OMPHALOS, CORP - Quarter Report: 2013 September (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

(Mark One)
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED September 30, 2013

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM __________TO __________

COMMISSION FILE NUMBER 000-32341

OMPHALOS, CORP.
(Exact name of registrant as specified in its charter)

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)

(Former name, former address and former fiscal year, if changed since last report)

Copies to:
Thomas E. Stepp, Jr.
Stepp Law Corporation
15707 Rockfield Boulevard, Suite 101
Irvine, California 92618
Phone: (949) 660-9700 ext. 124
Fax: (949) 660-9010

     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 [ ]

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ x ] No[ ]

     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.

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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[ ] No[ x ]

     The number of shares of registrant’s common stock outstanding, as of October 31, 2012 was 30,063,759.

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TABLE OF CONTENTS

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

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See accompanying Notes to Condensed Consolidated Financial Statements

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See accompanying Notes to Condensed Consolidated Financial Statements

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See accompanying Notes to Condensed Consolidated Financial Statements

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Basis of Presentation— The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contained in this report reflect all adjustments that are normal and recurring in nature and considered necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the interim period are not necessarily indicative of the results expected for the full year. These unaudited, condensed consolidated financial statements, footnote disclosures and other information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Organization — Omphalos Corp. was incorporated as Soyodo Group Holdings, Inc. (“Soyodo”) under the laws of Delaware in March 2003. On February 5, 2008, Soyodo acquired the outstanding shares of Omphalos Corp. Omphalos Corp. (“Omphalos BVI) was incorporated on October 30, 2001 under the laws of the British Virgin Islands. For accounting purposes, the acquisition was treated as a recapitalization of Omphalos BVI. Omphalos BVI owns 100% of Omphalos Corp. (Taiwan); All Fine Technology Co., Ltd. (Taiwan); and All Fine Technology Co., Ltd. (B.V.I.). Omphalos Corp. (Taiwan) and was incorporated on February 13, 1991 under the laws of Republic of China. All Fine Technology Co., Ltd. (Taiwan) was incorporated on March 23, 2004 under the laws of Republic of China. All Fine Technology Co., Ltd. (B.V.I.) was incorporated on February 2, 2005 under the laws of the British Virgin Islands. Omphalos (BVI) and its subsidiaries supply 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.

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 Articles of Incorporation and bylaws of the surviving corporation became the Articles of Incorporation and bylaws of the Company, and the directors and officers of Soyodo became the members of the board of directors and officers of the Company. Following the execution of the Merger Agreement, the Company filed with the Secretary of State of Delaware and Nevada, a Certificate of Merger. Omphalos, Corp is incorporated on April 15, 2008 under the laws of the state of Nevada. The main purpose of the merger is to change the Company’s name to Omphalos, Corp.

Basis of Consolidation— The consolidated financial statements include the accounts of Omphalos Corp. and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated.

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Going Concern— The Company has incurred a significant net loss during the past two years and has an accumulated deficit of $195,804 as of September 30, 2013. 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 Company’s 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.

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 include: (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 2013; (3) continue to actively seek 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.

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 $849,625 and $651,889 at September 30, 2013 and December 31, 2012, respectively.

Intangible Assets —Include cost of patent applications that are deferred and charged to operations over their useful lives. The accumulated amortization is $7,588 and $6,041 at September 30, 2013 and December 31, 2012, respectively. Annual amortization expense of such intangible assets is expected to be $2,190 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 when such differences are accounted for as translation adjustments under stockholders’ equity.

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Translation Adjustment —The Company financial statements are presented in the U.S. dollars ($), which is the Company’s reporting currency, while its functional currency is New Taiwan dollars (“NTD”). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of income. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the statements of income.

In accordance with ASC 830, Foreign Currency Matters, the Company translates the assets and liabilities into U.S. dollars ($) using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from NTD into U.S. dollars are recorded in stockholders’ equity as part of accumulated other comprehensive income.

