Item 1.
|
Financial Statements.
|
CONTENTS
3
OMPHALOS, CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
March 31,
|
|
|
December 31,
|
|
|
|
208
|
|
|
2017
|
|
Assets
|
|
(Unaudited)
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and
cash equivalents
|
$
|
48,241
|
|
$
|
23,051
|
|
Accounts receivable, net
|
|
41,358
|
|
|
44,204
|
|
Inventory, net
|
|
140,360
|
|
|
118,475
|
|
Prepaid and other current
assets
|
|
52,732
|
|
|
21,023
|
|
Total
current assets
|
|
282,691
|
|
|
206,753
|
|
|
|
|
|
|
|
|
Leasehold Improvements and
Equipment, net
|
|
6,455
|
|
|
7,019
|
|
Intangible assets, net
|
|
16,308
|
|
|
16,854
|
|
Deposits
|
|
2,926
|
|
|
3,599
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
308,380
|
|
$
|
234,225
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts
payable
|
$
|
86,845
|
|
$
|
17,394
|
|
Accrued salaries and
bonus
|
|
19,364
|
|
|
19,448
|
|
Accrued
expenses
|
|
33,086
|
|
|
42,397
|
|
Due to related parties
|
|
732,415
|
|
|
654,910
|
|
Loan from
shareholders current portion
|
|
515,464
|
|
|
506,073
|
|
Total
current liabilities
|
|
1,387,174
|
|
|
1,240,222
|
|
|
|
|
|
|
|
|
Long-term Liabilities
|
|
|
|
|
|
|
Loan from
shareholders
|
|
515,464
|
|
|
506,073
|
|
Total liabilities
|
|
1,902,638
|
|
|
1,746,295
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
Common stock, $0.0001 par
value, 120,000,000
shares
authorized, 30,063,759
shares issued and outstanding as
of
March 31, 2018 and December 31,
2017, respectively
|
|
3,007
|
|
|
3,007
|
|
Additional paid-in
capital
|
|
47,523
|
|
|
47,523
|
|
Other
comprehensive income
|
|
437,319
|
|
|
465,722
|
|
Accumulated deficit
|
|
(2,082,107
|
)
|
|
(2,028,322
|
)
|
Total
Stockholders' deficit
|
|
(1,594,258
|
)
|
|
(1,512,070
|
)
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders' Deficit
|
$
|
308,380
|
|
$
|
234,225
|
|
See accompanying Notes to Condensed Consolidated Financial
Statements
F-1
OMPHALOS, CORP.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND
OTHER COMPREHENSIVE LOSS
FOR THE THREE
MONTHS ENDED MARCH 31, 2018 AND 2017
(UNAUDITED)
|
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
Sales, net
|
$
|
154,541
|
|
$
|
204,016
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
84,898
|
|
|
112,472
|
|
|
|
|
|
|
|
|
Gross profit
|
|
69,643
|
|
|
91,544
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
113,709
|
|
|
159,345
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(44,066
|
)
|
|
(67,801
|
)
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
Interest
expense
|
|
(7,684
|
)
|
|
(7,253
|
)
|
Gain
(loss) on foreign currency exchange
|
|
(2,035
|
)
|
|
10,615
|
|
Total
other income (expenses)
|
|
(9,719
|
)
|
|
3,362
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
(53,785
|
)
|
|
(64,439
|
)
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Net Loss
|
$
|
(53,785
|
)
|
$
|
(64,439
|
)
|
|
|
|
|
|
|
|
Weighted average number of common shares:
|
|
|
|
|
|
|
Basic and diluted
|
|
30,063,759
|
|
|
30,063,759
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
Basic and diluted
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
Other Comprehensive Loss:
|
|
|
|
|
|
|
Net Loss
|
$
|
(53,785
|
)
|
$
|
(64,439
|
)
|
Foreign currency translation adjustment, net
of tax
|
|
(28,403
|
)
|
|
(77,017
|
)
|
Comprehensive Loss
|
$
|
(82,188
|
)
|
$
|
(141,456
|
)
|
See accompanying Notes to Condensed Consolidated Financial
Statements
F-2
OMPHALOS, CORP.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017
(UNAUDITED)
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
Net loss
|
$
|
(53,785
|
)
|
$
|
(64,439
|
)
|
Adjustments to reconcile net loss to net cash provided by
|
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
Amortization and depreciation
|
|
1,544
|
|
|
1,679
|
|
Foreign
currency exchange (gain) loss
|
|
2,035
|
|
|
(10,615
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Decrease(Increase) in accounts receivable
|
