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Table of Contents

 

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, 2022

 

 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

(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, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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 August 14, 2022, there were 26,754,165 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, 2022 (not reviewed)

TABLE OF CONTENTS

 

    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 20
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
     
Item 4. Controls and Procedures 24
     
PART II - OTHER INFORMATION 25
     
Item 1. Legal Proceedings 25
     
Item 1A. Risk Factors 25
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
     
Item 3. Defaults Upon Senior Securities 25
     
Item 4. Mine Safety Disclosures 25
     
Item 5. Other Information 25
     
Item 6. Exhibits 25
     
SIGNATURES 26

  

 

 

 2 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Consolidated Balance Sheets

As at June 30, 2022 (not reviewed) and December 31, 2021 (not audited)

 

                
   Note   June 30,
2022
(not reviewed)
$
   December 31,
2021
(not audited)
$
 
             
Assets               
Cash and cash equivalents   4    13,987    1,077 
Accounts receivables   5    2,661    2,621 
Discount on convertible notes        4,808     
Other receivables        794,095     
Related party loan        571,669    514,788 
Total current assets        1,387,220    518,486 
                
Property, plant and equipment, net of accumulated depreciation and amortization   6    91,786    95,896 
Deferred tax asset   10    103,905    98,727 
Total non-current assets        195,691    194,623 
Total assets        1,582,911    713,109 
                
Liabilities and Stockholders’ Equity/(Deficit)               
                
Liabilities               
Accounts payables        281,744    286,137 
Convertible notes   10    61,967     
Derivative liabilities   10    147,123     
Accrued and other liabilities   7    130,254    138,980 
Long-term debt – current position   8    29,892    49,147 
Line of credit   9    180,316    187,983 
Total current liabilities        831,296    662,247 
                
Long-term debt – non-current position   8         
Total non-current liabilities             
Total liabilities        831,296    662,247 
                
Equity               

Common stock Authorized: $0.001 par value, 290,000,000 shares authorized Issued and outstanding: 26,711,000 and 73,590,730, respectively

        77,326    123,953 
Additional paid in capital        4,373,467    3,442,920 
Preference Stock Authorized: $0.001 par value, 10,000,000 shares authorized Issued and outstanding: 2,600,000 and Nil, respectively        2,600     
Adjustments to equity to reflect retroactive application of reverse acquisition of accounting        (53,511)   (53,511)
Accumulated losses        (3,547,109)   (3,487,866)
Foreign currency translation differences   12    (101,158)   25,366 
Total stockholders’ surplus/(deficit)        751,615    50,862 
Total liabilities and stockholders’ equity        1,582,911    713,109 

 

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, 2022 and 2022

 

                          
       Three months ended June 30,   Six months ended June 30, 
   Note   2022
$
(not reviewed)
   2021
$
(not reviewed)
   2022
$
(not reviewed)
   2021
$
(not reviewed)
 
Revenue                    
Sales        1,573    14,937    15,451    46,032 
Cost of sales        (7,279)   22,353    (7,279)   (3,467)
Gross profit        (5,706)   37,290    8,172    42,565 
                          
Operating expenses                         
Depreciation and amortization        1,963    2,284    4,110    4,576 
Selling, general and administrative expenses        10,435    2,702    12,359    5,363 
Professional service fees        121,801    36,337    122,860    36,495 
Total operating expenses        134,199    41,323    139,329    46,434 
                          
Income/(loss) from operations        (139,905)   (4,033   (131,158)   (3,869
                          
Other income/(expenses)                         
Gain/(Loss) on Derivative Financial Instrument        27,217        27,217     
Other income            3,092        14,842 
Interest expense        (7,299)   (1,562)   (8,700)   (3,115)
Foreign currency transaction loss        (8,192)   (3,000   (5,974)   (5,090)
Total other income/(expenses)        11,726    (1,470   12,543    6,637 
Income/(loss) from continuing operations before income tax expenses        (128,179)   (5,503)   (118,614)   2,768 
                          
