of sales			(211,820	)			–				(504,335	)			–
Gross profit			257,258				11,262				655,396				22,736
Operating expenses
General and administrative expenses			(255,735	)			(177,029	)			(428,047	)			(340,545	)
Total operating expenses			(255,735	)			(177,029	)			(428,047	)			(340,545	)
Income (Loss) from operations			1,523				(165,767	)			227,349				(317,809	)
Other income (expense)			36				(52	)			3				(7,256	)
Income (Loss) before income taxes			1,559				(165,819	)			227,352				(325,065	)
Income tax benefit			28,443				24,769				18,736				24,948
Net income (loss)			30,002				(141,050	)			246,088				(300,117	)
Less: Net loss attributable to non-controlling interests			(3,473	)			(3,755	)			(6,705	)			(4,443	)
Net income (loss) attributable to the company			33,475				(137,295	)			252,793				(295,674	)
Comprehensive income (loss)
Net income (loss)			30,002				(141,050	)			246,088				(300,117	)
Foreign currency translation gain (loss)			5,510				(42,040	)			4,118				(6,763	)
Total comprehensive income (loss)			35,512				(183,090	)			250,206				(306,880	)
Less: comprehensive loss attributable to non-controlling interest			(3,449	)			(5,840	)			(7,204	)			(4,773	)
Comprehensive income (loss) attributable to the Company			38,961				(177,250	)			257,410				(302,107	)
Income (loss) per share
Basic			0.0025				(0.0111	)			0.0192				(0.0239	)
Diluted			0.0019				(0.0111	)			0.0143				(0.0239	)
Weighted average number of common shares outstanding
Basic			13,181,786				12,354,200				13,181,786				12,352,228
Diluted			17,659,384				12,354,200				17,624,585				12,352,228

 

 

See notes to the condensed consolidated financial statements.

 

  

 

 

 

NOCERA, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Stated in US Dollars except for Number of Shares)

(UNAUDITED)

 

		Six months ended June 30,
		2020				2019
		$				$
Cash flows from operating activities:
Net income (loss)			246,088				(300,117	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation expenses			24,338				7,927
Amortization			53,156				18,390
Bad debt provision			–				–
Free rental expense offered by a stockholder			–				–
Deferred income tax			(44,703	)			(24,948	)
Share-based compensation			58,722				33,349
Changes in operating assets and liabilities:
Accounts receivable, net			(105,691	)			945,151
Inventories			(105,773	)			(176,269	)
Advance to suppliers			(3,155	)			54,806
Prepaid expenses and other assets, net			(125,612	)			(7,436	)
Operating lease right-of-use asset			25,007				(138,255	)
Accounts payable			21,579				94,085
Advance from customers			221,902				–
Other payables and accrued liabilities			8,417				(181,460	)
Income tax payable			4,990				(5,540	)
Deferred revenue			(618,971	)			(22,736	)
Operating lease liability			(8,406	)			8,461
Amount due from a related party			–				–
Net cash (used in) provided by operating activities			(348,112	)			305,408
Cash flows from investing activities:
Cash paid for purchase of property			–				(174,142	)
Cash paid for intangible assets			(1,851	)			(551,710	)
Net cash used in investing activities			(1,851	)			(725,852	)
Cash flows from financing activities:
Bank borrowing			(15,225	)			15,801
Proceeds from related parties			689,441				423,465
Repayment to related parties			(22,766	)			(23,249	)
Proceeds from issuance of common stock			828				250
Repayment for convertible note			–				(3,465	)
Net cash provided by financing activities			652,278				412,802
Effect of exchange rate changes on cash and cash equivalents			13,927				3,002
Net increase (decrease) in cash and cash equivalents			316,242				(4,640	)
Cash and cash equivalents at beginning of year			28,539				7,207
Cash and cash equivalents at end of year			344,781				2,567
Supplemental disclosures of cash flow information
Cash paid for interest expenses			–				7,931
Cash paid for Income taxes			–				5,541

