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
effect on our business, financial condition and results of operations. Even unsuccessful claims could result in the expenditure of funds
and managerial efforts in defending them and could have a negative impact on our reputation.
We may have limited legal recourse under PRC laws if disputes arise
under our contracts with third parties.
The Chinese government has enacted laws and regulations
dealing with matters such as corporate organization and governance, foreign investment, commerce, taxation, and trade. However, their
experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims
or to resolve commercial disputes is unpredictable. If our new business ventures are unsuccessful, or other adverse circumstances arise
from these transactions, we face the risk that the parties to these ventures may seek ways to terminate the transactions, or, may hinder
or prevent us from accessing important information regarding the financial and business operations of these acquired companies. The resolution
of these matters may be subject to the exercise of considerable discretion by agencies of the Chinese government, and forces unrelated
to the legal merits of a particular matter or dispute may influence their determination. Any rights we may have to specific performance,
or to seek an injunction under PRC law, in either of these cases, are severely limited, and without a means of recourse by virtue of the
Chinese legal system, we may be unable to prevent these situations from occurring. The occurrence of any such events could have a material
adverse effect on our business, financial condition and results of operations.
We must comply with the Foreign Corrupt Practices Act.
We are required to comply with the United States
Foreign Corrupt Practices Act, which prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials
for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions.
Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in mainland China. If our competitors
engage in these practices, they may receive preferential treatment from personnel of some companies, giving our competitors an advantage
in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage.
Although we inform our personnel that such practices are illegal, we cannot assure you that our employees or other agents will not engage
in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices,
we could suffer severe penalties.
Changes in foreign exchange regulations in
the PRC may affect our ability to pay dividends in foreign currency or conduct other foreign exchange business.
The Renminbi is not a freely convertible currency
currently, and the restrictions on currency exchanges may limit our ability to use revenues generated in Renminbi to fund our business
activities outside the PRC or to make dividends or other payments in United States dollars. The PRC government strictly regulates the
conversion of Renminbi into foreign currencies. Over the years, foreign exchange regulations in the PRC have significantly reduced the
government’s control over routine foreign exchange transactions under current accounts. In the PRC, the SAFE regulates the conversion
of the Renminbi into foreign currencies. Pursuant to applicable PRC laws and regulations, foreign-invested enterprises incorporated in
the PRC are required to apply for foreign exchange registration. Currently, conversion within the scope of the “current account”
(e.g. remittance of foreign currencies for payment of dividends, etc.) can be effected without requiring the approval of SAFE. However,
conversion of currency in the “capital account” (e.g. for capital items such as direct investments, loans, securities, etc.)
still requires the approval of SAFE.
PRC regulation of loans to and direct investments
in PRC entities by offshore holding companies may delay or prevent us from using the proceeds of any offering to make loans or capital
contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and ability to fund and expand our business.
We may transfer funds to or finance the WFOE,
our PRC subsidiary, by means of stockholder’s loans or capital contributions. Any loans to the WFOE, which is a foreign-invested
enterprise, cannot exceed statutory limits based on the amount of our investments in the WFOE, and shall be registered with the SAFE or
its local counterparts. Furthermore, any capital contributions we make to the WFOE shall be approved by the Ministry of Commerce, or the
MOFCOM, or its local counterparts. We may not be able to obtain these government registrations or approvals on a timely basis, if at all.
If we fail to receive such registrations or approvals, our ability to provide loans or capital contributions to the WFOE may be negatively
affected, which could adversely affect our liquidity and our ability to fund and expand our business.
In addition, the SAFE promulgated the Circular
on the Relevant Operating Issues concerning Administration Improvement of Payment and Settlement of Foreign Currency Capital of Foreign-invested
Enterprises, or SAFE Circular No. 142, on August 29, 2008. Under SAFE Circular No. 142, registered capital of a foreign-invested company
settled in Renminbi converted from foreign currencies may only be used within the business scope approved by the applicable governmental
authority and may not be used for equity investments in the PRC, unless otherwise provided by other PRC laws or regulations. In addition,
foreign-invested enterprises may not change how they use such capital without SAFE’s approval and may not, in any case, use such
capital to repay Renminbi loans if they have not used the proceeds of such loans. SAFE further promulgated the Circular on Further Clarification
and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses, or SAFE Circular No.
