Sincerity Applied Materials Holdings Corp. - Annual Report: 2018 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One) 

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2018

OR

☐ 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

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, par value $0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ☐    No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.    Yes ☐   No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ☐   No ☒

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of the “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 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 ☒

As of June 30, 2018, there were 50,730 shares of the registrant’s common stock, par value $0.001 per share, issued and outstanding. Of these, 7,426 shares were held by non-affiliates of the registrant. The market value of securities held by non-affiliates on June 29, 2018 was $15,965,900 based upon a closing price of $2,150 per share on June 29, 2018.

As of April 15, 2019, there were 50,730 shares of the registrant’s common stock, par value $0.001 per share, issued and outstanding.

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Current Report contains forward-looking statements, including, without limitation, in the sections captioned “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Plan of Operations,” and elsewhere. Any and all statements contained in this Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future,” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms.  Forward-looking statements in this Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), and (iv) the assumptions underlying or relating to any statement described in points (i), (ii) or (iii) above.

The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation, our inability to obtain adequate financing, existing or increased competition, results of arbitration and litigation, stock volatility and illiquidity, and our failure to implement our business plans or strategies.  A description of some of the risks and uncertainties that could cause our actual results to differ materially from those described by the forward-looking statements in this Report appears in the section captioned “Risk Factors” and elsewhere in this Report.

Readers are cautioned not to place undue reliance on forward-looking statements because of the risks and uncertainties related to them and to the risk factors.  We disclaim any obligation to update the forward-looking statements contained in this Report to reflect any new information or future events or circumstances or otherwise.

Readers should read this Report in conjunction with the discussion under the caption “Risk Factors,” our financial statements and the related notes thereto in this Report, and other documents which we may file from time to time with the SEC.

PART I

ITEM 1. BUSINESS

Unless the context indicates otherwise, all references in this Annual Report to the “Company,” “we,” “us” and “our” refer to Sincerity Applied Materials Holdings Corp. and its wholly owned subsidiary, Sincerity Australia Pty Ltd.

DESCRIPTION OF OUR BUSINESS

Organizational History

We were incorporated as HapyKidz.com, Inc. in Nevada on July 28, 2011 with the intention to become an e-commerce marketplace that connects merchants to consumers by offering daily discounts on goods and services through a proprietary website. We were not successful in this endeavor.

On September 4, 2013, we filed a Certificate of Amendment to our Articles of Incorporation with the Nevada Secretary of State to change our name from HapyKidz.com, Inc. to Symbid Corp.

On December 6, 2013, we closed a share exchange (the “Share Exchange”) pursuant to which the 19 shareholders of Symbid Holding B.V. sold all of their capital stock in Symbid Holding B.V. to us in exchange for 352,834 shares of our common stock, $0.001 par value per share (the “Common Stock”). As a result of the Share Exchange, Symbid Holding B.V. became a wholly owned subsidiary of ours.

As the result of the Share Exchange, we were engaged in the business of creating and operating online, equity based crowdfunding platforms, through our wholly owned subsidiary, Symbid Holding B.V. Commencing in 2015, we expanded our operations to include an online platform for small and medium sized enterprise funding, connecting new and traditional sources of finance in one integrated network built around our technology.

The Share Exchange was treated as a recapitalization of the Company for financial accounting purposes and Symbid Holding B.V. was considered the acquiror for accounting purposes.

In accordance with “reverse acquisition” accounting treatment, our historical financial statements as of period ends, and for periods ended, prior to the Share Exchange were replaced with the historical financial statements of Symbid Holding B.V. prior to the Share Exchange in our post Share Exchange filings with the Securities and Exchange Commission (the “SEC”).

Due to cash flow problems, during the fourth quarter of 2016, we were forced to restructure the Company, curtail certain business operations and change our focus from the operation of online funding platforms and the provision of software solutions for alternative financing in the small and medium enterprise market to the licensing of software packages for which we own or license the intellectual property.

On June 8, 2017, we dissolved our direct, wholly owned subsidiary, Symbid Holding B.V. and our indirect wholly owned subsidiaries, Symbid B.V. and FAC B.V. At the time of dissolution, none of these entities had any material assets or operations and none of these entities were generating revenues. Following such dissolutions, we had no subsidiaries.

On June 9, 2017, we filed a Certificate of Amendment to our Articles of Incorporation with the Nevada Secretary of State to change our name to Sincerity Applied Materials Holdings Corp. and effected a 60:1 reverse stock split on our Common Stock. The name change and revenue stock split took effect on the over-the-counter market at the open of business on June 14, 2017, at which time our Common Stock began to trade on a post-split basis under the symbol “SBIDD”. Our Common Stock began trading under the Symbol “SINC” on July 13, 2017. The Reverse Split and the Name Change were approved by our board of directors on May 1, 2017 and by stockholders holding 80% of our outstanding voting stock on May 1, 2017 as further described in our Definitive Information Statement on Schedule 14C which we filed with the Securities and Exchange Commission on May 4, 2017 and mailed to our stockholders of record as of the close of business on May 1, 2017.

On September 19, 2017 we acquired Sincerity Australia Pty Ltd., an Australia corporation (“SAPL”) pursuant to the closing under a June 5, 2017 Acquisition Agreement as amended on July 7, 2017, July 21, 2017, August 15, 2017, August 23, 2017, September 1, 2017 and September 15, 2017 (the “Acquisition Agreement”) among the Company, SAPL and the sole shareholder/member of SAPL (the “SAPL Shareholder”). Pursuant to the Acquisition Agreement and the acquisition completed thereunder (the “Acquisition”) we acquired all of the outstanding capital stock of SAPL consisting of 10,000 Ordinary Shares (the “Ordinary Shares”) from the SAPL Shareholder in exchange for 45,211,047 shares (the “Acquisition Shares”) of our Common Stock making SAPL a wholly owned subsidiary of ours. At the time of the closing under the Acquisition Agreement, SAPL had no outstanding securities other than the Ordinary Shares. The issuance of shares of our common stock in the Acquisition was exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, or the Securities Act.

As a result of the Acquisition, we acquired the business of SAPL and have continued the existing business operations of SAPL as a publicly-traded company under the name Sincerity Applied Materials Holdings Corp.

Prior to the Acquisition, we were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act). As a result of the Acquisition, we ceased to be a “shell company”.

On November 13, 2018, we effected a 1000:1 reverse stock split of our common stock. Unless otherwise indicated, references to share amounts in this report give retroactive effect to the 1000:1 reverse split.

Implications of Being a Smaller Reporting Company

We qualify as a “smaller reporting company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and have elected to take advantage of certain of the scaled disclosure available to smaller reporting companies.

Our Corporate Information

Our corporate headquarters are located at 4 Avoca Street, Melbourne, Victoria, Australia 3141 and our telephone number is +61-421-007-277. Our filings with the Securities Exchange Commission, or SEC, are available free of charge through the SEC website.

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 2016, we established a relationship with the Visyboard Group (“Visy”), a global manufacturer of a wide range of packaging products including corrugated, plastic film and containers and aluminum. Visy has annual sales in excess of US$ 6 billion and operations in the U.S., Europe, Asia and Australia. Visy is Australia’s largest packaging reseller and manufacturer and has 24 plants and facilities in Australia. Visy has traditionally focused on converted packaging and extruded plastics. With increasing consumer attention on fresh food and durables as well as environmental impact of discarded packaging, Visy is seeking to build its market share in the manufacture and supply of fresh food packaging.