  

 

 

 

 

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, January 1, 2019			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 adjustment			–				–				–				–				–				(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
Balance, January 1, 2020			12,354,200				12,354				271,915				191,219				339,203				(81,350	)			733,341				29,072				762,413
Foreign currency translation adjustment			–				–				–				–				–				(869	)			(869	)			(523	)			(1,392	)
Share based compensation			–				–				14,999				–				–				–				14,999				–				14,999
Net income (loss)			–				–				–				–				219,318				–				219,318				(3,232	)			216,086
Balance, March 31, 2020			12,354,200				12,354				286,914				191,219				558,521				(82,219	)			966,789				25,317				992,106
Foreign currency translation adjustment			–				–				–				–				–				5,486				5,486				24				5,510
Issuance of new shares			827,586				828				(828	)			–				–				–				3,600				–				3,600
Share based compensation			–				–				44,551				–				–				–				44,551				–				44,551
Net income (loss)			–				–				–				–				33,475				–				33,475				(3,473	)			30,002
Balance, June 30, 2020			13,181,786				13,182				330,637				191,219				591,996				(76,733	)			1,050,301				21,868				1,072,169

 

 

See notes to the condensed consolidated financial statements.

 

 

 

 

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 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.

 

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.

  

 

 

 

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, 2019 filed with the SEC on May 14, 2020.

 

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, 2020, its consolidated results of operations for the six months ended June 30, 2020, cash flows for the six months ended June 30, 2020 and change in equity for the six months ended June 30, 2020, as applicable, have been made. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the operating results that may be expected for the year ending December 31, 2020 or any future periods.

 

Concentrations of Credit Risk

 

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of accounts receivable. The Company conducts credit evaluations of its customers and suppliers, and generally does not require collateral or other security from them. The Company evaluates its collection experience and long outstanding balances to determine the need for an allowance for doubtful accounts. The Company conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.

 

There were two parties who represent 100% of the Company’s total revenue for the three and six months ended June 30, 2019 and for the three and six months ended June 30, 2020.

 

The following table sets forth a summary of single customers who represent 10% or more of the Company’s total accounts receivable, net:

 

		June 30, 2020				December 31, 2019
Percentage of the Company’s accounts receivable
Customer A			36.36%				38.97%
Customer B			30.07%				32.24%
Customer C			26.86%				28.79%
			93.29%				100.00%

 

 

 

 

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers”.

 

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the Company applies the following steps:

 

	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 promised goods or services to its customers. Revenue is measured at the transaction price which is based on the amount of consideration that the Company expects to receive in exchange for transferring the promised goods or services to its customers. Contracts with customers are comprised of invoices and written contracts.

 

The Company does not have arrangements for returns from customers and does not have any future obligations directly or indirectly related to services resale by customers. The Company has no sales incentive programs.

 

The Company provides goods, maintenance service warranties for the goods sold with a period vary from 18 months to 72 months, which majority are 18 months, and exclusive sales agency license to its customers. For performance obligation related to providing products, the Company expects to recognize the revenue according to the delivery of products. For performance obligation related to maintenance service warranties, the Company expects to recognize the revenue on a ratable basis using a time-based output method. The performance obligations are typically satisfied as services are rendered on a straight-line basis over the contract term, which is generally for 18 months as majority of the maintenance service warranties periods provided are 18 months. For performance obligation related to exclusive agency license, the Company recognizes the revenue ratably upon the satisfaction over the estimated economic life of the license.

 

The Company does not have amounts of contract assets since revenue is recognized as control of goods is transferred. The contract liabilities consist of advance payments from customers and deferred revenue. Advance payments from customer are expected to be recognized as revenue within 12 months. Deferred revenue is expected to be recognized as revenue within 12 months.

 

Recent Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

Management has reviewed all the recently issued, but not yet effective, accounting pronouncements and does not believe any of these pronouncements will have a material impact on the Company.

 

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.