Recently Issued Accounting Pronouncements — In July 2012, the Financial Accounting Standards Board (FASB) issued an amendment to Topic 350-Intangibles-Goodwill and Other. This amendment is intended to simplify how entities test indefinite lived intangible assets for impairment. The amendment permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative impairment test described in Topic 350. No further testing is required if the qualitative factors indicate that it is not more likely than not that the indefinite-lived intangible asset is impaired. This amendment is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company does not expect this amendment to have any significant impact on the current year.

Operating Leases- The Company leases its facility from a shareholder under an operating lease agreement which expires on January 31, 2016. The monthly base rent is approximately $1,900. Rent expense under this lease agreement amounted to approximately $16,934 and $16,985 for the periods ended September 30, 2013 and 2012, respectively.

Loan from related party- The Company has received funds from its officer and shareholder for working capital purposes. The Company has not entered into any agreement regarding repayment terms for these funds. As of September 30, 2013, there were $169,000 advances outstanding.

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Item 2. Management’s 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 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-K for the year ended December 31, 2012.

     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 September 30, 2013 Compared to the Three Months Ended September 30, 2012

Net sales for the three months ended September 30, 2013 were $367,907, as compared to $180,666 for the three months ended September 30, 2012. This represents an increase of $187,241 or approximately 103% compared to the prior year period. The increase in net sales is primarily the result of increased demand for new products due to enhanced sales efforts.

Cost of sales increased by $522,569 or approximately 516% to $623,937 for the three months ended September 30, 2013, as compared to $101,368 for the three months ended September 30, 2012. Gross profit (loss) for the three months ended September 30, 2013 was $(256,030), compared to $79,298 for the same period in 2012. Gross profit (loss) as a percentage of net sales was approximately (77%) in the third quarter of 2013, compared to approximately 44% in the same period in 2012. The lower gross profit rate in the third quarter of 2012 was primarily due to increased allowance for market value decline for the old inventories that were charged to cost of goods sold which is partially offset by the increase sales in the current period.

For the three months ended September 30, 2013, selling, general and administrative expenses totaled $163,462. This was a decrease of $19,350 or approximately 11.6% as compared to $182,812 for those same expenses for the same period in 2012. The decrease in selling, general and administrative expenses is primarily the result of the decrease in salary, travel, and professional expenses.

For the three months ended September 30, 2013, income (loss) from operations decreased to ($419,492) as compared to ($103,514) for the three months ended September 30, 2012. This represents an increased loss of $315,978 or approximately 305% comparing the two periods. The increased loss from operations for the three months ended September 30, 2013 is primarily the result of decreased in gross profit due to increased cost of sales which is partially offset by increased sales volume, and a decrease in selling, general and administrative expenses.

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Other income (expenses) was $(484) and $(6,966) for the three months ended September 30, 2013 and 2012, respectively. This represents decreased loss of $6,482, or a decrease of approximately 93%. The main reason for this decreased loss was a loss on foreign currency exchange of ($484), as compared to a loss of $(6,966) for the prior year period.

Our net loss was ($419,976) for the three months ended September 30, 2013 compared to net loss of ($110,480) for the three months ended September 30, 2012. The increased loss for the three months ended September 30, 2013 was due to the reasons described above.

Nine Months Ended September 30, 2013 compared to the Nine Months Ended September 30, 2012

Net sales for the nine months ended September 30, 2013 were $523,427 as compared to $401,708 for the nine months ended September 30, 2012. This represents an increase of $121,719 or approximately 30.3% comparing the two periods. The increase in net sales is primarily the result of increased demand for new products due to enhanced sales efforts.

