Item 1. Financial Statements.
SINCERITY APPLIED MATERIALS HOLDINGS
CORP.
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 2019 (Not Reviewed) and
2018
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Consolidated Balance Sheets
As at September 30, 2019 (not reviewed) and December 31,
2018
|
|
Note
|
|
September 30,
2019
(not reviewed)
$
|
|
|
December 31,
2018
$
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
4
|
|
|
7,858
|
|
|
|
23,245
|
|
Other assets
|
|
5
|
|
|
11,110
|
|
|
|
1,184
|
|
Accounts receivables
|
|
5
|
|
|
61,402
|
|
|
|
145,222
|
|
Related party loan
|
|
|
|
|
–
|
|
|
|
136,400
|
|
Total current assets
|
|
|
|
|
80,370
|
|
|
|
306,051
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated depreciation and amortization
|
|
6
|
|
|
129,320
|
|
|
|
134,890
|
|
Deferred tax asset
|
|
10
|
|
|
119,156
|
|
|
|
124,874
|
|
Total non-current assets
|
|
|
|
|
248,476
|
|
|
|
259,764
|
|
Total assets
|
|
|
|
|
328,846
|
|
|
|
565,815
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity/(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts payables
|
|
|
|
|
180,411
|
|
|
|
105,632
|
|
Accrued and other liabilities
|
|
7
|
|
|
89,493
|
|
|
|
136,403
|
|
Long-term debt – current position
|
|
8
|
|
|
21,047
|
|
|
|
20,535
|
|
Line of credit
|
|
9
|
|
|
181,866
|
|
|
|
186,812
|
|
Related party loan
|
|
|
|
|
7,387,509
|
|
|
|
–
|
|
Total current liabilities
|
|
|
|
|
7,860,326
|
|
|
|
449,382
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt – non-current position
|
|
8
|
|
|
89,939
|
|
|
|
110,769
|
|
Total non-current liabilities
|
|
|
|
|
89,939
|
|
|
|
110,769
|
|
Total liabilities
|
|
|
|
|
7,950,265
|
|
|
|
560,151
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
50,413
|
|
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
|
|
|
|
|
(11,218,054
|
)
|
|
|
(3,500,406
|
)
|
Foreign currency translation differences
|
|
11
|
|
|
83,273
|
|
|
|
66,248
|
|
Total stockholders’ surplus/(deficit)
|
|
|
|
|
(7,621,419
|
)
|
|
|
5,664
|
|
Total liabilities and stockholders’ equity
|
|
|
|
|
328,846
|
|
|
|
565,815
|
|
See accompanying notes to not reviewed
condensed consolidated financial statements
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Consolidated Statement of Operations
For the three months and the nine months ended September
30, 2019 (not reviewed) and 2018
|
|
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
Note
|
|
2019
$
(not reviewed)
|
|
|
2018
$
|
|
|
2019
$
(not reviewed)
|
|
|
2018
$
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
101,799
|
|
|
|
442,431
|
|
|
|
498,455
|
|
|
|
1,177,032
|
|
Cost of sales
|
|
|
|
|
(118,838
|
)
|
|
|
(416,910
|
)
|
|
|
(470,373
|
)
|
|
|
(1,104,072
|
)
|
Gross profit
|
|
|
|
|
(17,039)
|
|
|
|
25,521
|
|
|
|
28,082
|
|
|
|
72,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
2,020
|
|
|
|
4,630
|
|
|
|
6,772
|
|
|
|
17,403
|
|
Selling, general and administrative expenses
|
|
|
|
|
7,874
|
|
|
|
23,821
|
|
|
|
26,469
|
|
|
|
91,826
|
|
Employee expenses
|
|
|
|
|
–
|
|
|
|
(10,267)
|
|
|
|
–
|
|
|
|
14,430
|
|
Professional service fees
|
|
|
|
|
5,609
|
|
|
|
69,718
|
|
|
|
32,154
|
|
|
|
242,941
|
|
Dispute settlement
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,664,828
|
|
|
|
–
|
|
Chattle Mortgage charges
|
|
|
|
|
–
|
|
|
|
661
|
|
|
|
–
|
|
|
|
661
|
|
Repairs and maintenance
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
31
|
|
Total operating expenses
|
|
|
|
|
15,503
|
|
|
|
88,563
|
|
|
|
7,730,223
|
|
|
|
367,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income / (Loss) from operations
|
|
|
|
|
(32,542
|
)
|
|
|
(63,042)
|
|
|
|
(7,702,141
|
)
|
|
|
(294,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
4,700
|
|
|
|
19,326
|
|
|
|
14,377
|
|
|
|
30,455
|
|
Interest expense
|
|
|
|
|
(4,220
|
)
|
|
|
(2,772
|
)
|
|
|
(13,319
|
)
|
|
|
(236,523
|
)
|
Other Finance Gain
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
614,679
|
|
Discount on Convertible note
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
320,527
|
|
Loss on derivative financial instrument
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(23,469