  

 

 

 

Note 3     ACCOUNTS RECEIVABLE, NET

 

As of June 30, 2020 and December 31, 2019, accounts receivable consisted of the following:

 

		June 30, 2020				December 31, 2019
		(Unaudited)
		$				$
Accounts receivable			2,725,065				2,557,326
Less: Allowance for doubtful accounts			(1,160,976	)			(1,073,743	)
Total			1,564,089				1,483,583

 

For the six months ended June 30, 2020 and for the years ended December 31, 2019, the Company has recorded provision for doubtful accounts of nil and $1,084,534, respectively.

 

Note 4      INVENTORIES

 

As of June 30, 2020 and December 31, 2019, inventory consisted of the following:

   

		June 30, 2020				December 31, 2019
		(Unaudited)
		$				$
Raw materials			216,305				248,743
Work in process			65,044				38,666
Finished Goods			106,335				–
Total			387,684				287,409

 

Note 5      PREPAID EXPENSES AND OTHER ASSETS, NET

 

		June 30, 2020				December 31, 2019
		(Unaudited)
		$				$
Other receivables from third party			101,927				15,559
Others			39,639				1,589
Prepaid expenses and other assets, net			141,566				17,148

 

Note 6      PROPERTY AND EQUIPMENT, NET

 

As of June 30, 2020 and December 31, 2019, property and equipment consisted of the following:

 

		June 30, 2020				December 31, 2019
		(Unaudited)
		$				$
Furniture and fixtures			3,669				3,730
Equipment			178,763				181,754
Leasehold improvement			9,737				9,900
Vehicle			40,304				40,979
			232,473				236,363
Less: Accumulated depreciation			(65,031	)			(41,554	)
Property and equipment, net			167,442				194,809

 

The Company recorded depreciation expenses of $24,338 and $7,927 for the six months ended June 30, 2020 and 2019, respectively, and $12,075 and $4,211 for the three months ended June 30, 2020 and 2019, respectively.

 

 

 

 

Note 7     INTANGIBLE ASSETS, NET

 

As of June 30, 2020 and December 31, 2019, intangible assets consisted of the following:

  

		June 30, 2020				December 31, 2019
		(Unaudited)
		$				$
Intangible assets			529,537				536,530
			529,537				536,530
Less: Accumulated amortization			(114,335	)			(62,595	)
Intangible assets, net			415,202				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 $18,390 for the six months ended June 30, 2020 and 2019, respectively, and $26,371 and $18,390 for the three months ended June 30, 2020 and 2019.

 

Note 8      LEASES

 

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

 

The following table provides a summary of leases by balance sheet location as of June 30, 2020 and December 31, 2019:

 

		Balance Sheet Location		June 30, 2020				December 31, 2019
				(Unaudited)
				$				$
Assets
Operating- noncurrent		Operating lease right-of-use assets			86,478				113,166
Total leased assets					86,478				113,166
Liabilities
Operating – current		Operating lease liabilities-current			–				8,485
Total lease liabilities					–				8,485

 

 

 

 

 

The components of lease expense for the six months ended June 30, 2020 and June 30, 2019 were as follows:

 

		Statement of Income Location		Six months ended June 30, 2020				Six months ended June 30, 2019
				(Unaudited)				(Unaudited)
				$				$
Lease Costs
Operating lease expense		General and administrative expenses			26,224				17,886
Total net lease costs					26,224				17,886

 

Maturity of lease liabilities under our non-cancelable operating leases as of June 30, 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 of June 30, 2020 and December 31, 2019:

 

		June 30, 2020				December 31, 2019
Weighted Average Remaining Lease Term
Operating leases			2.25 years				2.75 years
Weighted Average Discount Rate
Operating leases			6.18%				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 and 2020 are as follows:

 

		Six months ended June 30, 2020				Six months ended June 30, 2019
		(Unaudited)				(Unaudited)
		$				$
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			8,537				147,680
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases			–				145,461

 

 

 

 

Note 9     OTHER PAYABLES AND ACCRUED LIABILITIES

 

		June 30, 2020				December 31, 2019
		$				$
VAT payable			218,371				208,219
Accrued expenses			–				5,000
Salary payable			35,251				35,840
Short-term advance from staff			–				2,086
Others			44,359				43,327
Total			297,981				294,472

 

Note 10      INCOME TAXES

 

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.

