Item 1. Financial Statements.
CONTENTS
3
OMPHALOS, CORP.
CONDENSED CONSOLIDATED BALANCE
SHEETS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
(Unaudited)
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
174,573
|
|
$
|
74,982
|
|
Accounts
receivable, net
|
|
76,076
|
|
|
777
|
|
Inventory, net
|
|
115,702
|
|
|
106,963
|
|
Prepaid
and other current assets
|
|
56,158
|
|
|
43,008
|
|
Total current assets
|
|
422,509
|
|
|
225,730
|
|
|
|
|
|
|
|
|
Leasehold Improvements and Equipment, net
|
|
6,180
|
|
|
7,194
|
|
Intangible assets, net
|
|
20,957
|
|
|
21,329
|
|
Deposits
|
|
3,443
|
|
|
3,379
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
453,089
|
|
$
|
257,632
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable
|
$
|
110,054
|
|
$
|
42,629
|
|
Accrued
salaries and bonus
|
|
25,559
|
|
|
24,292
|
|
Accrued expenses
|
|
41,017
|
|
|
12,451
|
|
Income
tax payable
|
|
27,263
|
|
|
-
|
|
Advance from customers
|
|
84,652
|
|
|
58,311
|
|
Due to
related parties
|
|
361,754
|
|
|
355,025
|
|
Total current liabilities
|
|
650,299
|
|
|
492,708
|
|
|
|
|
|
|
|
|
Long-term Liabilities
|
|
|
|
|
|
|
Loan from
shareholders
|
|
621,506
|
|
|
609,944
|
|
Total liabilities
|
|
1,271,805
|
|
|
1,102,652
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
Common stock, $0.0001 par
value, 120,000,000 shares
authorized,
30,063,759
shares issued and outstanding as of March 31,
2016
and
December 31, 2015, respectively
|
|
3,007
|
|
|
3,007
|
|
Additional paid-in
capital
|
|
47,523
|
|
|
47,523
|
|
Other
comprehensive income
|
|
572,156
|
|
|
587,062
|
|
Accumulated deficit
|
|
(1,441,402
|
)
|
|
(1,482,612
|
)
|
Total Stockholders' deficit
|
|
(818,716
|
)
|
|
(845,020
|
)
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders' Deficit
|
$
|
453,089
|
|
$
|
257,632
|
|
See accompanying Notes to Condensed Consolidated Financial
Statements
4
OMPHALOS, CORP.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND
OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE
THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(UNAUDITED)
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
|
|
|
|
|
Sales, net
|
$
|
437,277
|
|
$
|
3,510
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
184,023
|
|
|
2,164
|
|
|
|
|
|
|
|
|
Gross profit
|
|
253,254
|
|
|
1,346
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
184,535
|
|
|
169,719
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
68,719
|
|
|
(168,373
|
)
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
Interest income
|
|
-
|
|
|
265
|
|
Interest expense
|
|
(4,538
|
)
|
|
(2,662
|
)
|
Gain (loss) on foreign currency exchange
|
|
3,569
|
|
|
2,821
|
|
Total other income
(expenses)
|
|
(969
|
)
|
|
424
|
|
|
|
|
|
|
|
|
Income (loss) before
provision for income taxes
|
|
67,750
|
|
|
(167,949
|
)
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
26,540
|
|
|
-
|
|
|
|
|
|
|
|
|
Net Income (loss)
|
$
|
41,210
|
|
$
|
(167,949
|
)
|
|
|
|
|
|
|
|
Weighted average number of
common shares:
|
|
|
|
|
|
|
Basic and diluted
|
|
30,063,759
|
|
|
30,063,759
|
|
|
|
|
|
|
|
|
Net Income (loss) per share:
|
|
|
|
|
|
|
Basic and diluted
|
$
|
0.00
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
Other Comprehensive (Loss)
Income:
|
|
|
|
|
|
|
Net Income (loss)
|
$
|
41,210
|
|
$
|
(167,949
|
)
|
Foreign currency translation
adjustment, net of tax
|
|
(14,906
|
)
|
|
(4,823
|
)
|
Comprehensive (Loss) Income
|
$
|
26,304
|
|
$
|
(172,772
|
)
|
See accompanying Notes to Condensed Consolidated Financial
Statements
5
OMPHALOS, CORP.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015
