Item 1.
|
Financial Statements.
|
CONTENTS
Page
3
OMPHALOS, CORP.
CONDENSED CONSOLIDATED BALANCE
SHEETS
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Assets
|
|
(Unaudited)
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
67,124
|
|
$
|
55,499
|
|
Accounts receivable, net
|
|
33,732
|
|
|
16,918
|
|
Inventory, net
|
|
62,643
|
|
|
86,708
|
|
Prepaid and other current assets
|
|
28,324
|
|
|
40,776
|
|
Total current assets
|
|
191,823
|
|
|
199,901
|
|
|
|
|
|
|
|
|
Leasehold improvements and equipment, net
|
|
576
|
|
|
4,153
|
|
Operating lease right-of-use assets
|
|
70,661
|
|
|
-
|
|
Intangible assets, net
|
|
11,277
|
|
|
13,056
|
|
Deposits
|
|
2,746
|
|
|
2,782
|
|
Total Assets
|
$
|
277,083
|
|
$
|
219,892
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable
|
$
|
75,792
|
|
$
|
17,268
|
|
Accrued salaries and bonus
|
|
7,081
|
|
|
6,468
|
|
Accrued expenses
|
|
20,098
|
|
|
31,167
|
|
Advance from customers
|
|
734
|
|
|
744
|
|
Due to related parties
|
|
796,594
|
|
|
752,113
|
|
Loan from shareholders current
portion
|
|
-
|
|
|
490,037
|
|
Operating lease
liability current portion
|
|
33,047
|
|
|
-
|
|
Total current liabilities
|
|
933,346
|
|
|
1,297,797
|
|
|
|
|
|
|
|
|
Non-current Liabilities
|
|
|
|
|
|
|
Loan from shareholders,
less current portion
|
|
967,430
|
|
|
490,037
|
|
Operating lease liability, less current
portion
|
|
37,614
|
|
|
-
|
|
Total
liabilities
|
|
1,938,390
|
|
|
1,787,834
|
|
|
|
|
|
|
|
|
Stockholders' Equity (Deficit)
|
|
|
|
|
|
|
Common stock, $0.0001 par value,
120,000,000 shares
|
|
|
|
|
|
|
authorized, 115,063,760 shares issued and outstanding
|
|
|
|
|
|
|
as
of June 30, 2019 and December 31, 2018
|
|
11,507
|
|
|
11,507
|
|
Additional paid-in
capital
|
|
124,023
|
|
|
124,023
|
|
Accumulated other comprehensive income
|
|
538,111
|
|
|
516,668
|
|
Accumulated deficit
|
|
(2,334,948)
|
|
|
(2,220,140)
|
|
Total stockholders' equity (deficit)
|
|
(1,661,307)
|
|
|
(1,567,942)
|
|
Total Liabilities and
Stockholders' Deficit
|
$
|
277,083
|
|
$
|
219,892
|
|
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 SIX
|
|
|
|
FOR THE THREE
|
|
|
|
MONTHS ENDED JUNE
|
|
|
|
MONTHS ENDED JUNE
|
|
|
|
30,
|
|
|
|
30,
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, net
|
$
|
145,958
|
|
|
$
|
486,064 $
|
|
|
|
144,938
|
|
|
$
|
331,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
120,297
|
|
|
|
293,405
|
|
|
|
115,015
|
|
|
|
208,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
25,661
|
|
|
|
192,659
|
|
|
|
29,923
|
|
|
|
123,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
expenses
|
|
136,571
|
|
|
|
238,040
|
|
|
|
72,753
|
|
|
|
124,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
(110,910
|
)
|
|
|
(45,381
|
)
|
|
|
(42,830
|
)
|
|
|
(1,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
37
|
|
|
|
147
|
|
|
|
37
|
|
|
|
147
|
|
Interest expense
|
|
(14,526
|
)
|
|
|
(15,237
|
)
|
|
|
(7,226
|
)
|
|
|
(7,553
|
)
|
Gain (loss) on foreign currency
exchange
|
|
481
|
|
|
|
5,085
|
|
|
|
363
|
|
|
|
7,120
|
|
Gain (loss) on disposal
of fixed assets
|
|
10,110
|
|
|
|
-
|
|
|
|
10,110
|
|
|
|
-
|
|
Total other income (expenses)
|
|
(3,898
|
)
|
|
|
(10,005
|
)
|
|
|
3,284
|
|
|
|
(286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
(114,808
|
)
|
|
|
(55,386
|
)
|
|
|
(39,546
|
)
|
|
|
(1,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(114,808
|
)
|
|
$
|
(55,386
|
)
|
|
$
|
(39,546
|
)
|
|
$
|
(1,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
115,063,760
|
|
|
|
30,063,760
|
|
|
|
115,063,760
|
|
|
|
30,063,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(114,808
|
)
|
|
$
|
(55,386
|
)
|
|
$
|
(39,546
|
)
|
|
$
|
(1,601
|
)
|
Foreign currency translation adjustment, net of tax
|
|
21,443
|
|
|
|
40,905
|
|
|
|
7,957
|
|
|
|
69,308
|
|
Comprehensive Income (Loss)
|
$
|
(93,365
|
)
|
|
$
|
(14,481
|
)
|
|
$
|
(31,589
|
)
|
|
$
|
67,707
|
|
See accompanying Notes to Condensed Consolidated Financial
Statements.