 

 

 

 

The reverse merger was completed on December 31, 2018 and the tax losses of US subsidiary was not in the scope as of December 31, 2018. As of December 31, 2019, net operating loss carried forward which was available to offset future taxable income for the Company in the United States was $99,817. 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 $258,048) 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 $258,048) 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 $258,048), it is subject to a corporate income tax rate of 8.25%.

 

As of December 31, 2019, The Company’s subsidiary in Hong Kong had net operating loss carry forwards available to offset future taxable income. The net operating losses will be carryforward indefinitely under Hong Kong Profits Tax regulation. There is a full valuation allowance applied against these loss carry forward as management determined it was not more likely than not that these net operating losses would be utilized in the foreseeable future.

 

PRC

 

WFOE and the consolidated VIE established in the PRC are subject to the PRC statutory income tax rate of 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,
		2020				2019				2020				2019
		$				$				$				$
Current			(5,289	)			(750	)			25,966				–
Deferred			(23,154	)			(24,019	)			(44,702	)			(24,948	)
Total income tax benefit			(28,443	)			(24,769	)			(18,736	)			(24,948	)

 

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

 

		Six months ended June 30,
		2020				2019
PRC income tax statutory rate			25.00%				25.00%
Impact of different tax rates in other jurisdictions			(39.15%	)			(9.15%	)
Tax effect of non-deductible items			0.20%				(1.23%	)
Tax effect of non-taxable income			(21.77%	)			–
GILTI Tax impact			27.57%				–
Changes in valuation allowance			(0.09%	)			(6.95%	)
Effective tax rate			(8.24%	)			0.11%

 

 

 

 

 3) Deferred tax assets, net

 

The tax effects of temporary differences representing deferred income tax assets and liabilities result principally from the following:

 

		June 30, 2020				December 31, 2019
		$				$
Deferred tax assets
Tax loss carried forward			142,235				103,797
Allowance for doubtful receivables			272,773				275,260
			415,008				379,057
Valuation allowance			(297,219	)			(304,418	)
Total deferred tax assets, net			117,789				74,639

 

The valuation allowance as of June 30, 2020 and December 31, 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.

 

		June 30, 2020				December 31, 2019
		$				$
Balance at beginning of the year			(304,418	)			(7,567	)
Additions of valuation allowance			–				(296,851	)
Reductions of valuation allowance			7,199				–
Balance at the end of the year			(297,219	)			(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 June 30, 2020 and December 31, 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 11      RELATED PARTY BALANCES AND TRANSACTIONS

 

Due to related parties

 

The balance due to related parties was as following:

		June 30, 2020				December 31, 2019
		$				$
Mr. Zhang Bi (1)			373,326				399,091
Mr. Yin-Chieh Cheng (2)			1,002				–
Mountain Share Transfer, LLC (3)			7,681				6,681
Total			382,009				405,772

 

 

 

 

Due from a related party

 

The balance due from a related party was as following:

		June 30, 2020				December 31, 2019
		$				$
Mr. Yin-Chieh Cheng (2)			–				683,521
Total			–				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 March 31, 2020 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)	Mountain Share Transfer, LLC is company 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.

 

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,
		2020				2019				2020				2019
		$				$				$				$
Paid on behalf of the Company
Mr. Zhang Bi (1)			–				29,005				3,455				203,167
Mr. Yin-Chieh Cheng (1)			53,237				81,699				86,320				220,299
Mountain Share Transfer , LLC (1)			–				–				7,000				–
Repayment to related party
Mr. Yin-Chieh Cheng			–				–				665,000				–

 

 

Note:

 

(1)	The transactions represent the amount paid by Mr. Zhang Bi, Mr. Yin-Chieh Cheng and Mountain Share Transfer, LLC on behalf of the Company for its daily operation.

