Sincerity Applied Materials Holdings Corp 10-Q for FY2020 Q2
Sincerity Applied Materials Holdings Corp. (SINC)
About this 10-Q
Sincerity Applied Materials Holdings Corp filed this 10-Q on September 8, 2021, covering the quarter ended June 30, 2020 (FY2020 Q2).
Headline figures
Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $211.22K
- up 31.2% from $161.01K a year earlier
- Net income
- $51.32K
- compared with a net loss of $7.67M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 000-55475
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
| Nevada | 45-2859440 | |
| (State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) | |
|
Suite 1105, Level 11 370 Pitt Street Sydney, New South Wales, Australia 2000 |
VIC 3141 | |
| (Address of principal executive offices) | (Zip Code) |
+61-421-007-277
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☒ | |||
| Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A |
As of September 7, 2021, there were 73,590,730 shares of the registrant’s common stock, $0.001 per value per share, issued and outstanding.
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020 (not reviewed)
| PAGE | ||
| PART I - FINANCIAL INFORMATION | 3 | |
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 22 |
| Item 4. | Controls and Procedures | 22 |
| PART II - OTHER INFORMATION | 23 | |
| Item 1. | Legal Proceedings | 23 |
| Item 1A. | Risk Factors | 23 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 23 |
| Item 3. | Defaults Upon Senior Securities | 23 |
| Item 4. | Mine Safety Disclosures | 23 |
| Item 5. | Other Information | 23 |
| Item 6. | Exhibits | 23 |
| SIGNATURES | 24 | |
| 2 |
PART I – FINANCIAL INFORMATION
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Consolidated Balance Sheets
As at June 30, 2020 (not reviewed) and December 31, 2019 (not audited)
| Note | June 30, 2020 (not reviewed) $ | December 31, 2019 (not audited) $ | ||||||||
| Assets | ||||||||||
| Cash and cash equivalents | 4 | 20,184 | 22,764 | |||||||
| Other assets | 5 | – | – | |||||||
| Accounts receivables | 5 | 172,875 | 93,038 | |||||||
| Related party loan | 376,200 | 298,873 | ||||||||
| Total current assets | 569,259 | 414,675 | ||||||||
| Property, plant and equipment, net of accumulated depreciation and amortization | 6 | 104,610 | 108,510 | |||||||
| Deferred tax asset | 10 | 95,965 | 123,760 | |||||||
| Total non-current assets | 200,575 | 232,270 | ||||||||
| Total assets | 769,834 | 646,945 | ||||||||
| Liabilities and Stockholders’ Equity/(Deficit) | ||||||||||
| Liabilities | ||||||||||
| Accounts payables | 369,739 | 187,495 | ||||||||
| Accrued and other liabilities | 7 | 79,712 | 119,255 | |||||||
| Long-term debt – current position | 8 | 21,377 | 21,861 | |||||||
| Line of credit | 9 | 183,465 | 185,807 | |||||||
| Related party loan | – | – | ||||||||
| Total current liabilities | 654,293 | 514,418 | ||||||||
| Long-term debt – non-current position | 8 | 68,991 | 86,390 | |||||||
| Total non-current liabilities | 68,991 | 86,390 | ||||||||
| Total liabilities | 723,284 | 600,808 | ||||||||
| Equity | ||||||||||
| Preferred stock | ||||||||||
| Authorized: $0.001 par value, 10,000,000 shares authorized | ||||||||||
| Issued and outstanding: nil preferred shares | ||||||||||
| Common stock | ||||||||||
| Authorized: $0.001 par value, 290,000,000 shares authorized | ||||||||||
| Issued and outstanding: 73,590,730 and 73,590,730, respectively | 123,953 | 123,953 | ||||||||
| Additional paid in capital | 3,442,920 | 3,442,920 | ||||||||
| Adjustments to equity to reflect retroactive application of reverse acquisition of accounting | (53,511 | ) | (53,511 | ) | ||||||
| Accumulated losses | (3,463,943 | ) | (3,512,096 | ) | ||||||
| Foreign currency translation differences | 11 | (2,869 | ) | 44,871 | ||||||
| Total stockholders’ surplus/(deficit) | (7,593,674 | ) | 46,137 | |||||||
| Total liabilities and stockholders’ equity | 46,550 | 646,945 | ||||||||
See accompanying notes to not reviewed condensed consolidated financial statements
| 3 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Consolidated Statement of Operations (Not Reviewed)
For the three months and the six months ended June 30, 2020 and 2019
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
| Note | 2020 $ (not reviewed) | 2019 $ (not reviewed) | 2020 $ (not reviewed) | 2019 $ (not reviewed) | ||||||||||||||
| Revenue | ||||||||||||||||||
| Sales | 211,216 | 161,005 | 304,802 | 396,656 | ||||||||||||||
| Cost of sales | (133,217 | ) | (122,352 | ) | (214,842 | ) | (351,535 | ) | ||||||||||
| Gross profit | 77,999 | 38,653 | 89,960 | 45,121 | ||||||||||||||
| Operating expenses | ||||||||||||||||||
| Depreciation and amortization | 1,948 | 2,335 | 3,900 | 4,753 | ||||||||||||||
| Selling, general and administrative expenses | (11,063 | ) | 10,259 | (7,042 | ) | 18,595 | ||||||||||||
| Employee expenses | – | – | – | – | ||||||||||||||
| Professional service fees | 36,804 | 16,713 | 36,870 | 26,545 | ||||||||||||||
| Dispute settlement | – | 7,664,828 | – | 7,664,828 | ||||||||||||||
| Repairs and maintenance | – | – | – | – | ||||||||||||||
| Total operating expenses | 27,689 | 7,694,135 | 33,728 | 7,714,721 | ||||||||||||||
| Income / (Loss) from operations | 50,310 | (7,655,482 | ) | 56,232 | (7,669,600 | ) | ||||||||||||
| Other income/(expenses) | ||||||||||||||||||
| Other income | 18,958 | 4,796 | 23,470 | 9,676 | ||||||||||||||
| Interest expense | (1,306 | ) | (4,468 | ) | (2,721 | ) | (9,099 | ) | ||||||||||
| Other Finance Gain | – | – | – | – | ||||||||||||||
| Discount on Convertible note | – | – | – | – | ||||||||||||||
| Loss on derivative financial instrument | – | – | – | – | ||||||||||||||
| Fair value adjustment of Warrant liabilities | – | – | – | – | ||||||||||||||
| Foreign currency transaction loss | 8,111 | (7,514 | ) | (4,822 | ) | (7,837 | ) | |||||||||||
| Total other income/ (expenses) | 25,762 | (7,186 | ) | (15,927 | ) | (7,260 | ) | |||||||||||
| Income/(Loss) from continuing operations before income tax expenses | 76,072 | (7,662,668 | ) | 72,159 | (7,676,860 | ) | ||||||||||||
| Income tax benefit/(expense) | 10 | (24,756 | ) | (4,208 | ) | 24,006 | (174 | ) | ||||||||||