Our platform whereby plastic film production lines utilize micro laser technology to adjust the flow of oxygen and other gases to correspond with the different requirements of fresh produce has a significant impact in extending the shelf life of the product, often by several weeks. Shelf life is becoming a critical issue for exporters, wholesalers and most importantly, retailers

In addition to the plastic film business, we expect to increase our supply of extruded plastic pallets for aluminum cans to Visy which operates the largest aluminum recycling business in Australia. We are also serving Visy’s selling agent in the export of up to 100,000 tons per annum of PET plastics from Australia to China for recycling.

Directors and Officers

Our sole director Yiwen Zhang was appointed upon the closing of the September 19, 2017 Acquisition. Nils Ollquist resigned as a director on March 23, 2018 due to differences with other members of management on how to grow the Company and move it forward. On July 12, 2018, Mr. Yang Fan resigned as a director. On August 14, 2018, Ms. Leping Zhang resigned as a director. Mr. Fan’s and Ms. Zhang’s resignations were not a result of any disagreement with the Company on any matter relating to the Company’s operations, policies (including accounting or financial policies) or practices.

Yiwen Zhang serves as our President and Chief Executive Officer, Chris Lim as our Chief Financial Officer and Eter Huang as our Treasurer. Yiwen Zhang is our principal executive officer and Chris Lim is our principal financial and accounting officer for SEC reporting purposes. Praba Ganeshan was terminated as our Treasurer on January 1, 2018 and Nils Ollquist was terminated as our Chief Financial Officer and Secretary on March 2, 2018. We terminated Mr. Ganeshan as an executive officer due to our dissatisfaction with his performance. We terminated Mr. Ollquist as an executive officer due to our dissatisfaction with his performance. We terminated Mr. Simon Rees as the Chief Operating Officer on February 4, 2019. Mr. Rees’ termination was not a result of any disagreement with the Company on any matter relating to the Company’s operations, policies (including accounting or financial policies) or practices. See “Management-Directors and Executive Officers” below for information about our directors and executive officers.

Employee

As of December 31, 2018, we had one employee and two consultants.

Lock-up Agreements and Other Restrictions

In connection with the Acquisition, the SAPL Shareholder ( the “Restricted Holder”), entered into a lock-up agreement, (the “Lock-Up Agreements”), whereby it is restricted for a period of twenty-four months after the Acquisition (the “restricted Period”), from certain sales or dispositions (including pledges) of all of our Common Stock held by (or issuable to) it, such restrictions together referred to as the Lock-Up. The foregoing restrictions do not apply to the resale of shares of Common Stock by the Restricted Holder in any registered secondary offering of equity securities by us (and, if such offering is underwritten, with the written consent of the lead or managing underwriter), or to certain other transfers customarily excepted.

In addition, the Restricted Holder agreed, for a period of 12 months following the Closing Date, that it will not, directly or indirectly, effect or agree to effect any short sale (as defined in Rule 200 under Regulation SHO of the Exchange Act), whether or not against the box, establish any “put equivalent position” (as defined in Rule 16a-1(h) under the Exchange Act) with respect to the Common Stock, borrow or pre-borrow any shares of Common Stock, or grant any other right (including, without limitation, any put or call option) with respect to the Common Stock or with respect to any security that includes, relates to or derives any significant part of its value from the Common Stock or otherwise seek to hedge its position in the Common Stock.

ITEM 1A. RISK FACTORS

THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN STATEMENTS RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF OUR COMPANY.  YOU ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY.  IN EVALUATING SUCH STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING THE MATTERS SET FORTH BELOW, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.  YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE DECIDING TO INVEST IN OUR COMPANY.  IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS FOR GROWTH WOULD LIKELY SUFFER. AS A RESULT, YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT IN OUR COMPANY.

Risks Related to our Business and Financial Condition

Uncertain global economic conditions could to have an adverse effect on our consolidated financial condition and results of operations.

Uncertain global economic conditions may have an adverse impact on our business in the form of lower net sales due to weakened demand, unfavorable changes in product price/mix, or lower profit margins. For example, global economic downturns may adversely impact some of our end-users and customers, such as food processors, distributors, supermarket retailers, other retailers, business service contractors and other end-users that are particularly sensitive to business and consumer spending. During economic downturns or recessions, there can be a heightened competition for sales and increased pressure to reduce selling prices as our customers may reduce their volume of purchases from us. If we lose significant sales volume or reduce selling prices significantly, there could be a negative impact on our consolidated financial condition or results of operations, profitability and cash flows.

The global nature of our operations exposes us to numerous risks that could materially adversely affect our consolidated financial condition and results of operations.

We manufacture and sell our products in several countries subjecting us to the risks inherent in foreign operations. Economic uncertainty in some of the geographic regions in which we operate, including developing regions, could result in the disruption of commerce and negatively impact cash flows from our product sales in those areas.

Risks inherent in our international operations include:

These and other factors may have material adverse effect on our operations and, consequently, on our consolidated financial condition or results of operations.

Political and economic instability and risk of government actions affecting our business and our customers or suppliers may adversely impact our business, results of operations and cash flows.

We are exposed to risks inherent in doing business in each of the countries or regions in which we or our customers or suppliers operate including civil unrest, acts of terrorism, sabotage, epidemics, force majeure, war or other armed conflict and related government actions, including sanctions/embargoes, the deprivation of contract rights, the inability to obtain or retain licenses or permits required to operate facilities or import or export goods or raw materials, the expropriation or nationalization of our assets, and restrictions on travel, payments or the movement of funds.

Raw material pricing, availability and allocation by suppliers as well as energy-related costs may negatively impact our results of operations, including our profit margins.

Our third party manufacturers use petrochemical-based raw materials to manufacture many of our products. The prices for these raw materials are cyclical, and increases in market demand or fluctuations in the global trade for petrochemical- based raw materials and energy could increase our costs. In addition, the prices of many of the other key raw materials used in our businesses, such as phosphates, surfactants, polymers and resins and fragrances, are cyclical based on numerous supply and demand factors that are beyond our control. If we are unable to minimize the effects of increased raw material costs our business, consolidated financial condition or results of operations may be materially adversely affected.

We experience competition in the markets for our products and services and in the geographic areas in which we operate.

Our packaging products compete with similar products made by competitors and with a number of other types of materials or products. We compete on the basis of performance characteristics of our products, as well as service, price and innovations in technology. A number of competing domestic and foreign companies are well-established.

Our inability to maintain a competitive advantage could result in lower prices or lower sales volumes for our products. Additionally, we may not successfully implement our pricing actions. These factors may have an adverse impact on our consolidated financial condition or results of operations.

Manufacturing risks, including risks related to manufacturing in China, may adversely affect our ability to manufacture our products and could reduce our gross margin and our profitability.

Our business strategy depends on the ability of our third party manufacturers to manufacture our current and future products in sufficient quantities and on a timely basis so as to meet customer demand, while adhering to product quality standards, complying with regulatory requirements and managing manufacturing costs. We are subject to numerous risks relating to the manufacturing capabilities of such third parties manufacturers including:

In addition, we rely on our primary contract manufacturer, Changzhou Sincerity Plastics and Chemicals Technology Ltd. (“Sincerity China”), in Changzhou China, as well as other Chinese manufacturers to manufacture our products. As a result, our business is subject to risks associated with doing business in China, including:

We may enter into strategic collaborations or alliances with third parties that may not result in the development of commercially viable products or the generation of significant future revenue.