 

 

 

 

Note 12      INCOME (LOSS) PER SHARE

 

The following table sets forth the computation of basic and diluted income (loss) per common share for the three and six months ended June 30, 2020 and 2019.

 

		For three months ended June 30,								For six months ended June 30,
		2020				2019				2020				2019
		$				$				$				$
Numerator:
Net income (loss) attributable to the Company			33,475				(137,295	)			252,793				(295,674	)
Denominator:
Weighted-average shares outstanding
- Basic			13,181,786				13,181,786				13,181,786				12,352,228
- Diluted			17,659,384				12,354,200				17,624,585				12,352,228
Income (loss) per share:
- Basic			0.0025				(0.0111	)			0.0192				(0.0239	)
- Diluted			0.0019				(0.0111	)			0.0143				(0.0239	)

 

Basic net income (loss) per common share is computed using the weighted average number of the common shares outstanding during the period. Diluted income (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 during the period ended June 30, 2019, approximately 6,300,000 warrants were excluded from the calculation of diluted net loss per share for both three months and six months ended June 30, 2019, respectively. There were 5,560,000 warrants outstanding during the period ended June 30, 2020.

 

Note 13      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.

 

 

 

 

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 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 Variable Interest Entity (“VIE”) in PRC under legal and accounting principles.

 

As of December 31, 2019, we provide Land-Based Recirculation Aquaculture Systems (“RAS”) for fish farming. Our primary business operations consist of the design, development and production of RAS large scale fish tank systems, for fish farms along with expert consulting, technology transfer, and aquaculture project management services to new and existing aquaculture management business services.

 

The spread of COVID-19 has begun to cause some business disruption resulting in reduced net revenue in December 2019. While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration. Therefore, the Company expects this matter to negatively impact its operating results.

 

Critical Accounting Policies, Estimates and Assumptions

 

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

 

 

 

 

 

 

 

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, 2020 and 2019.

 

Consolidated Statements of Operations

 

		Three months ended June 30,								Six months ended June 30,
		2020				2019				2020				2019
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
		$				$				$				$
Net sales			469,078				11,262				1,159,731				22,736
Cost of sales			(211,820	)			–				(504,335	)			–
Gross profit			257,258				11,262				655,396				22,736
Operating expenses
General and administrative expenses			(255,735	)			(177,029	)			(428,047	)			(340,545	)
Total operating expenses			(255,735	)			(177,029	)			(428,047	)			(340,545	)
Income (loss) from operations			1,523				(165,767	)			227,349				(317,809	)
Other income (expense)			36				(52	)			3				(7,256	)
Income (loss) before income taxes			1,559				(165,819	)			227,352				(325,065	)
Income tax benefit			28,443				24,769				18,736				24,948
Net income (loss)			30,002				(141,050	)			246,088				(300,117	)
Less: Net loss attributable to non-controlling interests			(3,473	)			(3,755	)			(6,705	)			(4,443	)
Net income (loss) attributable to the company			33,475				(137,295	)			252,793				(295,674	)
Comprehensive income (loss)
Net income (loss)			30,002				(141,050	)			246,088				(300,117	)
Foreign currency translation gain (loss)			5,510				(42,040	)			4,118				(6,763	)
Total comprehensive income (loss)			35,512				(183,090	)			250,206				(306,880	)
Less: comprehensive loss attributable to non-controlling interest			(3,449	)			(5,840	)			(7,204	)			(4,773	)
Comprehensive income (loss) attributable to the Company			38,961				(177,250	)			257,410				(302,107	)
Income (loss) per share
Basic			0.0025				(0.0111	)			0.0192				(0.0239	)
Diluted			0.0019				(0.0111	)			0.0143				(0.0239	)
Weighted average number of common shares outstanding
Basic			13,181,786				12,354,200				13,181,786				12,352,228
Diluted			17,659,384				12,354,200				17,624,585				12,352,228