|
)
|
Fair value adjustment of Warrant liabilities
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
409,173
|
|
Foreign currency transaction loss
|
|
|
|
|
(24,348
|
)
|
|
|
(20,337
|
)
|
|
|
(32,185
|
)
|
|
|
(46,994
|
)
|
Total other income/ (expenses)
|
|
|
|
|
(23,868
|
)
|
|
|
(3,783)
|
|
|
|
(31,127
|
)
|
|
|
1,067,848
|
|
Income/(Loss) from continuing operations before income tax expenses
|
|
|
|
|
(56,410
|
)
|
|
|
(66,825)
|
|
|
|
(7,733,268
|
)
|
|
|
773,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit/(expense)
|
|
10
|
|
|
15,794
|
|
|
|
8,414
|
|
|
|
15,620
|
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(Loss) after income tax expense for the period
|
|
|
|
|
(40,616
|
)
|
|
|
(58,411)
|
|
|
|
(7,717,648
|
)
|
|
|
774,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income /(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences arising on translation of foreign operations
|
|
|
|
|
12,869
|
|
|
|
33,718
|
|
|
|
17,025
|
|
|
|
70,091
|
|
Other comprehensive income/(loss)
|
|
|
|
|
12,869
|
|
|
|
33,718
|
|
|
|
17,025
|
|
|
|
70,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(Loss) for the period
|
|
|
|
|
(27,747
|
)
|
|
|
(24,693)
|
|
|
|
(7,700,623
|
)
|
|
|
844,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/gain per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(0.18
|
)
|
|
|
0.02
|
|
Weighted average number of common stock outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
73,590,730
|
|
|
|
50,413,334
|
|
|
|
42,881,719
|
|
|
|
49,961,411
|
|
See accompanying notes to not reviewed condensed
consolidated financial statements
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Consolidated Statement of Changes in Stockholders’
Equity / (Deficit)
For the three, six and nine months ended September 30, 2019
(not reviewed) and 2018
|
|
Common
Stock
|
|
|
Additional
Paid in
|
|
|
Other
Comprehensive
|
|
|
Accumulated
|
|
|
Adjustments
to equity to reflect retroactive application of reverse acquisition
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Losses
|
|
|
accounting
|
|
|
(Deficit)/Equity
|
|
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 period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
(10,158
|
)
|
|
|
–
|
|
|
$
|
(10,158
|
)
|
Other comprehensive loss
for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
(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
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
(7,666,874
|
)
|
|
|
–
|
|
|
$
|
(7,666,874
|
)
|
Other comprehensive income
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 30, 2019 (not reviewed)
|
|
|
73,590,730
|
|
|
$
|
123,953
|
|
|
$
|
3,442,920
|
|
|
$
|
70,404
|
|
|
$
|
(11,177,438
|
)
|
|
$
|
(53,511
|
)
|
|
$
|
(7,593,672
|
)
|
Loss after income tax
expense for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
(40,616
|
)
|
|
|
–
|
|
|
$
|
(40,616
|
)
|
Other comprehensive income
for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
12,869
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
12,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019 (not
reviewed)
|
|
|
73,590,730
|
|
|
$
|
123,953
|
|
|
$
|
3,442,920
|
|
|
$
|
83,273
|
|
|
$
|
(11,218,054
|
)
|
|
$
|
(53,511
|
)
|
|
$
|
(7,621,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
49,483,334
|
|
|
$
|
49,483
|
|
|
$
|
2,183,850
|
|
|
$
|
(8,191
|
)
|
|
$
|
(4,262,212
|
)
|
|
$
|
(53,511
|
)
|
|
$
|
(2,090,581
|
)
|
Loss after income tax
expense for period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
(585,157
|
)
|
|
|
–
|
|
|
$
|
(585,157
|
)
|
Other comprehensive income
for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
13,710
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
13,710
|
|
New Share issuance during
the period (75k shares @ USD 1.33333/Share)
|
|
|
75,000
|
|
|
$
|
75
|
|
|
$
|
99,925
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2018
|
|
|
49,558,334
|
|
|
$
|
49,558
|
|
|
$
|
2,283,775
|
|
|
$
|
5,519
|
|
|
$
|
(4,847,369
|
)
|
|
$
|
(53,511
|
)
|
|
$
|
(2,562,028
|
)
|
Income after income tax
expense for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
1,417,682
|
|
|
|
–
|
|