| Net income/(Loss) after income tax expense for the period | 51,316 | (7,666,876 | ) | 48,153 | (7,677,034 | ) | ||||||||||||
| Other comprehensive income /(loss) | ||||||||||||||||||
| Exchange differences arising on translation of foreign operations | (13,133 | ) | 7,504 | (47,740 | ) | 4,156 | ||||||||||||
| Other comprehensive income/(loss) | (13,133 | ) | 7,504 | (47,740 | ) | 4,156 | ||||||||||||
| Total comprehensive income/(Loss) for the period | 38,183 | (7,659,372 | ) | 413 | (7,672,878 | ) | ||||||||||||
| Net (loss)/gain per share | ||||||||||||||||||
| Basic and diluted | 0.00 | (0.14 | ) | 0.00 | (0.28 | ) | ||||||||||||
| Weighted average number of common stock outstanding | ||||||||||||||||||
| Basic and diluted | 73,590,730 | 54,195,565 | 73,590,730 | 27,272,719 | ||||||||||||||
See accompanying notes to not reviewed condensed consolidated financial statements
| 4 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Consolidated Statement of Changes in Stockholders’ Equity / (Deficit)
For the three and six months ended June 30, 2020 (not reviewed) and 2019(
not audited)
| Common Stock | Additional Paid in | Other Comprehensive | Accumulated | Adjustments to equity to reflect retroactive application of reverse acquisition | Total (Deficit)/ | |||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Losses | accounting | Equity | ||||||||||||||||||||||
| Balance at December 31, 2019 | 73,590,730 | $ | 123,953 | $ | 3,442,920 | $ | 44,871 | $ | (3,512,096 | ) | $ | (53,511 | ) | $ | 46,137 | |||||||||||||
| Loss after income tax expense for the period | – | – | – | – | (3,163 | ) | – | (3,138 | ) | |||||||||||||||||||
| Other comprehensive loss for the year | – | – | – | (34,607 | ) | – | – | (34,607 | ) | |||||||||||||||||||
| Balance at March 31, 2020 | 73,590,730 | $ | 123,953 | $ | 3,442,920 | $ | 10,264 | $ | (3,515,259 | ) | $ | (53,511 | ) | $ | 8,367 | |||||||||||||
| Profit after income tax expense for the period | – | – | – | – | 51,316 | – | 51,316 | |||||||||||||||||||||
| Other comprehensive loss for the period | – | – | – | (13,133 | ) | – | – | (13,133 | ) | |||||||||||||||||||
| Balance at June 31, 2020 | 73,590,730 | $ | 123,953 | $ | 3,442,920 | $ | (2,869 | ) | (3,463,943 | ) | $ | (53,511 | ) | $ | 38,183 | |||||||||||||
| Balance at December 31, 2018* | 50,730 | $ | 50,413 | $ | 3,442,920 | $ | 66,248 | $ | (3,500,406 | ) | $ | (53,511 | ) | $ | 5,664 | |||||||||||||
| Loss after income tax expense for the year | – | – | – | – | (10,158 | ) | – | (10,158 | ) | |||||||||||||||||||
| Other comprehensive loss for the year | – | – | – | (3,348 | ) | – | – | (3,348 | ) | |||||||||||||||||||
| Balance at March 31, 2019 | 50,730 | $ | 50,413 | $ | 3,442,920 | $ | 62,900 | $ | (3,510,564 | ) | $ | (53,511 | ) | $ | (7,842 | ) | ||||||||||||
| Loss after income tax expense for the period | – | – | – | – | (7,666,876 | ) | (7,666,876 | ) | ||||||||||||||||||||
| Other comprehensive loss for the period | – | – | – | 7,504 | 7,504 | |||||||||||||||||||||||
| New Share issuance during the period (73,540k shares @USD 0.001/Share) | 73,540,000 | 73,540 | – | – | – | – | 73,540 | |||||||||||||||||||||
| Balance at June 31, 2019 | 73,590,730 | $ | 123,953 | $ | 3,442,920 | $ | 70,404 | $ | (11,177,440 | ) | $ | (53,511 | ) | $ | (7,593,674 | ) | ||||||||||||
See accompanying notes to not reviewed condensed consolidated financial statements
| 5 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Consolidated Statement of Cash Flows (Not Reviewed)
For the six months ended June 30, 2020 and 2019
| Six months ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| $ (not reviewed) | $ (not reviewed) | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | 48,178 | (7,677,034 | ) | |||||
| Adjustments to reconcile net income/(loss) to net cash provided by operating activities: | ||||||||
| Depreciation | 3,900 | 4,753 | ||||||
| FBT employee contribution | – | (9,676 | ) | |||||
| Dispute settlement | – | 7,664,828 | ||||||
| Share based payment | – | 4,040 | ||||||
| Interest accrued on shareholder loan | – | – | ||||||
| Derivate liability | – | – | ||||||
| Net difference on foreign exchange | 4,822 | 7,081 | ||||||
| Convertible notes settlement | – | – | ||||||
| Other Finance and interest cost | – | – | ||||||
| Net changes in operating assets and liabilities | ||||||||
| (Increase)/decrease in trade and other receivables | (79,837 | ) | 21,199 | |||||
| (Increase)/decrease in other assets | – | (3,326 | ) | |||||
| Increase/(decrease) in trade and other payables | 142,701 | 23,776 | ||||||
| Increase/(decrease) in other liabilities | – | (5,560 | ) | |||||
| Decrease in deferred tax asset | 27,794 | 930 | ||||||
| Decrease in tax provision | – | – | ||||||
| Net cash (used in)/provided by operating activities | 147,558 | 31,011 | ||||||
| Cash flows from investing activities | ||||||||
| Payments for property, plant and equipment | – | – | ||||||
| Net cash used in investing activities | – | – | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from Convertible notes | – | – | ||||||
| Proceeds from issue of common stock | – | – | ||||||
| Settlement of Convertible notes | – | – | ||||||
| Other Finance cost and interest paid | – | – | ||||||
| Repayment of borrowings | (2,341 | ) | – | |||||
| Advances from related entities | (77,327 | ) | (32,680 | ) | ||||
| Payment of finance lease liabilities | (17,883 | ) | (10,695 | ) | ||||
| Net cash (used in)/ provide by financing activities | (97,551 | ) | (43,375 | ) | ||||
| Net increase in cash and cash equivalents | 50,007 | (12,364 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | (52,587 | ) | (3,938 | ) | ||||
| Adjustment to equity to reflect retroactive application of reverse acquisition accounting | – | – | ||||||
| Cash and cash equivalents at the beginning of period | 22,764 | 23,245 | ||||||
| Cash and cash equivalents at the end of period | $ | 20,184 | $ | 6,943 | ||||
See accompanying notes to not reviewed condensed consolidated financial statements
| 6 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| 1.1 | Nature of Operations |