F-2
OMPHALOS, CORP.
CONSOLIDATED STATEMENTS OF CHANGE
IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Deficits
|
|
|
Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
30,063,760
|
|
$
|
3,007
|
|
$
|
47,523 $
|
|
|
(2,028,322
|
)
|
$
|
465,722
|
|
$
|
(1,512,070
|
)
|
Translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(28,403
|
)
|
|
(28,403
|
)
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(53,785
|
)
|
|
-
|
|
|
(53,785
|
)
|
Balance at March 31, 2018
|
|
30,063,760
|
|
$
|
3,007
|
|
$
|
47,523
|
|
$
|
(2,082,107
|
)
|
$
|
437,319
|
|
$
|
(1,594,258
|
)
|
Translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
69,308
|
|
|
69,308
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,601
|
)
|
|
-
|
|
|
(1,601
|
)
|
Balance at June 30, 2018
|
|
30,063,760
|
|
$
|
3,007
|
|
$
|
47,523
|
|
$
|
(2,083,708
|
)
|
$
|
506,627
|
|
$
|
(1,526,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Deficits
|
|
|
Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
115,063,760
|
|
$
|
11,507
|
|
$
|
124,023
|
|
$
|
(2,220,140
|
)
|
$
|
516,668
|
|
$
|
(1,567,942
|
)
|
Translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,486
|
|
|
13,486
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(75,262
|
)
|
|
-
|
|
|
(75,262
|
)
|
Balance at March 31, 2019
|
|
115,063,760
|
|
$
|
11,507
|
|
$
|
124,023
|
|
$
|
(2,295,402
|
)
|
$
|
530,154
|
|
$
|
(1,629,718
|
)
|
Translation adjustment
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,957
|
|
|
7,957
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(39,546
|
)
|
|
-
|
|
|
(39,546
|
)
|
Balance at June 30, 2019
|
|
115,063,760
|
|
$
|
11,507
|
|
$
|
124,023
|
|
$
|
(2,334,948
|
)
|
$
|
538,111
|
|
$
|
(1,661,307
|
)
|
See accompanying Notes to Condensed Consolidated Financial
Statements
F-3
OMPHALOS, CORP.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(UNAUDITED)
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
$
|
(114,808
|
)
|
$
|
(55,386
|
)
|
Adjustments to
reconcile net loss to net cash provided by (used in) operating
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
Amortization and depreciation
|
|
2,336
|
|
|
3,062
|
|
Bad debt expense
|
|
1,220
|
|
|
-
|
|
Foreign currency exchange (gain) loss
|
|
-
|
|
|
(5,085
|
)
|
Gain (loss) on
disposal of fixed assets
|
|
(10,110
|
)
|
|
-
|
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
(18,034
|
)
|
|
12,380
|
|
Decrease in inventory
|
|
24,065
|
|
|
33,578
|
|
Decrease (increase) in prepaid and other assets
|
|
12,488
|
|
|
(19,931
|
)
|
Increase in accounts payable
|
|
58,524
|
|
|
44,441
|
|
Decrease in accrued expenses
|
|
(10,466
|
)
|
|
(12,726
|
)
|
Increase in due to related
parties
|
|
44,481
|
|
|
75,933
|
|
Net cash provided by (used
in) operating activities
|
|
(10,304
|
)
|
|
76,266
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Proceeds from disposal of equipment
|
|
12,914
|
|
|
-
|
|
Net cash provided by
investing activities
|
|
12,914
|
|
|
-
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
9,015
|
|
|
2,104
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
11,625
|
|
|
78,370
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
Beginning
|
|
55,499
|
|
|
23,051
|
|
Ending
|
$
|
67,124
|
|
$
|
101,421
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
Interest expense
|
$
|
4,842
|
|
$
|
15,237
|
|
Income tax
|
$
|
-
|
|
$
|
-
|
|
See accompanying Notes to Condensed Consolidated Financial
Statements
F-4
OMPHALOS, CORP.