|
$
|
1,417,682
|
|
Other comprehensive income
for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
22,663
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
22,663
|
|
New Share issuance during
the period (825k shares @ USD 1.33333/Share)
|
|
|
825,000
|
|
|
$
|
825
|
|
|
$
|
1,099,175
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,100,000
|
|
New Share issuance during
the period (30k shares @USD 2.00/Share)
|
|
|
30,000
|
|
|
$
|
30
|
|
|
$
|
59,970
|
|
|
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
|
|
50,413,334
|
|
|
$
|
50,413
|
|
|
$
|
3,442,920
|
|
|
$
|
28,182
|
|
|
$
|
(3,429,687
|
)
|
|
$
|
(53,511
|
)
|
|
$
|
38,317
|
|
Loss after income tax
expense for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
(58,411
|
)
|
|
|
–
|
|
|
$
|
(58,411
|
)
|
Other comprehensive income
for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
33,718
|
|
|
|
–
|
|
|
|
–
|
|
|
$
|
33,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2018
|
|
|
50,413,334
|
|
|
$
|
50,413
|
|
|
$
|
3,442,920
|
|
|
$
|
61,900
|
|
|
$
|
(3,488,098
|
)
|
|
$
|
(53,511
|
)
|
|
$
|
13,624
|
|
_____________________
*A 1000:1 reverse stock split took place on November 13, 2018
reducing the common stock by 50,362,604.
See accompanying notes to not reviewed condensed
consolidated financial statements
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Consolidated Statement of Cash Flows
For the nine months ended September 30, 2019(not reviewed)
and 2018
|
|
Nine months ended September 30,
|
|
|
|
2019
|
|
|
|
|
|
|
$
(not reviewed)
|
|
|
2018
$
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(7,717,648
|
)
|
|
|
774,114
|
|
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,772
|
|
|
|
17,403
|
|
FBT employee contribution
|
|
|
(14,377
|
)
|
|
|
(15,586
|
)
|
Gain on disposal of fixed assets
|
|
|
–
|
|
|
|
(14,314
|
)
|
Dispute settlement
|
|
|
7,664,828
|
|
|
|
–
|
|
Share based payment
|
|
|
4,040
|
|
|
|
–
|
|
Interest accrued on shareholder loan
|
|
|
–
|
|
|
|
59,438
|
|
Derivative liability
|
|
|
–
|
|
|
|
(1,356,424
|
)
|
Net difference on foreign exchange
|
|
|
10,848
|
|
|
|
44,599
|
|
Convertible notes settlement
|
|
|
–
|
|
|
|
(57,025
|
)
|
Other Finance and interest cost
|
|
|
–
|
|
|
|
149,493
|
|
Other Selling, general and administrative Adj
|
|
|
–
|
|
|
|
5,372
|
|
Net changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
(Increase)/decrease in trade and other receivables
|
|
|
83,820
|
|
|
|
20,230
|
|
(Increase)/decrease in other assets
|
|
|
(9,926
|
)
|
|
|
25,720
|
|
Increase/(decrease) in trade and other payables
|
|
|
34,023
|
|
|
|
(110,405
|
)
|
Increase/(decrease) in other liabilities
|
|
|
(6,155
|
)
|
|
|
(123,368
|
)
|
Decrease in deferred tax asset
|
|
|
5,718
|
|
|
|
1,797
|
|
Decrease in tax provision
|
|
|
–
|
|
|
|
–
|
|
Net cash (used in)/provided by operating activities
|
|
|
61,943
|
|
|
|
(578,956
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
–
|
|
|
|
83,500
|
|
Proceeds from issue of common stock
|
|
|
–
|
|
|
|
1,200,000
|
|
Settlement of Convertible notes
|
|
|
–
|
|
|
|
(304,000
|
)
|
Other Finance cost and interest paid
|
|
|
–
|
|
|
|
(149,493
|
)
|
Repayment of borrowings
|
|
|
–
|
|
|
|
(9,737
|
)
|
Repayment of advances from related entities
|
|
|
(57,042
|
)
|
|
|
(104,358
|
)
|
Payment of finance lease liabilities
|
|
|
(20,317
|
)
|
|
|
(27,719
|
)
|
Net cash (used in)/ provide by financing activities
|
|
|
(77,359
|
)
|
|
|
688,193
|
|
Net increase in cash and cash equivalents
|
|
|
(15,416
|
)
|
|
|
109,237
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
29
|
|
|
|
27,123
|
|
Adjustment to equity to reflect retroactive application of reverse acquisition accounting
|
|
|
–
|
|
|
|
–
|
|
Cash and cash equivalents at the beginning of period
|
|
|
23,245
|
|
|
|
63,649
|
|
Cash and cash equivalents at the end of period
|
|
$
|
7,858
|
|
|
$
|
200,009
|
|
See accompanying notes to not reviewed condensed
consolidated financial statements
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
1.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
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.
