Item 1. Financial Statements.
CONTENTS
4
OMPHALOS, CORP.
CONDENSED CONSOLIDATED BALANCE
SHEETS
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Assets
|
|
(Unaudited)
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
18,070
|
|
$
|
23,051
|
|
Accounts
receivable, net
|
|
43,734
|
|
|
44,204
|
|
Inventory, net
|
|
88,885
|
|
|
118,475
|
|
Prepaid
and other current assets
|
|
39,350
|
|
|
21,023
|
|
Total current assets
|
|
190,039
|
|
|
206,753
|
|
|
|
|
|
|
|
|
Leasehold improvements and equipment, net
|
|
4,836
|
|
|
7,019
|
|
Intangible assets, net
|
|
13,940
|
|
|
16,854
|
|
Deposits
|
|
2,796
|
|
|
3,599
|
|
Total Assets
|
$
|
211,611
|
|
$
|
234,225
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts
payable
|
$
|
23,412
|
|
$
|
17,394
|
|
Accrued salaries and
bonus
|
|
7,099
|
|
|
19,448
|
|
Accrued
expenses
|
|
34,435
|
|
|
42,397
|
|
Due to related parties
|
|
764,982
|
|
|
654,910
|
|
Loan from
shareholders current portion
|
|
492,450
|
|
|
506,073
|
|
Total current liabilities
|
|
1,322,378
|
|
|
1,240,222
|
|
|
|
|
|
|
|
|
Long-term Liabilities
|
|
|
|
|
|
|
Loan from
shareholders
|
|
492,450
|
|
|
506,073
|
|
Total liabilities
|
|
1,814,828
|
|
|
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 September 30,
2018 and December 31, 2017, respectively
|
|
3,007
|
|
|
3,007
|
|
Additional paid-in
capital
|
|
47,523
|
|
|
47,523
|
|
Other
comprehensive income
|
|
508,876
|
|
|
465,722
|
|
Accumulated deficit
|
|
(2,162,623
|
)
|
|
(2,028,322
|
)
|
Total Stockholders' deficit
|
|
(1,603,217
|
)
|
|
(1,512,070
|
)
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders'
Deficit
|
$
|
211,611
|
|
$
|
234,225
|
|
See accompanying Notes to Condensed Consolidated Financial
Statements
F-1
OMPHALOS, CORP.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND
OTHER COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
FOR THE NINE
|
|
|
FOR THE THREE
|
|
|
|
MONTHS ENDED SEPTEMBER
|
|
|
MONTHS ENDED SEPTEMBER
|
|
|
|
30,
|
|
|
30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, net
|
$
|
504,319
|
|
$
|
550,886
|
|
$
|
18,255
|
|
$
|
66,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
295,988
|
|
|
309,819
|
|
|
2,583
|
|
|
42,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
208,331
|
|
|
241,067
|
|
|
15,672
|
|
|
24,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expenses
|
|
325,783
|
|
|
407,584
|
|
|
87,743
|
|
|
115,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(117,452
|
)
|
|
(166,517
|
)
|
|
(72,071
|
)
|
|
(90,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
146
|
|
|
42
|
|
|
(1
|
)
|
|
-
|
|
Interest expense
|
|
(22,569
|
)
|
|
(22,131
|
)
|
|
(7,332
|
)
|
|
(7,437
|
)
|
Gain (loss) on foreign currency
exchange
|
|
5,574
|
|
|
1,490
|
|
|
489
|
|
|
2,894
|
|
Total other income (expenses)
|
|
(16,849
|
)
|
|
(20,599
|
)
|
|
(6,844
|
)
|
|
(4,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
(134,301
|
)
|
|
(187,116
|
)
|
|
(78,915
|
)
|
|
(95,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
$
|
(134,301
|
)
|
$
|
(187,116
|
)
|
$
|
(78,915
|
)
|
$
|
(95,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
30,063,759
|
|
|
30,063,759
|
|
|
30,063,759
|
|
|
30,063,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive (Loss) Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(134,301
|
)
|
$
|
(187,116
|
)
|
$
|
(78,915
|
)
|
$
|
(95,411
|
)
|
Foreign currency translation adjustment,
net of tax
|
|
43,154
|
|
|
(78,698
|
)
|
|
2,249
|
|
|
(2,306
|
)
|
Comprehensive (Loss) Income
|
$
|
(91,147
|
)
|
$
|
(265,814
|
)
|
$
|
(76,666
|
)
|
$
|
(97,717
|
)
|
See accompanying Notes to Condensed Consolidated Financial
Statements
F-2
OMPHALOS, CORP.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017
(UNAUDITED)
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2018
|
|
|
September 30, 2017
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
$
|
(134,301
|
)
|
$
|
(187,116
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in)
operating
activities:
|
|
|
|
|
|
|
Amortization and depreciation
|
|
4,535
|
|
|
5,123
|
|
Foreign currency exchange gain
|
|
-
|
|
|
(1,491
|
)
|
Changes in
assets and liabilities:
|
|
|
|
|
|
|
Decrease (Increase) in accounts receivable
|
|
(732
|
)
|
|
(31,902
|
)
|
Decrease (Increase) in inventory
|
|
26,888
|
|
|
38,132
|
|
Decrease (Increase) in prepaid and other assets
|
|
(18,522
|
)
|
|
3,356
|
|
Increase (Decrease) in accounts payable
|
|
6,606
|
|
|
454
|
|
Increase (Decrease) in accrued expenses
|
|
(18,989
|
)
|
|
(8,574
|
)
|
Increase (Decrease) in advance from customers
|
|
-
|
|
|
(24,921
|
)
|
Increase (Decrease) in due to related parties
|
|
130,061
|
|
|
270,001
|
|
Net cash provided by (used in) operating activities
|
|
(4,454
|
)
|
|
63,062
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and
cash equivalents
|
|
(527
|
)
|
|
4,385
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
(4,981
|
)
|
|
67,447
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
Beginning
|
|
23,051
|
|
|
37,643
|
|
Ending
|
$
|
18,070
|
|
$
|
105,090
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows
|
|
|
|
|
|
|
Cash paid
during the year for:
|
|
|
|
|
|
|
Interest
expense
|
$
|
22,569
|
|
$
|
22,131
|
|
Income
tax
|
$
|
-
|
|
$
|
-
|
|
See accompanying Notes to Condensed Consolidated Financial
Statements
F-3
OMPHALOS, CORP.
