10-K
1
nocera_10k-123120.htm
FORM 10-K
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2020
OR
̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ___________
COMMISSION FILE NO. 000-52103
NOCERA, INC.
(Exact name of registrant as specified in charter)
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
3F (Building B), No.
185, Sec. 1, Datong Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.)
(Address of principal executive offices and zip
code)
(886)-910-163-358
(Registrant’s telephone number, including
area code)
SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
N/A N/a
SECURITIES REGISTERED PURSUANT TO SECTION 12(g)
OF THE ACT:
Common Stock, $0.001 par value.
Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ̈
No x
Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ̈
No x
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No ̈
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes x No ̈
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “small reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ̈ Accelerated filer ̈
Non-accelerated filer x Smaller reporting company x
Emerging growth company x
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ̈
Indicate by check mark whether
the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm
that prepared or issued its audit report. ☐
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ̈ No x
The aggregate market value of the registrant's
issued and outstanding shares of common stock held by non-affiliates of the registrant as of April 28, 2020 based on $2.60 per share,
the price at which the registrant’s common stock was last sold on April 28, 2020, was approximately $777,400.
There were 9,131,786
shares outstanding of the registrant’s common stock, par value $0.001 per share, as of April 12, 2021.
NOCERA, INC.
TABLE OF CONTENTS TO ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2020
PART I 1
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS 6
ITEM 1B. UNRESOLVED STAFF COMMENTS 18
ITEM 2. PROPERTIES 18
ITEM 3. LEGAL PROCEEDINGS 18
ITEM 4. MINE SAFETY DISCLOSURES 18
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA 19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 30
ITEM 9A. CONTROLS AND PROCEDURES 30
ITEM 9B. OTHER INFORMATION 32
PART III 33
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE 33
ITEM 11. EXECUTIVE COMPENSATION 35
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 37
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 38
SIGNATURES 39
EXHIBIT INDEX
INDEX TO FINANCIAL STATEMENTS F-1
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking
statements that involve assumptions, and describe our future plans, strategies, and expectations. Such statements are generally identifiable
by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,”
“believe,” “intend,” or “project” or the negative of these words or other variations on these words
or comparable terminology. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be
no assurance that these expectations will be achieved or accomplished.
Such forward-looking statements include statements
regarding, among other things, (a) the potential markets for our products, our potential profitability, and cash flows (b) our growth
strategies, (c) anticipated trends in our industry, (d) our future financing plans and (e) our anticipated needs for working capital.
This information may involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance,
or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking
statements. These statements may be found under “Item 1. Business” and “Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” as well as in this Annual Report on Form 10-K generally. Actual events or results
may differ materially from those discussed in forward-looking statements as a result of various factors as described in this Annual Report
on Form 10-K generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained
in this Annual Report on Form 10-K will in fact occur. In addition to the information expressly required to be included in this filing,
we will provide such further material information, if any, as may be necessary to ensure that the required statements, in light of the
circumstances under which they are made, are not misleading.
Although forward-looking statements in this Annual
Report on Form 10-K reflect the good faith judgment of our management, forward-looking statements are inherently subject to known and
unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those
discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which
speak only as of the date of this Annual Report on Form 10-K. We assume no obligation to update any forward-looking statements in order
to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or
regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities
and Exchange Commission which attempt to advise interested parties of the risks and factors that may affect our business, financial condition,
results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove
incorrect, our actual results may vary materially from those expected or projected.
ii
PART I
ITEM 1. BUSINESS
Business Overview
With respect
to this discussion, the terms, the “Company” “we,” “us,” and “our” refer to Nocera, Inc.
(“Nocera”), and its 100%-owned subsidiary Grand Smooth Inc Limited. (“GSI”), GSI’s wholly-owned subsidiary
Guizhou Grand Smooth Technology Ltd. (“GZ GST”), the Company’s Variable
Interest Entities (“VIE”), Guizhou Wan Feng Hu Intelligent Aquatic Technology Co. Limited. (“GZ WFH”) and
Xin Feng Construction Co., Ltd. (“XFC”).
Our History
Nocera,
Inc. was organized on February 1, 2002 under the laws of the State of Nevada.
On February
12, 2002, we acquired Felice Conserve, an Italian corporation, as a wholly- owned subsidiary in exchange for 20 million shares of our
common stock. The principal business of Felice Conserve was the production and processing of agricultural products in Italy. The principal
product was canned tomatoes.
In 2003,
we established two subsidiaries in Uruguay; Sontemar, SA (“Sontemar”), and Noldicor, SA (“Noldicor”). The principal
business of Noldicor was the production of tomatoes. The principal business of Sontemar was the processing and sale of packaged tomatoes.