Income tax benefit/(expense)   11    14,169    (3,766)   11,291    (5,917
                          
Net income/(loss) after income tax expense for the period        (114,010)   (9,269)   (107,324)   (3,149)
                          
Other comprehensive income/(loss)                         
Exchange differences arising on translation of foreign operations        (145,996)   (1,181)   (126,524)   9,253 
Other comprehensive income/(loss)        (145,996)   (1,181)   (126,524)   9,253 
                          
Total comprehensive income/(loss) for the period        (260,007)   (10,450)   (233,848)   6,104 
                          
Net (loss)/gain per share                         
Basic and diluted        0.00    0.00    0.00    0.00 

 

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, 2022 (not reviewed) and 2021 (not audited)

 

                                              
   Common Stock   Additional Paid in   Preference Stock   Other Comprehensive   Accumulated   Adjustments to equity to reflect retroactive application of reverse acquisition   Total (Deficit) 
   Shares   Amount   Capital   Shares   Amount   Earnings   Losses   accounting  

/Equity

 
Balance at December 31, 2021   73,590,730   $123,953   $3,442,920       $   $25,366    (3,487,866)  $(53,511)  $50,862 
Income after income tax expense for the period                           6,687        6,687 
Other comprehensive income for the period                       19,472            19,472 
                                              
Balance at March 31, 2022   73,590,730   $123,953   $3,442,920       $   $44,838    (3,481,179)  $(53,511)  $77,021 
Income after income tax expense for the period                           (114,010)       (114,010)
Other comprehensive income for the period                       (145,996)           (145,996)
Cancellation of common stock(48,079,730@USD0.01)   (48,079,730)   (48,080)                   48,080         
Stock issuance (1,200,000@ USD0.61)   1,200,000    1,200    730,800                        732,000 
Stock issuance (253,165@ USD0.79)   253,165    253    199,747                        200,000 
Issuance of preference stock (2,600,000 @USD0.01)               2,600,000    2,600                2,600 
Balance at June 31, 2022   26,711,000   $77,326   $4,373,467    2,600,000   $2,600   $(101,158)   (3,547,109)  $(53,511)  $751,615 
                                              
Balance at December 31, 2020   73,590,730   $123,953   $3,442,920       $   $9,433    (3,426,540)  $(53,511)  $96,255 
Income after income tax expense for the period                           6,120        6,120 
Other comprehensive income for the period                       10,434            10,434 
                                              
Balance at March 31, 2021   73,590,730   $123,953   $3,442,920       $   $19,867    (3,420,420)  $(53,511)  $112,809 
Income after income tax expense for the period                           (9,269)       (9,269
Other comprehensive income for the period                       (1,181)           (1,181
Balance at June 30, 2021   73,590,730   $123,953   $3,442,920       $   $18,686    (3,420,420)  $(53,511)  $102,358 

 

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, 2022 and 2021

 

           
   Six months ended June 30, 
   2022   2021 
   $
(not reviewed)
   $
(not reviewed)
 
Cash flows from operating activities:          
Net income/(loss)   (107,324)   (3,150)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:          
Depreciation   4,110    4,576 
Net difference on foreign exchange   5,974    5,090 
Net changes in operating assets and liabilities          
(Increase)/decrease in trade and other receivables   (40)   61,396)
Increase/(decrease) in trade and other payables   (13,068)   (47,017
Decrease in deferred tax asset   (5,178)   8,609 
Net cash (used in)/provided by operating activities   (115,526)   29,504 
Cash flows from investing activities          
Payments for property, plant and equipment        
Net cash used in investing activities        
Cash flows from financing activities          
Proceed/(Repayment) of borrowings   215,870    (6,851)
Proceed from stock issuance   140,505     
Advances from related entities   (76,135)   (9,322)
Payment of finance lease liabilities   (19,255)   (19,473)
Net cash (used in)/ provide by financing activities   260,985    (35,647)
Net increase/(decrease) in cash and cash equivalents   145,459    (6,143
Effect of exchange rate changes on cash and cash equivalents   (132,549)   (4,162)
Cash and cash equivalents at the beginning of period   1,077    4,192 
Cash and cash equivalents at the end of period   13,987    2,211 