45, on November 16, 2011, which expressly prohibits foreign-invested enterprises from using the registered capital settled in Renminbi
converted from foreign currencies to grant loans through entrustment arrangements with a bank, repay inter-company loans or repay bank
loans that have been transferred to a third party. SAFE Circular No. 142 and SAFE Circular No. 45 may significantly limit our ability
to transfer the net proceeds from an offshore offering to the WFOE and convert the net proceeds into Renminbi to invest in or acquire
any other PRC companies, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.
A failure by the beneficial owners of our shares
who are PRC residents to comply with certain PRC foreign exchange regulations could restrict our ability to distribute profits, restrict
our overseas and cross-border investment activities and subject us to liability under PRC law.
The SAFE has promulgated regulations, including
the Notice on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip Investment through Special
Purpose Vehicles, or SAFE Circular No. 37, effective on July 14, 2018, and its appendixes, that require PRC residents, including PRC institutions
and individuals, to register with local branches of the SAFE in connection with their direct establishment or indirect control of an offshore
entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests
in domestic enterprises or offshore assets or interests, referred to in SAFE Circular No. 37 as a “special purpose vehicle.”
SAFE Circular No. 37 further requires an amendment to the registration in the event of any significant changes with respect to the special
purpose vehicle, such as an increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division
or another material event. In the event that a PRC stockholder holding interests in a special purpose vehicle fails to fulfill the required
SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore
parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in
their ability to contribute additional capital into its PRC subsidiary. Further, failure to comply with the various SAFE registration
requirements described above could result in liability under PRC law for foreign exchange evasion.
These regulations apply to our direct and indirect
stockholders who are PRC residents and may apply to any offshore acquisitions or share transfers that we make in the future if our shares
are issued to PRC residents. Mr. Bi Zhang is a PRC resident, and if he is deemed to be beneficially holding interests in us without making
appropriate registration pursuant to SAFE Circular No. 37, the WFOE, as our PRC subsidiary, could be subject to fines and legal penalties,
and the SAFE could restrict our cross-border investment activities and our foreign exchange activities, including restricting the WFOE’s
ability to distribute dividends to or obtain loans denominated in foreign currencies from us, or prevent us from paying dividends. As
a result, our business operations and our profitability could be materially and adversely affected.
PRC regulations relating to mergers and acquisitions
and overseas listings of domestic enterprises by foreign investors may increase the administrative burden we face and create regulatory
uncertainties.
The Regulations on Mergers and Acquisitions of
Domestic Enterprises by Foreign Investors, or the M&A Rule, which became effective in September 2006 and were further amended in June
2009, requires that if an overseas company is established or controlled by PRC domestic companies or citizens intends to acquire equity
interests or assets of any other PRC domestic company affiliated with the PRC domestic companies or citizens, such acquisition must be
submitted to the MOFCOM, rather than local regulators, for approval. In addition, the M&A Rule requires that an overseas company controlled
directly or indirectly by PRC companies or citizens and holding equity interests of PRC domestic companies needs to obtain the approval
of the China Securities Regulatory Commission, or CSRC, prior to listing its securities on an overseas stock exchange. On September 21,
2006, the CSRC published a notice on its official website specifying the documents and materials required to be submitted by overseas
special purpose companies seeking CSRC’s approval of their overseas listings.
While the application of the M&A Rule remains
unclear, based on our understanding of current PRC laws, regulations, and the notice published on September 21, 2006, since the WFOE,
our operating entity, was established by means of direct investment, rather than by merger or acquisition of the equity interest or assets
of any “domestic company” as defined under the M&A Rules, we believe we are not required to submit an application to the
MOFCOM or the CSRC for its approval for any of our transactions.
However, we cannot assure you that PRC governmental
authorities, including the MOFCOM and the CSRC, will reach the same conclusion as us. If the MOFCOM, the CSRC and/or other PRC regulatory
agencies subsequently determine that the approvals from the MOFCOM and/or CSRC and/or other PRC regulatory agencies were required, our
PRC business could be challenged, and we may need to apply for a remedial approval and may be subject to certain administrative punishments
or other sanctions from PRC regulatory agencies. The regulatory agencies may impose fines and penalties on our operations in the PRC,
limit our operating privileges in the PRC, delay or restrict the repatriation of our foreign currency in our offshore bank accounts into
the PRC, or take other actions that could materially and adversely affect our business, financial condition, results of operations, reputation
and prospects, as well as the trading price of our ordinary shares.