|
3,644
|
|
|
(33,726
|
)
|
Decrease (Increase) in inventory
|
|
(19,564
|
)
|
|
92,164
|
|
Increase in prepaid and other assets
|
|
(30,389
|
)
|
|
(18,563
|
)
|
Increase (Decrease) in accounts
payable
|
|
68,700
|
|
|
(42,737
|
)
|
Increase (Decrease) in accrued expenses
|
|
(10,477
|
)
|
|
3,199
|
|
Increase (Decrease) in advance
from customers
|
|
-
|
|
|
(24,500
|
)
|
Increase in due to related parties
|
|
64,947
|
|
|
100,130
|
|
Net cash provided by operating activities
|
|
26,655
|
|
|
2,592
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash and cash equivalents
|
|
(1,465
|
)
|
|
13,363
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
25,190
|
|
|
15,955
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
Beginning
|
|
23,051
|
|
|
37,643
|
|
Ending
|
$
|
48,241
|
|
$
|
53,598
|
|
|
|
|
|
|
|
|
Supplemental disclosure of
cash flows
|
|
|
|
|
|
|
Cash paid
during the year for:
|
|
|
|
|
|
|
Interest expense
|
$
|
7,684
|
|
$
|
7,253
|
|
Income tax
|
$
|
-
|
|
$
|
-
|
|
See accompanying Notes to Condensed Consolidated Financial
Statements
F-3
OMPHALOS, CORP.
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
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, 2017.
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 $2,082,107 and $2,028,322 as of March 31, 2018 and
December 31, 2017, 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.
F-4
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 2018; (3) The Company 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 $459,054 and $450,691 at March 31,
2018 and December 31, 2017, 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 $126,102 and $123,122 at March
31, 2018 and December 31, 2017, respectively. Depreciation expense was $691 and
$874 for the three months ended March 31, 2018 and 2017, respectively.
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.
Intangible Assets
Include cost of patent applications that are deferred and charged to operations
over their useful lives. The accumulated amortization is $36,113 and $34,612 at
March 31, 2018 and December 31, 2017, respectively. Amortization of intangible
assets was $853 and $805 for the three months ended March 31, 2018 and 2017,
respectively.
F-5
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.
Fair Value Measurements
FASB ASC 820, Fair Value Measurements defines fair value for certain financial
and nonfinancial assets and liabilities that are recorded at fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. It requires that an entity measure its financial
instruments to base fair value on exit price, maximize the use of observable
units and minimize the use of unobservable inputs to determine the exit price.
It establishes a hierarchy which prioritizes the inputs to valuation techniques
used to measure fair value. This hierarchy increases the consistency and
comparability of fair value measurements and related disclosures by maximizing
the use of observable inputs and minimizing the use of unobservable inputs by
requiring that observable inputs be used when available. Observable inputs are
inputs that reflect the assumptions market participants would use in pricing the
assets or liabilities based on market data obtained from sources independent of
the Company. Unobservable inputs are inputs that reflect the Companys own
assumptions about the assumptions market participants would use in pricing the
asset or liability developed based on the best information available in the
circumstances. The hierarchy prioritizes the inputs into three broad levels
based on the reliability of the inputs as follows:
Level 1 Inputs are quoted prices in
active markets for identical assets or liabilities that the Company has the
ability to access at the measurement date. Valuation of these instruments does
not require a high degree of judgment as the valuations are based on quoted
prices in active markets that are readily and regularly available.