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(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, 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 $2,162,623 and $2,028,322 as of September 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 $438,558 and $450,691 at September 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
|
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 $121,801 and $123,122 at
September 30, 2018 and December 31, 2017, respectively. Depreciation expense was
$2,030 and $2,666 for the nine months ended September 30, 2018 and 2017,
respectively. Depreciation expense was $659 and $896 for the three months ended
September 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 $36,140 and $34,612 at
September 30, 2018 and December 31, 2017, respectively. Amortization of
intangible assets was $2,505 and $2,457 for the nine months ended September 30,
2018 and 2017, respectively. Amortization of intangible assets was $814 and $826
for the three months ended September 30, 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.
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 for the nine months ended at
September 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
nine months ended September 30, 2018 and 2017, the Company did not have any
common equivalent shares.
F-6
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.
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.
F-7
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.
In August 2018, the FASB issued ASU
2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to
the Disclosure Requirements for Fair Value Measurement. The ASU modifies the
disclosure requirements in Topic 820, Fair Value Measurement, by removing
certain disclosure requirements related to the fair value hierarchy, modifying
existing disclosure requirements related to measurement uncertainty and adding
new disclosure requirements, such as disclosing the changes in unrealized gains
and losses for the period included in other comprehensive income for recurring
Level 3 fair value measurements held at the end of the reporting period and
disclosing the range and weighted average of significant unobservable inputs
used to develop Level 3 fair value measurements. This ASU is effective for
public companies for annual reporting periods and interim periods within those
annual periods beginning after December 15, 2019. The Company is currently
evaluating the effect, if any, that the ASU will have 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 $1,900. Rent expense under this
lease agreement amounted to approximately $16,851 and $16,525 for the nine
months ended September 30, 2018 and 2017, respectively, and approximately $5,471
and $5,555 for the three months ended September 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 $164,150 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 $164,150, 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 $164,150, 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 $164,150
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 $164,150, 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 $328,300, 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 $328,300, 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 $328,300, for working capital
purpose. The term of the loan started from July 1, 2016 with maturity date on
June 30, 2019.
F-8
As of September 30, 2018 and December
31, 2017, there were $984,900 and $1,012,146 advances outstanding, of which
$492,450 and $506,073 were presented under current liabilities, respectively.
Interest expense was $22,568 and $22,131 for the nine months ended September 30,
2018 and 2017, respectively. Interest expense was $7,331 and $7,437 for the
three months ended September 30, 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 September 30, 2018
and December 31, 2017, there were $764,982 and $654,910 advances outstanding,
respectively.
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 nine months ended
September 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
September 30, 2018 and for the nine months then ended. No income tax liabilities
existed as of September 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 September 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 September 30, 2018 resulted in a net effect of $0 discrete tax
expenses (benefit) which lowered the effective tax rate by 14% for the nine
months ended September 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:
|
|
|
Nine months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 30, 2018
|
|
|
September 30, 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 nine months ended
September 30, 2018 and 2017:
|
|
|
Nine Months ended
|
|
|
Nine Months ended
|
|
|
|
|
September 30, 2018
|
|
|
September 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 nine months ended September
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 September 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
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.
Results of operations for the three months ended
September 30, 2018 and 2017
Net sales were $18,255 for the three months ended September 30,
2018 as compared to $66,867 for the three months ended September 30, 2017. This
represented a decrease of $48,612 or approximately 72.7% compared to the prior
year period. The decrease in net sales was primarily the result of a decrease in
demand for the new model of laser marking machine.
