OMPHALOS, CORP - Quarter Report: 2008 September (Form 10-Q)
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
(Mark
One)
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x
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QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR
THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
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o
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR
THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION
FILE NUMBER
___000-32341_____________
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OMPHALOS,
CORP.
(Exact
name of registrant as specified in its charter)
Nevada
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84-1482082
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Unit 2, 15 Fl., 83, Nankan Rd.
Sec. 1,
Luchu
Taoyuan County
Taiwan
(Address
of principal executive offices, Zip Code)
011-8863-322-9658
(Registrant’s
telephone number, including area code)
Soyodo
Group Holdings, Inc.
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
x No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Accelerated
filer
o
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Non-accelerated
filero
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Smaller
reporting company x
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No x
The
number of shares of registrant’s common stock outstanding, as of October 1, 2008
was 30,063,759.
TABLE
OF CONTENTS
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Page
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PART
I - FINANCIAL INFORMATION
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Item
1. Financial Statements
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3 |
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Item
2. Management’s Discussion and Analysis or
Plan of Operation
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14 |
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Item
3. Quantitative and Qualitative Disclosures
About Market Risk
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19 |
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Item
4. Controls and
Procedures
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19 | |||
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PART
II - OTHER INFORMATION
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Item
1. Legal Proceedings
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19 |
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Item
2. Unregistered Sales of Equity Securities
and Use of Proceeds
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19 |
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Item
3. Defaults Upon Senior
Securities
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19 |
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Item
4. Submission of Matters to a Vote of
Security Holders
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19 |
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Item
5. Other Information
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20 |
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Item
6. Exhibits
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20 |
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SIGNATURES
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22 |
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2
PART
I - FINANCIAL INFORMATION
Item
1.
Financial
Statements.
CONTENTS
Page
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Condensed
Consolidated Balance Sheets
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4 -
5
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Condensed
Consolidated Statements of Operations
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6
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Condensed
Consolidated Statements of Cash Flows
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7
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Notes
to Consolidated Financial Statements
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8-
13
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3
OMPHALOS,
CORP.
(FORMERLY
SOYODO GROUP HOLDINGS, INC.)
CONDENSED
CONSOLIDATED BALANCE SHEETS
September 30,
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December 31,
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||||||
2008
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2007
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(Unaudited)
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Assets
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Current
Assets
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Cash
and cash equivalents
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$
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4,717,031
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$
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2,783,243
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Accounts
receivable, net
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2,193,940
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3,892,353
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Inventory,
net
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1,305,155
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657,788
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Prepaid
and other current assets
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95,234
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132,508
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Due
from shareholders
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111,293
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-
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Total
current assets
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8,422,653
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7,465,892
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Leasehold
Improvements and Equipment, net
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10,236
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13,808
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Intangible
assets, net
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38,536
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29,946
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Deposits
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25,338
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-
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Long-term
investments
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-
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1,100,704
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Total
Assets
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$
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8,496,763
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$
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8,610,350
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4
OMPHALOS,
CORP.
(FORMERLY
SOYODO GROUP HOLDINGS, INC.)
CONDENSED
CONSOLIDATED BALANCE SHEETS
September 30,
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December 31,
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||||||
2008
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2007
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(Unaudited)
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Liabilities
and Shareholders' Equity
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Current
Liabilities
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Accounts
payable
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$
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3,435,948
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$
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3,940,816
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Accrued
salaries and bonus
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43,583
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42,081
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Accured
expenses
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38,921
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180,841
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Total
current liabilities
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3,518,452
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4,163,738
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Shareholders'
Equity
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Common
stock, $0.0001 par value, 120,000,000 shares
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authorized,
27,332,092 and 30,063,759 shares issued
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and
outstanding as of December 31, 2007 and
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September
30, 2008, respectively
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3,007
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2,733
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Additional
paid-in capital
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47,523
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47,267
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Other
comprehensive income
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195,485
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211,407
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Retained
earnings
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4,732,296
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4,185,205
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Total
shareholders' equity
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4,978,311
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4,446,612
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Total
Liabilities and Shareholders' Equity
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$
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8,496,763
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$
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8,610,350
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5
OMPHALOS,
CORP.
