1.
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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
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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) , a
British Virgin Islands company incorporated on October 30, 2001. 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)
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.
Soyodo entered into an Agreement and
Plan of Merger (the Merger Agreement) with Omphalos, Corp., a Nevada
corporation which went effective on April 18, 2008. 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 was 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 net losses during the past two years and had an
accumulated deficit of $2,083,708 and $2,028,322 as of June 30, 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 and net realizable value. Net realizable value
(NRV) is defined as estimated selling prices less costs of completion, disposal,
and transportation. 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 $438,990 and $450,691 at June 30, 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
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5 years
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Furniture and fixtures
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3 years
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Machinery and equipment
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3 to 5 years
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Leasehold improvements
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55 years
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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 $121,256 and $123,122 at June
30, 2018 and December 31, 2017, respectively. Depreciation expense was $1,371
and $1,770 for the six months ended June 30, 2018 and 2017, respectively.
Depreciation expense was $680 and $896 for the three months ended June 30, 2018
and 2017, respectively.
Intangible Assets
Include cost of patent applications that are deferred and charged to operations
over their useful lives. The accumulated amortization is $35,355 and $34,612 at
June 30, 2018 and December 31, 2017, respectively. Amortization of intangible
assets was $1,691 and $1,631 for the six months ended June 30, 2018 and 2017, respectively. Amortization of
intangible assets was $838 and $826 for the three months ended June 30, 2018 and
2017, respectively.
F-5
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.
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:
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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.
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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.
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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.
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 for the six months ended at June
30, 2018 and 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
six months ended June 30, 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(deficit).
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.
In December 2017, the Securities and
Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 118 (as further
clarified by FASB ASU 2018-05, Income Taxes (Topic 740): "Amendments to SEC
Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118") to provide
guidance for companies that may not have completed their accounting for the
income tax effects of the Tax Cut and Jobs Act ("Tax Act") in the period of
enactment, which is the period that includes December 22, 2017. SAB No. 118
provides for a provisional one year measurement period for entities to finalize
their accounting for certain income tax effects related to the Tax Act. SAB No.
118 provides guidance where: (i) the accounting for the income tax effect of the
Tax Act is complete and reported in the Tax Act's enactment period, (ii) the
accounting for the income tax effect of the Tax Act is incomplete
and reported as provisional amounts based on reasonable estimates (to the extent
determinable) subject to adjustments during a limited measurement period until
complete, and (iii) accounting for the income tax effect of the Tax Act is not
reasonably estimable (no related provisional amounts are reported in the
enactment period) and entities would continue to apply accounting based on tax
law provisions in effect prior to the Tax Act enactment until provisional
amounts are reasonably estimable. SAB No. 118 requires disclosure of the reasons
for incomplete accounting additional information or analysis needed, among other
relevant information. The Company is continuing to gather additional information
to determine the final impact.
In February 2018, the FASB issued ASU
No, 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220):
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income". The amendments in this Update allow a reclassification from accumulated
other comprehensive income to retained earnings for stranded tax effects
resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate
the stranded tax effects resulting from the Tax Cuts and Jobs Act and will
improve the usefulness of information reported to financial statement users.
However, because the amendments only relate to the reclassification of the
income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that
requires that the effect of a change in tax laws or rates be included in income
from continuing operations is not affected. The amendments in this Update also
require certain disclosures about stranded tax effects. The amendments in this
Update are effective for all entities for fiscal years beginning after December
15, 2018, and interim periods within those fiscal years. Early adoption of the
amendments in this Update is permitted, including adoption in any interim
period, (1) for public business entities for reporting periods for which
financial statements have not yet been issued and (2) for all other entities for
reporting periods for which financial statements have not yet been made
available for issuance. The amendments in this Update should be applied either
in the period of adoption or retrospectively to each period (or periods) in
which the effect of the change in the U.S. federal corporate income tax rate in
the Tax Cuts and Jobs Act is recognized. The Company is currently evaluating the
impact of adopting this new guidance on its financial position, results of
operations, statement of comprehensive income, and cash flows.
F-7
2.
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RELATED-PARTY TRANSACTIONS
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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 $11,380 and $10,970 for the six months
ended June 30, 2018 and 2017, respectively, and approximately $5,640 and $5,940
for the three months ended June 30, 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 $164,312 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 $164,312, 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 $164,312, 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 $164,312
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 $164,312, 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 $328,623, for working capital
purpose. The term of the loan started from July 1, 2015 with maturity date on
June 30, 2018. On July 1, 2018, the loan with the same amount of NT$10,000,000,
equivalent $328,623, and the same fixed interest rate of 3% per annum was
extended for another three years starting from July 1, 2018 with maturity date
on June 30, 2021.
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 $328,623, for working capital
purpose. The term of the loan started from July 1, 2016 with maturity date on
June 30, 2019.
As of June 30, 2018 and December 31,
2017, there were $985,870 and $1,012,146 advances outstanding, of which $492,935
and $506,073 were presented under current liabilities, respectively. Interest
expense was $15,237 and $14,694 for the six months ended June 30, 2018 and 2017,
respectively. Interest expense was $7,553 and $7,441 for the three months ended
June 30, 2018 and 2017, respectively.
Advances from related party
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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 June 30, 2018 and
December 31, 2017, there were $711,604 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 six months ended
June 30, 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. According to the amendments to the
Income Tax Act enacted by the office of the President of Taiwan, R.O.C. on
February 7, 2018, an increase in the statutory income tax rate from 17% to 20%
and decrease in the undistributed earning tax from 10% to 5% are effective from
January 1, 2018. This increase in the statutory income tax rate does not affect
the amounts of the current or deferred taxes recognized as of June 30, 2018 and
for the six months then ended. No income tax liabilities existed as of June 30,
2018 and December 31, 2017 due to the Company's continuing operating losses.
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 June 30,
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 June 30, 2018 resulted in a net effect of $0 discrete tax expenses
(benefit) which lowered the effective tax rate by 14% for the six months ended
June 30, 2018. The provisional remeasurement amount is anticipated to change as
data becomes available allowing more accurate scheduling of the deferred tax
assets and liabilities primarily related to net operating loss carryover.
The provision for income taxes
calculated at the statutory rates in the combined statements of income is as
follows:
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Six months
Ended
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Six Months Ended
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June 30, 2018
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June 30, 2017
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Current provision:
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Computed (provision for) income taxes at
statutory rates in U.S.
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$
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-
|
|
$
|
-
|
|
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 six months ended June
30, 2018 and 2017:
|
|
Six Months ended
|
|
|
Six Months ended
|
|
|
|
June30, 2018
|
|
|
June 30, 2017
|
|
U.S. Federal tax at statutory
rate
|
|
21%
|
|
|
34%
|
|
Valuation allowance
|
|
(21%
|
)
|
|
(34%
|
)
|
Foreign income tax- Taiwan
|
|
20%
|
|
|
17%
|
|
Other (a)
|
|
(20%
|
)
|
|
(17%
|
)
|
Effective tax rate
|
|
-%
|
|
|
-%
|
|
(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 six months ended June 30,
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 June 30, 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