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.
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 September 30, 2019, the
company had a current asset deficiency of $7,779,956 and net asset deficiency of $7,621,419 (December 31, 2018 current asset
deficiency of $143,331 and net asset surplus $5,664). The Company reported an after tax loss of $7,717,648 for the nine
months ended September 30, 2019 (September 30, 2018 after tax income: $774,114).
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 or convertible notes and had prior success. The company is currently in discussion with financiers to raise more fund;
|
|
(ii)
|
The company is expected to increase its revenue by launching new products line during the year;
|
|
(iii)
|
The company constantly reduced costs to improve its financial performance.
|
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
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.
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 nine
months ended September 30, 2019. Accumulated net translation adjustments have been reported separately in other
comprehensive loss in the financial statements. Foreign currency translation adjustments resulted in a gain of $17,025 for
the nine months ended September 30, 2019; 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 $32,185 for the nine months ended September 30, 2019, 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.
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 September 30 2019, management determined that no
allowance for doubtful accounts was required.
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
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.
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.
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.
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.
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated
Statements
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.
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 September
30, 2019.
|
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 nine months ended September 30, 2019, no impairment losses were recognized for long-lived assets.
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
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.
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
|
In February 2018, FASB
issued Accounting Standards Update 2018-01; Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842
which clarifies the application of the new leases guidance to land easements and eases adoption efforts for some land
easements. This guidance in ASU 2018-01 is effective for annual periods ending after December 15, 2016, including interim
period within those fiscal years and interim periods within annual periods beginning after December 15, 2016. An entity that
early adopted Topic 842 should apply the amendments in this Update upon issuance. We do not expect that the adoption will
have a material impact on our consolidated financial statements.
In February 2018, FASB issued
Accounting Standards Update 2018-02; Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain
Tax Effects from Accumulated Other Comprehensive Income. The amendments in the ASU addresses the accounting issue pertaining to
the deferred tax amounts that are “stranded” in accumulated other comprehensive income as a result of the Tax Cuts
and Jobs Act (the Act). We do not expect that the adoption will have a material impact on our consolidated financial statements.
The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2018 and interim
periods within those fiscal years. Early adoption is permitted. We do not expect that the adoption will have a material impact
on our consolidated financial statements.
In February 2018, FASB issued
Accounting Standards Update 2018-03; Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities. The technical corrections and improvements
intended to clarify certain aspects of the guidance on recognizing and measuring financial assets and liabilities in ASU 2016-01.
This includes equity securities without a readily determinable fair value, forward contracts and purchased options, presentation
requirements for certain fair value option liabilities, fair value option liabilities denominated in foreign currency and transition
guidance for equity securities without a readily determinable fair value. The amendments in this ASU are effective for interim
and annual periods beginning after December 15, 2017. Early application is permitted in any interim period after issuance of the
amendments as long as ASU 2016-01 is also adopted. We do not expect the adoption of this ASU to have a material effect on our
consolidated financial statements.
In July 2018, FASB issued Update
2018-10—Codification Improvements to Topic 842, Leases. The amendments in this Update affect the amendments in Update 2016-02,
which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842,
the amendments are effective upon issuance of this Update, and the transition requirements are the same as those in Topic 842.
For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective
date and transition requirements in Topic 842.
In July 2018, FASB issued Update
2018-11—Leases (Topic 842): Targeted Improvements. The amendments in this Update related to separating components of a contract
affect the amendments in Update 2016-02, which are not yet effective but can be early adopted. All entities, including early adopters,
that elect the practical expedient related to separating components of a contract in this Update must apply the expedient, by class
of underlying asset, to all existing lease transactions that qualify for the expedient at the date elected.