On April 23, 2004, we paid a 4 for 1 stock dividend to our stockholders.
The Company
abandoned operations in 2005. In 2006, due to financial difficulties, Noldicor and Sontemar ceased operations. As a result of this, our
operations in Uruguay ceased. Additionally, during 2006, Felice Conserve was divested back to its original stockholders. This resulted
in our returning to development stage status.
On approximately
November 3, 2017, we effected a reverse-split of our common stock as follows:
· A 200 for 1 forward stock split.
The net
effect of these actions was a 1 for 200 reverse-split of the Company’s common stock, with no stockholder being reduced below 200
shares. All stockholders who prior to the reverse-split had 40,000 or less of the pre-split shares received 200 of the new, post-split
shares.
Effective December 31, 2018, we completed an Agreement
and Plan of Merger (the “Agreement”), with (i) Grand Smooth Inc Limited, a company organized under the laws of Hong Kong,
China (“GSI”), (ii) GSI’s stockholders, Yin-Chieh Cheng and Bi Zhang, who together owned shares constituting 100% of
the issued and outstanding ordinary shares of GSI (the “GSI Shares”) and (iii) GSI Acquisition Corp. Under the terms of the
Agreement, the GSI Stockholders transferred to us all of the GSI Shares in exchange for the issuance of 10,000,000 shares (the “Shares”)
of our common stock (the “Share Exchange”). As a result of the Share Exchange, we are a public company holding a subsidiary
in the People’s Republic of China (the “PRC”) engaged in aquaculture consulting and management business. We did not
cancel or retire any shares of our issued and outstanding common stock and as a result, we have 12,349,200 shares of common stock issued
and outstanding following the Share Exchange.
As of the Effective Date of December 31, 2018
of the Agreement and Plan of Merger, we are deemed to have consummated the transactions contemplated by the Agreement, pursuant to which
we acquired all of the GSI Shares in exchange for the issuance of the shares to the GSI Stockholders. As a result of the Share Exchange,
we emerged from shell status with our subsidiary, GSI, in Hong Kong engaged in the aquaculture consulting and management business through
VIE in PRC under legal and accounting principles.
On September 21, 2020,
the Company filed a current report on Form 8-K outlining the lack of communication that leads to the termination by Nocera, Inc. of its
relationship with GZ WFH and its management, and termination of the Variable Interest Entity agreements between the parties.
Subsequently on October 8, 2020, Zhang Bi and
GZ WFH entered into a Settlement Agreement and Release with Nocera, Inc. wherein all claims as to GZ WFH’s debt (claim to shares
in Nocera, Inc. or GZ GST) were compromised, settled, and otherwise resolved as to any and all claims or causes of action whatsoever against
Nocera for any matter, action, or representation as to Nocera, and any debt to ownership of Nocera or GZ GST up to the date of the agreement.
The consideration for the agreement was mutual waiver of any and all claims against each other and GZ GST, and GZ WFH (including Zhang
Bi) waives any claims to Nocera stock, meaning the 4,750,000 shares of common stock of Nocera owned by Zhang Bi were cancelled as part
of the agreement. The Settlement Agreement and Release is attached hereto as Exhibit.
On December 31, 2020,
Nocera, Inc. (“Nocera”) and Xin Feng Construction Co., Ltd. (“XFC”), a domestic funded limited liability company
registered in Taiwan (R.O.C.), (collectively “the Parties”) entered into a series of contractual agreements (“VIE Agreements”)
whereby Nocera, Inc. agreed to provide technical consulting and related services to Xin Feng Construction Co., Ltd. As a result, Nocera
has been determined to be the primary beneficiary of XFC and XFC became VIE (Variable Interest Entity) of Nocera.
On December 31, 2020, Nocera, Inc. (“Nocera”)
and Shunda Feed Co., Ltd. (“SFC”), a domestic funded limited liability company registered in Taiwan (R.O.C), entered into
a series of contractual agreements (“VIE Agreements”) whereby Nocera, Inc. agreed to provide technical consulting and related
services to Shunda Feed Co., Ltd. However, The Company has received no communications or information from SFC regarding its financial
conditions or operations for the purpose of the annual audit and the close of the VIE acquisition. Therefore, on March 18, 2021, the Company
rescinded the acquisition of SFC and as a result of the rescission, the 300,000 common shares previously issued to the shareholders of
SFC per the VIE Agreements have been cancelled by action of the Board of Directors.