(FORMERLY
SOYODO GROUP HOLDINGS, INC.)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
For
the
Nine Months Ended September 30, 2008 and 2007
(Unaudited)
Nine Months Ended
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Three Months Ended
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September 30, 2008
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September 30, 2007
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September 30, 2008
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September 30, 2007
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Operating
revenue:
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Sales
of goods, net
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$
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7,683,195
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$
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7,820,401
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$
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2,342,067
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$
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2,907,249
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Other
operating revenue
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3,222
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376,398
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-
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378,925
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Total
operating revenue
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7,686,417
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8,196,799
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2,342,067
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3,286,174
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Operating
costs:
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Cost
of sales
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5,359,518
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5,161,989
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1,649,526
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1,897,694
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Gross
Profit
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2,326,899
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3,034,810
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692,541
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1,388,480
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Selling,
general and
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administrative
expenses
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1,393,784
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1,330,919
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495,396
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468,093
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Income
from operations
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933,115
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1,703,891
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197,145
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920,387
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Other
income (expense)
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Interest
income
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16,934
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139,044
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6,344
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23,476
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Gain
(loss) on foreign
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currency
exchange
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(222,080
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(111,706
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211,331
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(132,520
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)
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Gain
on investment
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-
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57,179
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-
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18,756
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Miscellaneous
income
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840
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2,980
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840
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125
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Total
other income (expense)
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(204,306
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)
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87,497
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218,515
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(90,163
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)
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Income
before provision
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for
income taxes
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728,809
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1,791,388
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415,660
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830,224
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Provision
for income taxes
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-
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-
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-
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-
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Net
Income
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$
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728,809
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$
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1,791,388
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$
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415,660
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$
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830,224
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Weighted
average number of common stock:
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Basic
and Diluted
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29,714,823
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27,332,092
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30,063,759
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27,332,092
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Net
income (loss) per share:
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Basic
and Diluted
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0.02
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0.07
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0.01
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0.03
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6
OMPHALOS,
CORP.
(FORMERLY
SOYODO GROUP HOLDINGS, INC.)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For
the
Nine Months Ended September 30, 2008 and 2007
(Unaudited)
September 30, 2008
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September 30, 2007
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Cash
flows from operating activities
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Net
income
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$
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728,809
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$
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1,791,388
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Adjustments
to reconcile net income to net cash provided by
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.
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.
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operating
activities:
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Amortization
and depreciation
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4,254
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9,974
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Loss
due to inventory value decline
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3,383
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-
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Loss
(gain) on sale of property
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(3,222
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)
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2,527
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Foreign
currency exchange loss
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222,080
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111,706
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Changes
in assets and liabilities:
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Decrease
(Increase) in accounts receivable
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1,803,556
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(1,427,222
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Decrease
(Increase) in inventory
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(666,322
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)
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292,997
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Decrease
(Increase) in prepaid and other assets
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13,878
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(29,432
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Increase
(Decrease) in accounts payable
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(567,980
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)
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1,227,765
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(Decrease)
in accrued expenses
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(147,980
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)
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(987,826
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)
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Net
cash provided by operating activities
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1,390,456
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991,877
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Cash
flows from investing activities
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Capital
contribution
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-
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96,598
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Redemption
of investments
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1,152,574
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374,390
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Purchase
of equipment
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-
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(7,698
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Payments
of patent registration
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(8,950
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)
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(3,185
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Proceeds
received from disposition of equipment
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3,222
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115,026
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Distributions
to shareholders for reorganization
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-
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(303,100
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)
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Net
cash provided by investing activities
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1,146,846
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272,031
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Cash
flows from financing activities
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Dividend
distribution
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(229,576
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)
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-
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Loans
to shareholders
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(115,264
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)
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(4,609,566
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)
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Net
cash used in financing activities
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(344,840
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)
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(4,609,566
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)
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Effect
of exchange rate changes on cash and cash equivalents
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(258,674
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)
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(104,629
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)
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Net
increase (decrease) in cash and cash equivalents
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1,933,788
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(3,450,287
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)
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Cash
and cash equivalents
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|||||||
Beginning
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2,783,243
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9,124,178
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Ending
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$
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4,717,031
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$
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5,673,891
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Supplemental
disclosure of cash flows
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|||||||
Cash
paid during the period for:
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|||||||
Interest
expense
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$
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-
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$
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-
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Income
tax
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$
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-
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$
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-
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7
OMPHALOS,
CORP.
(FORMERLY
SOYODO GROUP HOLDINGS, INC.)
NOTES
TO
THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2008
1. |
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
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Basis
of Presentation—
The
accompanying unaudited interim financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission and
generally accepted accounting principles for interim financial reporting.
Accordingly, they do not include all the information and footnotes required
by
generally accepted accounting principles for complete financial statements.
In
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for fair presentation have been included.
Operating results for the nine-month period ended September 30, 2008 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2008.
Organization
—
Soyodo
Group Holdings, Inc. (the “Soyodo”) was incorporated on May 15, 1997 as Quixit,
Inc. under the laws of the state of Colorado. On January 16, 2003, TOP Group
Corp., a New York corporation, purchased 4,400,000 shares of the Company's
common stock, which represented 88% of the Company's outstanding capital stock
at that time. Prior to the change in control, the Company's purpose was to
investigate opportunities to be acquired by a company that desired to be
registered under the Securities Exchange Act of 1934, as amended. In March
2003,
the Company changed its state of incorporation from Colorado to Delaware, and
changed its name from Quixit, Inc. to TOP Group Holdings, Inc. In August of
2005, the company changed its name from TOP Group Holdings, Inc. to Soyodo
Group
Holdings, Inc.