The Chinese government exerts substantial influence over the manner
in which we must conduct our business activities.
China only recently has permitted provincial and
local economic autonomy and private economic activities, and, as a result, we are dependent on our relationship with the local government
in the province in which we operate our business. The Chinese government has exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by
changes in its laws and regulations, including those relating to taxation, product liabilities, environmental regulations, property, and
other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements.
However, the central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations
that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.
Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return
to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant
effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then
hold in PRC subsidiaries.
Future inflation in China may inhibit our activity
to conduct business in China.
In recent years, the Chinese economy has experienced
periods of rapid expansion and high rates of inflation. These factors have led to the adoption by the Chinese government, from time to
time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation
may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit
economic activity in China, and thereby harm the market for our services.
We may have difficulty establishing adequate management, legal and
financial controls in the PRC.
We may have difficulty in hiring and retaining
a sufficient number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing
management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate
records and instituting business practices that meet Western standards. We may have difficulty establishing adequate management, legal
and financial controls in the PRC.
We may experience difficulties in effecting
service of legal process, enforcing foreign judgments or bringing original actions in China based on the United States or other foreign
laws against us and our management.
We conduct substantially all our operations in
China and substantially all our assets are located in China. In addition, some of our directors and executive officers reside in China.
As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon some of our
directors and senior executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state
securities laws. It would also be difficult for investors to bring an original lawsuit against us or our directors or executive officers
before a Chinese court based on U.S. federal securities laws or otherwise. Moreover, China does not have treaties with the United States
or any other countries providing for the reciprocal recognition and enforcement of the judgment of courts.
Under the EIT Law, we may be classified as
a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and holders
of our securities.
Under the EIT Law, an enterprise established outside
of China with its “de facto management body” in China is considered a “resident enterprise,” meaning that it can
be treated the same as a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define “de
facto management body” as an organization that exercises “substantial and overall management and control over the services
and operations, personnel, accounting, and properties” of an enterprise. On April 22, 2009, the SAT, issued a circular, or SAT Circular
No. 82, providing certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise
that is incorporated offshore is located in China, which include all of the following conditions: (a) the location where senior management
members responsible for an enterprise’s daily operations discharge their duties; (b) the location where financial and human resource
decisions are made or approved by organizations or persons; (c) the location where the major assets and corporate documents are kept,
and (d) the location where more than half (inclusive) of all directors with voting rights or senior management have their habitual residence.
If the PRC tax authorities determine that we are
a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow.
First, we will be subject to enterprise income tax at a rate of 25% on our worldwide income as well as PRC enterprise income tax reporting
obligations. This would mean that income such as interest in offering proceeds and other non-China source income would be subject to PRC
enterprise income tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to us by our PRC
subsidiaries would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding
tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to
the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally,
it is possible that a 10% withholding tax is imposed on dividends we pay to our non-PRC enterprise stockholders and with respect to gains
derived by our non-PRC enterprise stockholders from transferring our shares, and a 20% withholding tax is imposed on dividends we pay
to our non-PRC individual stockholders and with respect to gains derived by our non-PRC individual stockholders from transferring our
shares.
We face uncertainties with respect to the application
of the Circular on Strengthening the Administration of Enterprise Income Tax for Share Transfer by Non-PRC Resident Enterprises.
Pursuant to the Circular on Strengthening the
Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular No. 698, issued by the SAT
in December 2009 with retroactive effect from January 1, 2008, if a non-resident enterprise indirectly transfers the equity interests
of a PRC resident enterprise by transferring equity interests of an overseas holding company, or an Indirect Transfer, and such overseas
holding company is located in a tax jurisdiction that: (i) has an
effective tax rate of less than 12.5% or (ii) does not impose income tax on foreign income of its residents, the transferring nonresident
enterprise must report this Indirect Transfer to the competent PRC tax authority of the PRC resident enterprise. The PRC tax authority
will apply the “substance over form” principle, and as a result may disregard the existence of the overseas holding company
if such overseas holding company lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring
PRC tax. As a result, gains derived from such an Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular
No. 698 also provides that where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related
parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable
income of the transaction.