(UNAUDITED)
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income(loss)
|
$
|
41,210
|
|
$
|
(167,949
|
)
|
Adjustments to
reconcile net income to net cash used in
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
Amortization and
depreciation
|
|
1,876
|
|
|
1,966
|
|
Allowance for inventory value decline
|
|
(62,903
|
)
|
|
1,053
|
|
Foreign currency
exchange (gain) loss
|
|
(3,569
|
)
|
|
(2,821
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Decrease(Increase) in accounts
receivable
|
|
(73,288
|
)
|
|
81,839
|
|
Decrease (Increase)
in inventory
|
|
56,368
|
|
|
(4,014
|
)
|
Decrease (Increase) in prepaid
and other assets
|
|
(12,008
|
)
|
|
3,135
|
|
Increase (Decrease)
in accounts payable
|
|
64,850
|
|
|
(869
|
)
|
Increase (Decrease) in accrued
expenses
|
|
28,364
|
|
|
60
|
|
Increase (Decrease)
in income tax payable
|
|
26,540
|
|
|
-
|
|
Increase (Decrease) in advance
from customers
|
|
24,567
|
|
|
-
|
|
Increase(Decrease)
in due to related parties
|
|
-
|
|
|
10,767
|
|
Net
cash provided by (used in) operating activities
|
|
92,007
|
|
|
(76,833
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Proceeds from short-term bank loans
|
|
-
|
|
|
-
|
|
Repayment of
short-term bank loans
|
|
-
|
|
|
(126,824
|
)
|
Proceeds advanced from related parties
|
|
-
|
|
|
110,971
|
|
Net cash
used in financing activities
|
|
-
|
|
|
(15,853
|
)
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and
cash equivalents
|
|
7,584
|
|
|
3,172
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in cash and cash
equivalents
|
|
99,591
|
|
|
(89,514
|
)
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
Beginning
|
|
74,982
|
|
|
107,028
|
|
Ending
|
$
|
174,573
|
|
$
|
17,514
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
Interest expense
|
$
|
4,538
|
|
$
|
2,662
|
|
Income tax
|
$
|
-
|
|
$
|
-
|
|
See accompanying Notes to Condensed Consolidated Financial
Statements
6
OMPHALOS, CORP.
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2016
(UNAUDITED)
1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
|
|
|
Basis of Presentation
The accompanying
unaudited condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United
States (GAAP) for interim financial reporting and in accordance with
instructions for Form 10-Q and Article 10 of Regulation S- X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, the unaudited condensed
consolidated financial statements contained in this report reflect all
adjustments that are normal and recurring in nature and considered
necessary for a fair presentation of the financial position and the
results of operations for the interim periods presented. The year-end
condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by GAAP. The
results of operations for the interim period are not necessarily
indicative of the results expected for the full year. These unaudited,
condensed consolidated financial statements, footnote disclosures and
other information should be read in conjunction with the financial
statements and the notes thereto included in the Companys Annual Report
on Form 10-K for the year ended December 31, 2015.
|
|
|
|
Organization
Omphalos Corp. was
incorporated as Soyodo Group Holdings, Inc. (the Soyodo) under the laws
of Delaware in March 2003. On February 5, 2008, Soyodo acquired the
outstanding shares of Omphalos Corp. Omphalos Corp. (the Omphalos BVI)
was incorporated on October 30, 2001 under the laws of the British Virgin
Islands. For accounting purposes, the acquisition was treated as a
recapitalization of Omphalos BVI. Omphalos BVI owns 100% of Omphalos Corp.