In August 2018, FASB issued Update
2018-13—Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value
Measurement. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied
prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments
should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance
of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay
adoption of the additional disclosures until their effective date. Effective for all entities for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2019. We do not expect that the adoption will have a material impact
on our consolidated financial statements.
Other accounting standards that
have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact
on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have
an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
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.
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.
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
2.
|
Critical Accounting Estimates and Judgments (continued)
|
Key Estimates
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.
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.
|
(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.
Convertible notes payable are
analyzed at issue date to determine balance sheet classification, issue discounts or premiums, and embedded or derivative features.
Embedded or derivative features are evaluated in accordance with accounting guidance for derivative securities and, if the features
give rise to separate accounting, we make an election to account for the convertible notes payable at cost or at fair value. If
fair value accounting is elected, on the issue date we record the difference between the issue price of the convertible notes
payable and the separated embedded derivative where applicable, and their respective fair values, where applicable, as a gain
or loss in the consolidated statement of operations. We re-measure the fair value at each reporting date and record again (upon
a decrease in fair value) or loss (upon an increase in fair value) for the change in fair value of each separate component being
the convertible note payable and the embedded derivative where applicable. Fair value is determined using a black scholes valuation
model with; inputs to the model include the market value of the underlying stock, a life equal to the contractual life of the
notes, incremental borrowing rates that correspond to debt with similar credit worthiness, estimated volatility based on the historical
prices of our trading securities, and we make assumptions as to our abilities to test and commercialize our product(s), to obtain
future financings when and if needed, and to comply with the terms and conditions of the notes. Following an analysis of their
embedded and derivative features and a projection of the volatility of their effective interest rates under the cost method, we
elected to utilize fair value accounting for the convertible notes payable, along with the separated embedded derivatives and
we issued on during the years ended December 31, 2018 and 2017. Management believes the fair value method of accounting provides
a more appropriate presentation of these liabilities than would be provided under the cost method.
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
2.
|
Critical Accounting Estimates and Judgments (continued)
|
In
accordance with ASC 480 “Distinguishing Liabilities from Equity,” we record the fair value of warrants issued for the
purchase of common stock as a liability since the warrants call for issuance of registered shares upon exercise, a condition that
we may not be able to accommodate and which would then result in a net settlement of the warrants. Until the time the warrants
are exercised or expire, the fair value is assessed at each reporting date utilizing a black scholes valuation model and any change
in value is recorded as a gain or loss component of other income (expense) in our consolidated statement of operations. Inputs
to the valuation model are of the same nature as those used for our convertible notes payable and any separated embedded derivatives
where applicable.
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.
The Company assessed that no indicators
of impairment existed at the reporting date and as such no impairment testing was performed.
The consolidated entity operates
predominantly in one industry and one geographical segment, those being sales of technical advanced plastics materials in Australia,
respectively.
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:
|
|
September 30, 2019
(not reviewed)
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Cash at bank
|
|
$
|
7,182
|
|
|
$
|
22,539
|
|
Petty Cash
|
|
|
676
|
|
|
|
706
|
|
|
|
$
|
7,858
|
|
|
$
|
23,245
|
|
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
5.
|
Account Receivables and Other Assets
|
|
|
September 30, 2019
(not reviewed)
|
|
|
December 31, 2018
|
|
Current
|
|
|
|
|
|
|
|
|
Account Receivables
|
|
$
|
61,402
|
|
|
$
|
145,222
|
|
Deferred Expenditure
|
|
|
11,110
|
|
|
|
1,184
|
|
|
|
$
|
72,512
|
|
|
$
|
146,406
|
|
Deferred expenditure represented
deposits paid to supplier for order processing.
6.
|
Property, Plant and Equipment
|
|
|
September 30, 2019
(not reviewed)
|
|
|
December 31, 2018
|
|
|
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
|
|
|
27,487
|
|
|
|
21,917
|
|
|
|
Total, net of accumulated depreciation
|
|
$
|
129,320
|
|
|
$
|
134,890
|
|
|
|
7.
|
Accrued and Other Liabilities
|
|
|
September 30, 2019
(not reviewed)
|
|
|
December 31, 2018
|
|
Current
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
69,177
|
|
|
$
|
109,932
|
|
Deferred Income
|
|
|
20,316
|
|
|
|
26,471
|
|
|
|
$
|
89,493
|
|
|
$
|
136,403
|
|
Deferred Income represented deposits
received from customers for order processing.