Sincerity Applied Material Holdings Corp (the “Company’’) is a specialized provider of technologically advanced packing materials for the automotive, packaging, building & construction, and engineering industries, with headquarters located near Melbourne, Australia. The Company’s primary customer is an unrelated entity with global operations that accounts for approximately 80% - 90% of The Company’s revenue, and The Company’s primary suppliers are in China and Malaysia.
| 1.2 | Basis of Accounting |
The accompanying financial statements include the accounts of Sincerity Applied Material Holdings Corp which is a company domiciled in Australia. These financial statements have been prepared in accordance with the accounting principles generally accepted in the United States (“GAAP”) and Regulation S-X published by the US Securities and Exchange Commission (the “SEC”). Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no effect on the prior period net income, accumulated deficit, net assets, or total shareholders’ deficit. The Company has evaluated events or transactions through the date of issuance of this report in conjunction with the preparation of these consolidated financial statements. All amounts presented are in US dollars, unless otherwise noted.
The financial statements, except for cash flow information, have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities. The amounts presented in the financial statements have been rounded to the nearest dollar.
| 1.3 | Going Concern Basis |
The financial statements have been prepared on the going concern basis, which assumes continuity of normal business activities and the realization of assets and the settlement of liabilities in the ordinary course of business.
At June 30, 2020, the company had a current asset deficiency of $85,034 and net asset of $38,183 (December 31, 2019 current asset deficiency of $99,743 and net asset $46,137). The Company reported an after tax income of $51,316 for the three months ended June 30, 2020 (June 30, 2019 after tax loss: $7,666,876).
Despite the current asset deficiency, the company has prepared the financial statements on a going concern basis that contemplates the continuity of normal business activity, realization of assets and settlement of liabilities at the amounts recorded in the financial statements in the ordinary course of business.
The company believes that there are reasonable grounds to support the fact that it will be able to pay its debts as and when they become due and payable. In forming this opinion, the Group has considered the following factors:
| (i) | The company has the ability to raise fund through private placements and convertible notes; | |
| (ii) | The company has been streamlining its operation by reducing operation costs; and | |
| (iii) | Applying for financial assistance from the Australian Government available for businesses impacted by COVID-19 |
If the Company is unable to continue as a going concern it may be required to realize its assets and extinguish its liabilities other than in the ordinary course of business at amounts different from those stated in the financial statements.
The financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.
| 7 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
| 1.4 | Use of Estimates |
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP’’) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
| 1.5 | Foreign Currency Translation |
The functional currency of the Company is its local currency, the Australian dollar (AUD). The financial statements of the Company have been translated into U.S. dollars (USD). All balance sheet accounts, other than those in stockholder’s deficiency, which are translated, based on historical rates accumulated over time, have been translated using the exchange rate in effect at the balance sheet date. Income statement amounts have been translated using the average exchange rate in effect for the three months ended June 30, 2020. Accumulated net translation adjustments have been reported separately in other comprehensive loss in the financial statements. Foreign currency translation adjustments resulted in a loss of $13,133 for the three months ended June 30, 2020; such translation adjustments are not subject to income taxes. Foreign currency transaction losses resulting from exchange rate fluctuations on transactions denominated in a currency other than the AUD, the functional currency, totaled $Nil for the three months ended June 30, 2020, and is included in the accompanying statement of income for the period.
| 1.6 | Cash and Cash Equivalents and Concentration of Credit Risk |
The Company considers all highly liquid short term investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the short term nature of these instruments.
The Company’s financial instruments exposed to concentrations of credit risk consist primarily of cash and cash equivalents. Cash and cash equivalents are held in several Australian bank accounts. The Company regularly assesses the level of credit risk we are exposed to and whether there are better ways of managing credit risk. The Company invests its cash and cash equivalents with reputable financial institutions. The Company has not incurred any losses related to these deposits.
| 1.7 | Accounts Receivable |
The Company carries its accounts receivable at cost less an allowance for doubtful accounts. The Company evaluates its accounts receivable on a regular basis and establishes an allowance for doubtful accounts, when deemed necessary, based on a history of past write- offs and collections and current credit conditions. A receivable is considered past-due based either on contractual terms or payment history. Accounts are written off as uncollectible after collection efforts have failed. In addition, The Company does not generally charge interest on past-due accounts or require collateral. It is at least reasonably possible that changes may occur in the near term that would affect management’s estimate of the allowance for doubtful accounts. At June 30, 2020, management determined that no allowance for doubtful accounts was required.
| 1.8 | Property and Equipment |
Property and equipment are recorded at cost. Costs of renewal and improvements that substantially extend the useful lives of assets are capitalized. Maintenance and repair costs are expensed when incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally five years.