In
the
second quarter of 2005, the company decided to commence a chain of member-only
stores in locations with large Chinese immigrant populations, offering Chinese
culture-related merchandise such as books, pre-recorded CDs, stationery, gifts,
and sports goods. Subsequently, six retail stores had been opened. On June
30,
2006, however, the Company started to concentrate on its wholesale operation
and
sold to its majority shareholder & principal executive officer, all the six
retail stores. Then on November 30, 2006, the company decided to go back to
its
original plan of investigate opportunities to be acquired and sold to its
majority shareholder the remaining wholesale operation.
On
February 5, 2008, Soyodo Group Holdings, Inc. entered into and completed the
transactions contemplated under a Share Exchange Agreement (the “Exchange
Agreement”) with each of the shareholders (the “Shareholders”) of Omphalos Corp.
(B.V.I.), a British Virgin Islands corporation, pursuant to which Soyodo
purchased from the Shareholders all issued and outstanding shares of Omphalos
Corp. (B.V.I.)’ common stock in consideration for the issuance of an aggregate
of 81,996,275 shares of Soyodo common stock (the "Share Exchange"). The Share
Exchange resulted in a change in control of Soyodo with the Shareholders owning
81,996,275 shares of common stock of the Company out of a total of 90,191,275
issued and outstanding shares after giving effect to the Share Exchange. Also,
the Shareholders were elected directors of the Company, subject to Soyodo’s
disclosure obligations under the Securities Exchange Act of 1934, as amended,
and appointed as its executive officers. As a result of the Exchange Agreement,
(i) Omphalos Corp. (B.V.I.) became a wholly-owned subsidiary of Soyodo and
(ii)
the Soyodo succeeded to the business of Omphalos Corp. (B.V.I.) as its sole
business.
8
1. |
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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Organization
(Continued) —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 Corporation. 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 company’s name to Omphalos, Corp..
Omphalos
Corp. (B.V.I.) was incorporated on October 30, 2001 under the laws of the
British Virgin Islands. 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. These companies were under common control
and owned by same shareholders. On
July
4, 2007, Omphalos Corp. (BVI) acquired Omphalos Corp. (Taiwan) and All Fine
Technology Co. Ltd. (Taiwan) by paying $334,215 in cash to the shareholders.
On
October 19, 2007 Omphalos Corp. (BVI) completed the purchase of All Fine
Technology Co. Ltd. (BVI) by paying $2,095,230 in cash to the
shareholders.
Omphalos
Corp. (B.V.I) became the 100% shareholder of the other three entities. Omphalos
Corp. (B.V.I.) and its subsidiaries supplies a wide range of equipments and
parts including reflow soldering ovens and automated optical inspection machines
for printed circuit board (PCB) manufacturers in Taiwan and China. Collectively
Omphalos, Corp. (formerly Soyodo Group Holdings Inc.) and these four
corporations are referred to herein as the "Company".
Basis
of Consolidation / Combination —
The
aforementioned stock exchange transaction made Omphalos Corp. (B.V.I.) a wholly
owned subsidiary of Soyodo after issuing 81,996,275 shares of Soyodo's common
stock and resulted in the shareholders of Omphalos (B.V.I.) obtaining a majority
voting interest in Soyodo. Accounting principles generally accepted in the
United States require an assessment of which entity is considered the accounting
acquirer when an exchange of stock occurs regardless of the legal form of the
acquisition. The factors to consider include which entity's shareholders will
own the majority of the voting common stock after the acquisition and the
composition of the governing body and the management of the company after the
acquisition. Omphalos was determined to be the acquirer for accounting purposes.
Additionally, when an acquisition takes place between a company with minimal
or
no operations (a shell company) and an operating company, the transaction is
treated as a recapitalization rather than a business combination. As Soyodo
is
considered to be a shell company, the transaction was treated as a
recapitalization of Omphalos Corp. (B.V.I.).
For
the
period ended September 30, 2007, the financial statements include the combined
accounts of All Fine Technology Co., Ltd.(B.V.I.) and Omphalos Corp. (B.V.I.)
and its subsidiaries- Omphalos Corp. (Taiwan) and All Fine Technology Co.,
Ltd.
(Taiwan). There companies were under common control and ownership. On October
19, 2007 Omphalos Corp. (BVI) completed the purchase of All Fine Technology
Co.
Ltd. (BVI) and Omphlaos Corp. (B.V.I.) becomes the sole owner
of
all of the outstanding shares of Omphalos Corp. (Taiwan), All Fine Technology
Co., Ltd. (Taiwan), and All Fine Technology Co., Ltd. (B.V.I.). For the period
ended September 30, 2008, the
consolidated financial statements include the accounts of Omphalos Corp.
(B.V.I.) and its wholly owned subsidiaries. All significant intercompany
accounts and transactions are eliminated.
9
1. |
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
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
Equivalents, and Long-term Investments —
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.
Long-term
investments consist of certificates of deposit (CDs) with maturities in excess
of one year.