 

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, 2022, the Company had a current asset surplus of $555,925 and net asset of $751,615 (December 31, 2021 current asset deficiency of $143,761 and net asset $50,862). The Company reported an after tax loss of $114,010 for the three months ended June 30, 2022 (June 30, 2021 after tax income: $9,269).

 

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; and
  (ii) The company has been streamlining its operation by reducing operation costs; and

 

 

 

 

 7 

 

 

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.

 

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, 2022. 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 $145,996 for the three months ended June 30, 2022; 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 loss of $5,974 for the three months ended June 30, 2022, 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, 2021, management determined that no allowance for doubtful accounts was required.

 

 

 

 

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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.

 

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.

 

 

 

 

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SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Notes to Consolidated Statements

 

 

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.

 

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, 2021.

 

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.

 

 

 

 

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SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Notes to Consolidated Statements

 

 

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, 2021, 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. 

 

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).

 

 

 

 

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SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Notes to Consolidated Statements

 

 

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.

 

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.

 

 

 

 

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SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Notes to Consolidated Statements

 

 

  (iii) Fair value measure of shares issued and convertible notes payable.

 

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 notes 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 notes and their fair value 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. 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 we issued on during the three months ended 30 June 2018. Management believes the fair value method of accounting provides a more appropriate presentation of these liabilities than would be provided under the cost method.

 

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.

 

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, 2022

(not reviewed)

  

December 31, 2021

(not audited)

 
Cash at bank  $13,298   $352 
Petty Cash   689    725 
   $13,987   $1,077 

 

 

 

 

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SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Notes to Consolidated Statements

 

 

5. Account Receivables and Other Assets

 

          
  

June 30, 2022

(not reviewed)

  

December 31, 2021

(not audited)

 
Current          
Account Receivables  $2,661   $2,621 
Deferred Expenditure        
Account Receivables and Other Assets  $2,661   $2,621 

 

Deferred expenditure represented deposits paid to supplier for order processing.

 

6. Property, Plant and Equipment

 

             
   June 30, 2022
(not reviewed)
  

December 31, 2021

(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   65,020    60,910    
Total, net of accumulated depreciation  $917,865   $95,896    

  

7. Accrued and Other Liabilities

 

          
  

June 30, 2022

(not reviewed)

  

December 31, 2021

(not audited)

 
Current          
Accrued expenses  $130,254   $138,980 
Deferred Income        
   $130,254   $138,980 

 

Deferred Income represented deposits received from customers for order processing.

 

8. Long-term debt

 

The Company has a chattel mortgage outstanding at June 30, 2021 secured by a motor vehicle requiring monthly payments approximating $2,844 (and a final payment approximating $48,672) 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, 2021 are as follows:

          
  

June 30, 2022

(not reviewed)

   December 31, 2021 (not audited) 
Chattel mortgage  $29,892   $49,147 
Less: current portion        
Long-term debt - non-current position  $29,892   $49,147 

 

 

 

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SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Notes to Consolidated Statements

 

 

Maturities of long-term debt at June 30, 2021 for each of the next five years and in the aggregate, are as follows:

          
  

June 30, 2022

(not reviewed)

  

December 31, 2021

(not audited)

 
Next 12 months  $49,785   $68,824 
2 years        
3 years        
4 years        
Total long term debt   $49,785   $68,824 

 

9. Line of credit

 

          
  

June 30, 2022

(not reviewed)

  

December 31, 2021

(not audited)

 
Business Loan  $97,657   $107,245 
Business Credit Card   2,660    738 
Short-term borrowing   80,000    80,000 
   $180,317   $187,983 

 

The Company has a total $950,000 (AUD) bank credit line (approximately $654,455 (USD) at June 30, 2022) 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, 2022) 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, 2022, $97,657 (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.