(Taiwan), All Fine Technology Co., Ltd. (Taiwan), and All Fine Technology
Co., Ltd. (B.V.I.). Omphalos Corp. (Taiwan) and was incorporated on
February 13, 1991 under the laws of Republic of China. All Fine Technology
Co., Ltd. (Taiwan) was incorporated on March 23, 2004 under the laws of
Republic of China. All Fine Technology Co., Ltd. (B.V.I.) was incorporated
on February 2, 2005 under the laws of the British Virgin Islands. Omphalos
Corp. (B.V.I.) and its subsidiaries supplies a wide range of equipment and
parts including reflow soldering ovens and automated optical inspection
machines for printed circuit board (PCB) manufacturers in Taiwan and
China.
|
|
|
|
Effective April 18, 2008 Soyodo entered into an Agreement
and Plan of Merger (the Merger Agreement) with Omphalos, Corp., a Nevada
corporation. Pursuant to the Merger Agreement, Soyodo was merged with and
into the surviving corporation, Omphalos Corp. The certificate of
incorporation and bylaws of the surviving corporation became the
certificate of incorporation and bylaws of the Company, and the directors
and officers of Soyodo became the members of the board of directors and
officers of the Company. Following the execution of the Merger Agreement,
the Company filed with the Secretary of State of Delaware and Nevada, a
Certificate of Merger. Omphalos, Corp is incorporated on April 15, 2008
under the laws of the state of Nevada. The main purpose of the merger is
to change the companys name to Omphalos, Corp.
|
|
|
|
Basis of Consolidation
The condensed
consolidated financial statements include the accounts of Omphalos Corp.
and its wholly owned subsidiaries. All significant intercompany accounts
and transactions are eliminated.
|
|
|
|
Going Concern
The Company has incurred a
significant net loss during the past two years and had an accumulated
deficit of $1,441,402 and $1,482,612 as of March 31, 2016 and December 31,
2015, respectively. The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going
concern. This basis of accounting contemplates the recovery of the
Companys assets and the satisfaction of liabilities in the normal course
of business. This presentation presumes funds will be available to finance
ongoing research and development, operations and capital expenditures and
permit the realization of assets and the payment of liabilities in the
normal course of operations for the foreseeable
future.
|
7
There can be no assurances that there
will be adequate financing available to the Company and the consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
The Company has taken certain
restructuring steps to provide the necessary capital to continue its operations.
These steps included: (1) Tightly budgeting and controlling all expenses; (2)
Expanding product lines and recruiting a strong sales team to significantly
increase sales revenue and profit in 2016; (3) plans to continue actively seeing
additional funding opportunities to improve and expand upon its product lines.
Use of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and cash in time
deposits, certificates of deposit and all highly liquid debt instruments with
original maturities of three months or less.
Accounts Receivable
Accounts receivables are carried at original invoice amount less estimates made
for doubtful receivables. Management determines the allowance for doubtful
accounts on a quarterly basis based on a review of the current status of
existing receivables, account aging, historical collection experience,
subsequent collections, management's evaluation of the effect of existing
economic conditions, and other known factors. The provision is provided for the
above estimates made for all doubtful receivables. Account balances are charged
off against the allowance only when the Company considers it is probable that a
receivable will not be recovered. Recoveries of trade receivables previously
written off are recorded when received.
Inventory
Inventory is
carried at the lower of cost or market. Cost is determined by using the specific
identification method. The Company periodically reviews the age and turnover of
its inventory to determine whether any inventory has become obsolete or has
declined in value, and charges to operations for known and anticipated inventory
obsolescence. Inventory consists substantially of finished goods and is net of
an allowance for slow-moving inventory of $430,359 and $485,767 at March 31,
2016 and December 31, 2015, respectively.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the related assets as follows:
Automobile
|
5 years
|
Furniture and fixtures
|
3 years
|
Machinery and equipment
|
3 to 5 years
|
Leasehold improvements
|
55 years
|
Expenditures for major renewals and
betterment that extend the useful lives of property and equipment are
capitalized. Expenditures for repairs and maintenance are charged to expense as
incurred. When property and equipment are retired or otherwise disposed of, the
asset and accumulated depreciation are removed from the accounts and the
resulting profit or loss is reflected in the statement of income for the
period.
The accumulated depreciation was $105,609 and $102,516 at March
31, 2016 and December 31, 2015, respectively. Depreciation expense was $1,120
and $1,174 for the three months ended March 31, 2016 and 2015, respectively.