In the ordinary course of our business, we may enter into strategic collaborations or alliances to develop product candidates and to pursue new markets. Proposing, negotiating and implementing strategic collaborations or alliances may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. We may not identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. In particular, these collaborations may not result in the development of products that achieve commercial success or result in significant revenue and could be terminated prior to developing any products.

Additionally, we may not be in a position to exercise sole decision making authority regarding the transaction or arrangement, which could create the potential risk of creating impasses on decisions, and our collaborators may have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals. We have limited control over the amount and timing of resources that our current collaborators or any future collaborators devote to our collaborators’ or our future products. Disputes between us and our collaborators may result in litigation or arbitration that would increase our expenses and divert the attention of our management. Further, these transactions and arrangements are contractual in nature and may be terminated or dissolved under the terms of the applicable agreements and, in such event, we may not continue to have rights to the products relating to such transaction or arrangement or may need to purchase such rights at a premium.

We may seek to grow our business through acquisitions of complementary products or technologies, and the failure to manage acquisitions, or the failure to integrate them with our existing business, could impair our ability to execute our business strategies.

From time to time, we may consider opportunities to acquire other products or technologies that may enhance our product platform or technology, expand the breadth of our markets or customer base, or advance our business strategies. Potential acquisitions involve numerous risks, including:

We do not know if we will be able to identify acquisitions we deem suitable, whether we will be able to successfully complete any such acquisitions on favorable terms or at all, or whether we will be able to successfully integrate any acquired products or technologies. Our inability to integrate any acquired products or technologies effectively could impair our ability to execute our business strategies.

Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern.

Our financial statements have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued a report that includes an explanatory paragraph referring to our net losses for the year ended December 31, 2018 and expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain additional financing or other capital, attain operating efficiencies, reduce expenditures, and to generate net revenues. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. However, if adequate funds are not available to us when we need it, and we are unable to enter into some form of strategic relationship that will give us access to additional cash resources, we may be required to curtail our operations which would, in turn, further raise substantial doubt about our ability to continue as a going concern.

Our future capital needs are uncertain and we may need to raise additional funds in the future, and these funds may not be available on acceptable terms or at all.

We believe that our cash flow from operations and cash on hand, together with the net proceeds from recent financings, will be sufficient to satisfy our liquidity requirements for at least the next 3 months from the date of this Report. The expected growth of our business will significantly increase our expenses. In addition, the amount of our future product sales is difficult to predict and actual sales may not be in line with our forecasts. As a result, we believe that we may need to raise additional capital, which may not be available on reasonable terms, if at all. Our future capital requirements will depend on many factors, including:

As a result of these and other factors, we do not know the extent to which we may be required to raise additional capital from public or private offerings of our capital stock, borrowings under credit lines or other sources. If we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders.

If we are unable to raise additional capital, we may not be able to expand our sales and marketing infrastructure, enhance our current products or develop new products, take advantage of future opportunities, or respond to competitive pressures, changes in supplier relationships, or unanticipated changes in customer demand. Any of these events could adversely affect our ability to achieve our strategic objectives and impact our ability to continue as a going concern.

We may not be able to develop new products to keep pace with our industry’s rapidly changing technology and customer requirements.

Our industry is characterized by rapid technological changes, new product introductions and enhancements and evolving industry standards. Our business prospects depend on our ability to develop new products and applications in new markets that develop as a result of technological and scientific advances. New technologies, techniques or products could emerge that might offer better combinations of price and performance than ours. The market for our products is characterized by innovation and advancement in technology. It is important that we anticipate changes in technology and market demand and successfully introduce new, enhanced and competitive technologies to meet our customers’ needs on a timely and cost-effective basis. If we do not successfully innovate and introduce new technology into our anticipated product lines or effectively manage the transitions of our technology to new product offerings, our business, financial condition and results of operations could be harmed. If we do not successfully innovate and introduce new technology into our anticipated product lines or effectively manage the transitions of our technology to new product offerings, our business, financial condition and results of operations could be harmed. We work closely with Sincerity China and its sister company, Shanghai Sincerity Co. Ltd., to provide the technological and product support that drives our business. If, for any reason, we were to become unable to access such technological and product support from Sincerity China and Shanghai Sincerity Co. Ltd., our ability to innovate and provide effective product solutions on behalf of our customers would be negatively impacted, with a deleterious effect on our revenue and profit from operations.

We face competition from numerous companies, many of whom have greater resources than we do.

The market for high performance synthetic polymer and other packaging materials is characterized by intense competition and pricing pressure. We compete with a number of existing packaging companies. Many of these competitors are large, well-capitalized companies with significantly greater market share and resources than we have. As a result, these companies may be better positioned than we are to spend more aggressively on marketing, sales, intellectual property and other product initiatives and research and development activities.

Our current competitors or other potential competitors may develop new products for the packaging industry at any time. In addition, competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. If we are unable to develop products that compete effectively against the products of existing or future competitors, our future revenue could be negatively impacted. Some of our competitors may compete by changing their pricing model or by lowering the price of their products. If these competitors’ pricing techniques are effective, it could result in downward pressure on the price of all packaging products. If we are unable to maintain or increase our selling prices in the face of competition, we may not improve our gross margins.

We may acquire other businesses, form joint ventures or make investments in other companies or technologies that could negatively affect our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.

We may pursue acquisitions of businesses and assets. We also may pursue strategic alliances and joint ventures that leverage our industry experience to expand our offerings or distribution. We have no experience with acquiring other companies and limited experience with forming strategic partnerships. We may not be able to find suitable partners or acquisition candidates, and we may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities. Any future acquisitions could also result in the incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a negative impact on our cash flows, financial condition and results of operations. Integration of an acquired company may also disrupt ongoing operations and require management resources that we would otherwise focus on developing our existing business. We may experience losses related to investments in other companies, which could harm our financial condition and results of operations. We may not realize the anticipated benefits of any acquisition, strategic alliance or joint venture.

Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.

To finance any acquisitions or joint ventures, we may choose to issue Common Stock as consideration, which could dilute the ownership of our stockholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our Common Stock is low or volatile, we may not be able to acquire other companies or fund a joint venture project using our stock as consideration.

Our revenues are derived from the sale of our products to a small number of customers. The loss of any such customers would adversely affect our financial results.

During the year ended December 31, 2018, our products were sold to one customer, accounted for approximately 78.50% of our sales, respectively. The loss of any of these customers, particularly our primary customer, without comparable replacements, would adversely affect our financial results.

Risks Related to Our Reliance on Third Parties

We outsource the manufacturing of our products and rely on a limited number of third-parties for the manufacture of our products. We may not be able to find replacements or immediately transition to alternative manufacturers.

We rely on a limited number of parties for the manufacture of our products. These manufacturers, and any of our other manufacturers, may be unwilling or unable to supply product to us reliably and at the levels we anticipate or are required by the market. For the fiscal year ended December 31, 2018, we have two major suppliers, accounting for approximately 34% and 36% of our purchase, respectively. For us to be successful, our manufacturers must be able to provide us with products and components in substantial quantities, in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable costs and on a timely basis. An interruption in our commercial operations could occur if we encounter delays or difficulties in securing these components, and if we cannot then obtain an acceptable substitute. Any such interruption could harm our reputation, business, financial condition and results of operations.

If we are required to change the manufacturer of a particular product, we will be required to verify that the new manufacturer maintains facilities, procedures and operations that comply with our quality and applicable regulatory requirements, which could further impede our ability to manufacture our products in a timely manner. Transition to a new manufacturer could be time-consuming and expensive, may result in interruptions in our operations and product delivery, and could affect the performance specifications of our products.