 

10. Convertible notes payable and Common stock warrant liability

 

Fair Value Measurements: We measure the fair value of our financial and non-financial assets and liabilities at each reporting date. Fair value is defined as the exchange price at which an asset or liability would be transferred in the principal or most advantageous market in an orderly transaction between market participants as of a measurement date. Accounting guidance provides an established hierarchy to be used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs; observable inputs are required to be used when available. Observable inputs are those used by market participants to value an asset or liability and are developed based on market data obtained from sources independent of us. Unobservable inputs are those that reflect our assumptions about factors that market participants would use to value an asset or liability. Fair value measurements are classified and disclosed in one of the following three categories:

 

  Level 1 – Quoted market prices for identical assets or liabilities in active markets at the measurement date;
     
  Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities in active or non-active markets, or other inputs that can be corroborated by observable market data for substantially the full term of an asset or liability; and,
     
  Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of an asset or liability, including management’s best estimate of the factors that market participants would use in pricing an asset or liability at the measurement date.

 

 

 

 

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SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Notes to Consolidated Statements

 

 

We carry our convertible notes payable and common stock warrant liability at fair value. We carry our other financial instruments at amortized cost; these items include cash, accounts payable, and accrued expenses. The carrying amounts of our cash and cash equivalents, accounts payable, and accrued expenses are considered to be reasonable estimates of their respective fair values due to their short-term nature and, therefore, fair value information is not provided in the following table.

 

Utilizing the lowest level inputs available under the measurement hierarchy, the fair values of our measured financial instruments comprise the following (we had no Level 1 and 2 financial instruments):

 

Liabilities:

 

Convertible notes payable

 

Level 3

 

  Convertible Notes Payable -  

 

Our Level 3 financial liabilities consist of convertible notes payable (the “Notes”), all of which were issued as detailed below:

 

  (i)

On April 6, 2022, we entered into a Securities Purchase Agreement (“SPA”) with ONE44 CAPITAL, LLC, a Nevada limited liability company (“Purchaser”), pursuant to which we issued and sold to the Purchaser a convertible promissory note, dated April 6, 2022, in the principal amount of $120,000 (the “Note”).

 

The Note contains an original issue discount amount of $9,000 and legal fees payable to ONE44’s legal counsel of $6,000.

 

  (ii)

On May 4, 2022, we entered into a Securities Purchase Agreement (“SPA”) with 1800 DIAGONAL LENDING LLC, a Virginia limited liability company, f/k/a Sixth Street Lending, LLC (“Purchaser”), pursuant to which we issued and sold to the Purchaser a convertible promissory note, dated May 4, 2022, in the principal amount of $68,750 (the “Note”). The Note contains legal fees payable to Purchaser’s legal counsel of $3,000 and to Purchaser a due diligence fee of $750.

 

The term sheet also includes optional additional tranches of financing of up to $900,000 during the term of the note subject to further agreement with the purchaser.

     
  (iii)

On June 17, 2022, we entered into a Securities Purchase Agreement (“SPA”) with 1800 DIAGONAL LENDING LLC, a Virginia limited liability company, f/k/a Sixth Street Lending, LLC (“Purchaser”), pursuant to which we issued and sold to the Purchaser a convertible promissory note, dated May 4, 2022, in the principal amount of $54,250 (the “Note”). The Note contains legal fees payable to Purchaser’s legal counsel of $3,000 and to Purchaser a due diligence fee of

$1,250.