Intangible Assets
Include cost of patent applications that are deferred and charged to operations
over their useful lives. The accumulated amortization is $31,200 and $29,858 at
March 31, 2016 and December 31, 2015, respectively. Amortization of intangible
assets was $756 and $792 for the three months ended March 31, 2016 and 2015,
respectively.
8
Revenue Recognition
The
Company derives revenues from the sale of equipment and parts to customers. The
Companys standard shipping term is Free on Board (FOB) shipping point. The
Company recognizes revenue upon shipment for the sales under the term FOB
shipping point. For the sales under other shipping term arrangements, such as
FOB destination, the Company recognizes revenue when title passes to and the
risks and rewards of ownership have transferred to the customer based on the
terms of the sales. Usually no returns, discounts or other allowances are
provided to customers. Shipping and handling charges to
customers are
included in net sales. Shipping and handling charges incurred by the Company are
included in cost of goods sold.
Leases
Lease
agreements are evaluated to determine if they are capital leases meeting any of
the following criteria at inception: (a) Transfer of ownership; (b) Bargain
purchase option; (c) The lease term is equal to 75 percent or more of the
estimated economic life of the leased property; (d) The present value at the
beginning of the lease term of the minimum lease payments, excluding that
portion of the payments representing executory costs such as insurance,
maintenance, and taxes to be paid by the lessor, including any profit thereon,
equals or exceeds 90 percent of the excess of the fair value of the leased
property to the lessor at lease inception over any related investment tax credit
retained by the lessor and expected to be realized by the lessor.
If at its inception a lease meets any
of the four lease criteria above, the lease is classified by the lessee as a
capital lease; and if none of the four criteria are met, the lease is classified
by the lessee as an operating lease.
Research and Development Expenses
Research and development costs are generally expensed as incurred.
Statement of cash
flows
In accordance with FASB ASC Topic 230, Statement of Cash
Flows, cash flows from the Companys operations are calculated based upon the
local currencies, and translated to the reporting currency using an average
foreign exchange rate for the reporting period. As a result, amounts related to
changes in assets and liabilities reported on the statement of cash flows will
not necessarily agree with changes in the corresponding balances on the balance
sheets.
Income Taxes
The
Company accounts for income taxes in accordance with ASC 740, Income Taxes,
which requires that the Company recognize deferred tax liabilities and assets
based on the differences between the financial statement carrying amounts and
the tax basis of assets and liabilities, using enacted tax rates in effect in
the years the differences are expected to reverse. Deferred income tax benefit
(expense) results from the change in net deferred tax assets or deferred tax
liabilities. A valuation allowance is recorded when, in the opinion of
management, it is more likely than not that some or all of any deferred tax
assets will not be realized.
Stock Based Compensation
The Company applies the fair value provisions of ASC 718,
Compensation-Stock Compensation
(ASC 718). ASC 718 requires the
recognition of compensation expense, using a fair-value based method, for costs
related to all share-based payments including stock options. ASC 718 requires
companies to estimate the fair value of share-based payment awards on the grant
date using an option pricing model. The Company does not have any awards of
stock-based compensation issued and outstanding at March 31, 2016 and December
31, 2015.
Loss Per Share
The
Company has adopted Accounting Standards Codification subtopic 260-10, Earnings
Per Share (ASC 260-10) which specifies the computation, presentation and
disclosure requirements of earnings per share information. Basic earnings per
share have been calculated based upon the weighted average number of common
shares outstanding. Common equivalent shares are excluded from the computation
of the diluted loss per share if their effect would be anti-dilutive. For the
three months ended March 31, 2016 and 2015, the Company did not have any common
equivalent shares.
Impairment of Long-Lived Assets
The Company has adopted Accounting Standards Codification subtopic
360-10, Property, Plant and Equipment (ASC 360-10). ASC 360-10 requires that
long-lived assets and certain identifiable intangibles held and used by the
Company be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
evaluates its long lived assets for impairment annually or more often if events
and circumstances warrant. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undiscounted cash flows. Should impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. ASC 360-10 also requires assets to be disposed of be reported at the
lower of the carrying amount or the fair value less costs to sell. Management
has determined that no impairments of long-lived assets currently exist.