We cannot assure you that we will be able to secure alternative manufacturers without experiencing interruptions in our workflow. If we should encounter delays or difficulties in securing, reconfiguring or revalidating the products we require our reputation, business, financial condition and results of operations could be negatively impacted.

The manufacturing operations of our third-party manufacturers are dependent upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations, which could harm our business.

The raw materials needed for most of our products are generally available to our third-party manufacturers from multiple sources in sufficient qualities. However, a supply interruption or an increase in demand beyond a current suppliers’ capabilities could harm their ability to manufacture our products until new sources of supply are identified and qualified. Their reliance on these suppliers subjects us to a number of risks that could harm our business, including:

Any interruption in the supply of components or materials, or our third party manufacturers inability to obtain substitute components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers, which would have an adverse effect on our business.

Risks Related to Administrative, Organizational and Commercial Operations and Growth

We may be unable to manage our anticipated future growth effectively, which could make it difficult to execute our business strategy.

We anticipate growth in our business operations. This future growth could create a strain on our organizational, administrative and operational infrastructure. We may not be able to maintain the quality of our products or satisfy customer demand as it grows. Our ability to manage our growth properly will require us to continue to improve our operational, financial and management controls, as well as our reporting systems and procedures. We may implement new enterprise software systems in a number of areas affecting a broad range of business processes and functional areas. The time and resources required to implement these new systems is uncertain and failure to complete this in a timely and efficient manner could harm our business.

If we are unable to support demand for our existing products and our future products, including ensuring that we have adequate resources to meet increased demand, our business could be harmed.

As our commercial operations and sales volume grow, we will need to continue to increase our workflow capacity for manufacturing, customer service, billing and general process improvements and expand our internal quality assurance program, among other things. We cannot assure you that any of these increases in scale, expansion of personnel, purchase of equipment or process enhancements will be successfully implemented.

The loss of our Chief Executive Officer or Chief Financial Officer or our inability to attract and retain highly skilled personnel could negatively impact our business.

Our success depends on the skills, experience and performance of our President and Chief Executive Officer, Yiwen Zhang, and our Chief Financial Officer, Chris Lim, although neither of them have experience serving as an officer or director of a publicly-traded U.S. company. The individual and collective efforts of these employees will be important as we continue to develop our business and as we expand our commercial activities. The loss or incapacity of existing members of our executive management team could negatively impact our operations if we experience difficulties in hiring qualified successors. Our executive officers do not presently have employment agreements.

Our future operations will depend, in part, on our ability to attract and retain highly skilled employees. We may not be able to attract or retain qualified employees in the future due to the competition for qualified personnel among our competitors. Recruiting and retention difficulties can limit our ability to support our current operations and anticipated future growth programs. All of our employees are and will be at-will, which means that either we or the employee may terminate his or her employment at any time.

Risks Related to Ownership of Our Common Stock

There is currently a limited market for our Common Stock and there can be no assurance that any market will ever develop. You may therefore be unable to re-sell shares of our Common Stock at times and prices that you believe are appropriate.

Our Common Stock is not listed on a national securities exchange or any other exchange, and is presently quoted on the OTC Pink Market. There is no active trading market for our Common Stock and our Common Stock may never be included for trading on any stock exchange. Accordingly, our Common Stock is highly illiquid and you may experience difficulty in re-selling shares of our Common Stock at times and prices that you may desire.

FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.

The Financial Industry Regulatory Authority, or FINRA, has adopted rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative or low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative or low-priced securities will not be suitable for at least some customers. If these FINRA requirements are applicable to us or our securities, they may make it more difficult for broker-dealers to recommend that at least some of their customers buy our Common Stock, which may limit the ability of our stockholders to buy and sell our Common Stock and could have an adverse effect on the market for and price of our Common Stock.

The market price of our Common Stock may be highly volatile, and may be influenced by numerous factors, some of which are beyond our control.

If an active market for our Common Stock develops, its market price could fluctuate substantially due to a variety of factors, including market perception of our ability to meet our growth projections and expectations, quarterly operating results of other companies in the same industry, trading volume in our Common Stock, changes in general conditions in the economy and the financial markets or other developments affecting our business and the business of others in our industry. In addition, the stock market itself is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons related and unrelated to their operating performance and could have the same effect on our Common Stock. The market price of shares of our Common Stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

Our principal stockholders and management own a significant percentage of our stock and will be able to exercise significant influence over matters subject to stockholder approval.

As of April 15, 2019, our executive officers, directors and principal (5% or greater) stockholders, together with their respective affiliates, owned approximately 77.79% of our Common Stock. Accordingly, these stockholders will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of our board of directors and approval of significant corporate transactions. This concentration of ownership could have the effect of entrenching our management and/or the board of directors, delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the fair market value of our Common Stock.

Because we became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not be able to attract the attention of research analysts at major brokerage firms.

Because we did not become a reporting company by conducting an underwritten initial public offering of our Common Stock, and because our Common Stock is not listed on a national securities exchange, security analysts of brokerage firms may not provide coverage of our company. In addition, investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we became a public reporting company by means of an underwritten initial public offering, because they may be less familiar with our company as a result of more limited coverage by analysts and the media. The failure to receive research coverage or support in the market for our shares will have an adverse effect on our ability to develop a liquid market for our Common Stock.

If we fail to implement and maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.

We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), subject to certain exceptions. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls and to obtain attestations of the effectiveness of internal controls by independent auditors. However, as discussed in detail below, as an emerging growth company and a smaller reporting company, we are not required to obtain an auditor attestation. As a private company, Sincerity Australia Pty Ltd. was not subject to requirements to establish, and did not establish, internal control over financial reporting and disclosure controls and procedures consistent with those of a public company. Our management team and board of directors will need to devote significant efforts to implementing and maintaining adequate and effective disclosure controls and procedures and internal control over financial reporting in order to comply with applicable regulations, which may include hiring additional legal, financial reporting and other finance and accounting staff. Any of our efforts to improve our internal controls and design, implement and maintain an adequate system of disclosure controls may not be successful and will require that we expend significant cash and other resources.

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on the tradability of our Common Stock, which in turn would negatively impact our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our Common Stock. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

We currently have a small team with primary responsibility for performing most of our accounting and financial reporting duties. As a result, certain aspects of internal accounting control which require adequate segregation of duties are missing. We believe we do not currently have sufficient accounting and supervisory personnel with the appropriate level of technical accounting experience and training necessary or adequate accounting policies, processes and procedures, particularly in the areas of revenue recognition, equity related transactions and other complex, judgmental areas for U.S. generally accepted accounting principles, or GAAP, financial reporting and SEC reporting purposes and consequently, we must rely on third party consultants. These deficiencies represent a material weakness (as defined under the Exchange Act) in our internal control over financial reporting in both design and operation. We may identify additional material weaknesses in the future. Under the Exchange Act, a material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls. We are currently developing a plan to design, review, implement and refine internal control over financial reporting. However, we may identify deficiencies and weaknesses or fail to remediate previously identified deficiencies in our internal controls. If material weaknesses or deficiencies in our internal controls exist and go undetected or unremediated, our financial statements could contain material misstatements that, when discovered in the future, could cause us to fail to meet our future reporting obligations and cause the price of our common stock to decline.

We are not subject to compliance with rules requiring the adoption of certain corporate governance measures and as a result our stockholders have limited protections against interested director transactions, conflicts of interest and similar matters.