Level 2 Inputs other than quoted
prices in active markets that are either directly or indirectly observable as of
the measurement date, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level 3 Valuations based on inputs
that are unobservable and not corroborated by market data. The fair value for
such assets and liabilities is generally determined using pricing models,
discounted cash flow methodologies, or similar techniques that incorporate the
assumptions a market participant would use in pricing the asset or liability.
The carrying values of certain assets
and liabilities of the Company, such as cash and cash equivalents, accounts
receivable, inventory, prepaid expenses, accounts payable, accrued liabilities,
and due to related parties, approximate to fair value due to their relatively
short maturities. The carrying amounts of the Company's long-term debt
approximate to their fair value because of the short maturity and/or interest
rates which are comparable to those currently available to the Company on
obligations with similar terms.
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 using the asset and liability approach which
allows the recognition and measurement of deferred tax assets to be based upon
the likelihood of realization of tax benefits in future years. Under the asset
and liability approach, deferred taxes are provided for the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will expire before the Company is able to realize their
benefits, or future deductibility is uncertain.
Under ASC 740, a tax position is
recognized as a benefit only if it is more likely than not that the tax
position would be sustained in a tax examination, with a tax examination being
presumed to occur. The evaluation of a tax position is a two-step process. The
first step is to determine whether it is more-likely-than-not that a tax
position will be sustained upon examination, including the resolution of any
related appeals or litigations based on the technical merits of that position.
The second step is to measure a tax position that meets the more-likely-than-not
threshold to determine the amount of benefits recognized in the financial
statements. A tax position is measured at the largest amount of benefit that is
greater than 50 percent likely of being realized upon ultimate settlement. Tax
positions that previously failed to meet the more-likely-than-not recognition
threshold should be recognized in the first subsequent period in which the
threshold is met. Previously recognized tax positions that no longer meet the
more-likely-than-not criteria should be de-recognized in the first subsequent
financial reporting period in which the threshold is no longer satisfied.
Penalties and interest incurred related to underpayment of income tax are
classified as income tax expense in the year incurred. No significant penalty or
interest relating to income taxes has been incurred for the three months ended
March 31, 2018 and 2017. GAAP also provides guidance on recognition,
classification, interest and penalties, accounting in interim periods,
disclosures and transition.
On December 22, 2017, the SEC issued
Staff Accounting Bulletin (SAB 118), which provides guidance on accounting for
tax effects of the Tax Act. SAB 118 provides a measurement period that should
not extend beyond one year from the Tax Act enactment date for companies to
complete the accounting under ASC 740. In accordance with SAB 118, a company
must reflect the income tax effects of those aspects of the Act for which the
accounting under ASC 740 is complete. In March 2018, the FASB issued ASU
2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin
No. 118 (SEC Update), Income Taxes (Topic 740). ASU 2018-05 provides guidance
regarding the recording of tax impacts where uncertainty exists, in the period
of adoption of the 2017 U.S. Tax Cuts and Jobs Act (the 2017 Tax Act). In
accordance with this guidance, the Companys financial results reflect
provisional amounts for those specific income tax effects of the 2017 Tax Act
for which the accounting under ASC Topic 740 is incomplete but a reasonable
estimate could be determined. If a company cannot determine a provisional
estimate to be included in the financial statements, it should continue to apply
ASC 740 on the basis of the provision of the tax laws that were in effect
immediately before the enactment of the Tax Act. While the Company is able to
make reasonable estimates of the impact of the reduction in corporate rate and
the deemed repatriation transition tax, the final impact of the Tax Act may
differ from these estimates, due to, among other things, changes in our
interpretations and assumptions, additional guidance that may be issued by the
I.R.S., and actions we may take. The Company is continuing to gather additional
information to determine the final impact.
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, 2018 and December
31, 2017.
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, 2018 and 2017, the Company did not have any common
equivalent shares.
Comprehensive Income
Comprehensive income includes accumulated foreign currency translation gains and
losses. The Company has reported the components of comprehensive income on its
statements of stockholders equity and statements of operations and
comprehensive income (loss).