Derecognition
An item of plant and equipment is derecognized upon disposal or when no further economic benefits are expected from its use or disposal.
| 8 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
| 1.9 | Payables |
Payables are carried at amortized cost and, due to their short-term nature, they are not discounted. They represent liabilities for goods and services provided to the Company prior to the end of the financial period that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.
| 1.10 | Provisions |
Provisions are recognized when the Company has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. Provisions are measured using the best estimate of the amounts required to settle the obligation at the end of the reporting period.
| 1.11 | Leases |
Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset – but not the legal ownership – are transferred to entities in the consolidated group, are classified as finance leases.
Finance leases are capitalized by recognizing an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.
Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term.
Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognized as expenses on a straight-line basis over the lease term.
| 1.12 | Loans and Borrowings |
All loans and borrowings are initially recognized at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any issue costs, and any discount or premium on settlement.
| 1.13 | Revenue Recognition |
The Company recognizes revenue when the goods are delivered at the port of shipment by the supplier, the price is fixed or determinable, and collectability is reasonably assured.
Interest revenue is recognized using the effective interest method, which for floating rate financial assets is the rate inherent in the instrument.
All revenue is stated net of the amount of goods and services tax.
| 9 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
| 1.14 | Income Tax |
We account for income taxes using the asset and liability method, under which the current income tax expense or benefit is the amount of income tax expected to be payable or refundable in the current year. Deferred tax assets and liabilities are recorded for the estimated future tax consequences of temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled.
We evaluate the realizability of our deferred tax assets and establish a valuation allowance when it is more likely than not that all or a portion of our deferred tax assets will not be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
We account for the uncertainty in income tax components based on tax positions taken or expected to be taken in a tax return. To recognize a benefit, a tax position must be more likely than not to be sustained upon examination by taxing authorities. We do not recognize tax benefits that have a less than 50 percent likelihood of being sustained. Our policy is to recognize interest and tax penalties related to unrecognized tax benefits in income tax expense; no interest or tax penalties on uncertain tax benefits have been recorded through June 30, 2020.
| 1.15 | Goods and Services Tax (GST) |
Revenues, expenses and assets are recognized net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO).
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities, which are recoverable from or payable to the ATO, are presented as operating cash flows included in receipts from customers or payments to suppliers.
| 1.16 | Impairment of Long-Lived Assets |
The Company reviews long-lived assets, including fixed assets, for impairment whenever events or circumstances indicate that the carrying value of such assets may not be fully recoverable. Impairment is present when the sum of undiscounted estimated future cash flows expected to result from use of the asset is less than carrying value. If impairment is present, the carrying value of the impaired asset is reduced to its fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the asset. During the three months ended June 30, 2020, no impairment losses were recognized for long-lived assets.
| 1.17 | Stock-Based Compensation |
The Company recognizes all employee share-based compensation as a cost in the consolidated financial statements. Equity-classified awards principally related to stock options, restricted stock units (“RSUs”) and performance stock units (“PSU”), are measured at the grant date fair value of the award. The Company determines grant date fair value of stock option awards using the Black-Scholes option-pricing model. The fair value of restricted stock awards is determined using the closing price of the Company’s common stock on the grant date. For service based vesting grants, expense is recognized over the requisite service period based on the number of options or shares expected to ultimately vest. For performance based vesting grants, expense is recognized over the requisite period until the performance obligation is met, assuming that it is probable. No expense is recognized for performance-based grants until it is probable the vesting criteria will be satisfied. Forfeitures are estimated at the date of grant and revised when actual or expected forfeiture activity differs materially from original estimates.
Stock-based payments to non-employees are re-measured at each reporting date and recognized as services are rendered, generally on a straight-line basis. The Company believes that the fair values of these awards are more reliably measurable than the fair values of the services rendered.
| 10 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
| 1.18 | Earnings (Loss) per Common Share |
Basic earnings (loss) per common share is computed by dividing income or losses available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per common share is computed similar to basic net income or losses per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and of the additional common shares were dilutive. Diluted earnings (loss) per common share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under if –converted method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).
| 1.19 | Accumulated Other Comprehensive Income (Loss) |
Comprehensive income (loss) is presented net of applicable income taxes in the accompanying consolidated statements of stockholders’ equity and comprehensive income (loss). Other comprehensive income (loss) is comprised of revenues, expenses, gains, and losses that under GAAP are reported as separate components of stockholders’ equity instead of net income (loss).
| 1.20 | Recently Issued Accounting Standards |
The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financials properly reflect the change. The Company currently does not have any recent accounting pronouncements that they are studying and feel may be applicable.
| 1.21 | Reverse Acquisition Accounting |
In accordance with “reverse acquisition” accounting treatment, our historical financial statements as of period ends, and for periods ended, prior to the Acquisition will be replaced with the historical financial statements of Sincerity Australia Pty Ltd (“SAPL”), prior to the Acquisition, in all future filings with the SEC. Consequently retroactive adjustments have been made to the equity balances of SAPL to reflect the equity balances of the legal parent company Sincerity Applied Materials Holdings Corp as required under ASC 805 and the application of reverse acquisition accounting.
| 1.22 | COVID-19 |
The outbreak of the novel strain of coronavirus (“COVID-19”) and the ongoing pandemic, has resulted in governments worldwide enacting various emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, border shutdowns, self-imposed quarantine periods, closing of non-essential businesses and social distancing, have caused material disruption to businesses globally resulting in an economic slowdown. In addition, global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions.
| 11 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
| 2. | Critical Accounting Estimates and Judgments |
The Directors evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Company.