9
Foreign-currency Transactions
Foreign-currency transactions are recorded in New Taiwan dollar
(NTD) at the rates of exchange in effect when the transactions occur. Gains or
losses resulting from the application of different foreign exchange rates when
cash in foreign currency is converted into New Taiwan dollar, or when
foreign-currency receivables or payables are settled, are credited or charged to
income in the year of conversion or settlement. On the balance sheet dates, the
balances of foreign-currency assets and liabilities are restated at the
prevailing exchange rates and the resulting differences are charged to current
income except for those foreign currencies denominated investments in shares of
stock where such differences are accounted for as translation adjustments under
stockholders equity.
Translation Adjustment
The Company financial statements are presented in the U.S. dollar ($), which is
the Companys reporting currency, while its functional currency is New Taiwan
dollar (NTD). Transactions in foreign currencies are initially recorded at the
functional currency rate ruling at the date of transaction. Any differences
between the initially recorded amount and the settlement amount are recorded as
a gain or loss on foreign currency transaction in the consolidated statements of
income. Monetary assets and liabilities denominated in foreign currency are
translated at the functional currency rate of exchange ruling at the balance
sheet date. Any differences are taken to profit or loss as a gain or loss on
foreign currency translation in the statements of income.
In accordance with ASC 830, Foreign
Currency Matters, the Company translates the assets and liabilities into U.S.
dollar ($) using the rate of exchange prevailing at the balance sheet date and
the statements of operations and cash flows are translated at an average rate
during the reporting period. Adjustments resulting from the translation from NTD
into U.S. dollar are recorded in stockholders equity as part of accumulated
other comprehensive income.
Reclassifications
Certain classifications have been made to the prior year financial
statements to conform to the current year presentation. The reclassification had
no impact on previously reported net loss or accumulated deficit.
Recently Issued Accounting
Pronouncements
In August 2014, FASB issued ASU No. 2014-15,
Preparation of Financial Statements Going Concern (Subtopic 205-40),
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going
Concern. Under U.S. GAAP, continuation of a reporting entity as a going concern
is presumed as the basis for preparing financial statements unless and until the
entity's liquidation becomes imminent. Preparation of financial statements under
this presumption is commonly referred to as the going concern basis of
accounting. If and when an entity's liquidation becomes imminent, financial
statements should be prepared under the liquidation basis of accounting in
accordance with Subtopic 205-30, Presentation of Financial
StatementsLiquidation Basis of Accounting. Even when an entity's liquidation is
not imminent, there may be conditions or events that raise substantial doubt
about the entity's ability to continue as a going concern. In those situations,
financial statements should continue to be prepared under the going concern
basis of accounting, but the amendments in this Update should be followed to
determine whether to disclose information about the relevant conditions and
events. The amendments in this Accounting Standards Update are effective for the
annual period ending after December 15, 2016, and for annual periods and interim
periods thereafter. Early application is permitted. The Company will evaluate
the going concern considerations in this ASU, however, at the current period,
management does not believe that it has met conditions which would subject these
condensed consolidated financial statements for additional disclosure.
10
In September 2015, FASB issued ASU No.
2015-16, Business Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments, which requires an acquirer to recognize
adjustments to provisional amounts that are identified during the measurement
period in the reporting period in which the adjustment amounts are determined.
ASU 2015-16 requires the acquirer to record, in the same periods financial
statements, the effect on earnings of changes in depreciation, amortization, or
other income effects, if any, as a result of the change to the provisional
amounts, calculated as if the accounting had been completed at the acquisition
date. ASU 2015-16 requires an entity to present separately on the face of the
income statement or disclose in the notes the portion of the amount recorded in
current-period earnings by line item that would have been recorded in previous
reporting periods if the adjustment to the provisional amounts had been
recognized as of the acquisition date. For public business entities, the
amendments in this update are effective for fiscal years beginning after
December 15, 2015, including interim periods within those fiscal years. The
amendments in this update should be applied prospectively to adjustments to
provisional amounts that occur after the effective date of this update with
earlier application permitted for financial statements that have not been
issued. The adoption of this standard is not expected to have a material impact
for any periods presented.