Corporate Structure
Our current corporate structure is set forth below:
Until we consummated on the Agreement and Plan
of Merger effective December 31, 2018, we were a shell company that had no or nominal operations and either no or nominal assets. Our
wholly owned subsidiary, GSI, was incorporated in Hong Kong, China on August 1, 2014. GSI is the parent holding company of GZ GST, which
was established on November 13, 2018 as a wholly foreign-owned enterprise (“WFOE”) established in the People’s Republic
of China.
On December 31, 2020, the Company and XFC entered
into VIE contracts whereby the Company agreed to provide technical consulting and related services to Xin Feng Construction Co., Ltd.
As a result, Nocera has been determined to be the primary beneficiary of XFC and XFC became VIE (Variable Interest Entity) of Nocera –
namely the Company has the majority interest in the VIE and through execution of VIE contracts, Nocera has contract commitments that the
financial information of the VIE should be consolidated based on the Variable Interest Ownership percentage owned by the Company.
The VIE structure was adopted mainly because the
Taiwan operating company may in the future engage in business that may require special licenses in Taiwan and which can be an industry
that prohibits foreign investment. Nocera has entered into the following contractual arrangements with shareholders of XFC, that enable
the Company to (1) have the power to direct the activities that most significantly affects the economic performance of XFC, and (2) receive
the economic benefits of XFC that could be significant to XFC. The Company is fully and exclusively responsible for the management of
XFC, assumes all of the risk of losses of XFC and has the exclusive right to exercise all voting rights of XFC shareholders.
VIE contracts are as follows:
1. Voting Rights Proxy Agreement
2. Equity Pledge Agreement
3. Exclusive Business Cooperation Agreement
4. Exclusive Call Option Agreement
Services
We intend to provide consulting services and solutions
in aquaculture projects in China and Taiwan (R.O.C.) to increase revenues, reduce costs, operate more efficiently, increase production,
provide expertise, advise on operating more strategically with new diversified aquaculture species, and importantly, to reduce water pollution
and decrease the disease problems of fisheries.
We believe that our offerings of Services provide
the following:
We believe our experience and innovation from
working closely with our clients in the aquaculture industry in China and Taiwan (R.O.C.) gives us the competitive advantages to provide
innovative aquaculture management solutions that will generate positive results for our future client companies, however, there can be
no assurances we will be successful.
Market Overview
The fish farming industry in China was predominately
regulated by state and local government allowing local fish farmers to set up fish nests in public water including water dams, rivers,
lakes and etc. It is the dominant source of freshwater fish for both domestic demands and exports. Since the clean water policy was implemented
in China in 2017 by the central government, the state and local governments are tasked with cleaning up local water sources and banning
all fish nets and fish nests in public waters. The City of Xing Yi, for example, used to produce 15,000 tons of freshwater fish a year,
however, that has been all banned and the government subsidy terminated so that now the 300 million pounds of freshwater fish are no longer
produced.
This is a countrywide effort where some ponds
or lakes are removed immediately and some will phase out gradually in 2 to 3 years. Nevertheless, under China’s government clean
water policy of “retreating from lakes to lands” for fish farming, we believe that this presents to us a great opportunity
for introducing our land-based recirculating aquaculture systems (“RAS”). It was introduced in 2015 as a new and extremely
simple way for local farmers to breed fish in China. It is also known as “container fish-farming for dummies”. Generating
up to 35 times of fish harvest per square meter compared to traditional fish farms in the pond, it also conserves the ecosystem of lakes,
reduces local poverty, and protects the species from natural disasters.
Domestic demand in China and Taiwan (R.O.C.) is
increasing the number of aquaculture projects and investment, therein. Our Aquaculture solution is innovative and environmentally friendly
using a state-of-the-art water recycling and filtration system. We estimate the demand in China and in Taiwan (R.O.C.) could be over 5,000
RAS in the next 5 years. And globally, we believe that there could be a demand for 10,000 RAS.
Today, the world is faced with the growing challenge
of reducing and controlling water pollution that presents serious health risks to its population and damages the environment. We believe
that our Aquaculture container fish farm represents a large-scale, environmentally friendly and economically feasible form for bringing
clean fish to the table and bringing clean water back to the people. In our opinion, our service is cost competitive, reduces water pollution
and recycles fish waste and will help make for a greener and better world in the years to come.