The Sarbanes-Oxley Act, as well as resulting rule changes enacted by the SEC, the New York Stock Exchange and the NASDAQ Stock Market, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges. Because we are not listed on the NASDAQ Stock Market or the New York Stock Exchange, we are not presently required to comply with many of the corporate governance provisions and we have not yet adopted most of these measures. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest and similar matters.

We are a smaller reporting company, and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.

We are currently a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $250 million and annual revenues of less than $100 million during the most recently completed fiscal year. “Smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports and in a registration statement under the Exchange Act on Form 10. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.

Shares of our common stock that have not been registered under federal securities laws are subject to resale restrictions imposed by Rule 144, including those set forth in Rule 144(i) which apply to a former “shell company.”

Prior to the closing of the Acquisition, we were deemed a “shell company” under applicable SEC rules and regulations because we had no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets. Pursuant to Rule 144 promulgated under the Securities Act, sales of the securities of a former shell company, such as us, under that rule are not permitted (i) until at least 12 months have elapsed from the September 25, 2017 date on which our Current Report on Form 8-K reflecting our status as a non-shell company, was filed with the SEC; and (ii) unless at the time of a proposed sale, we are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and have filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports. We are currently subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and have filed all reports and other materials required to be filed thereunder. Unless we register their shares of common stock for sale under the Securities Act, most of our stockholders were forced to hold their shares of our common stock until September 25, 2018 before they were eligible to sell those shares, and even after Sept 25, 2018, sales may not be made under Rule 144 unless we and the stockholders who plan to sell such shares are in compliance with other requirements of Rule 144. Further, it will be more difficult for us to raise funding to support our operations through the sale of debt or equity securities unless we agree to register such securities under the Securities Act, which could cause us to expend significant time and cash resources. Additionally, our previous status as a shell company could also limit our use of our securities to pay for any acquisitions we may seek to pursue in the future. The lack of liquidity of our securities as a result of the inability to sell under Rule 144 for a longer period of time than a non-former shell company could cause the market price of our securities to decline.

Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our existing stockholders. We are authorized to issue an aggregate of 290 million shares of common stock and 10 million shares of “blank check” preferred stock. We may issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of the common stock. We may need to raise additional capital in the near future to meet our working capital needs, and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts.

Issuance of stock to fund our operations may dilute your investment and reduce your equity interest.

We may need to raise capital in the future to fund the development of our products or for other purposes. Any equity financing may have a significant dilutive effect to stockholders and a material decrease in our stockholders’ equity interest in us. Equity financing, if obtained, could result in substantial dilution to our existing stockholders. At its sole discretion, our board of directors may issue additional securities without seeking stockholder approval, and we do not know when we will need additional capital or, if we do, whether it will be available to us.

Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.

You should not rely on an investment in our Common Stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our Common Stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our Common Stock. Accordingly, investors must rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our Common Stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our executive office is located at 4 Avoca Street, South Yarra, Victoria, Australia 3141 which space is provided to us on a rent-free basis by an unaffiliated third party.

ITEM 3. LEGAL PROCEEDINGS

We know of no material, active or pending, legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any beneficial shareholder are an adverse party or has a material interest adverse to us except for the following:

We have received demand letters from CKR Law LLP (“CKR”), our former legal counsel, on June 11, 2018 and July 9, 2018. CKR demanded payment of legal fees and reimbursements of legal expenses in an aggregate amount of $294,039.54 plus interest pursuant to engagement letters between us and CKR dated April 5, 2017, September 19, 2017 and October 30, 2017. In additions, CKR claimed that we were in breached of its registration obligations to CKR under the Registration Rights Agreement among us, CKR and Bang Bo Enterprise Management Consulting Co. Ltd. dated September 19, 2017.

We, through our attorney, have responded to CKR in a letter dated June 19, 2018 demanding for (i) return of all shares issued or transferred to CKR; (ii) a release from any remaining “liabilities” to CKR; (iii) the return of all legal fees paid by the company to CKR; and (iv) financial damages resulting from these activities.

The company has received no further correspondence from CKR since their last letter dated July 9, 2018. We believe that the demands by CKR are without merit and will continue to vigorously defend against such claims.

Provisions are not required in respect of these matters, as it is either not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock has been quoted on the OTC Pink Market since October 13, 2017. Our common stock was quoted on the OTC Bulletin Board (OTCBB) and the OTC Markets QB Tier (OTCQB), from September 25, 2013 through October 12, 2017. Since July 13, 2017 our common stock has been quoted under the symbol “SINC”. From June 12, 2017 until July 31, 2017 our common stock was quoted under the symbol “SBIDD”. From September 25, 2013 until June 12, 2017 our common stock was quoted under the symbol “SBID”. Prior to September 25, 2013 our common stock was quoted under the symbol “HKDZ”. Presently, there is not an active trading market for our common stock. Our common stock may never be included for trading on an exchange.

As of April 15, 2019, we had 50,730 shares of Common Stock outstanding held by 128 stockholders of record.

The following table sets forth the high and low bid prices for our common stock for the fiscal quarter indicated as reported on OTC Markets. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Our common stock is very thinly traded and, thus, pricing of our common stock on OTC Markets does not necessarily represent its fair market value. Prices give retroactive effect to the June 14, 2017 60:1 reverse stock split and November 13, 2018 1000:1 reverse stock split of our common stock.

Dividends

We have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant. Other than provisions of the Nevada Revised Statutes requiring post-dividend solvency according to certain measures, there are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock.

Recent Sale of Unregistered Securities

The number of shares issued and price per share in the following transactions under this section have not been adjusted to reflect the 1000:1 reverse stock split that took effective on November 13, 2018.

Shares Issued in Connection with the Acquisition

On September 19, 2017, pursuant to the terms of the Acquisition Agreement, all of the shares of stock of Sincerity Australia Pty Ltd. were exchanged for 45,211,047 restricted shares of our Common Stock. The issuance of the shares to Sincerity Australia Pty Ltd. In the Acquisition was exempt from registration under Section 4(a)(2) of the Securities Act as not involving any public offering. None of the securities were sold through an underwriter and, accordingly, there were no underwriting discounts or commissions involved.

Securities issued in the September 2017, November 2017, December 2017 and January 2018 Offerings

On September 19, 2017, in conjunction with the closing of the Acquisition, we sold 15 units of securities (the “Units”) in a private placement offering (the “September 2017 Offering”), at a purchase price of $10,000 per Unit (the “Unit Offering Price”), each Unit consisting of (i) one 12% senior secured convertible promissory note (the “Note”) in the face (principal) amount of $10,000 and (ii) one warrant (the “Warrant”) exercisable for a period of five years representing the right to purchase Thirty Three Thousand Three Hundred Thirty Four (33,334) shares of Common Stock.

On November 9, 2017 we entered into a Securities Purchase Agreement with two persons, pursuant to which we sold (i) convertible promissory notes dated November 9, 2017 in the aggregate principal amount of $108,000 due on November 9, 2018, (ii) three-year Class A Warrants to purchase up to an aggregate of 102,858 shares of our common stock (subject to adjustment) at an initial exercise price of $6.00 per share (subject to adjustment), and (iii) three-year Class B Warrants to purchase up to an aggregate of 800,000 shares of our common stock (subject to adjustment) at an initial exercise price of $7.50 per share (subject to adjustment).

On December 19, 2017 we entered into a Securities Purchase Agreement with one person pursuant to which we sold a convertible promissory note in the principal amount of $112,500 due on August 20, 2018.