 

 

 

 

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SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Notes to Consolidated Statements

 

 

11. Income Tax Expense

 

  (a) The components of tax (expense)/income comprise:

 

            
    

June 30, 2022

(not reviewed)

  

December 31, 2021

(not audited)

 
  Current tax          
  - Australia  $(11,291)  $(10,112)
  - US        
  Total  $(11,291)  $(10,112)

 

  (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  $(41,907)  $(36,770)
      (76,707)   (34,668)
  Total  $(118,614)  $(71,438)
             
  Income tax expense/(credit) at statutory rate:          
  - Australia  $(11,291)  $(10,112)
  - US   (16,109)   (7,280)
  Total  $(27,400)  $(17,392)
             
  Tax effect amounts which are not deductible/(taxable) in calculating taxable income:          
  Valuation allowance        
  Other adjustments   16,109    7,280 
  Consolidated income tax expense/(income)  $(11,291)  $(10,112)

 

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, 2022, 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 $3,553 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 2022.

 

 

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SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Notes to Consolidated Statements

 

 

12. Other Comprehensive Earnings

 

          
    

June 30, 2022

(not reviewed)

  

December 31,2021

(not audited)

 
           
  Foreign currency translation reserve  $(101,210)  $25,365 

 

13. Capital and Leasing Commitments

 

There was no capital or leasing expenditure at June 30, 2022.

 

14. 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.

 

15. 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, 2022

(not reviewed)

  

December 31, 2021

(not audited)

 
  Loan to Stockholder   571,669   $514,788 

 

     Three months ended June 30, 
    

2022

(not reviewed)

  

2021

(not reviewed)

 
  Purchase from Shanghai Sincerity Co Ltd  $   $ 

 

 

 

 

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SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Notes to Consolidated Statements

 

 

16. 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 July 18, 2022, the Board of Directors of Sincerity Applied Materials Holdings Corp.(“SINC”) received the formal resignation letter from its independent registered public accounting firm, SW Audit (Formerly ShineWing Australia) effective immediately.

 

SW Audit is a medium sized firm and are currently facing staff shortages and constraints being experienced in Australia because of the COVID-19 Global Pandemic and consequently are unable continue as SINC’s Statutory Auditor due to their inability to provide any certainty over when they could commence or complete SINC’s Statutory Audit.

 

SW Audit noted there are no other material reasons for our resignation and confirmed that there were no circumstances connected with their resignation which they considered should be brought to the attention of the members or creditors of the Company and that there has been no disagreement with Management or the Directors.

 

The company has started the process of selecting a replacement auditor.

 

  (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. This is expected to close towards the end of August.

 

 

 

 

 

 

 

 19 

 

 

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

 

We are a supplier of technologically advanced plastics and other solutions for the packaging industry and other industries primarily serving major end users and distributors in Australia, Asia and the Middle East. Our products have applications in the areas of packaging, agriculture, automotive and transportation, paint and coating, construction, personal care and hygiene, electronics, pharmaceutical, energy and natural resources, plastics and rubber and leather. Our principal products are high quality, breathable plastic film and modified atmosphere packaging used in the packaging of perishable foods.

 

In 2021, through the acquisition target SMCOR, SINC expands deeper into our existing customer based in EV, 5G, computer chips and medical industries. In addition, the pandemic boosts the demand for covid related medical material and SINC boosted vaccine related production capacity through SIMCOR.

 

 

 

 20 

 

 

      Three months ended June 30,   Six months ended June 30, 
   Note  2022
$
(not reviewed)
   2021
$
(not reviewed)
   2022
$
(not reviewed)
   2021
$
(not reviewed)
 
Revenue                       
Sales      1,573    14,937    15,451    46,032 
Cost of sales      (7,279)   (22,353)   (7,279)   (3,467)
Gross profit      (5,706)   37,290    8,172    42,565 
                        
Operating expenses                       
Depreciation and amortization      1,963    2,284    4,110    4,576 
Selling, general and administrative expenses      10,435    2,702    12,359    (5,363)
Professional service fees      121,802    36,337    122,860    36,495 
Total operating expenses      134,199    41,323    139,329    46,434 
                        