Strategy
We aim to become a global leader, starting from China and Taiwan (R.O.C.),
in the field of land-based aquaculture business. We believe following strategies are the critical to achieve this goal:
Focus on the countries with growing population and growing demand
for food
By 2050 we’ll need to double the global
food supply to feed the world’s growing population. There is a growing need for new ways to produce high-quality local fish without
putting more pressure on our natural ecosystems. Like China, there are also many countries with growing population and growing demand
for high-protein food. We plan to go global through building demo sites promoting our RAS and selling our price-competitive systems in
these countries for their demand for food and greener environment.
Customers
Currently we have a firm order to build 800 sets
of 2 meters high by 8 meters wide cylindrical fish farming containers that we received from Dong Guan CIMC Intelligent Technology Co.
Ltd (“DG CIMC”), which holds 5% non-controlling interest of GZ WFH, and Shen Zhen CIMC Intelligent Technology Co. Ltd (“SZ
CIMC”) in 2018. Both DG CIMC and SZ CIMC are subsidiaries of China International Marine Container Corporation (“CIMC”).
We estimate this order to be valued at approximately $8.2 million and we have already delivered 473 sets during the year ended December
31, 2018. We expect to deliver these sets throughout 2020.
In July 2019, we entered into a sales agreement
of 400 sets RAS tanks with Dongguan CIMC, amounting to approximately $5.7 million (RMB 40 million). According to the agreement, the customer
shall make 40% of the consideration as down payment before we start the manufacturing. We expect to receive the down payment in the third
quarter of 2020, and target to complete the manufacturing of the 400 sets in the fourth quarter of 2020.
In September 2019, we entered into an exclusive
distribution agreement (“distribution agreement”) with JC Development, Co. Ltd. in Taiwan, which is an independent third-party
company. JC Development Co, Ltd. agrees to pay Nocera a total amount of $5 million over 5 years starting September 2019 to be our perpetual
exclusive sales agent in Asia Pacific. We agreed to pay 8% commission of total sales excluding sales made by CIMC Smart Science &
Technology CO., Ltd. (“CIMC SSC”) in China.
In March 2020 we entered into an agreement with
the People’s Government of Wujiang Town, Bozhou District, Zunyi City to supply 58 tank systems. This contract is for $573,029 (RMB
3.99 million 1).
In 2021, we intend to target customers in a variety
of markets, such as individual investors, government supported or funded companies and international customers. We have received interest
from areas like Japan, Taiwan, Thailand, Jordan, South Africa and the United States. In addition, an increasing amount of Chinese state
and local offices are faced with environmental challenges in public waters and are under regulatory directives and political pressure
to reduce water pollution, so our potential target customers are significant. During the year ended December 31, 2020 and 2019, the net
sales were approximately $1.2 million and approximately $0.5 million, respectively.
______________________
1 The exchange rate as of December
31, 2019 is approximately $1.00 per 6.963 RMB.
Suppliers
We intend to purchase raw materials and electrical
parts and equipment from third parties in the PRC and Taiwan (R.O.C.) and resell and install to customers. We are not directly involved
in the production or manufacturing of this equipment and we do not take a risk in the repair and maintenance of this equipment because
of the manufacturer’s maintenance policy but may provide maintenance personnel. Our suppliers are concentrated with one supplier
which accounted for 100% in total purchase during the year ended December 31, 2020; and concentrated with two suppliers which accounted
for 92.08% in total purchase during the year ended December 31, 2019; presently, our relationships with suppliers are generally good and
we expect that our suppliers will be able to meet the anticipated demand for our products in the future.
Competition
The market for aquaculture projects and services
is highly competitive. Many of the producers and sellers are large entities that have significantly greater resources than we have. Therefore,
we signed VIE contracts to partner with XFC to use their local resources in Taixi township, Taiwan (R.O.C.) to develop land-based RAS
fish farms in Taiwan and hopefully gain a more competitive advantage. We also compete with small suppliers which provide smaller alternative
aquaculture solutions regionally but due to the size of our projects, we believe that we should have a better price point.
Trademarks and Patents
None
Government Regulation
Our business depends in part on environmental
regulations and programs in China and Taiwan (R.O.C.) that promote cleaner water sources to restore clean water back to people. Our customers
may be encouraged with incentives by the local governments relating to aquaculture investment. The approvals of land, licenses or permits,
are required from relevant central and local government authorities. In addition, from time to time, relevant government authorities may
impose new regulations at a local level regulating fish farming. We believe that we have skills to help our customers obtain all necessary
licenses, registrations, and permits to comply with all requirements necessary to allow our customers and investors to conduct aquaculture
business in the PRC and Taiwan (R.O.C.).
Legal Proceedings
We are currently not a party to any legal or administrative
proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. We
may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.
Property
We do not own any real property.