In November 2015, the FASB issued ASU
2015-17, Balance Sheet Classification of Deferred Taxes. This update requires
an entity to classify deferred tax liabilities and assets as noncurrent within a
classified statement of financial position. ASU 2015-17 is effective for annual
and interim reporting periods beginning after December 15, 2016. This update may
be applied either prospectively to all deferred tax liabilities and assets or
retrospectively to all periods presented. Early application is permitted as of
the beginning of the interim or annual reporting period. We are currently
evaluating the impact of the adoption of this pronouncement on our balance
sheet; although we expect a significant reclassification between current and
long-term assets.
In February 2016, the FASB issued ASU
2016-02, "Leases," which requires recognition of lease assets and lease
liabilities on the balance sheet of lessees. ASU 2016-02 is effective for fiscal
years and interim reporting periods within those years beginning after December
15, 2018, or in fiscal 2020 for HEICO. Early adoption is permitted. ASU 2016-02
requires a modified retrospective transition approach and provides certain
optional transition relief. We are currently evaluating the effect the adoption
of this guidance will have on our consolidated results of operations, financial
position and cash flows.
In March 2016, the FASB issued ASU No.
2016-08, Revenue from Contracts with Customers (Topic 606) Principal versus
Agent Considerations (ASU 2016-08), which clarifies the implementation
guidance for principal versus agent considerations in ASU 2014-09. In April
2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers
(Topic 606) Identifying Performance Obligations and Licensing (ASU 2016-10),
which amends the guidance in ASU 2014-09 related to identifying performance
obligations and accounting for licenses of intellectual property. The Company
must adopt ASU 2016-08 and ASU 2016-10 with ASU 2014-09. The new revenue
standard may be applied retrospectively to each prior period presented or
retrospectively with the cumulative effect recognized as of the date of
adoption. The Company is currently evaluating the timing of its adoption and the
impact of adopting the new revenue standard on its consolidated financial
statements.
2.
|
RELATED-PARTY TRANSACTIONS
|
|
|
|
Operating Leases
|
|
|
|
The Company leases its facility from a shareholder under
an operating lease agreement which expires on January 31, 2019. The
monthly base rent is approximately $1,800. Rent expense under this lease
agreement amounted to approximately $5,100 and $5,330 for the three months
ended March 31, 2016 and 2015, respectively.
|
|
|
|
Loan from related
party
|
11
|
On July 26, 2013, the Company entered a loan agreement bearing interest at a fixed rate at 3% per annum with its shareholder to advance NT$5,000,000, equivalent approximately $155,376 for working capital purpose. The term
of the loan started from July 30, 2013 with maturity date on July 29, 2015. On July 31, 2015, the loan with the same amount of NT$5,000,000, equivalent approximately $155,376, and the same fixed interest rate of 3% per annum was extended for
another two years starting from August 1, 2015 with maturity date on July 31, 2017.
|
|
|
|
On December 31, 2013, the Company entered another loan agreement bearing interest at a fixed rate at 3% per annum with its officer and shareholder to advance NT$5,000,000, equivalent approximately $155,376 for working
capital purpose. The term of the loan started from January 1, 2014 with maturity date on December 31, 2015. On December 31, 2015, the loan with the same amount of NT$5,000,000, equivalent approximately $155,376, and the same fixed interest
rate of 3% per annum was extended for another two years starting from January 1, 2016 with maturity date on December 31, 2018.
|
|
|
|
On July 5, 2015, the Company entered another loan agreement bearing interest at a fixed rate at 3% per annum with its shareholder to advance NT$10,000,000, equivalent approximately $310,754, for working capital purpose.
The term of the loan started from July 1, 2015 with maturity date on June 30, 2018.
|
|
|
|
As of March 31, 2016 and December 31, 2015, there were $621,506 and $609,944 advances outstanding. Interest expense was $4,538 and $2,378 for the three months ended March 31, 2016 and 2015, respectively.
|
|
|
|
Advances from related party
-
The Company also has received funds advanced by its officer and shareholder for working capital purposes. The Company has not entered into any agreement on the repayment terms for
these advances. The advances bear no interest rate and are due upon demand by that shareholder. As of March 31, 2016 and December 31, 2015, the outstanding amounts of those advances were $361,754 and $355,025, respectively.