Income/(loss) from operations      (139,905)   (4,033)   (131,158)   (3,869)
                        
Other income/(expenses)                       
Gain/(Loss) on Derivative Financial Instrument      27,217        27,217     
Other income          3,092        14,842 
Interest expense      (7,299)   (1,562)   (8,700)   (3,115)
Foreign currency transaction loss      (8,192)   (3,000    (5,974)   (5,090)
Total other income/(expenses)      11,726    (1,470)   12,543    6,637 
Income/(loss) from continuing operations before income tax expenses      (128,179)   (5,503)   (118,614)   2,768 
                        
Income tax benefit/(expense)  11   14,169    (3,766)   11,291    (5,917)
                        
Net income/(loss) after income tax expense for the period      (114,010)   (9,269)   (107,324)   (3,149)
                        
Other comprehensive income/(loss)                       
Exchange differences arising on translation of foreign operations      (145,996)   (1,181)   (126,524)   9,253 
Other comprehensive income/(loss)      (145,996)   (1,181))   (126,524)   9,253 
                        
Total comprehensive income/(loss) for the period      (260,007)   (10,450)   (233,848)   6,104 

 

Revenues

 

Revenue was $2k for the three months ended June 30, 2022, compared to $15k for the three months ended June 30, 2021, a decrease of $13k. 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.

 

 

 

 

 21 

 

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses was $10k for the three months ended June 30, 2022, compared to $3k for the three months ended June 30, 2021. This is due to over payments of listing and filing fees for the three month ended June 30, 2022.

 

Employee expenses

 

No employee expense was an incurred for the 3 months ended June 30, 2022.

 

Professional service fees

 

Professional service fees were $122k for the three months ended June 30, 2022, compared with $36k for the three months ended June 30, 2021. The increase is due to accounting fees and legal fees for issuance of convertible notes.

 

Other Income and Expenses

  

The change in other income and expenses was due the gain in derivative liabilities offset by increase interest from convertible notes and foreign currency loss.

  

Liquidity and Capital Resources

 

At June 30, 2022, the Company had a current asset surplus of $555,925 and net asset of $751,615 (December 31, 2021 current asset deficiency of $143,761 and net asset $50,862). The Company reported an after tax loss of $114,010 for the three months ended June 30, 2022 (June 30, 2021 after tax income: $9,269).

 

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; and
  (ii) The company has been streamlining its operation by reducing operation costs; and

 

In the six months ended June 30, 2022, the net cash provided by operating activities primarily reflects the loss from operations of approximately $107k with approximately $18k in changes in operating assets and liabilities, offset by non-cash items of approximately $6k and amortization and depreciation of approximately $4k 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, 2022 and three months ended June 30, 21, respectively.

 

Net cash generated in financing activities was approximately $261k for the six months ended June 30, 2022 compared to net cash used of approximately $36k for financial activities for the six months ended June 30, 2021. In the six months ended June 30, 2022, the Company raised funds through issuance of convertible notes and stock issuance offset by repayment of its finance lease liabilities and advances to related parties.

 

 

 

 

 22 

 

 

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.

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

 

 

 

 23 

 

 

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, 2022, 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, 2022 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, 2022, 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 24 

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

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.

 

Item 1A. Risk Factors.

 

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

 

Item 5. Other Information.

 

This Form 10-Q for the 3 months ended June 30, 2022 has not been reviewed by an independent auditor. The company will submit an amended Form 10-Q upon the completion of the review.

 

Item 6. Exhibits.

  

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.

 

 

 

 

 25 

 

 

SIGNATURES

 

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.
   
August 15, 2022 By: /s/ Yiwen Zhang
   

Yiwen Zhang

Chief Executive Officer

(Principal Executive Officer)

   
August 15, 2022 By: /s/ Chris Lim
   

Chris Lim

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

 26 

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