 

 

 

 

 

Revenue

 

Revenue for the three months ended June 30, 2020 was $469,078 compared to $11,262 for the comparable period in 2019. The $469,078 was the realized revenue of recognition of the deferred revenue from JC Development Co, Ltd’s franchise fee received in 2019, our fish brokerage & distribution business with Pan Li, one of our customers and strategic partner in Guizhou, and delivering after-sales service of our 473 sets of fish farming containers delivered in 2018 for the three months ended June 30, 2020. The $11,262 was the realized revenue of delivering after-sales service of our fish farming containers for the three months ended June 30, 2019.

 

Revenue for the six months ended June 30, 2020 was $1,159,731 compared to $22,736 for the comparable period in 2019. The $1,159,731 was the realized revenue of recognition of the deferred revenue from JC Development Co, Ltd’s franchise fee received in 2019, our fish brokerage & distribution business with Pan Li, one of our customers and strategic partner in Guizhou, and delivering after-sales service of our 473 sets of fish farming containers delivered in 2018 for the six months ended June 30, 2020. The $22,736 was the realized revenue of delivering after-sales service of our fish farming containers for the six months ended June 30, 2019.

 

Gross profit

 

Gross profit for the three months ended June 30, 2020 was $257,258, compared to $11,262 for the comparable period in 2019. The increase was primarily because there was no direct cost of the deferred revenue from the franchise fee of JC Development Co, Ltd and we started fish brokerage & distribution business with Pan Li, one of our customers and strategic partner in Guizhou, for the three months ended June 30, 2020.

 

Gross profit for the six months ended June 30, 2020 was $655,396, compared to $22,736 for the comparable period in 2019. The increase was primarily because there was no direct cost of the deferred revenue from the franchise fee of JC Development Co, Ltd and we started fish brokerage & distribution business with Pan Li, one of our customers and strategic partner in Guizhou, for the six months ended June 30, 2020.

 

General and administrative expenses

 

General and administrative expenses were $255,735, for the three months ended June 30, 2020, compared to approximately $177,029 for the comparable period in 2019. This increase was primarily due to the increase of legal, accounting, and consulting fees for the three months ended June 30, 2020.

 

General and administrative expenses were $428,047, for the six months ended June 30, 2020, compared to approximately $340,545 for the comparable period in 2019. This increase was primarily due to the increase of legal, accounting, and consulting fees for the six months ended June 30, 2020.

 

Other income (expense)

 

Other income was $36, for the three months ended June 30, 2020, compared to other expense $52 for the comparable period in 2019. The other income was interest revenue of bank deposits. The other expense was interest expense for bank loan started in May 2019.

 

Other income was $3, for the six months ended June 30, 2020, compared to other expense $7,256 for the comparable period in 2019. The other expense was mainly the effect of one-off unamortized note discount of $7,205 recognized for the six months ended June 30, 2019.

 

Income tax benefit

 

During the three months ended June 30, 2020, we recorded an income tax benefit of $28,443 as compared to $24,769 for the comparable period in 2019.

 

During the six months ended June 30, 2020, we recorded an income tax benefit of $18,736 as compared to $24,948 for the comparable period in 2019.

 

 

 

 

Net income (loss) attributable to the Company

 

Net income attributable to the Company (excluding net loss attributable to non-controlling interest) for the three months ended June 30, 2020 was $33,475 compared to net loss attributable to the Company (excluding net loss attributable to non-controlling interest) of $137,295 for the comparable period in 2019. The decrease of loss was because the Company recognized the deferred revenue from the franchise fee of JC Development Co, Ltd and started the fish brokerage & distribution business with Pan Li for the three months ended June 30, 2020. The Company didn’t provide fish farming containers to customers for the three months ended June 30, 2019.