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2019
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, 2018.
Organization
Omphalos Corp. was incorporated as TOP Group Holdings, Inc. under the laws of Delaware in March 2003 and later changed its name to Soyodo Group Holdings, Inc. (the "Soyodo") in August 2005. 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) 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 a Certificate of Merger with the Secretary of State of Delaware and Nevada. 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 company’s 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 $2,334,948 and $2,220,140 as of June 30, 2019 and
December 31, 2018, 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-5
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 2019; (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. As of June 30, 2019 and December 31,
2018, the Company assessed the allowance of doubtful accounts of $1,220 and $0,
respectively.
Inventory
Inventory is
carried at the lower of cost or market. Cost is determined by using the specific
identification method. The Company periodically reviews the age and turnover of
its inventory to determine whether any inventory has become obsolete or has
declined in value, and charges to operations for known and anticipated inventory
obsolescence. Inventory consists substantially of finished goods and is net of
an allowance for slow-moving inventory of $430,780 and $436,409 at June 30, 2019
and December 31, 2018, 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:
Furniture and fixtures
|
3 years
|
Machinery and equipment
|
3 to 5 years
|
Leasehold improvements
|
55 years
|
F-6
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 $94,240 and $121,865 at June 30,
2019 and December 31, 2018, respectively. Depreciation expense was $723 and
$1,371 for the six months ended June 30, 2019 and 2018, respectively.
Depreciation expense was $66 and $680 for the three months ended June 30, 2019
and 2018, 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 warranted by events and circumstances. 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 $37,915 and $36,778 at
June 30, 2019 and December 31, 2018, respectively. Amortization of intangible
assets was $1,613 and $1,691 for the six months ended June 30, 2019 and 2018,
respectively. Amortization of intangible assets was $803 and $838 for the three
months ended June 30, 2019 and 2018, respectively.
Revenue Recognition
During the fiscal year 2018, the Company has adopted FASB Accounting
Standards Codification ("ASC"), Topic 606 ("ASC 606"), Revenue from Contracts
with Customers, using the modified retrospective method to all contracts that
were not completed as of January 1, 2018. The Company recognized the cumulative
effect of applying the new revenue standard as an adjustment to the opening
balance of accumulated deficit at the beginning of 2018. The results for the
Companys reporting periods beginning on and after January 1, 2018 are presented
under ASC 606, while prior period amounts are not adjusted and continue to be
reported under the accounting standards in effect for the prior period. Based on
the Companys review of existing sales contracts as of January 1, 2018, the
Company concluded that the adoption of the new guidance did not have a
significant change on the Companys revenue during all periods presented.
Pursuant to ASC 606, the Company
recognizes revenue when its customer obtains control of promised goods or
services, in an amount that reflects the consideration that the Company expects
to receive in exchange for those goods or services. To determine revenue
recognition for arrangements that the Company determines is within the scope of
ASC 606, the Company performs the following five steps: (i) identify the
contract(s) with a customer; (ii) identify the performance obligations in the
contract; (iii) determine the transaction price; (iv) allocate the transaction
price to the performance obligations in the contract; and (v) recognize revenue
when (or as) the Company satisfies a performance obligation. The Company only
applies the five-step model to contracts when it is probable that the Company
will collect the consideration the Company is entitled to in exchange for the
goods or services the Company transfers to the customers. At inception of the
contract, once the contract is determined to be within the scope of ASC 606, the
Company assesses the goods or services promised within each contract, determines
those that are performance obligations, and assesses whether each promised good
or service is distinct. The Company then recognizes as revenue the amount of the
transaction price that is allocated to the respective performance obligation
when (or as) the performance obligation is satisfied.
