SINCERITY APPLIED MATERIALS HOLDINGS CORP.
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 withUnited 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 inChina 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 inMelbourne, Australia and distributes to a number of larger resellers and end users, includingVisy Industries (trading as Pratt Group America in theUSA ), one of the world's largest packaging and recycling groups. SAPL's business was commenced in 2009 byJames 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 inChangzhou, China , and (ii)Shanghai Sincerity Co. Ltd. , aShanghai, 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 thePropac Group , leading supplier of plastic packaging materials to Coles, one ofAustralia's 2 dominant supermarket chains. Over the past 3 years, SAPL has refocused its marketing efforts towards larger resellers and distributors inAustralia , 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 supplyVisy Industries , with high technology, breathable plastic film for use inVisy Industries' packaging supply contract with the other dominant player inAustralia'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 toVisy 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 beyondAustralia . 17
SAPL is fast growing, it is running at loss as a public company and needs more working capital for stronger growth.
SAPL's flag ship range in ventilated packaging are in the final stage of commercial production, and it is expected to disrupt the fresh produce packaging market with strong performance and competitive price.
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
$ $ $ $
Note (not reviewed) (not reviewed) (not reviewed) (not reviewed)
Revenue
Sales 17,447 93,280 63,479 398,082
Cost of sales (17,682 ) (109,702 ) (21,150 ) (324,544 )
Gross profit (235 ) (16,421 ) 42,330 73,539
Operating expenses
Depreciation and amortization 2,179 2,121 6,755 6,021 Selling, general and administrative expenses 14,363 5,176 19,726 1,892 Employee expenses - - - - Professional service fees 25,442 98 61,937 36,968 Dispute settlement - - - - Total operating expenses 41,984 7,394 88,418 41,097
Income/(Loss) from operations (42,219 ) (23,815 ) (46,088 ) 32,441 Other income/(expenses) Other income 14,700 15,029 29,541 38,498 Interest expense (1,468 ) (1,429 ) (4,583 ) (4,150 ) Foreign currency transaction gain/(loss) (3,412 ) 4,096 (8,502 ) (725 ) Total other income/ (expenses) 9,820 17,696 ) 16,456 33,623 ) Loss from continuing operations before income tax expenses (32,399 ) (6,119 ) (29,632 ) 66,064 Income tax benefit/(expense) 10 4,870 1,593 (1,047 ) (22,412 ) Net income/(Loss) after income tax expense for the period (27,529 ) (4,526 ) (30,679 ) 43,652 Other comprehensive income /(loss) Exchange differences arising on translation of foreign operations 4,982 9,009 14,235 (38,732 ) Other comprehensive income/(loss) 4,982 9,009 14,235 (38,732 ) Total comprehensive income/(Loss) for the period (22,547 ) 4,483 (16,444 ) 4,920 Net (loss)/gain per share Basic and diluted - - - - Weighted average number of common stock outstanding Basic and diluted 73,590,730
73,590,730 73,590,730 73,590,730 18 Revenues
Revenue was$17k for the three months endedSeptember 30, 2021 , compared to$93k for the three months endedSeptember 30, 2020 , a decrease of$76k . The level of sales has decrease significantly compared to the same time as last year due to the COVID-19 impact on the level of economic activities with restrictions in place inAustralia .
Selling, general and administrative expenses
Selling, general and administrative expenses was$14k for the three months endedSeptember 30, 2021 , compared to$5k for the three months endedSeptember 30, 2020 . In the three months endedSeptember 30, 2021 , the Group has incurred costs in relation to subscription fees and filing costs. Employee expenses
No employee expense was an incurred for the 3 months ended
Professional service fees Professional service fees were$25k for the three months endedSeptember 30, 2021 , compared to minimal amount incurred for the three months endedSeptember 30, 2020 . The increase can be attributed to timing of professional services fees being incurred depending on the need to engage consultants. Other Income and Expenses
The increase in other income and expenses was due the business receiving financial assistance from the Australian Government in response to the effects of COVID-19.
Liquidity and Capital Resources
AtSeptember 30,2021 , the company had a current asset deficiency of$71,861 and net asset of$79,811 (December 31, 2020 current asset deficiency of$40,846 and net asset surplus$51,033 ). The Company reported an after-tax loss of$30,679 for the nine months endedSeptember 30,2021 (September 30, 2020 after tax income:$43,652 ).
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 ofSeptember 30, 2021 , we had cash and cash equivalent of approximately$5,000 , which might not be sufficient to fund our operating and capital needs in the short term. The Company has been seeking funding from various sources as discussed below:
(i) The company has the ability to raise fund through private placements
and convertible notes;
(ii) The company has been streamlining its operation by reducing operation
costs; and
(iii) Applying for financial assistance from the Australian Government
available for businesses impacted by COVID-19.
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In the nine months ended September 30, 2021 , the net cash provided by operating
activities primarily reflects the income from operations of approximately
$38,000 with approximately $54,000 in changes in operating assets and
liabilities, offset by non-cash items of approximately $9k and amortization and
depreciation of approximately $7,000 that had no effect on cash flows.
Net cash used for investing activities of approximately $Nil and $Nil for the
nine months ended
Net cash used in financing activities was approximately$43,000 for the nine months endedSeptember 30, 2021 compared$144,000 net cash used for financial activities for the nine months endedSeptember 30, 2020 . In the nine months endedSeptember 30, 2021 , the Company repaid its finance lease liabilities and advances to 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 (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. 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.
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