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 $193,853 and $188,503 at
September 30, 2008 and December 31, 2007, respectively.
Intangible
Assets —Include
cost of patent applications that are deferred and charged to operations over
their useful lives. The accumulated amortization is $1,655 and $1,259 at
September 30, 2008 and December 31, 2007, respectively. Annual amortization
expense of such intangible assets is expected to be $575 per year for the next
five years.
Foreign-currency
Transactions —
Foreign-currency transactions are recorded in New Taiwan dollars (“NTD”) at the
rates of exchange in effect when the transactions occur. Gains or losses
resulting from the application of different foreign exchange rates when cash
in
foreign currency is converted into New Taiwan dollars, or when foreign-currency
receivables or payables are settled, are credited or charged to income in the
year of conversion or settlement. On the balance sheet dates, the balances
of
foreign-currency assets and liabilities are restated at the prevailing exchange
rates and the resulting differences are charged to current income except for
those foreign currencies denominated investments in shares of stock where such
differences are accounted for as translation adjustments under stockholders’
equity.
Translation
Adjustment —
The
accounts of the Company was maintained, and its financial statements were
expressed, in New Taiwan Dollar (“NTD”). Such financial statements were
translated into U.S. Dollars (“$” or “USD”) in accordance SFAS No. 52, "Foreign
Currency Translation", with the NTD as the functional currency. According to
the
Statement, all assets and liabilities are translated at the current exchange
rate, stockholder's equity are translated at the historical rates and income
statement items are translated at the weighted average exchange rate for the
period. The resulting translation adjustments are reported under other
comprehensive income in accordance
with SFAS No. 130, "Reporting Comprehensive Income" as a component of
shareholders’ equity.
10
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
As
of
September 30, 2008 and December 31, 2007 the exchange rates between the NTD
and
the USD ($) were NTD1=$0.03111. and NTD1=$0.03077, respectively The
weighted-average rates of exchange between NTD and USD were NTD1=$0.03222 and
NTD1=$0.03031 for the nine months ended September 30, 2008 and September 30,
2007, respectively. Total translation adjustment recognized as of September
30,
2008 and December 31, 2007 is $195,485 and $211,407, respectively.
Recently
Issued Accounting Pronouncements —
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements,
which
defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS 157 is effective January 1, 2008. In
February 2008, the FASB deferred for one year the effective date of SFAS 157
only with respect to nonfinancial assets and nonfinancial liabilities that
are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis, and removed certain leasing transactions from the scope
of
SFAS 157. The Company has adopted SFAS 157 in its financial statements. The
adoption of SFAS 157 does not have a material impact on its financial
statements.
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities - including
an
amendment to FASB Statement No. 115,
which
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at
fair
value. SFAS 159 is effective January 1, 2008. The Company has adopted SFAS
159
in its financial statements. The adoption of SFAS 159 does not have a material
impact on its financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations,
("SFAS
141R"), which changes how business combinations are accounted for and will
impact financial statements both on the acquisition date and in subsequent
periods. SFAS 141R is effective January 1, 2009, and will be applied
prospectively. The impact of adopting SFAS 141R will depend on the nature and
terms of future acquisitions.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements,
which
changes the accounting and reporting standards for the noncontrolling interests
in a subsidiary in consolidated financial statements. SFAS 160 recharacterizes
minority interests as noncontrolling interests and requires noncontrolling
interests to be classified as a component of shareholders' equity. SFAS 160
is
effective January 1, 2009 and requires retroactive adoption of the presentation
and disclosure requirements for existing minority interests. The Company is
currently evaluating the impact of SFAS 160 on its consolidated financial
statements.
During
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities” (SFAS No. 161). SFAS
No. 161 is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity’s financial position,
financial performance, and cash flows. SFAS No. 161 also improves
transparency about the location and amounts of derivative instruments in an
entity’s financial statements; how derivative instruments and related hedged
items are accounted for under Statement 133; and how derivative instruments
and
related hedged items affect its financial position, financial performance,
and
cash flows. SFAS No. 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15,
2008, with early application encouraged. The Company is currently assessing
the
impact of SFAS No. 161.
11
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
In
May 2008, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Standards No. 162 (SFAS 162), “The
Hierarchy of Generally Accepted Accounting Principles.”
SFAS
162 is intended to improve financial reporting by identifying a consistent
framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles (GAAP) for nongovernmental
entities.
Recently
Issued Accounting Pronouncements (Continued)—
SFAS
162 is effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board Auditing amendments to AU Section 411,
“The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.”
It
is
only effective for nongovernmental entities; therefore, the GAAP hierarchy
will
remain in SAS 69 for state and local governmental entities and federal
governmental entities. The Company does not expect SFAS 162 to have a material
effect 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 December 31, 2008. The monthly base rent is
approximately $2,200. Rent expense under this lease agreement amounted to
approximately $19,800 and $19,800 for the nine-month periods ended September
30,
2008 and 2007, respectively.