There is uncertainty as to the application of
SAT Circular No. 698. While the term “Indirect Transfer” is not clearly defined, it is understood that the relevant PRC tax
authorities have broad jurisdiction over requests for information regarding foreign companies having remote contact with the PRC. Moreover,
the relevant authority has not yet promulgated any formal provisions or made any formal interpretation as to the procedures or format
for reporting an Indirect Transfer. In addition, there have not been any formal declarations concerning how to determine whether a foreign
investor has adopted an arrangement for the purpose of reducing, avoiding or deferring PRC tax. As a result, we and our non-resident investors
or non-resident enterprise stockholders may be at risk of being taxed under SAT Circular No. 698 and may be required to expend valuable
resources to comply with SAT Circular No. 698 or to establish that we and our non-resident enterprise investors or non-resident enterprise
stockholders should not be taxed under SAT Circular No. 698, which may have a material adverse effect on our financial condition and results
of operations or such non-resident investors’ or such non-resident enterprise stockholders’ investments in us.
Our Chinese operating companies are obligated
to withhold and pay PRC individual income tax in respect of the salaries and other income received by their employees who are subject
to PRC individual income tax. If they fail to withhold or pay such individual income tax in accordance with applicable PRC regulations,
they may be subject to certain sanctions and other penalties, which could have a material adverse impact on our business.
Under PRC laws, the WFOE will be obligated to
withhold and pay individual income tax in respect of the salaries and other income received by their employees who are subject to PRC
individual income tax. The WFOE may be subject to certain sanctions and other liabilities under PRC laws in case of failure to withhold
and pay individual income taxes for its employees in accordance with the applicable laws.
In addition, the SAT has issued several circulars
concerning employee stock options. Under these circulars, employees working in the PRC (which could include both PRC employees and expatriate
employees subject to PRC individual income tax) are required to pay PRC individual income tax in respect of their income derived from
exercising or otherwise disposing of their stock options. If we implement employee stock options plan, the WFOE will be obligated to file
documents related to employee stock options with relevant tax authorities and withhold and pay individual income taxes for those employees
who exercise their stock options. While tax authorities may advise us that our policy is compliant, they may change their policy, and
we could be subject to sanctions.
The enforcement of labor contract law and an increase in labor costs
in the PRC may adversely affect our business and our profitability.
China adopted a labor contract law and its implementation
rules effective on January 1, 2008 and September 18, 2008, respectively. The labor contract law was further amended on December 28, 2012.
The labor contract law and its implementation rules impose more stringent requirements on employers with regard to, among others, severance
payment upon permitted termination of the employment by an employer and non-fixed term employment contracts, time limits for probation
period as well as the duration and the times that an employee can be placed on a fixed-term employment contract. Due to the limited period
of effectiveness of the labor contract law and its implementation rules, and the lack of clarity with respect to their implementation,
potential penalties and fines, it is uncertain how they will impact our current employment policies and practices. Our employment policies
and practices may violate the labor contract law or its implementation rules and we may be subject to related penalties, fines or legal
fees. Compliance with the labor contract law and its implementation rules may increase our operating expenses, in particular, our personnel
expenses, as the continued success of our business depends significantly on our ability to attract and retain qualified personnel. In
the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the labor contract
law and its implementation rules may also limit our ability to effect those changes in a manner that we believe to be cost-effective or
desirable, which could adversely affect our business and results of operations.
Additionally, PRC companies are subject to various
laws and regulations regarding social insurance and housing funds, under which the WFOE is required to pay employees’ pension contributions,
work-related injury benefits, maternity insurances, medical and unemployment benefit plans, housing funds and other welfare-oriented payments.
The WFOE has not contributed social insurance premiums and housing funds for its employees in full compliance with applicable PRC laws.
As such, the WFOE may be ordered to compensate the cumulative amount of the under-contributed social insurance premiums and housing fund
contributions and be subject to administrative penalties, including fines, and as such our business and reputation may be adversely affected.
Because Chinese laws will govern almost all
our business material agreements, we may not be able to enforce our rights within the PRC or elsewhere, which could result in a significant
loss of business, business opportunities or capital.