Key Estimates
| (i) | Useful lives |
The Company determines the estimated useful lives and related depreciation and amortization charges for its property and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortization charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.
| (ii) | Income tax |
The Company is subject to income taxes in the jurisdictions in which it operates. Significant judgement is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on the Company’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.
Key Judgments
| (i) | Provision for impairment of receivables |
The provision for impairment of receivables assessment requires a degree of estimation and judgement. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtors’ financial position.
| (ii) | Impairment |
The Company assessed that no indicators of impairment existed at the reporting date and as such no impairment testing was performed.
| 3. | Segment Information |
The consolidated entity operates predominantly in one industry and one geographical segment, those being sales of technical advanced plastics materials in Australia, respectively.
| 12 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
| 4. | Cash and Cash Equivalents |
Cash at the end of the financial periods as shown in the statement of cash flows is reconciled to items in the balance sheets as follows:
June 30, 2020 (not reviewed) | December 31, 2019 (not audited) | |||||||
| Cash at bank | $ | 19,498 | $ | 22,063 | ||||
| Petty Cash | 686 | 701 | ||||||
| $ | 20,184 | $ | 22,764 | |||||
| 5. | Account Receivables and Other Assets |
June 30, 2020 (not reviewed) | December 31, 2019 (not audited) | |||||||
| Current | ||||||||
| Account Receivables | $ | 172,875 | $ | 93,038 | ||||
| Deferred Expenditure | – | – | ||||||
| $ | 172,875 | $ | 93,038 | |||||
Deferred expenditure represented deposits paid to supplier for order processing.
| 6. | Property, Plant and Equipment |
| June 30, 2020 (not reviewed) | December 31, 2019 (not audited) | Estimated Useful Lives | ||||||||
| Vehicles | $ | 131,242 | $ | 131,242 | 5 years | |||||
| Office equipment and furniture and fixtures | 25,565 | 25,565 | 5 years | |||||||
| 156,807 | 156,807 | |||||||||
| Less: accumulated depreciation | 52,197 | 48,297 | ||||||||
| Total, net of accumulated depreciation | $ | 104,610 | $ | 108,510 | ||||||
| 7. | Accrued and Other Liabilities |
June 30, 2020 (not reviewed) | December 31, 2019 (not audited) | |||||||
| Current | ||||||||
| Accrued expenses | $ | 79,712 | $ | 88,542 | ||||
| Deferred Income | – | 30,713 | ||||||
| $ | 79,712 | $ | 119,255 | |||||
Deferred Income represented deposits received from customers for order processing.
| 13 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
| 8. | Long-term debt |
The Company has a chattel mortgage outstanding at June 30, 2020 secured by a motor vehicle requiring monthly payments approximating $2,642 (and a final payment approximating $45,468) that includes interest approximating 6.2%, and maturing on August 22, 2022. The components of the balance due under the chattel mortgage at June 30, 2020 are as follows:
June 30, 2020 (not reviewed) | December 31, 2019 (not audited) | |||||||
| Chattel mortgage | $ | 90,368 | $ | 129,870 | ||||
| Less: current portion | (21,377 | ) | (21,619 | ) | ||||
| $ | 68,991 | $ | 108,251 | |||||
Maturities of long-term debt at June 30, 2020 for each of the next five years and in the aggregate, are as follows:
June 30, 2020 (not reviewed) | December 31, 2019 (not audited) | |||||||
| Next 12 months | $ | 30,998 | $ | 31,644 | ||||
| 2 years | 30,998 | 31,644 | ||||||
| 3 years | 49,597 | 66,582 | ||||||
| 4 years | – | – | ||||||
| $ | 111,593 | $ | 131,304 | |||||
| 9. | Line of credit |
June 30, 2020 (not reviewed) | December 31, 2019 (not audited) | |||||||
| Business Loan | $ | 102,808 | $ | 105,194 | ||||
| Business Credit Card | 657 | 613 | ||||||
| Short-term borrowing | 80,000 | 80,000 | ||||||
| $ | 183,465 | $ | 185,807 | |||||
The Company has a total $950,000 (AUD) bank credit line (approximately $651,985 (USD) at June 30, 2020) personally guaranteed by certain Company officers, and secured by real property owned by those officers, available to be used for core business working capital requirements, $800,000 (AUD) of which is designated as the “mortgage loan” portion with the remaining balance of $150,000 (AUD) designated as the “business loan” portion. The mortgage loan portion of the credit line is subject to the bank’s business mortgage index rate (5.45% per annum at June 30, 2020) minus 2.23% per annum for a maximum term of 30 years from the first drawdown date, and the business loan portion of the credit line is subject to the bank’s business mortgage index rate minus 1.08% per annum for a maximum term of 15 years from the first drawdown date. The business loan at June 30, 2020, $102,808 (USD) is drawn and payable on the business loan; no drawings have been made on the mortgage loan as of the balance sheet date. Interest only is due monthly in arrears for the first 3 years from the first drawdown date for draws from the mortgage loan and from the business loan.
| 14 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
| 10. | Income Tax Expense |
| (a) | The components of tax (expense)/income comprise: |
June 30, 2020 (not reviewed) | December 31, 2019 (not audited) | |||||||
| Current tax | ||||||||
| - Australia | $ | 24,756 | $ | 241 | ||||
| - US | – | – | ||||||
| Total | $ | 24,756 | $ | 241 | ||||
| (b) | The prima facie tax on profit from ordinary activities before income tax is reconciled to income tax as follows: | |
| Profit/(loss) from continuing operations before income tax expense: |
| - Australia | $ | 95,217 | $ | 877 | ||||
| - US | (19,145 | ) | (12,325 | ) | ||||
| Total | $ | 76,072 | $ | (11,448 | ) | |||
| Income tax expense/(credit) at statutory rate: | ||||||||
| - Australia | $ | 24,756 | $ | 241 | ||||
| - US | (4,020 | ) | (2,588 | ) | ||||
| Total | $ | 20,736 | $ | (2,347 | ) | |||
| Tax effect amounts which are not deductible/(taxable) in calculating taxable income: | ||||||||
| Valuation allowance | – | – | ||||||
| Other adjustments | 4,020 | 2,588 | ||||||
| Consolidated income tax expense/(income) | $ | 4,020 | $ | 2,588 |
On December 22, 2017, new tax reform legislation in the U.S., known as the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law. At June 30, 2020, the Company has not yet completed its accounting assessment for the tax effects of the enactment of the Act; however, as described below, the Company has made a reasonable estimate of the effects on the existing deferred tax balances.