Advances
to / from Shareholders – The
advances to or from shareholders are non-interest bearing and without fixed
terms of repayment.
3. |
OTHER
COMPREHENSIVE INCOME
|
Balances
of related after-tax components comprising accumulated other comprehensive
income (loss), included in stockholders' equity, at September 30, 2008 and
December 31, 2007 are as follows:
Foreign Currency
Translation Adjustment
|
Accumulated Other
Comprehensive Income
|
||||||
Balance
at December 31, 2007
|
$
|
211,407
|
$
|
211,407
|
|||
Change
for the period
|
(15,922
|
)
|
$
|
(15,922
|
)
|
||
Balance
at September 30, 2008
|
$
|
195,485
|
$
|
195,485
|
12
4. |
COMMON
STOCK
|
Effective
April, 15, 2008, Soyodo Group Holdings, Inc. filed a Certificate of Amendment
to
its Certificate of Incorporation with the Secretary of State of Delaware, to
effect a one (1) for three (3) reverse
split of the issued and outstanding common shares of Soyodo whereby every three
shares of common stock held were exchanged for one share of common stock. As
a
result, the issued and outstanding shares of common stock were reduced from
90,191,275 prior to the reverse split to approximately 30,063,759 following
the
reverse stock split. The authorized capital remained at 120,000,000 shares
of
common stock and any shareholder who beneficially owned a fractional share
of
common stock after the reverse stock split had their fractional share rounded
up
to the nearest whole share.
All
references in the accompanying financial statements to the number of shares
outstanding, per share amounts of the Company’s common stock have been adjusted
to reflect the effect of the stock reverse split. Shareholders’ equity reflects
the stock reverse split by reclassifying from “Common Stock” to “Additional
Paid-in Capital” an amount equal to the par value of the decreased shares
arising from the reverse split.
*****
13
Item
2.
Management’s
Discussion and Analysis or Plan of Operation.
Cautionary
Note Regarding Forward-Looking Statements
This
Quarterly Report of 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
management’s current expectations and are inherently uncertain. Our actual
results may differ significantly from management’s 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-KSB for the year ended December 31, 2007.
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.
Overview
In
the
second quarter of 2005, the company decided to commence a chain of member-only
stores in locations with large Chinese immigrant populations, offering Chinese
culture-related merchandise such as books, pre-recorded CDs, stationery, gifts,
and sports goods. Subsequently, six retail stores had been opened. On June
30,
2006, however, the Company started to concentrate on its wholesale operation
and
sold to its majority shareholder & principal executive officer, all the six
retail stores. Then on November 30, 2006, the company decided to go back to
its
original plan to investigate opportunities to be acquired and sold to its
majority shareholder the remaining wholesale operation.
On
February 5, 2008, we entered into and completed the transactions contemplated
under a Share Exchange Agreement (the “Exchange Agreement”) with each of the
shareholders (the “Shareholders”) of Omphalos Corp., a British Virgin Islands
corporation (“Omphalos BVI”) pursuant to which we purchased from the
Shareholders all issued and outstanding shares of Omphalos BVI’s common stock in
consideration for the issuance of an aggregate of 81,996,275 shares of Soyodo
common stock (the "Share Exchange").
14
The
Share
Exchange resulted in a change in control of Soyodo with the Shareholders owning
81,996,275 shares of common stock of the Company out of a total of 90,191,275
issued and outstanding shares after giving effect to the Share Exchange. Also,
the Shareholders were elected directors of the Company, subject to Soyodo’s
disclosure obligations under the Securities Exchange Act of 1934, as amended,
and appointed as its executive officers. As a result of the Exchange Agreement,
(i) Omphalos BVI became a wholly-owned subsidiary of Soyodo and (ii) Soyodo
succeeded to the business of Omphalos BVI as its sole business.
Effective
April, 15, 2008, Soyodo filed a Certificate of Amendment to its Certificate
of
Incorporation with the Secretary of State of Delaware, to effect a one (1)
for
three (3) reverse split of the issued and outstanding common shares of Soyodo
whereby every three shares of common stock held were exchanged for one share
of
common stock. As a result, the issued and outstanding shares of common stock
were reduced from 90,191,276 prior to the reverse split to approximately
30,063,759 following the reverse stock split. The authorized capital remained
at
120,000,000 shares of common stock and any shareholder who beneficially owned
a
fractional share of common stock after the reverse stock split had their
fractional share rounded up to the nearest whole share.
Effective
April 18, 2008 Soyodo entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Omphalos, Inc., a Nevada corporation. Pursuant to the
Merger Agreement, Soyodo was merged with and into the surviving corporation,
and
effectively changed its name to Omphalos, Corp.. As of April 30, 2008, our
common stock is listed on the Over-The-Counter Bulletin Board under the symbol
“OMPS”.