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|
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3.
|
INCOME TAXES
|
|
|
|
The Company is incorporated in the State of Nevada in the United States of America and is subject to the U.S. federal and state taxation. Income before income taxes for the three months ended March 31, 2016 and 2015 includes the
results of operations of Taiwan and British Virgin Islands. Omphalos Corp. (B.V.I.) and All Fine Technology Co., Ltd. (B.V.I.) are incorporated in British Virgin Islands and are not required to pay income tax. Omphalos Corp. and All Fine Technology
Co., Ltd. are incorporated in Taiwan and are subject to Taiwan tax law. The statutory tax rate under Taiwan tax law is 17%. Omphalos Corp. had net income of $156,120 for the three months ended March 31, 2016, but incurred losses for the three
months ended March 31, 2015. All Fine Techonolgy Co., Ltd. incurred losses for the three months ended March 31, 2016 and 2015. As a result, tax liability was incurred as of March 31, 2016.
|
|
|
|
The provision for income taxes calculated at the statutory rates in the combined statements of income is as follows:
|
12
|
|
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Three months Ended
|
|
|
Three Months Ended
|
|
|
|
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March 31, 2016
|
|
|
March 31, 2015
|
|
|
Current provision:
|
|
|
|
|
|
|
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Computed (provision
for) income taxes at statutory rates in U.S.
|
$
|
-
|
|
$
|
-
|
|
|
Computed (provision for) income taxes
at statutory rates in BVI
|
|
-
|
|
|
-
|
|
|
Computed (provision
for) income taxes at statutory rates in Taiwan
|
|
26,540
|
|
|
-
|
|
|
Total current provision
|
|
26,540
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision:
|
|
|
|
|
|
|
|
U.S
|
|
-
|
|
|
-
|
|
|
BVI
|
|
-
|
|
|
-
|
|
|
Taiwan- Net operating loss carryforward
|
|
-
|
|
|
-
|
|
|
Valuation allowance
|
|
-
|
|
|
-
|
|
|
Total deferred provision
|
|
-
|
|
|
-
|
|
|
Provision for income taxes
|
$
|
26,540
|
|
$
|
-
|
|
The following is a reconciliation of
the statutory tax rate to the effective tax rate for the three months ended
March 31, 2016 and 2015:
|
|
Three Months ended
|
|
Three Months ended
|
|
|
March 31, 2016
|
|
March 31, 2015
|
|
U.S. Federal tax at statutory
rate
|
34%
|
|
34%
|
|
Valuation allowance
|
(34%)
|
|
(34%)
|
|
Foreign income tax- Taiwan
|
17%
|
|
17%
|
|
Other (a)
|
0%
|
|
(17%)
|
|
Effective tax rate
|
17%
|
|
0%
|
|
(a) Other represents expenses incurred by the Company
that are not deductible for Taiwan income taxes and changes in valuation
allowance for Taiwanese entities for the three months ended March 31, 2016
and 2015, respectively.
|
|
|
4.
|
SUBSEQUENT EVENTS
|
|
|
|
The Company has evaluated subsequent events through the
date which the financial statements were available to be issued. All
subsequent events requiring recognition as of March 31, 2016 have been
incorporated into these consolidated financial statements and there are no
subsequent events that require disclosure in accordance with FASB ASC
Topic 855, Subsequent Events.
|
******
13
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operation.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, including this discussion and analysis by
management, contains or incorporates forward-looking statements. All statements
other than statements of historical fact made in report are forward looking. In
particular, the statements herein regarding industry prospects and future
results of operations or financial position are forward-looking statements.