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
The Company has a chattel mortgage
outstanding at September 30, 2019 secured by a motor vehicle requiring monthly payments approximating $2,541 (and a final payment
approximating $43,712) that includes interest approximating 6.2%, and maturing on August 22, 2022. The components of the balance
due under the chattel mortgage at September 30, 2019 are as follows:
|
|
September 30, 2019
(not reviewed)
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Chattel mortgage
|
|
$
|
110,986
|
|
|
$
|
131,304
|
|
Less: current portion
|
|
|
(21,047
|
)
|
|
|
(20,535
|
)
|
|
|
$
|
89,939
|
|
|
$
|
110,769
|
|
Maturities of long-term debt
at September 30, 2019 for each of the next five years and in the aggregate, are as follows:
|
|
September 30, 2019
(not reviewed)
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Next 12 months
|
|
$
|
21,047
|
|
|
$
|
20,535
|
|
2 years
|
|
|
23,079
|
|
|
|
22,530
|
|
3 years
|
|
|
66,860
|
|
|
|
24,720
|
|
4 years
|
|
|
–
|
|
|
|
63,519
|
|
|
|
$
|
110,986
|
|
|
$
|
131,304
|
|
|
|
September 30, 2019
(not reviewed)
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Business Loan
|
|
$
|
101,280
|
|
|
$
|
105,931
|
|
Business Credit Card
|
|
|
586
|
|
|
|
881
|
|
Short-term borrowing
|
|
|
80,000
|
|
|
|
80,000
|
|
|
|
$
|
181,866
|
|
|
$
|
186,812
|
|
The
Company has a total $950,000 (AUD) bank credit line (approximately $641,441 (USD) at September 30, 2019) 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 (6.85% per annum at September 30, 2019) 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 September
30, 2019, $101,280 (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.
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
|
(a)
|
The components of tax (expense)/income comprise:
|
|
|
September 30, 2019
(not reviewed)
|
|
|
December 31, 2018
|
|
Current tax
|
|
|
|
|
|
|
|
|
- Australia
|
|
$
|
15,620
|
|
|
$
|
78,224
|
|
- US
|
|
|
–
|
|
|
|
–
|
|
Total
|
|
$
|
15,620
|
|
|
$
|
78,224
|
|
|
(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
|
|
$
|
(56,798
|
)
|
|
$
|
(285,110
|
)
|
- US
|
|
|
(7,676,469
|
)
|
|
|
968,692
|
|
Total
|
|
$
|
(7,733,268
|
)
|
|
$
|
683,582
|
|
|
|
|
|
|
|
|
|
|
Income tax expense/(credit) at statutory rate:
|
|
|
|
|
|
|
|
|
- Australia
|
|
$
|
(15,620
|
)
|
|
$
|
(78,405
|
)
|
- US
|
|
|
(1,612,059
|
)
|
|
|
203,425
|
|
Total
|
|
$
|
(1,627,678
|
)
|
|
$
|
125,020
|
|
|
|
|
|
|
|
|
|
|
Tax effect amounts which are not deductible/(taxable) in calculating taxable income:
|
|
|
|
|
|
|
|
|
Other adjustments
|
|
|
1,612,058
|
|
|
|
(203,244
|
)
|
Consolidated income tax expense/(income)
|
|
$
|
(15,620
|
)
|
|
$
|
(78,224
|
)
|
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 September
30, 2019, 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 $1,612,058 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 2019.
SINCERITY APPLIED MATERIALS HOLDINGS CORP.
Notes to Consolidated Statements
11.
|
Other Comprehensive Earnings
|
|
|
September 30, 2019
(not reviewed)
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation reserve
|
|
$
|
83,273
|
|
|
$
|
66,248
|
|
12.
|
Capital and Leasing Commitments
|
There was no capital or leasing
expenditure at September 30, 2019.
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
|
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:
|
|
September 30, 2019
(not reviewed)
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Loan to Stockholder
|
|
|
–
|
|
|
$
|
136,400
|
|
Loan from Stockholder
|
|
$
|
7,387,509
|
|
|
|
–
|
|
|
|
Three months ended September 30,
|
|
|
|
2019
(not reviewed)
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Purchase from Shanghai Sincerity Co Ltd.
|
|
$
|
3,989
|
|
|
$
|
118,936
|
|
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.
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.