Seasonality
Since the global growing demand from aquaculture
production along with the decreasing production from wild fisheries and our fish farming systems provide a controlled and traceable environment
for species, our business rarely suffers a seasonal impact.
Employees
As of December 31, 2020, we have 18 full-time
employees. We are compliant with local prevailing wage, contractor licensing, and have good relations with our employees.
Corporation Information
Our principal executive offices are located at
3F (Building B), No. 185, Sec. 1, Datong Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.). Our telephone number at this address
is (886)-910-163-358.
ITEM 1A. RISK FACTORS
Our board of directors recently concluded that we needed to restate
previously issued financial statements as a result of a change in accounting for a certain revenue recognition.
Our board of directors (which currently acts as
our audit committee) concluded, after consultation with management, that our previously issued unaudited financial statements for the
periods ended September 30, 2019, included in the Company’s Quarterly Reports of Form 10-Q for the period ended September 30, 2019,
should no longer be relied upon as a result of the change in accounting for a certain revenue recognition. We concluded that an
exclusive sales agency fee recognized at a point in time during the third quarter of 2019 should have been recognized over an estimated
economic life. Specifically, on September 20, 2019, we entered into an exclusive distribution agreement (“distribution agreement”)
with JC Development Co. Ltd. (“JCD”) in Taiwan, which is an independent third-party company. JCD agrees to pay Nocera a total
amount of $5 million over 5 years starting September 20, 2019 to be our perpetual exclusive sales agent in Asia Pacific. We agreed to
pay JCD 8% commission of total sales excluding the sales made to CIMC Smart Science & Technology CO., Ltd. (“CIMC SSC”)
in China. We recognized the $1 million consideration paid by JCD as revenue at a point in time when we received the payment in September
2019, which we recently concluded should have been recognized over an estimated economic life. The adjustments resulting therefrom, change
the revenue, tax (expense) benefit, net income into net loss, deferred tax assets, net, income tax payable, and deferred revenue that
we previously reported, but has no impact on previously reported cash. Such restatement could cause investors in our securities to lose
confidence in our financial statements and management which could result in a decrease in our stock price and negative sentiment in the
investment community.
Risks Related to Our Business
Outbreak of COVID-19 in 2020
The coronavirus pandemic (COVID-19) is above all
a global human tragedy. The spread of the pandemic also is having serious economic implications.
Since our main PE sheet supplier, SIMONA, has
still been under suspension due to the ongoing virus situation, the estimated completed dates of several RAS projects in China have been
postponed, which will also postpone the revenue recognition from these projects.
We expect that as the COVID-19 expands as a pandemic
and is spreading throughout the world that are disrupting commerce at all levels of industry, there will be various adverse effects experienced
by companies such as ours. Although the Company is taking measures to mitigate the effect as much as possible, there is no assurance that
the steps will be sufficient. In most respects, it is too early in the pandemic to be able to quantify all the ramifications.
We are currently delinquent on our statutory
obligations to make social insurance and housing provident fund contributions for our employees in China, which may subject us to fines
or other penalties by government authorities.
We have not adequately paid social insurance and
housing provident fund contributions for our employees. According to the Social Insurance Law of the People’s Republic of China,
we may be ordered to pay the outstanding social insurance contributions within a prescribed deadline and liable for a late payment fee
equal to 0.05% of the outstanding amount for each day of delay. Further, we may be liable for a fine of one to three times the amount
of the outstanding contributions, provided that we still fail to pay the outstanding social insurance contributions within the prescribed
deadline. In addition, according to the Regulations on the Administration of Housing Provident Fund, we may be ordered by the Housing
Accumulation Fund Management Center to deposit the outstanding funds within a time limit. If we fail to deposit such amounts within the
time limit, the Center may petition a people’s court to enforce the payment. As of the date of the Form 10-K, we are not aware of
any action, claim, investigation or penalties being conducted or threatened by any government authorities. However, if we are fined or
otherwise penalized by government authorities due to our failure to adequately pay social insurance and housing provident fund contributions
for our employees, our financial condition may be negatively impacted.
Our operating history makes it difficult to
evaluate our future business prospects and to make decisions based on our historical performance.
We have a very short operating history, which
makes it difficult to evaluate our business on the basis of historical operations. As a consequence, it is difficult to forecast our future
results based upon our limited historical data. Because of the uncertainties related to our lack of historical operations, we may be hindered
in our ability to anticipate and timely adapt to increases or decreases in sales, services costs or expenses. If we make poor budgetary
decisions as a result of unreliable historical data, we could incur greater losses, which may result in a negative effect on our stock
price.