On January 9, 2018 we entered into a Securities Purchase Agreement dated December 19, 2017 with one person pursuant to which we sold a convertible promissory note in the principal amount of $83,500 due on December 19, 2018.

In April 2018, we reached an agreement in principle to repurchase all of the notes and warrants issued on November 9, 2017, together with the Waiver Warrants issued to the same persons, for an aggregate of $150,000 and 30,000 shares of our common stock.

In June 2018, we reached an agreement in principle to repurchase all of the notes and warrants issued on December 19, 2017 for an aggregate of $132,456.16. The payment was made in full and we have no further obligations and liabilities thereunder.

In June 2018, we reached an agreement in principle to repurchase all of the notes and warrants issued on January 9, 2018 for an aggregate of $178,458.90. The payment was made in full and we have no further obligations and liabilities thereunder.

In June 2018, we cancelled the Note and Warrant that was sold in the Offering on September 19, 2017 due to the fact that

Shares Issued after the Acquisition

In December 2017, we issued 1,000,000 shares of our restricted common stock to Chengdu Holdings Pty Ltd., as Trustee for the Avoca Trust, a trust beneficially owned by the family of Nils Ollquist, as a bonus under Mr. Ollquist’s employment arrangement with us. The shares were issued in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act.

In December 2017, we issued 150,000 shares of our restricted common stock to a consultant under an Investor Relations Agreement. The shares were issued in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act.

In February 2018, we issued 75,000 shares to Pure Boba Family Trust, a trust beneficially owned by Yang Fan at a price of $1.33333 per share or an aggregate of $100,000. The shares were issued in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act.

In April 2018, we issued 75,000 shares to Pure Boba Family Trust, a trust beneficially owned by Yang Fan at a price of $1.33333 per share or an aggregate of $100,000, 15,000 shares to Emunah Funding LLC at a price of $2.00 per share or an aggregate of $30,000 and 15,000 shares to Fourth Man LLC at a price of $2.00 per share or an aggregate of $30,000. The shares were issued in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act.

In May 2018, we issued 750,000 shares to a non-U.S. investor at a price of $1.33333 per share or an aggregate of $1,000,000. As of June 8, 2018, we have received the full amount from the investor. The shares were issued in reliance upon the exemption from securities registration afforded by the provisions of Regulation S as promulgated by the SEC under the Securities Act.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of December 31, 2018, with respect to the shares of common stock that may be issued under our existing equity compensation plans:

Equity Compensation Plan Information

(1)  2013 Equity Incentive Plan

On December 6, 2013, our Board of Directors adopted and our stockholders approved, the 2013 Equity Incentive Plan, which reserves a total of 83,334 shares of our common stock for issuance under the 2013 Plan. If an incentive award granted under the 2013 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2013 Plan.

In addition, the number of shares of our common stock subject to the 2013 Plan, any number of shares subject to any numerical limit in the 2013 Plan, and the number of shares and terms of any incentive award are expected to be adjusted in the event of any change in our outstanding our common stock by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.

Administration

The compensation committee of the Board, or the Board in the absence of such a committee, will administer the 2013 Plan. Subject to the terms of the 2013 Plan, the compensation committee or the Board has complete authority and discretion to determine the terms of awards under the 2013 Plan.

Grants

The 2013 Plan authorizes the grant to participants of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code (as amended, the “Code”) and stock appreciation rights, as described below:

Duration, Amendment, and Termination

The Board has the power to amend, suspend or terminate the 2013 Plan without stockholder approval or ratification at any time or from time to time. No change may be made that increases the total number of shares of our Common Stock reserved for issuance pursuant to incentive awards or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized by our stockholders within one year. Unless sooner terminated, the 2013 Plan will terminate on December 6, 2023.

As of December 31, 2017 and December 31, 2018, no restricted stock units or other securities were outstanding under the 2013 plan.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

ITEM 6. SELECTED FINANCIAL DATA

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 7. 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, including those under “Risk Factors” in this Form 10-K, 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, and 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 audited financial statements contained in this Annual 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.

Basis of Presentation

The audited financial statements for our fiscal years ended December 31, 2018 and 2017 include a summary of our significant accounting policies and should be read in conjunction with the discussion below.

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.

SAPL is expanding very fast but still in mid early stage of growing, in short term the proceeds generated out of the business is not sufficient to cover the expense of a full SEC reporting public company, also the fast organic growth business needs more working capital. Therefore, SINC initiated a private placement offering of 3million shares at USD1.5/share to fellow investors, which should be sufficient to cover business growth and following acquisitions. 

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 December 31,2018, the company had a current asset deficiency of $143,331 and net asset surplus of $5,664 (December 31, 2017 current asset deficiency of $2,160,980 and net asset deficiency $2,090,581). The Company reported an after tax income of $761,806 for the year (2017 after tax loss: $3,989,922).

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:

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.

Highlights

During the year ended December 31, 2018, the Company secured and reinforced the relationships with its distribution network in Australia, which is expected to enable it to generate stable growth and explore more opportunities. The Company was able to generate increased sales in fiscal year ended December 31, 2018 with its key customers.

The Company has identified new products that enable it to generate higher margin compared to some of its traditional product lines.

Strategy

In order to continue to grow its revenue, the Company is planning at expanding its product lines with its key customers. The Company continuously looks at innovating its product lines in order to create value for its customers and generate higher margin. The Company is currently looking at expanding to other markets outside of Australia.

The Company is constantly looking for value accretive merger and acquisition opportunities in order to increase its size to generate increase sales and opportunities for vertical and horizontal integration to improve business efficiency.

Critical Accounting Estimates and Judgements

The Directors evaluate estimates and judgements 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 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.

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.

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 Judgements

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.

Results of Operations

Fiscal Years Ended December 31, 2018 and 2017

The following table summarizes our historical consolidated financial statements for the fiscal years ended December 31, 2018 and December 31, 2017:

Revenues

Revenue was approximately $1,558,000 for the year ended December 31, 2018, compared to approximately $2,151,000 for the year ended December 31, 2017, a decrease of approximately $593,000. The decrease was the result of the decreased volume of products sold to our key customers during 2018.

Selling, general and administrative expenses

Selling, general and administrative expenses were approximately $129,000 for the year ended December 31, 2018, compared to approximately $109,000 for the year ended December 31, 2017. The increase was primarily due to increase in filing and listing fees paid as a public company and increase in advertising expenditures.

Employee expenses

Employee expenses were approximately $14,000 for the year ended December 31, 2018, compared to $1,972,000 for the year ended December 31, 2017. In 2017, the former Chief Financial Officer was issued with 1,000,000 shares with a value of $1,900,000 as a bonus.

Professional service fees

Professional service fees were approximately $283,000 for the year ended December 31, 2018, compared to approximately $625,000 for the year ended December 31, 2017. The decrease was due to payments related to the September 2017 reverse acquisition and the expenses of being a public company, which were one-offs expenses. There was no share-based payment for professional services fees in 2018 as compared to $285,000 in 2017.

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.

Other income and expenses was approximately $1,045,000 for the year ended December 31, 2018, compared to other expenses of approximately $1,456,000 for the year ended December 31, 2017. The increase was due to the recognition of de-recognition of fair value of convertible notes and warrants as a result of early repurchase of convertible notes and warrants.

Financial Condition, Liquidity and Capital Resources

As at December 31, 2018, we had a working capital deficit of $143,331 compared with a working capital deficit of $2,160,980 as at December 31, 2017. The improvement in working capital is primarily a result of funds received from private placements and early payment of convertible notes.