F-7
Merchandise Sales
: The Company
recognizes net revenues from machinery product sales when customers obtain
control of the Companys products, which typically occurs upon delivery to
customer. Product revenues are recorded at the net sales price, or "transaction
price," which includes applicable reserves for variable consideration, including
discounts, allowances, and returns.
Trade discount and allowances
:
The Company generally provides invoice discounts on product sales to its
customers for prompt payment. The Company estimates that, based on its
experience, its customers will earn these discounts and fees, and deducts the
full amount of these discounts and fees from its gross product revenues and
accounts receivable at the time such revenues are recognized.
Product returns:
The Company
estimates the amount of each product that will be returned and deducts these
estimated amounts from its gross revenues at the time the revenues are
recognized. For special ordered and customized machinery, no sales returns were
allowed.
To date, product allowance and returns
have been minimal and, based on its experience, the Company believes that
returns of its products will continue to be minimal.
The following tables provide details of
revenue by major products and by geography.
Revenue by Major Products
|
|
For the Six Months
Ended
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Laser Machines
|
$
|
129,171
|
|
|
448,852
|
|
Machine Parts
|
|
16,787
|
|
|
37,212
|
|
Total
|
$
|
145,958
|
|
|
486,064
|
|
Revenue by Geography
|
|
For the Six
Months Ended
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Asia Pacific
|
$
|
145,958
|
|
|
486,064
|
|
Total
|
$
|
145,958
|
|
|
486,064
|
|
Leases
— The Company
adopted FASB Accounting Standards Codification, Topic 842, Leases ("ASC 842")
using the modified retrospective approach, electing the practical expedient that
allows the Company not to restate its comparative periods prior to the adoption
of the standard on January 1, 2019. As such, the disclosures required under ASC
842 are not presented for periods before the date of adoption. For the
comparative periods prior to adoption, the Company presented the disclosures
which were required under ASC 840.
F-8
The Company applied the following
practical expedients in the transition to the new standard and allowed under ASC
842:
Practical
Expedient
|
Description
|
Reassessment of expired or existing contracts
|
The Company elected not to reassess, at the
application date, whether any expired or existing contracts contained
leases, the lease classification for any expired or existing leases, and
the accounting for initial direct costs for any existing leases.
|
Use of hindsight
|
The Company elected to use hindsight in
determining the lease term (that is, when considering options to extend or
terminate the lease and to purchase the underlying asset) and in assessing
impairment of right-to-use assets.
|
Reassessment of existing or expired land easements
|
The Company elected not to evaluate existing or
expired land easements that were not previously accounted for as leases
under ASC 840, as allowed under the transition practical expedient. Going
forward, new or modified land easements will be evaluated under ASU No.
2016-02.
|
Separation of lease and non- lease components
|
Lease agreements that contain both lease and
non-lease components are generally accounted for separately.
|
Short-term lease recognition exemption
|
The Company also elected the short-term lease
recognition exemption and will not recognize ROU assets or lease
liabilities for leases with a term less than 12
months.
|
The new leasing standard requires
recognition of leases on the consolidated balance sheets as right-of-use ("ROU")
assets and lease liabilities. ROU assets represent the Companys right to use
underlying assets for the lease terms and lease liabilities represent the
Companys obligation to make lease payments arising from the leases. Operating
lease ROU assets and operating lease liabilities are recognized based on the
present value and future minimum lease payments over the lease term at
commencement date. The Companys future minimum based payments used to determine
the Companys lease liabilities mainly include minimum based rent payments. As
most of Companys leases do not provide an implicit rate, the Company uses its
estimated incremental borrowing rate based on the information available at
commencement date in determining the present value of lease payments.
The Company recognized lease
liabilities, with corresponding ROU assets, based on the present value of unpaid
lease payments for existing operating leases longer than twelve months as of
January 1, 2019. The ROU assets were adjusted per ASC 842 transition guidance
for existing lease-related balances of accrued and prepaid rent, unamortized
lease incentives provided by lessors, and restructuring liabilities.
The adoption of ASC 842 had a
substantial impact on the Companys consolidated balance sheets. The most
significant impact was the recognition of the operating lease right-of-use
assets and the liability for operating leases. Accordingly, adoption of this
standard resulted in the recognition of operating lease right-of-use assets of
$85,704 and operating lease liabilities of $85,704 comprised of $33,019 of
current operating lease liabilities and $52,685 of non-current operating lease
liabilities on the condensed consolidated balance sheet as of January 1, 2019.