Results
of Operations
Three
Months and Nine Months Ended September 30, 2008 Compared to tbe Three Months
and
Nine Months Ended September 30, 2007
Three
Months Ended September 30, 2008 Compared to the Three Months Ended September
30,
2007
Net
Revenues for the three months ended September 30, 2008 were $2,342,067
as
compared
to $3,286,174 for the three months ended September 30, 2007. This represents
a
decrease of $944,107 or 28.7% comparing the two periods. The decrease related
primarily to a decrease in product sales of $565,182 which was due primarily
to
a decrease in demand for end products. The decrease was also attributable to
a
gain from lawsuit settlement of $376,398 and gain on disposal of assets of
$2,527 in the three months ended September 30, 2007.
Cost
of
sales decreased by $248,168 or 13.1%, to $1,649,526 for the three months ended
September 30, 2008 as compared to $1,897,694 for the three months ended
September 30, 2007. The decrease in cost of sales is primarily the result of
a
decrease in sales volume.
For
the
three months ended September 30, 2008, selling, general and administrative
expenses totaled $495,396. This was an increase of $27,303 or 5.8% as compared
to the same period 2007. The increase is attributable primarily to increases
in
professional service fees and rent. The increase was partially offset by a
decrease in salary expense
For
the
three months ended September 30, 2008, income from operations decreased to
$197,145 as compared to $920,387 for the three months ended September 30, 2007.
This represents a decrease of $723,242 or 78.6 % comparing the two periods.
The
decrease in income from operations for the three months ended September 30,
2008
is primarily the result of a decrease in net sales and an increase in selling,
general and administrative expenses.
15
Other
income was $218,515 and $(90,163) for the three months ended September 30,
2008
and 2007, respectively. This was an increase of $308,678, or 342.4%. The main
reason for this increase was due to an increase in gain on foreign currency
exchange. This increase was partially offset by decreases in interest income
and
investment gains.
Our
net
income was $415,660 for the three months ended September 30, 2008 compared
to a
net income of $830,224 for the three months ended September 30, 2007. The
decrease in profitability for the three months ended September 30, 2008 was
due
to the reasons described above.
Nine
Months Ended September 30, 2008 Compared to the Nine Months Ended September
30,
2007
Net
revenues for the nine months ended September 30, 2008 were $7,686,417 as
compared to 8,196,799 for the nine months ended September 30, 2007. This
represents a decrease of $510,382 or 6.2% comparing the two periods. The
decrease related primarily to a decrease in product sales of $137,206 which
was
due primarily to a decrease in demand for end products. The decrease was also
attributable to a gain from lawsuit settlement of $376,398 in the nine months
ended September 30, 2007. This decrease was partially offset by a gain on
disposal of assets of $3,222 for the nine months ended September 30,
2008.
Cost
of
sales increased by $179,529 or 3.8%, to $5,359,518 for the nine months ended
September 30, 2008 as compared to $5,161,989 for the nine months ended September
30, 2007. The increase in cost of sales is primarily the result of an increase
in material cost, such as stainless steel.
For
the
nine months ended September 30, 2008, selling, general and administrative
expenses totaled $1,393,784. This was an increase of $62,865 or 4.7% as compared
to the same period 2007. The increase in selling, general and administrative
expenses is mainly a result of increases in salary and rent expanses. The
increase was partially offset by decreases in professional service and research
and development expenses.
For
the
nine months ended September 30, 2008, income from operations decreased to
$933,115 as compared to $1,703,891 for the nine months ended September 30,
2007.
This represents a decrease of $770,776 or 45.2 % comparing the two periods.
The
decrease in income from operations for the nine months ended September 30,
2008
is primarily the result of increases in cost of sales, and selling, general
and
administrative expenses.
Other
income was $(204,306) and $87,497 for the nine months ended September 30, 2008
and 2007, respectively. This was a decrease of $(291,803), or 333.5%. The main
reason for this decrease
was due
to an increase in loss on foreign currency exchange, and decreases in interest
income and investment gains.
Our
net
income was $728,809 for the nine months ended September 30, 2008 compared to
a
net income of $1,791,388 for the nine months ended September 30, 2007. The
decrease in profitability for the nine months ended September 30, 2008 was
due
to the reasons described above.
Liquidity
and Capital Resources
Cash
and
cash equivalents were $4,717,031 at September 30, 2008 and $2,783,243 at
December 31, 2007. Our total current assets were $8,422,653 at September 30,
2008 as compared to $7,465,892 at December 31, 2007. Our total current
liabilities were $3,518,452 at September 30, 2008 as compared to $4,163,738
at
December 31, 2007.
16
We
had
working capital at September 30, 2008 of $4,904,201 compared with working
capital of $3,302,154 at December 31, 2007. This increase in working capital
was
primarily due to increases in cash and cash equivalents and inventory, and
decreases in accounts payable and accrued expenses.
During
the nine months period ended September 30, 2008, net cash provided by operating
activities was $1,390,456. Net cash provided by investing activities was
$1,146,846, and net cash used in financing activities was $(344,840). Net change
in cash and cash equivalents was an increase of $1,933,788.