As a result of the lower enacted corporate tax rate, the Company has remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The provisional amount recorded of our tax balance was $4,020 that is fully offset by accumulated losses from earlier periods.
Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of US GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company has provisionally determined that there is no deferred tax benefit or expense with respect to the remeasurement of certain deferred tax assets and liabilities due to the full valuation allowance against net deferred tax assets. The Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. Additional analysis of the law and the impact to the Company will be performed and any impact will be recorded in the respective quarter in 2020.
| 15 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
| 11. | Other Comprehensive Earnings |
June 30, 2020 (not reviewed) | December 31, 2019 (not audited) | |||||||
| Foreign currency translation reserve | $ | (2,869 | ) | $ | 44,871 | |||
| 12. | Capital and Leasing Commitments |
There was no capital or leasing expenditure at June 30, 2020.
| 13. | Contingencies |
From time to time, we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any material legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, we are not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Furthermore, as of the date of this Quarterly Report, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party adverse to our company or has a material interest adverse to us.
| 14. | Related Party Transactions |
| (a) | Subsidiary |
Sincerity Australia Pty Ltd which is incorporated in Australia and Prana Hong Kong Limited which is incorporated in Hong Kong are wholly owned subsidiaries of Sincerity Applied Materials Holdings Corp.
| (b) | Outstanding balances with related parties |
The following balances are outstanding at reporting date in relation to transactions with related parties:
June 30, 2020 (not reviewed) | December 31, 2019 (not audited) | |||||||
| Loan to Stockholder | 376,200 | $ | 298,873 | |||||
| Three months ended June 30, | ||||||||
2020 (not reviewed) | 2019 (not reviewed) | |||||||
| Purchase from Shanghai Sincerity Co Ltd | $ | – | $ | 19,617 | ||||
| 16 |
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
| 15. | Events After the Reporting Period |
There has not arisen in the interval between the end of the financial period and the date of these financial statements any other item, transaction or event of a material and unusual nature likely, in the opinion of the Directors of the Company, to affect significantly the operation of the company, the results of those operations, or the state of affairs of the company, in future financial years except for:
| (a) | On August 5, 2021, the New York County Supreme Court has granted Section 3(a)(10) of the Securities Act of 1933 as amended exempts the offer and sale of securities in certain exchange transactions from the registration statement requirements in the case of Infinity Fund LLC v Sincerity Applied Materials Holdings Corp. |
| (b) | On August 20, 2020, the Group has entered into a stock purchase agreement with Simcor (Jiangsu) Materials Technology Ltd (SMTL), a company formed in the Peoples Republic of China with its registered address at No 67, Yanzhen East Rd, Niutang, Wujin, Changzhou, Jiangsu, China. SMTL will sell to the group 2,000,000 ordinary shares to the Group for a consideration of USD 2,500,000. SMTL also will issue and sell to the Group 5,000,000 ordinary shares for a consideration of USD 4,500,000. |
The Group has issued a USD 7,000,000 promissory note to the shareholder of SMTL and assigned the debt to Infinity Fund LLC for the same amount of USD 7,000,000 subject to the granting of Section 3(a)(10) of the Securities Act of 1933 as described in Note 15(a).
At the date of this report, the transaction is still pending settlement.
| 17 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management’s discussion and analysis should be read in conjunction with the historical financial statements and the related notes thereto contained in this report. The management’s discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.
The following discussion highlights the Company’s results of operations and the principal factors that have affected our financial condition, as well as our liquidity and capital resources for the periods described, provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on the Company’s unaudited financial statements contained in this Quarterly Report, which we have prepared in accordance with United States generally accepted accounting principles. You should read this discussion and analysis together with such financial statements and the related notes thereto.
Company Overview
Through our wholly owned subsidiary, Sincerity Australia Pty Ltd. (“SAPL”), we primarily operate as a distributor and reseller of applied materials, particularly plastics, with an extensive network in China of high quality suppliers for a wide range of both basic and high application polymer products ranging from generic construction materials to high end breathable stretch film and antibacterial sheeting. SAPL is based in Melbourne, Australia and distributes to a number of larger resellers and end users, including Visy Industries (trading as Pratt Group America in the USA), one of the world’s largest packaging and recycling groups.
SAPL’s business was commenced in 2009 by James Zhang, our Chairman, President and Chief Executive Officer and the son of the founder of (i) Changzhou Sincerity Plastics and Chemicals Technology Ltd. (“Sincerity China”), a well-established plastics and applied materials manufacturer with a 20-year operating history, based in Changzhou, China, and (ii) Shanghai Sincerity Co. Ltd., a Shanghai, China based company through which most of the products we purchase from Sincerity China are sourced and sold to us. SAPL originally commenced operations by supplying basic extruded plastic components (moldings, auto interior components, kitchen splash backs etc.) to the Australian auto, retail and construction industries. In 2015, SAPL began importing specialty high quality plastic trays and film for use in fresh food packaging and distribution. The first major customer for this business was the Propac Group, leading supplier of plastic packaging materials to Coles, one of Australia’s 2 dominant supermarket chains.