Our primary uses of cash have been for operations and payments for cancelation of convertible notes. The main sources of cash have been from issuance of common stock.

The Company believes that cash flow from operations will be sufficient to sustain its current level of operations for at least the next twelve months of operations.

As of December 31, 2018, we had cash and cash equivalents of approximately $23,000, 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:

Net cash used for operating activities was approximately $636,000 and $62,000 in 2018 and 2017 respectively. In 2018, the net cash used for operating activities primarily reflects the net income from operations of approximately $762,000 with approximately $244,000 used for changes in operating assets and liabilities, offset by non-cash items of approximately $1,174,000 and amortization and depreciation of approximately $20,000 that had no effect on cash flows.

Net cash used for investing activities of $Nil in 2018 and $5,000 relates to purchase of office equipment in 2017.

Net cash provided by financing activities was approximately $579,000 and $183,000 in 2018 and 2017, respectively. In 2018, the Company issued common stock for approximately $1,200,000 and the proceeds were used to fund operations and repayments of some borrowings. In 2017, the Company issued approximately $230,000 of convertible notes and these borrowings had been used to fund operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements are included beginning immediately following the signature page to this report. See Item 15 for a list of the consolidated financial statements included herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2018.  Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our senior management concluded that our disclosure controls and procedures were not effective.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process.  Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

As of December 31, 2018, our senior management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated 2013 Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, we believe that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our senior management in connection with the review of our financial statements as of December 31, 2018.

Management’s Remediation Initiatives

In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we plan to initiate the following series of measures:

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2018, that occurred during our fourth quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

Below are the names of and certain information regarding our current executive officers and directors:

Directors hold office until the expiration of the term for which he or she was elected and until a successor has been elected and qualified.

A majority of the authorized number of directors constitutes a quorum of the Board of Directors for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all members of the Board of Directors, individually or collectively consent in writing to the action.

Executive officers are appointed by the Board of Directors and serve at its pleasure.

The principal occupation and business experience during at least the past five years for our executive officers and directors is set forth below. In addition, for each director, set forth below is a summary of the specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director of the Company.

Executive Officers

Yiwen Zhang has served as our President, Chief Executive Officer and Chairman since the September 19, 2017 closing of the Acquisition. He founded Sincerity Australia Pty Ltd in November 2005 and has served as its general manager since its inception. He has more than 10 years of experience in the plastics and packaging industries including well-developed relationships with significant packaging groups. He is skilled in business negotiations, operations management, strategic planning, business development and matters involving plastics. He received a Bachelor of Commerce Degree with a focus in accounting and finance from the Australia National University. We believe that Yiwen Zhang is qualified to serve on our board of directors based upon his industry and management experience.

Chris Lim has served as our Chief Financial Officer since March 2, 2018. He has close to 20 years of professional Chartered Accounting experience. He holds a Bachelor of Commerce Degree from the University of Melbourne. Chris has held a number of positions throughout his career including Associate Director with Big 4 and Mid-Tier accounting firms. Chris has worked with many audit clients across public and private companies and not-for-profit organizations which covered a diverse range of industries including energy and resources, agriculture, manufacturing, distribution, financial services and not-for-profit. Chris started as an auditor with a mid-tier accounting firm, BDO Melbourne, in January 1999. When BDO Melbourne was merged into Deloitte, Chris continued his role at Deloitte until February 2010 holding the position of Client Director. Chris spent a year as the Group Finance Manager for a listed ASX Company, Q Limited, from March 2010 to February 2011. From March 2011 until December 2016 he worked for ShineWing Australia and held the position of Associate Director in their Assurance & Advisory Division. Chris started his own accounting practice, Chris Lim Accounting Solutions, in January 2017.

Eter Huang has served as our Treasurer since January 15, 2018. Eter is a Certified Practicing Accountant and received a Master Degree of Applied Commerce in Accounting from the University from the University of Melbourne. Eter has extensive working experience with public accounting firms in Australia and China and specializes in global supply chain services and mining industry companies. From October 2015 to January 2018, Eter was one of the core founders and appointed as a directory by New Venture Pty Ltd in Melbourne where she was in charge of daily business operations as well as account maintenance and financial reporting. From January 2012 until December 2015, Eter worked for ShineWing Australia in Melbourne as a senior consultant where she provided auditing and accounting services and worked with a broad spectrum of clients including non-profit entities, small to medium private organizations, small to medium US listed companies and large ASX listed enterprises. From August 2010 until November 2011, Eter was an auditor for ShineWing Shanghai in China and participated in various projects, including, but not limited to, IPOs, M&A due diligence and listed companies financial audits.

Director Independence

Our securities are not listed on a national securities exchange or on any inter-dealer quotation system which has a requirement that a majority of directors be independent. We evaluate independence by the standards for director independence set forth in the NASDAQ Marketplace Rules. Under such rules, our board of directors has determined that none of our directors are independent. Yiwen Zhang is not an independent director under these rules because he is an executive officer and principal shareholder of our company. In making such independence determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. In considering the independence of the directors listed above, our board of directors considered the association of our directors with the holders of more than 5% of our Common Stock.

Role of Board in Risk Oversight Process

Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including risks relating to our financial condition, development and commercialization activities, operations, strategic direction and intellectual property as more fully discussed in the section entitled “Risk Factors” appearing elsewhere in this Report. Management is responsible for the day-to-day management of risks we face, while our board of directors, as a whole, has responsibility for the oversight of risk management. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.

The full board of directors discusses with management our major risk exposures, their potential impact on us, and the steps we take to manage them. This enables the board of directors to coordinate the risk oversight role, particularly with respect to risk interrelationships.

Board Committees

As our Common Stock is not presently listed for trading or quotation on a national securities exchange, we are not presently required to have board committees. However, we expect to establish an audit committee, a compensation committee and a nominating and corporate governance committee in the future in conjunction with the anticipated growth of our business, each of which will operate pursuant to a charter adopted by our board of directors. The composition and functioning of all of our committee will comply with all applicable requirements of the Sarbanes-Oxley Act of 2002 and SEC rules and regulations.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. We will provide a copy of our Code of Business Conduct and ethics to any person without change upon request in writing to Sincerity Applied Materials Holdings Corp., 4 Avoca Street, South Yarra, Victoria 3141, Australia, Attn: Chief Executive Officer.

Limitation on Liability and Indemnification Matters

Our Articles of Incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Nevada law. Consequently, our directors and officers will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors or officers, except liability for:

Our Articles of Incorporation and ByLaws provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Nevada law. Our bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his, her or its actions in that capacity regardless of whether we would otherwise be permitted to indemnify him, her or it under Nevada law.

In addition to the indemnification required in our Articles of Incorporation and ByLaws, we intend to enter into indemnification agreements with each of our directors, officers and certain other employees. These agreements will provide for the indemnification of our directors, officers and certain other employees for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were our agents. We believe that these provisions in our Articles of Incorporation, ByLaws and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. This description of the limitation of liability and indemnification provisions of our Articles of Incorporation or ByLaws is qualified in its entirety by reference to these documents, each of which is included as an exhibit to this Report.

Involvement in Certain Legal Proceedings

None of our directors or executive officers has been involved in any of the following events during the past 10 years:

Audit Committee Financial Expert

We have no separate audit committee at this time.  Our full board oversees our audits and auditing procedures. At this time none of our directors are an “audit committee financial expert” within the meaning of Item 407(d)(5) for SEC regulation S-K.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires our directors, officers and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Directors, officers and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon our review of the copies of such forms that we received with respect to the year ended December 31, 2018, we believe that each person who at any time during the year was a director, officer or beneficial owner of more than 10% of our Common Stock satisfied their Section 16(a) filing requirements, although certain reports were filed on a late basis.