Our operating results may fluctuate, which
makes our results difficult to predict and could cause our results to fall short of expectations.
Our operating results may fluctuate as a result
of a number of factors, many outside of our control. As a result, comparing our operating results on a period-to-period basis may not
be meaningful, and you should not rely on our past results as an indication of our future performance. Our quarterly, year-to-date and
annual expenses as a percentage of our revenues may differ significantly from our historical or projected rates. Our operating results
in future quarters may fall below expectations. Any of these events could cause our stock price to fall. Each of the risk factors listed
in this section and the following factors may affect our operating results:
· Our ability to continue to attract customers;
· Our ability to generate revenue from the services we offer;
· Our focus on long-term goals over short-term results.
Because our business is changing and evolving,
our historical operating results may not be useful to you in predicting our future operating results.
We may not be successful in implementing important
strategic initiatives, which may have a material adverse impact on our business and financial results.
There is no assurance that we will be able to
implement important strategic initiatives in accordance with our expectations, which may result in a material adverse impact on our business
and financial results. These strategic initiatives are designed to drive long-term stockholder value and improve our Company’s results
of operations.
Our success depends substantially on the value of our reputation.
Reputation value is based in part on client perceptions
as to a variety of subjective qualities. Even isolated business incidents that erode client trust, particularly if the incidents receive
considerable publicity or result in litigation, can significantly reduce our reputation. Demand for our services could diminish significantly
if we fail to preserve quality or fail to deliver a consistently positive client experience.
Effectively managing our growth into new geographic
areas will be challenging.
Effectively managing growth can be challenging,
particularly as we expand into new markets geographically where we must balance the need for flexibility and a degree of autonomy for
local management against the need for consistency with our goals, philosophy, and standards. Growth can make it increasingly difficult
to locate and hire sufficient numbers of key employees to meet our financial targets, to maintain an effective system of internal controls,
and to train employees nationally to deliver a consistently high-quality service and customer experience.
We face significant competition, and if we
do not compete successfully against new and existing competitors, we may lose our market share, and our profitability may be adversely
affected.
Increased competition could reduce our profitability
and result in the inability to achieve any market share. Some of our existing and potential competitors may have competitive advantages,
such as significantly greater financial, marketing or other resources, and may successfully mimic and adopt our business models. We cannot
assure you that we will be able to successfully compete against new or existing competitors.
Failure to manage our growth could strain our management, operational
and other resources, which could materially and adversely affect our business and prospects.
We intend to expand our operations and plan to
expand in China and outside of China. The continued growth of our business will result in, substantial demand on our management, operational
and other resources. In particular, the management of our growth will require, among other things:
· increased sales and sales support activities;
· improved administrative and operational systems;
· enhancements to our information technology system;
· stringent cost controls and sufficient working capital;
· strengthening of financial and management controls; and
· hiring and training of new personnel.
As we continue this effort, we may incur substantial
costs and expend substantial resources. We may not be able to manage our current or future operations effectively and efficiently or compete
effectively in new markets we enter. If we are not able to manage our growth successfully, our business and prospects would be materially
and adversely affected.
Key employees are essential to growing our
business.
Mr. Yin-Chieh Chen is essential to our ability
to continue to grow our business. He has established relationships within the industries in which we will operate. If he was to leave
us, our growth strategy might be hindered, which could limit our ability to increase revenue.
In addition, we face competition for attracting
skilled personnel. If we fail to attract and retain qualified personnel to meet current and future needs, this could slow our ability
to grow our business, which could result in a decrease in market share.
We may need additional capital and we may not be able to obtain
it at acceptable terms, or at all, which could adversely affect our liquidity and financial position.
We may need additional cash resources due to changed
business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell
additional equity or debt securities or obtain a credit facility. The occurrence of indebtedness would result in increased debt service
obligations and could result in operating and financing covenants that would restrict our operations and liquidity.
Our ability to obtain additional capital on acceptable
terms is subject to a variety of uncertainties, including:
· investors’ perception of, and demand for, our securities;
· our future results of operations, financial condition, and cash flow;
· PRC governmental regulation of foreign investment in China;
· economic, political and other conditions in China; and
· PRC governmental policies relating to foreign currency borrowings.
We may be dependent on various suppliers which
may be unable to supply our orders, from time to time, and which may affect our ability to complete our client contracts timely.