These forward-looking statements can be identified by the use of words such as
believes, estimates, could, possibly, probably, anticipates,
projects, expects, may, will, or should or other variations or similar
words. No assurances can be given that the future results anticipated by the
forward-looking statements will be achieved. Forward-looking statements reflect
managements current expectations and are inherently uncertain. Our actual
results may differ significantly from managements expectations. The potential
risks and uncertainties that could cause our actual results to differ materially
from those expressed or implied herein are set forth in our Annual Report on
Form 10-K for the year ended December 31, 2015.
The following discussion and analysis should be read in conjunction with our
financial statements, included herewith. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the
future, or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents only the best
present assessment of our management.
Three Months Ended March 31, 2016 Compared to the Three
Months Ended March 31, 2015
Net sales for the three months ended March 31, 2016 were
$437,277, as compared to $3,510 for the three months ended March 31, 2015. This
represents an increase of $433,767 or approximately 12358% compared to the prior
year period. The increase in net sales is primarily the result of an increase in
laser marking machine sales.
Cost of sales increased by $181,859 or approximately 8404% to
$184,023 for the three months ended March 31, 2016, as compared to $2,164 for
the three months ended March 31, 2015. Gross profit (loss) for the three months
ended March 31, 2016 was $253,254, compared to $1,346, for the same period in
2015. Gross profit as a percentage of net sales was approximately 58% in the
first quarter of 2016, compared to approximately 38% in the same period in 2015.
The higher gross margin in the first quarter of 2016 was primarily due to the
sales of laser marking machine with higher margin.
For the three months ended March 31, 2016, selling, general and
administrative expenses totaled $184,535, compared to $169,719 for the three
months ended March 31, 2015. This was an increase of $14,816 or approximately 9%
as compared to the same period in 2015. The increase in selling, general and
administrative expenses is primarily the result of the increase in salary, and
travel expenses.
For the three months ended March 31, 2016, income (loss) from
operations increased to $68,719 as compared to $(168,373) for the three months
ended March 31, 2015. This represents an increased income of $237,092 comparing
the two periods. The increase of income from operations for the three months
ended March 31, 2016 is primarily the result of an increase in gross profit,
which is partially offset by an increase in operating expenses.
Other income (expenses) was $(969) and $424 for the three
months ended March 31, 2016 and 2015, respectively. This represents decreased
income of $1,393 or a decrease of approximately 329%. The main reason for this
decreased other income was due to an increase in interest expense, and a
decrease in interest income, which is partially offset by an increase in
gain on foreign currency exchange, as compared to the prior year period.
14
Our net income (loss) was $41,210 for the three months ended
March 31, 2016 compared to a net loss of $(167,949) for the three months ended
March 31, 2015. The increased net income for the three months ended March 31,
2016 was due to the reasons described above.
Liquidity and Capital Resources
Cash and cash equivalents were $174,573 at March 31, 2016 and
$74,982 at December 31, 2015. Our total current assets were $422,509 at March
31, 2016, as compared to $225,730 at December 31, 2015. Our total current
liabilities were $650,299 at March 31, 2016 as compared to $492,708 at December
31, 2015.
We had working capital at March 31, 2016 of $(227,790) compared
with working capital of $(266,978) at December 31, 2015. This slight increase in
working capital was primarily due to an increase in cash, account receivable and
prepaid expense, which is partial offset by increases in accounts payable,
accrued expenses, due to related parties, income tax payable, and advances from
customers.
Net cash flow provided by operating activities during the three
months ended March 31, 2016 was $92,007, an increase of $168,840 compared to
$(76,833) net cash used in operating activities during the three months ended
March 31, 2015. Net cash flow used in operating activities during the three
months ended March 31, 2016 was primarily due to net income, increases in
accounts receivable, prepaid expenses, accounts payable, accrued expenses,
income tax payable, advance from customers, foreign currency exchange gain, and
allowance for inventory value decline, and a decrease in inventory.
Net change in cash and cash equivalents were $99,591 for the
three months ended March 31, 2016, compared to $(89,514) for the three months
ended March 31, 2015, an increase of $189,105.
Inflation
Our opinion is that inflation has not had a material effect on
our operations and is not expected to have any material effect on our
operations.
Climate Change
Our opinion is that neither climate change, nor governmental
regulations related to climate change, have had, or are expected to have, any
material effect on our operations.