 

Net income attributable to the Company (excluding net loss attributable to non-controlling interest) for the six months ended June 30, 2020 was $252,793 compared to net loss attributable to the Company (excluding net loss attributable to non-controlling interest) of $295,674 for the comparable period in 2019. The decrease of loss was because the Company recognized the deferred revenue from the franchise fee of JC Development Co, Ltd and started the fish brokerage & distribution business with Pan Li for the three months ended June 30, 2020. The Company didn’t provide fish farming containers to customers for the three months ended June 30, 2019.

 

Liquidity and Capital Resources

 

The Company had operating cash outflows for the six months ended June 30, 2020 and the cash balance was $344,781 as of June 30, 2020. Since the net asset balance as of June 30, 2020 was $1,072,169, 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,
		2020				2019
		$				$
Net cash (used in) provided by operating activities			(348,112	)			305,408
Net cash used in investing activities			(1,851	)			(725,852	)
Net cash provided by financing activities			652,278				412,802
Effect of the exchange rate change on cash			13,927				3,002
Increase (decrease) in cash			316,242				(4,640	)

 

Net cash (used in) provided by operating activities

 

Net cash used in operating activities amounted to $348,112 for the six months ended June 30, 2020. This reflected the effect of changes in operating assets and liabilities including increases of account receivable in the amount of $105,691, increase of inventory in the amount of $105,773 and increase of prepaid expense and other assets in the amount of $125,612.

 

Net cash provided by operating activities amounted to $305,408 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 $1,851 for the six months ended June 30, 2020, which was cash paid for intangible assets, and $725,852 for the six months ended June 30, 2019, which was cash paid for intangible asset and for purchase of property.

 

Net cash provided by financing activities

 

Net cash provided by financing activities amounted to $652,278 and $412,802 for the six months ended June 30, 2020 and 2019, respectively, which were attributable to the proceeds from our shareholders primarily for our operation and repayment to our shareholders. See “Related Party Transactions”.

 

 

 

 

Since we plan to build our land-based fish farming demo sites in the US, Taiwan, Japan, and Thailand to promote our fish farming systems to the global market, we expect that we will require additional capital, which includes the construction cost, marketing cost, operation costs, and etc., to meet our long-term operating requirements. We expect to obtain financing from shareholders or raise additional capital through, among other things, the sale of equity or debt securities. The shareholders are committed to provide additional financing required when we try to raise additional capital from third party investors or banks. However, there can be no assurance that we will be successful in raising this additional capital.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements

 

Recently Issued Accounting Pronouncements

 

Please refer to the Note 2 above.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for a smaller reporting company.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer performed an evaluation (the “Evaluation”) of the effectiveness of our disclosure controls and procedures (as defined in Exchange

 

Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide a reasonable level of assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2020, 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:

 

● 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, 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 June 30, 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 June 30, 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 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.

 

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

 

Changes in Internal Control Over Financial Reporting

 

An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, of whether any change in our internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the quarter ended June 30, 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 quarter ended June 30, 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 Quarterly Report are the Certifications of the Chief Executive Officer and the Chief Financial Officer, respectively. These Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act (the “Section 302 Certifications”). This Item 9A. of this Annual Report, which you are currently reading, is the information concerning the Evaluation referred to above and in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented. 

 

 

 

 

 

 

 

 

 

 

 

PART II OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We were not subject to any legal proceedings during the six months ended June 30, 2020 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

  

 

 

 

 

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.

(*) Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections.

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

 

 

 

 

SIGNATURES

 

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

 

By:	/s/ Yin-Chieh Cheng
Name:	Yin-Chieh Cheng
Title:	President & Chief Executive Officer
	(Principal Executive Officer)
Dated:	August 12, 2020

 

By:	/s/ Shun-Chih Chuang
Name:	Shun-Chih Chuang
Title:	Chief Financial Officer
	(Principal Financial Officer)
Dated:	August 12, 2020