Over the past 3 years, SAPL has refocused its marketing efforts towards larger resellers and distributors in Australia, allowing SAPL to build strong relationships with key industry players who acquire its products for their own distribution and reseller networks. Research and investment in addressing the key fresh food issue of plastic film “breathability” has created a unique technology platform whereby air circulation in packaged foods can be adjusted according to the type of food. This has the effect of prolonging shelf life, key to building relationship metrics within the food retailing industry. SAPL recently started to supply Visy Industries, with high technology, breathable plastic film for use in Visy Industries’ packaging supply contract with the other dominant player in Australia’s supermarket industry.
Presently all of SAPL’s revenue is derived from sales within the Australian market, however, due to the strong international presence of SAPL’s major customers such as Visy, particularly in the US, combined with the technology metrics of SAPL’s product range (breathable stretch film and antibacterial polymer products), it is expected that SAPL’s products will be increasingly utilized in global markets.
SAPL will continue with the process of further vertical integration of its product range. Value adding packaging technology, such as breathable film, and ventilated stretch film, is expected to provide an innovative edge over our competition. Rapid growth in demand from fresh fruit and vegetable packaging is already reflected through increasing sales to Visy Industries and will also allow SAPL to transition these new products to the global market.
| 18 |
SAPL supplies Australian market with a well-diversified product range, while commodity type provides a strong foundation of business grow, the value adding innovations on each product will bring SAPL to the next level and expand for beyond Australia.
SAPL is fast growing, it is running at loss as a public company and needs more working capital for stronger growth.
SAPL’s flag ship range in ventilated packaging are in the final stage of commercial production, and it is expected to disrupt the fresh produce packaging market with strong performance and competitive price.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||
| Note | 2020 $ (not reviewed) | 2019 $ (not reviewed) | 2020 $ (not reviewed) | 2019 $ (not reviewed) | ||||||||||||||
| Revenue | ||||||||||||||||||
| Sales | 211,216 | 161,005 | 304,802 | 396,656 | ||||||||||||||
| Cost of sales | (133,217 | ) | (122,352 | ) | (214,842 | ) | (351,535 | ) | ||||||||||
| Gross profit | 77,999 | 38,653 | 89,960 | 45,121 | ||||||||||||||
| Operating expenses | ||||||||||||||||||
| Depreciation and amortization | 1,948 | 2,335 | 3,900 | 4,753 | ||||||||||||||
| Selling, general and administrative expenses | (11,063 | ) | 10,259 | (7,042 | ) | 18,595 | ||||||||||||
| Employee expenses | – | – | – | – | ||||||||||||||
| Professional service fees | 36,804 | 16,713 | 36,870 | 26,545 | ||||||||||||||
| Dispute settlement | – | 7,664,828 | – | 7,664,828 | ||||||||||||||
| Repairs and maintenance | – | – | – | – | ||||||||||||||
| Total operating expenses | 27,689 | 7,694,135 | 33,728 | 7,714,721 | ||||||||||||||
| Income / (Loss) from operations | 50,310 | (7,655,482 | ) | 56,232 | (7,669,600 | ) | ||||||||||||
| Other income/(expenses) | ||||||||||||||||||
| Other income | 18,958 | 4,796 | 23,470 | 9,676 | ||||||||||||||
| Interest expense | (1,306 | ) | (4,468 | ) | (2,721 | ) | (9,099 | ) | ||||||||||
| Other Finance Gain | – | – | – | – | ||||||||||||||
| Discount on Convertible note | – | – | – | – | ||||||||||||||
| Loss on derivative financial instrument | – | – | – | – | ) | |||||||||||||
| Fair value adjustment of Warrant liabilities | – | – | – | – | ||||||||||||||
| Foreign currency transaction loss | 8,111 | (7,514 | ) | (4,822 | ) | (7,837 | ) | |||||||||||
| Total other income/ (expenses) | 25,762 | (7,186 | ) | (15,927 | ) | (7,260 | ||||||||||||
| Income/(Loss) from continuing operations before income tax expenses | 76,072 | (7,662,668 | ) | 72,159 | (7,676,860 | |||||||||||||
| Income tax benefit/(expense) | 10 | (24,756 | ) | (4,208 | ) | 24,006 | (174 | ) | ||||||||||
| Net income/(Loss) after income tax expense for the period | 51,316 | (7,666,876 | ) | 48,153 | (7,677,034 | ) | ||||||||||||
| Other comprehensive income /(loss) | ||||||||||||||||||
| Exchange differences arising on translation of foreign operations | (13,133 | ) | 7,504 | (47,740 | ) | 4,156 | ||||||||||||
| Other comprehensive income/(loss) | (13,133 | ) | 7,504 | (47,740 | ) | 4,156 | ||||||||||||
| Total comprehensive income/(Loss) for the period | 38,183 | (7,659,372 | ) | 413 | (7,672,878 | ) | ||||||||||||
| Net (loss)/gain per share | ||||||||||||||||||
| Basic and diluted | 0.00 | (0.14 | ) | 0.00 | (0.28 | ) | ||||||||||||
| Weighted average number of common stock outstanding | ||||||||||||||||||
| Basic and diluted | 73,590,730 | 54,195,565 | 73,590,730 | 27,272,719 | ||||||||||||||
| 19 |
Revenues
Revenue was $211k for the three months ended June 30, 2020, compared to $161k for the three months ended June 30, 2019, a decrease of $50k. The decrease can be attributed to timing and quantity of orders by our customers and the type of products they purchase, which can vary in margin.
Selling, general and administrative expenses
Selling, general and administrative expenses was a credit of $11k for the three months ended June 30, 2020, compared to an expense of $10k for the three months ended June 30, 2019. This is due to reduce level of business activities and over accruals of expenses previously.
Employee expenses
No employee expense was an incurred for the 3 months ended June 30, 2020.
Professional service fees
Professional service fees were $37k for the three months ended June 30, 2020, compared to $17k for the three months ended June 30, 2019. The increase can be attributed to timing of professional services fees being incurred depending on the need to engage consultants.
Dispute settlement
The company settled the claim lodged by the Zhang Family Trust in relation to their shares that were transferred to various advisers for services relating to the reverse acquisition that they believed were not delivered to them as the majority shareholder of the company. This claim was based on 5,748,635 shares transferred valued at $7,664,827. This has subsequently been revised.