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.
|
|
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
Note
|
|
2019
$
(not reviewed)
|
|
|
2018
$
|
|
|
2019
$
(not reviewed)
|
|
|
2018
$
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
|
|
101,799
|
|
|
|
442,431
|
|
|
|
498,455
|
|
|
|
1,177,032
|
|
Cost of sales
|
|
|
|
|
(118,838
|
)
|
|
|
(416,910
|
)
|
|
|
(470,373
|
)
|
|
|
(1,104,072
|
)
|
Gross profit
|
|
|
|
|
(17,039
|
)
|
|
|
25,521
|
|
|
|
28,082
|
|
|
|
72,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
2,020
|
|
|
|
4,630
|
|
|
|
6,772
|
|
|
|
17,403
|
|
Selling, general and administrative expenses
|
|
|
|
|
7,874
|
|
|
|
23,821
|
|
|
|
26,469
|
|
|
|
91,826
|
|
Employee expenses
|
|
|
|
|
–
|
|
|
|
(10,267
|
)
|
|
|
–
|
|
|
|
14,430
|
|
Professional service fees
|
|
|
|
|
5,609
|
|
|
|
69,718
|
|
|
|
32,154
|
|
|
|
242,941
|
|
Dispute settlement
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
7,664,828
|
|
|
|
–
|
|
Chattle Mortgage charges
|
|
|
|
|
–
|
|
|
|
661
|
|
|
|
|
|
|
|
661
|
|
Repairs and maintenance
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
31
|
|
Total operating expenses
|
|
|
|
|
15,503
|
|
|
|
88,563
|
|
|
|
7,730,223
|
|
|
|
367,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income / (Loss) from operations
|
|
|
|
|
(32,542
|
)
|
|
|
(63,042
|
)
|
|
|
(7,702,141
|
)
|
|
|
(294,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
4,700
|
|
|
|
19,326
|
|
|
|
14,377
|
|
|
|
30,455
|
|
Interest expense
|
|
|
|
|
(4,220
|
)
|
|
|
(2,772
|
)
|
|
|
(13,319
|
)
|
|
|
(236,523
|
)
|
Other Finance Gain
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
614,679
|
|
Discount on Convertible note
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
320,527
|
|
Loss on derivative financial instrument
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(23,469
|
)
|
Fair value adjustment of Warrant liabilities
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
409,173
|
|
Foreign currency transaction loss
|
|
|
|
|
(24,348
|
)
|
|
|
(20,337
|
)
|
|
|
(32,185
|
)
|
|
|
(46,994
|
)
|
Total other income/ (expenses)
|
|
|
|
|
(23,868
|
)
|
|
|
(3,783
|
)
|
|
|
(31,127
|
)
|
|
|
1,067,848
|
|
Income/(Loss) from continuing operations before income tax expenses
|
|
|
|
|
(56,410
|
)
|
|
|
(66,825
|
)
|
|
|
(7,733,268
|
)
|
|
|
773,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit/(expense)
|
|
10
|
|
|
15,794
|
|
|
|
8,414
|
|
|
|
15,620
|
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(Loss) after income tax expense for the period
|
|
|
|
|
(40,616
|
)
|
|
|
(58,411
|
)
|
|
|
(7,717,648
|
)
|
|
|
774,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income /(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences arising on translation of foreign operations
|
|
|
|
|
12,869
|
|
|
|
33,718
|
|
|
|
17,025
|
|
|
|
70,091
|
|
Other comprehensive income/(loss)
|
|
|
|
|
12,869
|
|
|
|
33,718
|
|
|
|
17,025
|
|
|
|
70,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(Loss) for the period
|
|
|
|
|
(27,747
|
)
|
|
|
(24,693
|
)
|
|
|
(7,700,623
|
)
|
|
|
844,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/gain per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(0.18
|
)
|
|
|
0.02
|
|
Weighted average number of common stock outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
73,590,730
|
|
|
|
50,413,334
|
|
|
|
42,881,719
|
|
|
|
49,961,411
|
|
Revenues
Revenue was $102k for the three months
ended September 30, 2019, compared to $442k for the three months ended September 30, 2018, a decrease of $340k. 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 $8k for the three months ended September 30, 2019, compared to $24k for the three months ended September 30, 2018. In the three
months ended September 30, 2018, international travels were undertaken for financing and operating matters that did not take place
in the three months ended September 30, 2019.
Employee expenses
No employee expense was an incurred for
the 3 months ended September 30, 2019.
Professional service fees
Professional service fees were $7k for
the three months ended September 30, 2019, compared to $70k for the three months ended September 30, 2018. The $7k for the three
months ended September 30, 2019 relates to professional service fees incurred relating to its operating activities.
Other Income and Expenses
Prior to the reverse acquisition that took
place on September 19, 2017, other income and expense were relatively immaterial and primarily comprised of employee contribution
to fringe benefits, interest income and freight income.