Off-Balance
Sheet Arrangements
We
do not
have any off balance sheet arrangements that are reasonably likely to have
a
current or future effect on our financial condition, revenues, and results
of
operations, liquidity or capital expenditures.
Critical
Accounting Policies
Long-term
investments consist of certificates of deposit (CDs) with maturities in excess
of one year.
Foreign-currency
Transactions —
Foreign-currency transactions are recorded in New Taiwan dollars (“NTD”) at the
rates of exchange in effect when the transactions occur. Gains or losses
resulting from the application of different foreign exchange rates when cash
in
foreign currency is converted into New Taiwan dollars, or when foreign-currency
receivables or payables are settled, are credited or charged to income in the
year of conversion or settlement. On the balance sheet dates, the balances
of
foreign-currency assets and liabilities are restated at the prevailing exchange
rates and the resulting differences are charged to current income except for
those foreign currencies denominated investments in shares of stock where such
differences are accounted for as translation adjustments under stockholders’
equity.
Translation
Adjustment —
The
accounts of the Company was maintained, and its financial statements were
expressed, in New Taiwan Dollar (“NTD”). Such financial statements were
translated into U.S. Dollars (“$” or “USD”) in accordance SFAS No. 52, "Foreign
Currency Translation", with the NTD as the functional currency. According to
the
Statement, all assets and liabilities are translated at the current exchange
rate, stockholder's equity are translated at the historical rates and income
statement items are translated at the weighted average exchange rate for the
period. The resulting translation adjustments are reported under other
comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive
Income" as a component of shareholders’ equity.
As
of
September 30, 2008 and December 31, 2007 the exchange rates between the NTD
and
the USD ($) were NTD1=$0.03111. and NTD1=$0.03077, respectively The
weighted-average rates of exchange between NTD and USD were NTD1=$0.03222 and
NTD1=$0.03031 for the nine months ended September 30, 2008 and September 30,
2007, respectively. Total translation adjustment recognized as of September
30,
2008 and December 31, 2007 is $195,485 and $211,407,
respectively.
17
Recently
Issued Accounting Pronouncements
In
September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements,
which
defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS 157 is effective January 1, 2008. In
February 2008, the FASB deferred for one year the effective date of SFAS 157
only with respect to nonfinancial assets and nonfinancial liabilities that
are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis, and removed certain leasing transactions from the scope
of
SFAS 157. The Company has adopted SFAS 157 in its financial statements. The
adoption of SFAS 157 does not have a material impact on its financial
statements.
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities - including
an
amendment to FASB Statement No. 115,
which
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at
fair
value. SFAS 159 is effective January 1, 2008. The Company has adopted SFAS
159
in its financial statements. The adoption of SFAS 159 dos not have a material
impact on its financial statements.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations,
("SFAS
141R"), which changes how business combinations are accounted for and will
impact financial statements both on the acquisition date and in subsequent
periods. SFAS 141R is effective January 1, 2009, and will be applied
prospectively. The impact of adopting SFAS 141R will depend on the nature and
terms of future acquisitions.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements,
which
changes the accounting and reporting standards for the noncontrolling interests
in a subsidiary in consolidated financial statements. SFAS 160 recharacterizes
minority interests as noncontrolling interests and requires noncontrolling
interests to be classified as a component of shareholders' equity. SFAS 160
is
effective January 1, 2009 and requires retroactive adoption of the presentation
and disclosure requirements for existing minority interests. The Company is
currently evaluating the impact of SFAS 160 on its consolidated financial
statements.
During
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities” (SFAS No. 161). SFAS
No. 161 is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable
investors to better understand their effects on an entity’s financial position,
financial performance, and cash flows. SFAS No. 161 also improves
transparency about the location and amounts of derivative instruments in an
entity’s financial statements; how derivative instruments and related hedged
items are accounted for under Statement 133; and how derivative instruments
and
related hedged items affect its financial position, financial performance,
and
cash flows. SFAS No. 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. The Company is currently assessing the impact
of
SFAS No. 161.
In
May 2008, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Standards No. 162 (SFAS 162), “The
Hierarchy of Generally Accepted Accounting Principles.”
SFAS
162 is intended to improve financial reporting by identifying a consistent
framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles (GAAP) for nongovernmental
entities. SFAS 162 is effective 60 days following the SEC’s approval of the
Public Company Accounting Oversight Board Auditing amendments to AU
Section 411, “The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles.”
It
is
only effective for nongovernmental entities; therefore, the GAAP hierarchy
will
remain in SAS 69 for state and local governmental entities and federal
governmental entities. The Company does not expect SFAS 162 to have a material
effect on its consolidated financial statements.
18
Item
3. Quantitative
and Qualitative Disclosures About Market Risk.
N/A.
Item
4.
Controls
and Procedures.