Currently, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information concerning the total compensation paid or accrued by us during the fiscal year ended December 31, 2018 to (i) all individuals that served as our principal executive officer or acted in a similar capacity for us at any time during the fiscal year ended December 31, 2018 and (ii) all individuals that served as executive officers of ours at any time during the fiscal year ended December 31, 2018 that received annual compensation during the fiscal year ended December 31, 2018 in excess of $100,000. None of our executive officers received annual compensation during the fiscal year ended December 31, 2018 in excess of $100,000.

Summary Compensation Table

Outstanding Equity Awards at Fiscal Year-End

We have one compensation plan approved by our stockholders, the 2013 Plan. As of December 31, 2018, we had no restricted stock units issued and outstanding. We have no plans in place and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.

Employment Agreement

We entered into an employment services agreement with Yiwen Zhang in October 2017 effective for an indefinite period. It provides for a base salary of $125,000 per annum and the payment of an annual bonus, if and when determined by the Board, in its sole discretion. Yiwen Zhang is eligible to participate in any other bonus or incentive programs established by the Company for executives of the Company. Yiwen Zhang is also entitled to receive stock options under the Company’s Equity Incentive Plans at the option of the Board.

Consulting Agreement

We engaged Chris Lim and Eter Huang as consultants in June 2018. Pursuant to the engagement letter with Chris Lim Accounting Solutions Pty Ltd, we agreed to pay a monthly consulting fee of AUD 10,500 (approximately USD 6,255) for bookkeeping and other accounting-related services.

Director Compensation

We currently do not pay any cash compensation to our sole director for his services as directors of the Company. However, we reimburse our sole director for all reasonable out-of-pocket expenses incurred in connection with the Company’s business. In the future, we may also determine to grant to our director awards under our equity incentive plans.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information with respect to the beneficial ownership of our Common Stock as of April 15, 2019, by (i) each stockholder known by us to be the beneficial owner of more than 5% of our Common Stock (our only class of voting securities), (ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with respect to the shares of our Common Stock beneficially owned by such person, except to the extent such power may be shared with a spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted. To our knowledge, there is no arrangement, including any pledge by any person of securities of the Company or any of its parents, the operation of which may at a subsequent date result in a change in control of the Company.

The number of shares beneficially owned by each entity, person, director or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of April 15, 2018 through the exercise or conversion of any stock option, warrant, note or other rights. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock held by such person.

The percentage of shares beneficially owned is computed on the basis of 50,730 shares of Common Stock outstanding as of April 15 , 2019. Shares of Common Stock that a person has the right to acquire within 60 days of April 15, 2019 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group. Unless otherwise indicated below, the address for each beneficial owner listed in the table is c/o Sincerity Applied Materials Holdings Corp., 4 Avoca Street, South Yarra, Victoria, Australia 3141.

(1) Represents 39,463 shares owned by the Zhang Family Trust, a trust in which Yiwen Zhang and his wife are the beneficial owners.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

SEC rules require us to disclose any transaction or currently proposed transaction in which we were a participant and in which any related person has or will have a direct or indirect material interest involving the lesser of $120,000 or 1% of the average of our total assets as of the end of last two completed fiscal years. A related person is any executive officer, director, nominee for director, or holder of 5% or more of our Common Stock, or an immediate family member of any of those persons.

Sales and Purchases of Securities

The following securities transactions are with related persons during the fiscal year ended December 31, 2018.

In February 2018, we issued 75,000 shares to Pure Boba Family Trust, a trust beneficially owned by Yang Fan at a price of $1.33333 per share or an aggregate of $100,000.

In April 2018, we issued 75,000 shares to Pure Boba Family Trust, a trust beneficially owned by Yang Fan at a price of $1.33333 per share or an aggregate of $100,000. 

In May 2018, we issued 750,000 shares to Tianma Wanxiang Pty Ltd, a company that Yang Fan is a shareholder, at a price of $1.33333 per share or an aggregate of $1,000,000.

Loans from shareholders

The net loan balance due from the stockholder at December 31, 2018 amounts to $136,400 and is subject to an unsecured loan agreement that requires interest at the rate of 5.8% per annum on balances outstanding for at least an entire year, and stipulates repayment within one year from the balance sheet date, subject to the lender’s discretion. The agreement also provides for future advances and payments at the discretion of the parties.

Bank credit line

The Company has a total $950,000 (AUD) bank credit line (approximately $670,900 (USD) at December 31, 2018) 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 (5.94% per annum at December 31, 2018) 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 December 31, 2018, $105,931 (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.

Indemnification Agreements and Directors’ and Officers’ Liability Insurance

We do not presently maintain Directors’ and Officers’ Liability Insurance for our post-Acquisition officers and directors and do presently have indemnification agreements with our post-Acquisition officers and directors. We intend to obtain Directors’ and Officers’ Liability Insurance and enter into indemnification agreements with our post-Acquisition officers and directors in the future.

Employment Agreements

The discussion above under “Executive Compensation – Employment Agreement” and “Executive Compensation – Consulting Agreement” is incorporated herein by reference.

Other Transactions

During the years ended December 31, 2018 and 2017 SAPL purchased nil and $839, respectively, in products from Sincerity China. Sincerity China is owned by Leping Zhang and her husband.

During the years ended December 31, 2018 and 2017 SAPL purchased approximately $535,302 and $962,640, respectively, in products from Shanghai Sincerity Co. Ltd. Shanghai Sincerity Co. Ltd. is owned by Leping Zhang and her husband.

Director Independence

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “independent directors.”

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed to us by our principal accountants for professional services rendered during the years ended December 31, 2018 and December 31, 2017 are set forth in the table below:

Audit Committee’s Pre-Approval Practice

Prior to our engagement of our independent auditor, such engagement was approved by our board of directors.  The services provided under this engagement may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Pursuant our requirements, the independent auditors and management are required to report to our board of directors at least quarterly regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. Our board of directors may also pre-approve particular services on a case-by-case basis. All audit-related fees, tax fees and other fees incurred by us for the year ended December 31, 2018, were approved by our board of directors.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements

See Index to Financial Statements immediately following the signature page of this report.

Financial Statement Schedules

All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

Exhibits

In reviewing the agreements included as exhibits to this Form 10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

The following exhibits are included as part of this report:

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Security Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SINCERITY APPLIED MATERIALS HOLDINGS CORP.

CONSOLIDATED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED

DECEMBER 31, 2018 and 2017

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Sincerity Applied Material Holdings Corp

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Sincerity Applied Material Holdings Corp and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years then ended, and the related notes and schedules (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the two years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company reported a net current asset deficiency with its current liabilities exceeding its current assets by $143,331, net cash used in operations of $636,386 and a loss from operations of $361,500. All these factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

ShineWing Australia

Chartered Accountants

We have served as the Company’s auditor since 2016.

Melbourne, Australia

April 15, 2019

SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Consolidated Balance Sheets

As at December 31, 2018 and 2017

The accompanying notes are an integral part of these consolidated financial statements.

SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Consolidated Statement of Operations

For the Year ended December 31, 2018 and 2017

The accompanying notes are an integral part of these consolidated financial statements.

SINCERITY APPLIED MATERIALS HOLDINGS CORP.

Consolidated Statement of Changes in Stockholders’ Equity / (Deficit)

For the Year ended December 31, 2018 and 2017