F-6
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 February 2016, the FASB issued ASU No.
2016-02, Leases. The core principle of the ASU is that a lessee should
recognize the assets and liabilities that arise from its leases other than those
that meet the definition of a short-term lease. The ASU requires extensive
qualitative and quantitative disclosures, including with respect to significant
judgments made by management. Subsequently, the FASB issued ASU No. 2017-13, in
September 2017 and ASU No. 2018-01, in January 2018, which amends and clarifies
ASU 2016-02. The ASU will be effective for the Company beginning January 1,
2019, including interim periods in the fiscal year 2019. Early adoption is
permitted. The Company is in the process of determining the method of adoption
and assessing the impact of this ASU on its consolidated results of operations,
cash flows, financial position and disclosures.
In March 2016, the FASB issued ASU
2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net) . In April 2016, the
FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing . In May 2016, the FASB issued
ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients and ASU 2016-11, Revenue Recognition
(Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance
Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff
Announcements at the March 3, 2016 EITF Meeting . In December 2016, the FASB
issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue
from Contracts with Customers. In September 2017, the FASB issued ASU 2017-13,
Revenue Recognition (Topic 605), Revenue from Contracts
with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842). These
amendments provide additional clarification and implementation guidance on the
previously issued ASU 2014-09, Revenue from Contracts with Customers (Topic
606). The amendments in ASU 2016-08 clarify how an entity should identify the
specified good or service for the principal versus agent evaluation and how it
should apply the control principle to certain types of arrangements. ASU 2016-10
clarifies the following two aspects of ASU 2014-09: identifying performance
obligations and licensing implementation guidance. ASU 2016-11 rescinds several
SEC Staff Announcements that are codified in Topic 605, including, among other
items, guidance relating to accounting for consideration given by a vendor to a
customer, as well as accounting for shipping and handling fees and freight
services. ASU 2016-12 provides clarification to Topic 606 on how to assess
collectability, present sales tax, treat noncash consideration, and account for
completed and modified contracts at the time of transition. ASU 2016-12
clarifies that an entity retrospectively applying the guidance in Topic 606 is
not required to disclose the effect of the accounting change in the period of
adoption. Additionally, ASU 2016-20 clarifies certain narrow aspects within
Topic 606 including its scope, contract cost accounting, and disclosures. The
new guidance requires enhanced disclosures, including revenue recognition
policies to identify performance obligations to customers and significant
judgments in measurement and recognition. The effective date and transition
requirements for these amendments are the same as the effective date and
transition requirements of ASU 2014-09, which is effective for fiscal years, and
for interim periods within those years, beginning after December 15, 2017. The
Company is currently evaluating the overall impact that ASU 2014-09 and its
related amendments will have on the Companys financial statements.
On December 22, 2017, the SEC issued
Staff Accounting Bulletin (SAB 118), which provides guidance on accounting for
tax effects of the Tax Act. SAB 118 provides a measurement period that should
not extend beyond one year from the Tax Act enactment date for companies to
complete the accounting under ASC 740. In accordance with SAB 118, a company
must reflect the income tax effects of those aspects of the Act for which the
accounting under ASC 740 is complete. In March 2018, the FASB issued ASU
2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin
No. 118 (SEC Update), Income Taxes (Topic 740). ASU 2018-05 provides guidance
regarding the recording of tax impacts where uncertainty exists, in the period
of adoption of the 2017 U.S. Tax Cuts and Jobs Act (the 2017 Tax Act).To the
extent that a companys accounting for certain income tax effects of the Tax Act
is incomplete but it is able to determine a reasonable estimate, it must record
a provisional estimate to be included in the financial statements. If a company
cannot determine a provisional estimate to be included in the financial
statements, it should continue to apply ASC 740 on the basis of the provision of
the tax laws that were in effect immediately before the enactment of the Tax
Act. While the Company is able to make reasonable estimates of the impact of the
reduction in corporate rate and the deemed repatriation transition tax, the
final impact of the Tax Act may differ from these estimates, due to, among other
things, changes in our interpretations and assumptions, additional guidance that
may be issued by the I.R.S., and actions we may take. The Company is continuing
to gather additional information to determine the final impact.