Following our issuance of convertible notes
and warrants, the components of other income and expense also include interest expense on the notes and losses related to the changes
in fair value of both the notes and warrants. This is due to the recording of the convertible notes at fair value upon issuance,
which resulted in a non-recurring loss on issuance because their values exceeded the cash proceeds from issuance. We will remeasure
the fair values of the notes and warrants at each future reporting date, and if those fair values change, will record a corresponding
gain or loss. Accordingly, we expect other income and expense to fluctuate, and possibly fluctuate by a significant amount, in
future periods by the gains or losses on changes in fair value until such time as the notes are either converted into common stock
or repaid and the warrants are either exercised or expire. Also, we will accrue and record interest expense on the notes until
they are either converted or repaid.
The decrease in other income and expenses
was due to all the convertible notes and warrants being repurchased in 2018 and the company no longer needs to remeasure these
financial instruments in 2019.
Liquidity and Capital Resources
As at September 30, 2019, we had a working
capital deficit of $7,779,956 compared with a working capital deficit of $143,331 as at December 31, 2018. The deterioration in
working capital is primarily a result loss incurred during the nine months period ended September 30, 2019 and the settlement of
claims with related party for $7,387,509.
Our primary uses of cash have been for
operations. The main sources of cash have been from sales of our products to our customers.
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 September 30, 2019, we had cash and
cash equivalent of approximately $8,000, 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 or convertible notes and had prior success. The company is currently in discussion with financiers to raise more fund;
|
|
(ii)
|
The company is expected to increase its revenue by launching new products line during the year;
|
|
(iii)
|
The company constantly reduced costs to improve its financial performance.
|
In the nine months
ended September 30, 2019, the net cash provided by operating activities primarily reflects the loss from operations of approximately
$7,718,000 with approximately $107,000 in changes in operating assets and liabilities, offset by non-cash items of approximately
$7,665,000 and amortization and depreciation of approximately $6,700 that had no effect on cash flows.
Net cash used
for investing activities of approximately $Nil and $Nil for the six months ended September 30, 2019 and three months ended September
30, 2018, respectively.
Net cash used
in financing activities was approximately $77,000 for the nine months ended September 30, 2019 compared to net cash generated for
financial activities for the nine months ended September 30, 2018. In the nine months ended September 30, 2019, the Company repaid
its finance lease liabilities and its 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
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.
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.
Convertible notes payable are analysed
at issue date to determine balance sheet classification, issue discounts or premiums, and embedded or derivative features. Embedded
or derivative features are evaluated in accordance with accounting guidance for derivative securities and, if the features give
rise to separate accounting, we make an election to account for the convertible notes payable at cost or at fair value. If fair
value accounting is elected, on the issue date we record the difference between the issue price of the convertible notes payable
and the separated embedded derivative where applicable, and their respective fair values, where applicable, as a gain or loss in
the consolidated statement of operations. We re-measure the fair value at each reporting date and record again (upon a decrease
in fair value) or loss (upon an increase in fair value) for the change in fair value of each separate component being the convertible
note payable and the embedded derivative where applicable. Fair value is determined using a black scholes valuation model with;
inputs to the model include the market value of the underlying stock, a life equal to the contractual life of the notes, incremental
borrowing rates that correspond to debt with similar credit worthiness, estimated volatility based on the historical prices of
our trading securities, and we make assumptions as to our abilities to test and commercialize our product(s), to obtain future
financings when and if needed, and to comply with the terms and conditions of the notes. Following an analysis of their embedded
and derivative features and a projection of the volatility of their effective interest rates under the cost method, we elected
to utilize fair value accounting for the convertible notes payable, along with the separated embedded derivatives and we issued
on during the years ended December 31, 2018 and 2017. Management believes the fair value method of accounting provides a more appropriate
presentation of these liabilities than would be provided under the cost method.
In
accordance with ASC 480 “Distinguishing Liabilities from Equity,” we record the fair value of warrants issued for the
purchase of common stock as a liability since the warrants call for issuance of registered shares upon exercise, a condition that
we may not be able to accommodate and which would then result in a net settlement of the warrants. Until the time the warrants
are exercised or expire, the fair value is assessed at each reporting date utilizing a black scholes valuation model and any change
in value is recorded as a gain or loss component of other income (expense) in our consolidated statement of operations. Inputs
to the valuation model are of the same nature as those used for our convertible notes payable and any separated embedded derivatives
where applicable.
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.
The Company assessed that no indicators
of impairment existed at the reporting date and as such no impairment testing was performed.