Cost of sales increased by $564,204 or approximately 140.5%, to $790,979 for the nine months ended September 30, 2013 as compared to $401,708 for the nine months ended September 30, 2012. Gross profit(loss) for the nine months ended September 30, 2013 was $(267,552), compared to $174,933 for the same period in 2012. Gross profit (loss) as a percentage of net sales was (51.1%) in the first three quarters of 2013, compared to 43.5% in the same period in 2012. The lower gross profit rate in the third quarter of 2012 was primarily due to increased allowance for market value decline for the old inventories that were charged to cost of goods sold which is partially offset by the increase sales in the current period.

For the nine months ended September 30, 2013, selling, general and administrative expenses totaled $515,071. This was a decrease of $94,430 or approximately 15.5% as compared to $609,501 for the same period in 2012. The decrease in selling, general and administrative expenses is primarily the result of the decrease in rent, salary, travel, and professional expenses.

For the nine months ended September 30, 2013, loss from operations decreased to ($782,623) as compared to ($443,568) for the nine months ended September 30, 2012. This represents an increased loss of ($348,055) or approximately 80% comparing the two periods. The decrease of loss from operations for the nine months ended September 30, 2013 is primarily the result of decreased in gross profit due to increased cost of sales which is partially offset by increased sales volume, and a decrease in selling, general and administrative expenses.

Other income (expenses) was $5,851 and ($12,482)for the nine months ended September 30, 2013 and 2012, respectively. This represents increased other income of $18,333. The main reason for this increased income was a gain on foreign currency exchange of $5,818, as compared to gain of ($12,963) for the prior year period which is partially offset by a decreased interest income of $448.

Our net loss was ($776,772) for the nine months ended September 30, 2013 compared to net loss of ($447,050) for the nine months ended September 30, 2012. The increased loss for the nine months ended September 30, 2013 was due to the reasons described above.

Liquidity and Capital Resources

Cash and cash equivalents were $178,860 at September 30, 2013 and $342,978 at December 31, 2012. Our total current assets were $838,535 at September 30, 2013, as compared to $1,318,501 at December 31, 2012. Our total current liabilities were $512,925 at September 30, 2013 as compared to $201,244 at December 31, 2012.

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We had working capital at September 30, 2013 of $325,610 compared with working capital of $1,117,257 at December 31, 2012. This decrease in working capital was primarily due to a decrease in cash and cash equivalents, accounts receivable , and inventory, and an increase in, prepaid expenses, accounts payable, accrued expenses, and loan from shareholder.

Net cash flow used in operating activities during the nine months ended September 30, 2013 was $330,961, a decrease of 42,399 compared to $333,360 net cash used in operating activities during the nine months ended September 30, 2012. The decrease in the cash used in operating activities was primarily due to increased net loss, increases in foreign currency exchange gain, accounts receivable, prepaid expenses, accounts payable, accrued expenses and allowance for inventory value decline, and a decrease in inventory.

Net cash used in financing activities for the nine months ended September 30, 2013 was $168,000, which was primarily due to advances from shareholder.

Net change in cash and cash equivalents was a decrease of $164,118 during the nine months ended September 30. 2013.

Inflation

Our opinion is that inflation has not had a material effect on our operations and is not expected to have any material effect on our operations.

Climate Change

Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

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 Securities Exchange Act of 1934) (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 end of the period covered by this report 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 Securities and Exchange 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.

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PART II

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.

Item 1A.Risk Factors.

The risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2012, filed on March 28, 2013 have not changed except that we disclosed in our quarterly report on Form 10-Q for the quarter ended September 30, 2013, a new risk factor related to our securities as follows:

The market price of our common stock may limit its eligibility for clearing house deposit.

We are advised that if the market price for shares of our common stock is less than $0.10 per share, Depository Trust Company and other securities clearing firms may decline to accept our shares for deposit and refuse to clear trades in our securities. This would materially and adversely affect the marketability and liquidity of our shares and, accordingly, may materially and adversely affect the value of an investment in our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Not Applicable.

Item 3. Defaults Upon Senior Securities.

Not Applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits.

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*filed herewith
+submitted herewith

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SIGNATURES

     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.

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