We will not obtain our raw materials and electrical
equipment and parts from only one local primary supplier. Our ability to deliver the services to the end user is dependent on a sufficient
supply and better price point and if we cannot obtain a sufficient supply from several sources, we may be prevented from making timely
deliveries to our customers. Any failure to obtain supplies of equipment for implementation of aquaculture installations could prevent
us from delivering our services to our customers on a timely basis, or an economic basis, and could have a material adverse effect on
our business and financial conditions.
We do not have a majority of independent directors
serving on our board of directors, which could present the potential for conflicts of interest.
We do not have a majority of independent directors
serving on our board of directors. In the absence of a majority of independent directors, our executive officers could establish policies
and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest
between us and our stockholders, generally, and the controlling officers, stockholders or directors.
We have limited insurance coverage.
The insurance industry in China is still at an
early stage of development. Insurance companies in China offer limited insurance services. We have determined that the risks of disruption
or liability from our business, the loss or damage to our property, including our facilities, equipment, and office furniture, the cost
of insuring for these risks, and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical
for us to have such insurance. As a result, we do not have any business liability, disruption, litigation or property insurance coverage
for our operations in China except for insurance on some company-owned vehicles. Any uninsured occurrence of loss or damage to property,
or litigation or business disruption may result in the incurrence of substantial costs and the diversion of resources, which could have
an adverse effect on our operating results.
If we are unable to establish appropriate internal
financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of
our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence
in our reported financial information and have a negative effect on the market price for shares of our common stock.
Effective internal controls are necessary for
us to provide reliable financial reports and effectively prevent fraud. We maintain a system of internal control over financial reporting,
which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer,
or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.
As a public company, we will have significant
additional requirements for enhanced financial reporting and internal controls. We will be required to document and test our internal
control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management
assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting
firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires
us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources
to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.
We cannot assure you that we will not, in the
future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures
we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls
over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal
financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of
our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence
in our reported financial information and have a negative effect on the market price for shares of our common stock.
We may have inadvertently violated Section
13(k) of the Exchange Act (implementing Section 402 of the Sarbanes-Oxley Act of 2002) and may be subject to sanctions as a result.
Section 13(k) of the Exchange Act provides that
it is unlawful for a company that has a class of securities registered under Section 12 of the Exchange Act to, directly or indirectly,
including through any subsidiary, extend or maintain credit in the form of a personal loan to or for any director or executive officer
of the company. In 2019, our principle shareholder as well as chief executive officer, Mr. Yin Chieh Cheng collected money from a customer
on behalf of us, which may have violated Section 13(k) of the Exchange Act. The receivable was repaid to us in January 2020. Issuers that
are found to have violated Section 13(k) of the Exchange Act may be subject to civil sanctions, including injunctive remedies and monetary
penalties, as well as criminal sanctions. The imposition of any of such sanctions on us could have a material adverse effect on our business,
financial position, results of operations or cash flows.
Lack of experienced officers of publicly-traded
companies may hinder our ability to comply with the Sarbanes-Oxley Act.
We do not have highly experienced officers in
the financial operations of publicly traded companies, and it may be time-consuming, difficult and costly for us to develop and implement
the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial reporting,
internal controls and other finance staff or consultants in order to develop and implement appropriate internal controls and reporting
procedures. If we are unable to comply with internal controls requirements, we may not be able to obtain the independent auditor certifications
that the Securities Exchange Act of 1934 requires publicly-traded companies to obtain, for each fiscal year.
We will incur increased costs as a result of being a public company.
As a public company, we will incur significant
legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, as well as new rules
subsequently implemented by the Securities and Exchange Commission (the “SEC”), has required changes in corporate governance
practices of public companies. Our foreign operations involving audits of the WFOE and the VIE will involve substantial additional time
and expense, due to our being a public company. We expect these rules and regulations to increase our legal, accounting and financial
compliance costs and to make public corporate activities more time-consuming and costly.
Risks Associated With Doing Business in China
Our operations and assets in China are subject to significant political
and economic uncertainties.
Changes in PRC laws and regulations, or their
interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion, imports and sources of supply, devaluations
of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business,
results of operations and financial condition. Under its current leadership, the Chinese government has been pursuing economic reform
policies that encourage private economic activity and greater economic decentralization. There is no assurance, however, that the Chinese
government will continue to pursue these policies, or that it will not significantly alter these policies from time to time without notice.
This presents a continuing potential uncertainty for our investors
The primary substantial portion of our revenues initially will be
derived from China.
We anticipate that sales of our services in China
will represent our primary revenues in the near future. Any significant decline in the condition of the PRC economy could adversely affect
consumer demand of our services, among other things, which in turn would have a material adverse effect on our business and financial
condition.