The adoption of ASC 842 did not result in a cumulative-effect adjustment to the
opening balance of accumulated deficit.
In addition, the adoption of the
standard did not have a material impact on the Company's results of operations
or cash flows. Operating lease cost is recognized as a single lease cost on a
straight-line basis over the lease term and is recorded in Selling, general and
administrative expenses. Variable lease payments for common area maintenance,
property taxes and other operating expenses are recognized as expense in the
period when the changes in facts and circumstances on which the variable lease
payments are based occur.
F-9
Research and Development Expenses
Research and development costs are generally expensed as incurred. The
Company did not incur any significant research and development expenses during
the three and six months ended June 30, 2019 and 2018.
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.
F-10
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
Cash flows from the Company's operations are based upon
the local currencies. As a result, amounts related to assets and liabilities
reported on the statement of cash flows will not necessarily agree with changes
in the corresponding balances on the balance sheet.
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.
Loss Per Share
The
Company has adopted FASB 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, 2019 and 2018, the Company did not have any common
equivalent shares.
Comprehensive Income (Loss)
Comprehensive income (loss) 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).
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).
F-11
Translation Adjustment
The accounts of the Company were maintained, and its financial statements were
expressed, in New Taiwan Dollar ("NTD"). Such financial statements were
translated into U.S. Dollars ("$" or "USD") in accordance ASC 830, "Foreign
Currency Matters", with the NTD as the functional currency. According to the
financial statements, all assets and liabilities are translated at the current
exchange rate, stockholders equity(deficit) are translated at the historical
rates, and income statement items are translated at an average exchange rate for
the period.
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
The Company has implemented all new pronouncements that
are in effect and that may impact its consolidated financial statements and does
not believe that there are any other new accounting pronouncements that have
been issued that might have a material impact on its consolidated financial
statements or results of operations.
F-12
The Company has no finance leases. The
Companys leases primarily include office and warehouse facility spaces and copy
machine under various operating lease arrangements. The Companys operating
leases have remaining lease terms of up to three years.
Balance sheet information related to
the Companys leases is presented below:
|
|
|
June 30, 2019
|
|
|
Operating Leases
|
|
|
|
|
Operating lease ROU assets
|
$
|
70,661
|
|
|
|
|
|
|
|
Operating lease liability, current portion
|
|
33,047
|
|
|
Operating lease liability, less current
portion
|
|
37,614
|
|
|
Total operating lease
liabilities
|
$
|
70,661
|
|
The following provides details of the Company's lease
expenses:
|
|
|
Six Months Ended
|
|
|
|
|
June 30, 2019
|
|
|
Operating lease expenses, net
|
$
|
15,072
|
|
|
|
$
|
15,072
|
|
Other information related to leases is presented
below:
|
|
Six Months Ended
|
|
|
June 30, 2019
|
|
Cash Paid For Amounts Included In
Measurement of Liabilities:
|
|
|
Operating cash flows from operating leases
|
15,072
|
|
|
|
|
Weighted Average Remaining Lease Term:
|
|
|
Operating leases
|
2.17 years
|
|
|
|
|
Weighted Average Discount Rate:
|
|
|
Operating leases
|
1.28%
|
The minimum future annual payments
under non-cancellable leases during the next five years and thereafter, at rates
now in force, are as follows:
|
|
|
Operating leases
|
|
|
2019 (excluding the six months ended June
30, 2019)
|
$
|
16,857
|
|
|
2020
|
|
30,822
|
|
|
2021
|
|
22,114
|
|
|
2022
|
|
1,880
|
|
|
2023
|
|
-
|
|
|
Total future minimum lease payments, undiscounted
|
|
71,673
|
|
|
Less: Imputed interest
|
|
(1,012
|
)
|
|
Present value of future minimum lease payments
|
$
|
70,661
|
|
F-13
3.
|
RELATED-PARTY
TRANSACTIONS
|
Operating Leases
The Company leases its facility from a
shareholder under an operating lease agreement which expires on January 31,
2019. On January 31, 2019, the lease term was extended for another three years,
which expires on January 31, 2022. The monthly base rent is approximately
$1,808. Rent expense under this lease agreement amounted to approximately
$10,848 and $11,380 for the six months ended June 30, 2019 and 2018,
respectively, and approximately $5,397 and $5,640 for the three months ended
June 30, 2019 and 2018, respectively.