In February 2018, the FASB issued
Accounting Standards Update No. 2018-02 (ASU 2018-02), Income Statement -
Reporting Comprehensive Income (Topic 220). The guidance in ASU 2018-02 allows
an entity to elect to reclassify the stranded tax effects related to the Tax
Cuts and Jobs Act (the Tax Act) of 2017 from accumulated other comprehensive
income into retained earnings. ASU 2018-02 is effective for fiscal years
beginning after December 15, 2018, with early adoption permitted. The Company is
currently evaluating the effect this standard will have on its Consolidated
Financial Statements.
F-7
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 $1,900. Rent expense under this
lease agreement amounted to approximately $5,740 and $5,030 for the three months
ended March 31, 2018 and 2017, respectively.
Loan from related party
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 $171,821 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 $171,821, 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 August 1, 2017, the loan with the same amount of
NT$5,000,000, equivalent $171,821, and the same fixed interest rate of 3% per
annum was extended for another three years starting from August 1, 2017 with
maturity date on July 31, 2020.
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 $171,821
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 $171,821, 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 $343,643, for working capital
purpose. The term of the loan started from July 1, 2015 with maturity date on
June 30, 2018.
On July 1, 2016, 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 $343,643, for working capital
purpose. The term of the loan started from July 1, 2016 with maturity date on
June 30, 2019.
As of March 31, 2018 and December 31,
2017, there were $1,030,928 and $1,012,146 advances outstanding, of which
$515,464 and $506,073 was presented under current liabilities, respectively.
Interest expense was $7,684 and $7,253
for the three months ended March 31, 2018 and 2017, respectively.
Advances from related party
-
The Company also has advanced funds from 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 shareholders. As of March 31, 2018 and
December 31, 2017, there were $732,415 and $654,910 advances outstanding,
respectively.
F-8
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, 2018 and 2017 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%. Both Omphalos Corp. and All Fine Technology Co.,
Ltd. have incurred losses for the three months ended March 31, 2018 and 2017. As
a result, no additional tax liability was accrued for the three months ended
March 31, 2018.
On December 22, 2017 H.R. 1, originally
known as the Tax Cuts and Jobs Act, (the Tax Act) was enacted. Among the
significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the
U.S. federal corporate income tax rate (Federal Tax Rate) from 35% to 21%
effective January 1, 2018. The 21% Federal Tax Rate will apply to earnings
reported for the full 2018 fiscal year. In addition, the Company must re-measure
its net deferred tax assets and liabilities using the Federal Tax Rate that will
apply when these amounts are expected to reverse. As of March 31, 2018, the
Company can determine a reasonable estimate for certain effects of tax reform
and is recording that estimate as a provisional amount. The provisional
remeasurement of the deferred tax assets and allowance valuation of deferred tax
assets at March 31, 2018 resulted in a net effect of $0 discrete tax expenses
(benefit) which lowered the effective tax rate by 13% for the three months ended
March 31, 2018. The provisional remeasurement amount is anticipated to change as
data becomes available allowing more accurate scheduling of the deferred tax
assets and liabilities primarily related to net operating loss carryover.