As
of the
end of the period covered by this report, we conducted an evaluation, under
the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer of our disclosure controls and procedures (as defined in
Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of September 30, 2008
to
ensure that information required to be disclosed by us in the reports that
we
file or submit under the Exchange Act is: (1) accumulated and communicated
to
our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure;
and (2) recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms.
There
was
no change to our internal controls or in other factors that could affect these
controls during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
Item
1.
Legal
Proceedings.
We
are
not a party to any pending legal proceeding, nor is our property the subject
of
a pending legal proceeding, that is not in the ordinary course of business
or
otherwise material to the financial condition of our business. None of our
directors, officers or affiliates is involved in a proceeding adverse to our
business or has a material interest adverse to our business.
Not
Applicable.
Item
2.
Unregistered
Sales of Equity Securities and Use of Proceeds.
Not
Applicable.
Item
3.
Defaults
Upon Senior Securities.
Not
Applicable.
Item
4.
Submission
of Matters to a Vote of Security Holders.
On
March
5, 2008, we obtained stockholder consent for an amendment
to our certificate of incorporation effectuating a three for one
reverse stock split and to effectuate a migratory merger of the Company
from Delaware to Nevada. Further information can be found in the Definitive
Schedule 14C, filed with the Securities and Exchange Commission on March 24,
2008.
19
Not
applicable.
Item
6.
Exhibits.
Exhibit
|
||
Number
|
Description
|
|
2.1
|
Share
Exchange Agreement dated February 5, 2008, between the Company and
the
parties set forth on the signature page thereof. (incorporated by
reference to the Company’s Current Report on Form 8-K filed with the
Commission on March 14, 2008)
|
|
2.2
|
Agreement
and Plan of Merger (incorporated by reference to the Company’s Current
Report on Form 8-K filed with the Commission on April 15,
2008)
|
|
3.1
|
Articles
of Amendment to the Articles of Incorporation of the Company (incorporated
by reference to the Company's proxy statement on Schedule 14A filed
with
the Commission on March 5, 2003 (the "Proxy Statement")
|
|
3.2
|
Agreement
and Plan of Merger between Quixit, Inc., a Colorado corporation,
and TOP
Group Corporation (now known as TOP Group Holdings, Inc.), a Delaware
corporation (incorporated by reference to the Proxy
Statement)
|
|
3.3
|
Certificate
of Incorporation of the Company (incorporated by reference to the
Proxy
Statement)
|
|
3.4
|
By-Laws
of the Company (incorporated by reference to the Proxy
Statement)
|
|
3.5
|
Restated
Certificate of Incorporation of the Company (incorporated by reference
to
the Company’s proxy statement on Schedule 14C filed with the commission on
March 15, 2005 for an increase of authorized shares)
|
|
3.6
|
Restated
Certificate of Incorporation of the Company (incorporated by reference
to
the Company’s proxy statement on Schedule l4C filed with the commission on
August 26, 2005 for a name change)
|
|
3.7
|
Restated
Certificate of Incorporation of the Company (incorporated by reference
to
the Company’s proxy statement on Schedule l4C filed with the commission on
June 20, 2006 to set the new total authorized shares)
|
|
3.8
|
Certificate
of Merger filed with the Secretary of State of Delaware (incorporated
by
reference to the Company’s Current Report on Form 8-K filed with the
Commission on April 15, 2008)
|
|
3.9
|
Certificate
of Merger filed with Secretary of State of Nevada (incorporated by
reference to the Company’s Current Report on Form 8-K filed with the
Commission on April 15, 2008)
|
|
3.10
|
Certificate
of Amendment to the Articles of Incorporation (incorporated by reference
to the Company’s Current Report on Form 8-K filed with the Commission on
April 15, 2008)
|
|
10.1
|
Employment
Agreement with Pi-Yun Chu (incorporated by reference to the Company’s
Current Report on Form 8-K filed with the Commission on March 14,
2008)
|
|
10.2
|
Employment
Agreement with Shen-Ren Li (incorporated by reference to the Company’s
Current Report on Form 8-K filed with the Commission on March 14,
2008)
|
20
10.3
|
Employment
Agreement with Sheng-Peir Yang (incorporated by reference to the
Company’s
Current Report on Form 8-K filed with the Commission on March 14,
2008)
|
|
31.1
|
Certification
by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
of the Exchange Act.
|
|
31.2
|
Certification
by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
of the Exchange Act.
|
|
32.1
|
Certification
by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
the
United States Code.
|
|
32.2
|
Certification
by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of
the
United States Code.
|
21
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OMPHALOS,
CORP.
|
||
Date:
November 12, 2008
|
By:
|
/s/ Sheng-Peir
Yang
|
Sheng-Peir
Yang
|
||
Chief
Executive Officer, President
|
||
and
Chairman of the Board
|
Date:
November 12, 2008
|
By:
|
/s/
Chu
Pi Yun
|
Chu
Pi Yun
|
||
Chief
Financial Officer, Chief Accounting
|
||
Officer
and Director
|
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