Cost of sales decreased by $39,536 or 93.9% to $2,583 for the
three months ended September 30, 2018, as compared to $42,119 for the three
months ended September 30, 2017. Gross profit for the three months ended
September 30, 2018 was $15,672, compared to $24,748 for the same period in 2017.
Gross profit as a percentage of net sales was approximately 86% in the third
quarter of 2018, compared to approximately 37% in the same period in 2017. The
change in gross profit margin was primarily due to the higher margin on the
products sold in the three months ended September 30, 2018.
For the three months ended September 30, 2018, selling, general
and administrative expenses totaled $87,743. This was a decrease of $27,873 or
approximately 24% as compared to $115,616 for the same period in 2017. The
decrease in selling, general and administrative expenses was primarily due to
the decrease in salary expenses and commissions, which was partially offset by
the increase in professional service fees.
5
For the three months ended September 30, 2018, loss from
operations decreased to $72,071 as compared to $90,868 for the three months
ended September 30, 2017. This represented a decreased loss of $18,797 or
approximately 20.7% comparing the two periods. The decrease in loss from
operations for the three months ended September 30, 2018 was primarily the
result of the decrease in selling, general and administrative expenses.
Other expenses were $6,844 and $4,543 for the three months
ended September 30, 2018 and 2017. This represented increased expense of $2,301
or approximately 50.6% . The main reason for this increased other expense was
due to a decrease in gain on foreign currency exchange, as compared to the
quarter ended September 30, 2017.
Our net loss was $78,915 for the three months ended September
30, 2018 compared to a net loss of $95,411 for the three months ended September
30, 2017. The decreased net loss for the three months ended September 30, 2018
was due to the reasons described above.
Results of operations for the nine months ended September
30, 2018 and 2017
Net sales for the nine months ended September 30, 2018 were
$504,319, as compared to $550,886 for the nine months ended September 30, 2017.
This represented a decrease of $46,567 or approximately 8.5% compared to the
prior year period. The decrease in net sales was primarily the result of a
decrease in demand for the new model of laser marking machine.
Cost of sales decreased by $13,831 or approximately 4.5% to
$295,988 for the nine months ended September 30, 2018, as compared to $309,819
for the nine months ended September 30, 2017. Gross profit for the nine months
ended September 30, 2018 was $208,331, compared to $241,067 for the same period
in 2017. Gross profit as a percentage of net sales was approximately 41% in the
nine months ended September 30, 2018, compared to approximately 44% in the same
period in 2017. The change in gross profit margin was not substantial comparing
two periods.
For the nine months ended September 30, 2018, selling, general
and administrative expenses totaled $325,783. This was a decrease of $81,801 or
approximately 20.1% as compared to $407,584 for the same period in 2017. The
decrease in selling, general and administrative expenses is primarily the result
of the decrease in salary, entertainment, travel and repair and maintenance
expenses, which was partially offset by the increase in sales commissions and
professional fees.
For the nine months ended September 30, 2018, loss from
operations decreased to $117,452 as compared to $166,517 for the nine months
ended September 30, 2017. This represented a decreased loss of $49,065 or
approximately 29.5% comparing the two periods. The decrease in loss from
operations for the nine months ended September 30, 2018 was primarily the result
of a decrease in selling, general and administrative expenses.
Other expenses were $16,849 and $20,599 for the nine months
ended September 30, 2018 and 2017, respectively. This represented decreased
expense of $3,750 or approximately 18.2% . The main reason for the decreased
other expenses was an increase in interest income and gain on foreign currency
exchange, as compared to the period ended September 30, 2017.
Our net loss was $134,301 for the nine months ended September
30, 2018 compared to a net loss of $187,116 for the nine months ended September
30, 2017. The decreased net loss for the nine months ended September 30, 2018
was due to the reasons described above.
Liquidity and Capital Resources
Cash and cash equivalents were $18,070 at September 30, 2018
and $23,051 at December 31, 2017. Our total current assets were $190,039 at
September 30, 2018, as compared to $206,753 at December 31, 2017. Our total
current liabilities were $1,322,378 at September 30, 2018 as compared to
$1,240,222 at December 31, 2017.
We had working capital deficit of $1,132,339 at September 30,
2018 compared with working capital deficit of $1,033,469 at December 31, 2017.
This increase in working capital deficit was primarily due to decreases in cash,
accounts receivable, and inventory and increases in accounts payable and due to
related parties, partially offset by increases in prepaid expenses and other
current assets, and decreases in accrued expenses, accrued salaries and bonus.
6
Net cash flow used in operating activities was $4,454 during
the nine months ended September 30, 2018, a decrease of $67,516, compared to net
cash flow provided by operating activities $63,062 during the nine months ended
September 30, 2017. The decrease in the cash provided by operating activities
was primarily due to the decreased inventory, prepaid expenses, accrued expenses
and due to related parties, which was partially offset by the decreased net loss
and the increased accounts receivable, accounts payable, and advanced from
customers.
Net change in cash and cash equivalents was a decrease of
$4,981 during the nine months ended September 30, 2018, and an increase of
$67,447 for the nine months ended September 30, 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.