The provision for income taxes
calculated at the statutory rates in the combined statements of operations is as
follows:
|
|
|
Three months
|
|
|
Three Months
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
Current provision:
|
|
|
|
|
|
|
|
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
|
|
-
|
|
|
-
|
|
|
Total current provision
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred provision:
|
|
|
|
|
|
|
|
U.S
|
|
-
|
|
|
-
|
|
|
BVI
|
|
-
|
|
|
-
|
|
|
Taiwan- Net operating loss carryforward
|
|
-
|
|
|
-
|
|
|
Valuation allowance
|
|
-
|
|
|
-
|
|
|
Total deferred provision
|
|
-
|
|
|
-
|
|
|
Provision for income taxes
|
$
|
-
|
|
$
|
-
|
|
The following is a reconciliation of
the statutory tax rate to the effective tax rate for the three months ended
March 31, 2018 and 2017:
|
|
|
Three Months ended
|
|
|
Three Months ended
|
|
|
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
U.S. Federal tax at statutory
rate
|
|
21%
|
|
|
34%
|
|
|
Valuation allowance
|
|
(21%)
|
|
|
(34%)
|
|
|
Foreign income tax- Taiwan
|
|
17%
|
|
|
17%
|
|
|
Other (a)
|
|
(17%)
|
|
|
(17%)
|
|
|
Effective tax rate
|
|
0%
|
|
|
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,
2018 and 2017, respectively.
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, 2018 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.
******
F-9
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, 2017.
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, 2018 Compared to the Three
Months Ended March 31, 2017
Net sales for the three months ended March 31, 2018, were
$154,541, as compared to $204,016 for the three months ended March 31, 2017.
This represents a decrease of $49,475 or approximately 24.3% compared to the
prior year period. The decrease in net sales is primarily the result of a weaker
demand in laser marking machine sales.
Cost of sales decreased by $27,574 or approximately 24.5% to
$84,898 for the three months ended March 31, 2018, as compared to $112,472 for
the three months ended March 31, 2017. Gross profit for the three months ended
March 31, 2018 was $69,643, compared to $91,544, for the same period in 2017.
Gross profit as a percentage of net sales was approximately 45.1% for
the three months ended March 31, 2018, compared to approximately 44.9% in the
same period in 2017, which does not have substantial changes.
For the three months ended March 31, 2018, selling, general and
administrative expenses totaled $113,709. This was a decrease of $45,636, or
approximately 28.6%, as compared to $159,345 for the same period in 2017. The
decrease in selling, general and administrative expenses is primarily the result
of the decrease in salary, travel, entertainment, and repair and maintenance
expenses.
For the three months ended March 31, 2018, loss from operations
decreased to $44,066 as compared to $67,801 for the three months ended March 31,
2017. This represents a decreased loss of $23,735, or 35.0% comparing the two
periods. The decrease of loss from operations for the three months ended March
31, 2018, was primarily the result of a decrease in selling, general and
administrative expenses
4
Other income (expenses) was $(9,719) and $3,362 for the three
months ended March 31, 2018 and 2017, respectively. This represents an increased
loss of $13,081 or 389.1% . The main reason for this increased other expense was
due to an increase in loss on foreign currency exchange.
Our net loss was $53,785 for the three months ended March 31,
2018, compared to a net loss of $64,439 for the three months ended March 31,
2017. The decreased net loss for the three months ended March 31, 2018, was due
to the reasons described above.
Liquidity and Capital Resources
Cash and cash equivalents were $48,241 at March 31, 2018, and
$23,051 at December 31, 2017. Our total current assets were $282,691 at March
31, 2018, as compared to $206,753 at December 31, 2017. Our total current
liabilities were $1,387,174 at March 31, 2018, as compared to $1,240,222 at
December 31, 2017.
We had working capital deficiency of $(1,104,483) at March 31,
2018 compared with working capital deficiency of $(1,033,469) at December 31,
2017. This increase in working capital deficiency was primarily due to an
increase in accounts payable and due to related parties, which was partial
offset by increases in cash and cash equivalents, inventory, and prepaid expense
and other current assets.
Net cash flows provided by operating activities was $26,655
during the three months ended March 31, 2018, an increase of $24,063, compared
to net cash flows provided by operating activities of $2,592 during the three
months ended March 31, 2017. The increase in net cash flow provided by operating
activities during the three months ended March 31, 2018, was primarily due to
increases in foreign currency exchange loss, accounts payable, and due to
related parties.
Net change in cash and cash equivalents was an increase of
$25,190 during the three months ended March 31. 2018. Net change in cash and
cash equivalents was an increase of $15,955 during the three months ended March
31. 2017.
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.