Currency fluctuations and restrictions on currency
exchange may adversely affect our business, including limiting our ability to convert Chinese Renminbi into foreign currencies and, if
Chinese Renminbi were to decline in value, reducing our revenue in U.S. dollar terms.
Our reporting currency is the U.S. dollar and
our operations in China use their local currency as their functional currencies. Substantially, all of our revenue and expenses are in
Chinese Renminbi. We are subject to the effects of exchange rate fluctuations with respect to any of these currencies. For example, the
value of the Renminbi depends to a large extent on Chinese government policies and China’s domestic and international economic and
political developments, as well as supply and demand in the local market. Since 1994, the official exchange rate for the conversion of
Renminbi to the U.S. dollar had generally been stable and the Renminbi had appreciated slightly against the U.S. dollar. However, on July
21, 2005, the Chinese government changed its policy of pegging the value of the Chinese Renminbi to the U.S. dollar. Under the new policy,
Chinese Renminbi may fluctuate within a narrow and managed band against a basket of certain foreign currencies. It is possible that the
Chinese government could adopt a more flexible currency policy, which could result in more significant fluctuation of Chinese Renminbi
against the U.S. dollar. We can offer no assurance that the Chinese Renminbi will be stable against the U.S. dollar or any other foreign
currency.
The income statements of our operations are translated
into U.S. dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens against foreign currencies,
the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income for
our international operations. Similarly, to the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign
currency denominated transactions results in increased revenue, operating expenses and net income for our international operations. We
are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries into U.S. dollars
in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’ financial
statements into U.S. dollars will lead to a translation gain or loss which is recorded as a component of other comprehensive income. In
addition, we have certain assets and liabilities that are denominated in currencies other than the relevant entity’s functional
currency. Changes in the functional currency value of these assets and liabilities create fluctuations that will lead to a transaction
gain or loss. We have not entered into agreements or purchased instruments to hedge our exchange rate risks, although we may do so in
the future. The availability and effectiveness of any hedging transaction may be limited, and we may not be able to successfully hedge
our exchange rate risks.
Although Chinese governmental policies were introduced
in 1996 to allow the convertibility of Chinese Renminbi into foreign currency for current account items, conversion of Chinese Renminbi
into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration
of Foreign Exchange, or the SAFE. These approvals, however, do not guarantee the availability of foreign currency conversion. We cannot
be sure that we will be able to obtain all required conversion approvals for our operations or that Chinese regulatory authorities will
not impose greater restrictions on the convertibility of Chinese Renminbi in the future. Because a significant amount of our future revenue
may be in the form of Chinese Renminbi, our inability to obtain the requisite approvals or any future restrictions on currency exchanges
could limit our ability to utilize revenue generated in Chinese Renminbi to fund our business activities outside of China, or to repay
foreign currency obligations, including our debt obligations, which would have a material adverse effect on our financial condition and
results of operations.
We may rely on dividends and other distributions
from our PRC subsidiary to fund our cash and financing requirements and any limitation on the ability of our subsidiary to make payments
to us could materially and adversely affect our ability to conduct our business.
As an offshore holding company (based in the USA),
we will rely principally on dividends from the WFOE, our PRC subsidiary, for our cash requirements, dividends payments and other distributions
to our stockholders, and to service any debt that we may incur and pay our operating expenses. The payment of dividends by entities organized
in China is subject to limitations. In particular, PRC regulations permit the WFOE to pay dividends only out of its accumulated profits,
if any, as determined in accordance with Chinese accounting standards and regulations. In addition, the WFOE is required each year to
set aside at least 10% of its annual after-tax profits (as determined under PRC accounting standards) into its statutory reserve fund
until the aggregate amount of that reserve reaches 50% of such entity’s registered capital. These reserves are not distributable
as cash dividends.
If the WFOE incurs debt on its own behalf, the
instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Any limitation on the ability
of the WFOE to distribute dividends or other payments to us could materially and adversely limit our ability to grow, make investments
or acquisitions, pay dividends and otherwise fund and conduct our business.
We may be subject to product liability claims if people or properties
are harmed by the services sold by us.
The products intended to be sold by us, as part
of our services, are manufactured by third parties. The products may be defectively designed or manufactured. As a result, sales of the
products could expose us to liability claims relating to personal injury or property damage and may require products recalls or other
actions. Third parties subject to such injury or damage may bring claims or legal proceedings against us as the reseller of the products.
We do not currently maintain any third-party liability insurance or products liability insurance in relation to products we intend to
sell in conjunction with our services. As a result, any material products liability claim or litigation could have a material and adverse