Loan from related party
On July 26, 2013, the Company entered
into a loan agreement bearing interest at a fixed rate at 3% per annum with its
shareholder to advance NT$5,000,000, equivalent $161,238 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 $161,238, 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 $161,238, 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 into 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
$161,238 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 $161,238, 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 January 1, 2019, the
loan with the same amount of NT$5,000,000, equivalent approximately $161,238,
and the same fixed interest rate of 3% per annum was extended for another three
years starting from January 1, 2019 with maturity date on December 31, 2021.
On July 5, 2015, the Company entered
into another loan agreement bearing interest at a fixed rate at 3% per annum
with its shareholder to advance NT$10,000,000, equivalent $322,477, 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 $322,477, 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
into another loan agreement bearing interest at a fixed rate at 3% per annum
with its shareholder to advance NT$10,000,000, equivalent $322,477, for working
capital purpose. The term of the loan started from July 1, 2016 with maturity
date on June 30, 2019. On July 1, 2019, the loan with the same amount of
NT$10,000,000, equivalent $322,477, and the same fixed interest rate of 3% per
annum was extended for another three years starting from July 1, 2019 with
maturity date on June 30, 2022.
As of June 30, 2019 and December 31, 2018, there were $967,430 and $980,074 advances outstanding, of which $0 and $490,037 was presented under current liabilities, respectively.
Interest expense was $14,526 and $15,237 for the six months ended June 30, 2019 and 2018, respectively. Interest expense was $7,226 and $7,553 for the three months ended June 30, 2019 and 2018, 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.
F-14
On November 30, 2018, the Company and
Mr. Sheng-Peir Yang, the chief executive officer and chairman of the Company
entered into a debt conversion agreement (the "Debt Conversion Agreement").
Pursuant to the Debt Conversion Agreement, the Company agreed to issue Mr. Yang
85,000,000 shares of its $0.0001 par value common stock at a conversion price of
$0.001 per share in exchange for Mr. Yangs forgiveness of $85,000 that Mr. Yang
provided in the form of debt to fund the business operations of the Company.
As of June 30, 2019 and December 31,
2018, there were $796,594 and $752,113 advances outstanding, respectively. The
outstanding balance bears no interest and is due upon request.
Management has evaluated subsequent
events through the date which the financial statements are available to be
issued. All subsequent events requiring recognition as of June 30, 2019 have
been incorporated into these financial statements and there are no additional
subsequent events that require disclosure in accordance with FASB ASC Topic 855,
"Subsequent Events."
******
F-15
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, 2018.
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 June 30, 2019 Compared to the Three
Months Ended June 30, 2018
Net sales were $144,938 for the three months ended June 30,
2019 as compared to $331,523 for the three months ended June 30, 2018. This
represented a decrease of $186,585 or (56.3)% compared to the prior year period.
The decrease in net sales was primarily the result of a weaker demand in laser
marking machine sales.
Cost of sales decreased by $93,492 or (44.8)% to $115,015 for
the three months ended June 30, 2019, as compared to $208,507 for the three
months ended June 30, 2018. Gross profit was $29,923 for the three months ended
June 30, 2019, compared to $123,016 for the same period in 2018. Gross profit as
a percentage of net sales was approximately 20.6% for the three months ended
June 30, 2019, compared to approximately 37.1% in the same period in 2018. The
change in gross profit margin was primarily due to lower margin on the products
sold in the three months ended June 30, 2019.
For the three months ended June 30, 2019, selling, general and
administrative expenses totaled $72,753. This was a decrease of $51,578, or
(41.5)%, as compared to $124,331 for the same period in 2018. The decrease in
selling, general and administrative expenses was primarily attributable to the
decrease in salary, travel, insurance, and commission expenses.
For the three months ended June 30, 2019, loss from operations
increased to $42,830 as compared to $1,315 for the three months ended June 30,
2018. This represented an increased loss of $41,515, or 3157% comparing the two
periods. The increase of loss from operations was mainly due to the decrease in
net sales for the three months ended June 30, 2019.