Other Income and Expenses
The increase in other income and expenses was due the business receiving financial assistance from the Australian Government in response to the effects of COVID-19.
Liquidity and Capital Resources
At June 30, 2020, the company had a working capital deficit of $85,034 and net asset of $38,183 (December 31, 2019 working capital deficit of $99,743 and net asset $46,137). The Company reported an after tax income of $51,316 for the three months ended June 30, 2020 (June 30, 2019 after tax loss: $7,666,876).
Our primary uses of cash have been for operations. The main sources of cash have been from business activities and government assistance.
The Company believes that cash flow from operations will be sufficient to sustain its current level of operations for at least the next three months of operations.
As of June 30, 2020, we had cash and cash equivalent of approximately $20,000, which might not be sufficient to fund our operating and capital needs in the short term. The Company has been seeking funding from various sources as discussed below:
| (i) | The company has the ability to raise fund through private placements and convertible notes; | |
| (ii) | The company has been streamlining its operation by reducing operation costs; and | |
| (iii) | Applying for financial assistance from the Australian Government available for businesses impacted by COVID-19 |
| 20 |
In the six months ended June 30, 2020, the net cash provided by operating activities primarily reflects the income from operations of approximately $48,000 with approximately $91,000 in changes in operating assets and liabilities, offset by non-cash items of approximately $5,000 and amortization and depreciation of approximately $4,000 that had no effect on cash flows.
Net cash used for investing activities of approximately $Nil and $Nil for the six months ended June 30, 2020 and three months ended June 30, 2019, respectively.
Net cash used in financing activities was approximately $98,000 for the six months ended June 30, 2020 compared to net cash used of approximately $43,000 for financial activities for the six months ended June 30, 2019. In the six months ended June 30 31, 2020, the Company repaid its finance lease liabilities and advances to related parties.
Critical Accounting Estimates and Judgments
The Directors evaluate estimates and judgments incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Company.
Key Estimates
| (i) | Useful lives |
The Company determines the estimated useful lives and related depreciation and amortization charges for its property and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other event. The depreciation and amortization charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.
| (ii) | Income tax |
The Company is subject to income taxes in the jurisdictions in which it operates. Significant judgment is required in determining the provision for income tax. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Company recognizes liabilities for anticipated tax audit issues based on the Company’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.
| (iii) | Fair value measure of shares issued, convertible notes payable and common stock warrants |
The calculation of the fair value of shares issued requires significant estimate to be made in regards to several variables. The estimations made are subject to variability that may alter the overall fair value determined.
Key Judgments
| (i) | Provision for impairment of receivables |
The provision for impairment of receivables assessment requires a degree of estimation and judgment. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtors’ financial position.
| (ii) | Impairment |
The Company assessed that no indicators of impairment existed at the reporting date and as such no impairment testing was performed.
| 21 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. At the end of the quarter ended June 30, 2020, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) and Rule 15d-15(e) under the 1934 Act. Based on this evaluation, management concluded that as of June 30, 2020 our disclosure controls and procedures were not effective due to material weaknesses resulting from our internal controls and procedures including (1) lack of a functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) lack of an audit committee financial expert (as such term is defined in Item 407(d)(5)(ii) of Regulation S-K) on our board of directors; (3) inadequate segregation of duties consistent with control objectives; and (4) ineffective controls over period end financial disclosure and reporting processes.
Changes in Internal Controls
During the quarter ended June 30, 2020, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
| 22 |
From time to time, we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any material legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, we are not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Furthermore, as of the date of this Quarterly Report, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party adverse to our company or has a material interest adverse to us.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
There are no unregistered sales of equity securities during the period covered by this report that were not previously reported in a Current Report on Form 8-K.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None
This Form 10-Q for the 3 months ended June 30, 2020 has not been reviewed by its independent auditor, ShineWing Australia. The company will submit an amended Form 10-Q upon the completion of the review.
| Exhibit Number | Exhibit Description | |
| 31.1 | Certification of Principal Executive Officer Pursuant to Rule 13a-14 | |
| 31.2 | Certification of Principal Financial Officer Pursuant to Rule 13a-14 | |
| 32.1* | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act | |
| 32.2* | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| * | Furnished herewith. |
| 23 |
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SINCERITY APPLIED MATERIALS HOLDINGS CORP. | ||
| September 8,2021 | By: | /s/ Yiwen Zhang |
|
Yiwen Zhang Chief Executive Officer (Principal Executive Officer) | ||
| September 8, 2021 | By: | /s/ Chris Lim |
|
Chris Lim Chief Financial Officer (Principal Financial and Accounting Officer) | ||
| 24 |
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Yiwen Zhang, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Sincerity Applied Materials Holdings Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Sincerity Applied Materials Holdings Corp. | |||
| Dated: September 8, 2021 | By: | /s/ Yiwen Zhang | |
| Yiwen Zhang | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) | |||
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Chris Lim, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Sincerity Applied Materials Holdings Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Sincerity Applied Materials Holdings Corp. | |||
| Dated: September 8, 2021 | By: | /s/ Chris Lim | |
| Chris Lim | |||
| Chief Financial Officer | |||
| (Principal Financial Officer and Principal Accounting Officer) | |||
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT of 2002
In connection with the Quarterly Report of Sincerity Applied Materials Holdings Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), Yiwen Zhang, Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Quarterly Report, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Sincerity Applied Materials Holdings Corp. | |||
| Dated: September 8, 2021 | By: | /s/ Yiwen Zhang | |
| Yiwen Zhang | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) | |||
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT of 2002
In connection with the Quarterly Report of Sincerity Applied Materials Holdings Corp. (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Quarterly Report”), Chris Lim, Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Quarterly Report, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Sincerity Applied Materials Holdings Corp. | |||
| Dated: September 8, 2021 | By: | /s/ Chris Lim | |
| Chris Lim | |||
| Chief Financial Officer | |||
| (Principal Accounting Officer) | |||