The Chinese legal system is similar to a civil
law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential
value. Although legislation in the PRC over the past 25 years has significantly improved the protection afforded to various forms of foreign
investment and contractual arrangements in the PRC, these laws, regulations and legal requirements are relatively new. Due to the limited
volume of published judicial decisions, their non-binding nature, the short history since their enactments, the discrete understanding
of the judges or government agencies of the same legal provision, inconsistent professional abilities of the judicators, and the inclination
to protect local interest in the courtrooms, interpretation, and enforcement of PRC laws and regulations involve uncertainties, which
could limit the legal protection available to us, and foreign investors, including you. The inability to enforce or obtain a remedy under
any of our future agreements could result in a significant loss of business, business opportunities or capital and could have a material
adverse impact on our business, prospects, financial condition, and results of operations. In addition, the PRC legal system is based
in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive
effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. In addition,
any litigation in the PRC, regardless of the outcome, may be protracted and result in substantial costs and diversion of resources and
management attention.
Risks Relating to Our Securities
Insiders have substantial control over us,
and they could delay or prevent a change in our corporate control even if our other stockholders wanted it to occur.
Our executive officers, directors, and principal
stockholders hold approximately 99% of our outstanding common stock. Accordingly, these stockholders are able to control all matters requiring
stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay or prevent
an outside party from acquiring or merging with us even if our other stockholders wanted it to occur.
There may not be sufficient liquidity in the
market for our securities in order for investors to sell their securities.
There is currently only a limited public market
for our common stock, which is listed on the Over-the-Counter Bulletin Board, and there can be no assurance that a trading market will
develop further or be maintained in the future. As of March 30, 2021, the closing trade price of our common stock was $2.60
per share.
The market price of our common stock may be volatile.
The market price of our common stock has been
and will likely continue to be highly volatile, as is the stock market in general, and the market for OTC Bulletin Board quoted stocks
in particular. Some of the factors that may materially affect the market price of our common stock are beyond our control, such as changes
in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate or sales of our common
stock. These factors may materially adversely affect the market price of our common stock, regardless of our performance. In addition,
the public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the
market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of our common stock.
Our common stock may be considered a “penny
stock” and may be difficult to sell.
The SEC has adopted regulations which generally
define a “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and, therefore,
it may be designated as a “penny stock” according to SEC rules. This designation requires any broker or dealer selling these
securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that
the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our
common stock and may affect the ability of investors to sell their shares.
The market for penny stocks has experienced
numerous frauds and abuses, which could adversely impact investors in our stock.
OTCBB securities are frequent targets of fraud
or market manipulation, both because of their generally low prices and because OTCBB reporting requirements are less stringent than those
of the stock exchanges or NASDAQ.
Patterns of fraud and abuse include:
Our management is aware of the abuses that have occurred historically
in the penny stock market.
We have not paid dividends in the past and
do not expect to pay dividends in the foreseeable future and any return on investment may be limited to the value of our stock.
We have never paid any cash dividends on our common
stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future and any return on investment may be
limited to the value of our stock. We plan to retain any future earnings to finance growth.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
Our headquarter is located at 3F (Building B),
No. 185, Sec. 1, Datong Rd., Xizhi Dist., New Taipei City 221, Taiwan (R.O.C.). The office is rented by Taiwan Grand Smooth Enterprise
Co., Ltd., company 100% controlled by Yin-Chieh Cheng, our President CEO and Chairman of the board. Mr. Cheng sub-leases this space to
us, which is free of charge.
Prior to the termination of VIE agreement with
GZ WFH on October 8 2020, we also leased approximately 370 square meters of space in Xing Yi City, Guizhou Qian Xi Nan, PRC, with a period
of 10 years, which will expire on May 10, 2028. The rental expense is approximately $242 per month for the first five years, and it is
subject to a market adjustment for the second five years. We believe that our existing facilities are adequate for our current requirements
and we will be able to enter into lease arrangements on commercially reasonable terms for future expansion.
We do not own any real property.
ITEM 3. LEGAL PROCEEDINGS
We are currently not a party to any legal or administrative
proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. We
may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Market Information
Our common stock, par value $0.001, is listed
for quotation in the OTC Pink Market under the symbol “NCRA”
Quarter Ended High Low High Low
Stockholders
As of March 31, 2021 we had approximately 440
stockholders of record of our common stock, not including shares held in street name.
Dividends
We do not expect to declare or pay any cash dividends
on our common stock in the foreseeable future, and we currently intend to retain future earnings, if any, to finance the expansion of
our business. The decision whether to pay cash dividends on our common stock will be made by our board of directors, at its discretion,
and will depend on our financial condition, operating results, capital requirements and other factors that the board of directors considers
significant.
We did not pay cash dividends in the years ended December 31, 2020