Other income (expenses) was $3,284 and $(286) for the three
months ended June 30, 2019 and 2018, respectively. This represented an increased
income of $3,570 or 1248.3% . The main reason for this increased other income
was primarily due to the increase in gain on disposal of fixed assets.
Our net loss was $39,546 for the three months ended June
30, 2019, compared to a net loss of $1,601 for the three months ended June 30,
2018. The increased net loss for the three months ended June 30, 2019 was due to
the reasons described above.
Six Months Ended June 30, 2019 Compared to the Six Months
Ended June 30, 2018
Net sales were $145,958 for the six months ended June 30, 2019
as compared to $486,064 for the six months ended June 30, 2018. This represented
a decrease of $340,106 or (70.0)% compared to the prior year period. The
decrease in net sales was primarily the result of a weaker demand in laser
marking machine sales.
Cost of sales decreased by $173,108 or (59.0)% to $120,297 for
the six months ended June 30, 2019, as compared to $293,405 for the six months
ended June 30, 2018. Gross profit for the six months ended June 30, 2019 was
$25,661, compared to $192,659, for the same period in 2018. Gross profit as a
percentage of net sales was 17.6% for the six months ended June 30, 2019,
compared to 39.6% in the same period in 2018. The change in gross profit margin
was primarily due to lower margin on the products sold in the six months ended
June 30, 2019.
For the six months ended June 30, 2019, selling, general and
administrative expenses totaled $136,571. This was a decrease of $101,469, or
(42.6)%, as compared to $238,040 for the same period in 2018. The decrease in
selling, general and administrative expenses was primarily attributable to the
decrease in salary, travel, insurance, and commission expenses.
For the six months ended June 30, 2019, loss from operations
increased to $110,910 as compared to $45,381 for the six months ended June 30,
2018. This represented an increased loss of $65,529, or 144.4% comparing the two
periods. The increase in loss from operations was mainly due to the decrease in
net sales for the six months ended June 30, 2019.
4
Other expenses were $(3,898) and $(10,005) for the six months
ended June 30, 2019 and 2018, respectively. This represented a decreased loss of
$6,107 or (61)%. The main reason for this decrease was mainly due to the
increase in gain from disposal of fixed assets.
Our net loss was $114,808 for the six months ended June 30,
2019, compared to a net loss of $55,386 for the six months ended June 30, 2018.
The increased net loss for the six months ended June 30, 2019, was due to the
reasons described above.
Liquidity and Capital Resources
Cash and cash equivalents were $67,124 on June 30, 2019 and $55,499 on December 31, 2018. Our total current assets were $191,823 on June 30, 2019, as compared to $199,901 on December 31, 2018. Our total current liabilities were $933,346 on June 30, 2019, as compared to $1,297,797 on December 31, 2018.
We had working capital deficiency of $741,523 on June 30, 2019 compared with working capital deficiency of $1,097,896 on December 31, 2018. This decrease in working capital deficiency was primarily due to an increase cash and cash equivalents and accounts receivables and a decrease of accrued expenses and the current portion of loan from shareholders, which was partially offset by decreases in inventory and prepaid expense and other current assets and the increase in accounts payables, due to related parties, and the current portion of lease liability.
Net cash flows used in operating activities was $10,304 during the six months ended June 30, 2019, a decrease of $86,570, compared to net cash flows provided by operating activities of $76,266 during the six months ended June 30, 2018. The decrease in net cash flow provided by operating activities during the six months ended June 30, 2019 was primarily due to increases in net loss, gain on disposal of fixed assets, and accounts receivables and decreases in accrued expenses, partially offset by the decrease in inventory, prepaid expense and other current assets, and the increase in accounts payable.
Net cash flows provided by investing activities was $12,914 and
$0 during the six months ended June 30, 2019 and 2018, respectively. The
increase was primarily due to the proceeds from disposal of fixed assets.
We did not have net cash flows provided by nor used in
financing activities during the six months ended June 30, 2019 and 2018.
Net change in cash and cash equivalents was an increase of
$11,625 during the six months ended June 30, 2019. Net change in cash and cash
equivalents was an increase of $78,370 during the six months ended June 30,
2018.
Going Concern
The Company had an accumulated deficit of $2,334,948 and
$2,220,140 as of June 30, 2019 and December 31, 2018, 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.
These factors, among others, raise substantial doubt about our
ability to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
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.
5
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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.