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OMPHALOS, CORP - Quarter Report: 2014 September (Form 10-Q)

Omphalos, Corp. - Form 10-Q - Filed by newsfilecorp.com

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, 2014

[   ] 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)

Nevada 84-1482082
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

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
Email: tes@stepplawgroup.com

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.

Large accelerated filer [   ] Accelerated filer                   [    ]
Non-accelerated filer   [   ] Smaller reporting company [X]

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 November 4, 2014 was 30,063,759.

1


TABLE OF CONTENTS

  Page
  PART I - FINANCIAL INFORMATION 3
     
Item 1. Financial Statements  3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk  16
Item 4. Controls and Procedures  16
     
  PART II - OTHER INFORMATION 17
     
Item 1. Legal Proceedings 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  17
Item 3. Defaults Upon Senior Securities  17
Item 4. Mine Safety Disclosures  17
Item 5. Other Information  17
Item 6. Exhibits 18

2


PART I - FINANCIAL INFORMATION

Item 1.       Financial Statements.

CONTENTS

  Page
   
Condensed Consolidated Balance Sheets F-1
   
Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) F-2
   
Condensed Consolidated Statements of Cash Flows F-3
   
Notes to Consolidated Financial Statements F-4 through F-10

3


OMPHALOS, CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS

    September 30,     December 31,  
    2014     2013  
Assets   (Unaudited)        
Current Assets            
     Cash and cash equivalents $  116,659   $  91,801  
     Restricted cash   195,026     -  
     Accounts receivable, net   108,205     319,692  
     Inventory, net   111,207     328,157  
     Prepaid and other current assets   47,352     64,943  
           Total current assets   578,449     804,593  
             
Leasehold Improvements and Equipment, net   13,830     22,260  
             
Intangible assets, net   27,205     30,663  
Deposits   3,728     3,804  
                                         Total Assets $  623,212   $  861,320  
             
Liabilities and Stockholders' Equity            
Current Liabilities            
     Short-term bank loans $  262,800   $  -  
     Accounts payable   15,923     243,527  
     Accrued salaries and bonus   31,789     33,844  
     Accrued expenses   13,873     12,297  
     Due to related parties   105,636     64,147  
           Total current liabilities   430,021     353,815  
             
Long-term Liabilities            
     Loan from shareholders   328,500     275,508  
           Total liabilities   758,521     629,323  
             
Stockholders' Equity            
     Common stock, $0.0001 par value, 120,000,000 shares 
         authorized, 30,063,759 shares issued and outstanding 
         as of September 30, 2014 and December 31, 2013
  3,007     3,007  
     Additional paid-in capital   47,523     47,523  
     Other comprehensive income   548,555     549,426  
     Accumulated deficit   (734,394 )   (367,959 )
                                 Total Stockholders' equity   (135,309 )   231,997  
             
                                         Total Liabilities and Shareholders' Equity $  623,212   $  861,320  

See accompanying Notes to Condensed Consolidated Financial Statements

F-1


OMPHALOS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(UNAUDITED)

    Nine Months Ended     Three Months Ended  
    September 30, 2014     September 30, 2013     September 30, 2014     September 30, 2013  
                         
Sales, net $  435,091   $  523,427   $  242,682   $  367,907  
                         
Cost of sales   260,531     790,979     129,791     623,937  
                         
Gross profit (loss)   174,560     (267,552 )   112,891     (256,030 )
                         
Selling, general and administrative expenses   536,785     515,071     158,314     163,462  
                         
Loss from operations   (362,225 )   (782,623 )   (45,423 )   (419,492 )
                         
Other income (expenses)                        
         Interest income   2,933     33     1,382     -  
         Interest expense   (9,957 )   -     (3,824 )   -  
         Gain (loss) on foreign currency exchange   2,814     5,818     4,115     (484 )
                           Total other income (expenses)   (4,210 )   5,851     1,673     (484 )
                         
Loss before provision for income taxes   (366,435 )   (776,772 )   (43,750 )   (419,976 )
                         
Provision for income taxes   -     -     -     -  
                         
Net loss $  (366,435 ) $  (776,772 ) $  (43,750 ) $  (419,976 )
                         
Weighted average number of common shares:                        
         Basic and diluted   30,063,759     30,063,759     30,063,759     30,063,759  
                         
Net loss per share:                        
         Basic and diluted $  (0.01 ) $  (0.03 ) $  (0.00 ) $  (0.01 )
                         
Other Comprehensive (Loss) Income:                        
                         
Net loss $  (366,435 ) $  (776,772 ) $  (43,750 ) $  (419,976 )
                         
Foreign currency translation adjustment, net of tax   (871 )   (25,737 )   451     6,228  
                         
Comprehensive (Loss) Income $  (367,306 ) $  (802,509 ) $  (43,299 ) $  (413,748 )

See accompanying Notes to Condensed Consolidated Financial Statements

F-3


OMPHALOS, CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(UNAUDITED)

    2014     2013  
Cash flows from operating activities            
           Net loss $  (366,435 ) $  (776,772 )
           Adjustments to reconcile net income to net cash used in operating activities:        
           Amortization and depreciation   10,942     9,238  
           Allowance for inventory value decline   -     207,868  
           Foreign currency exchange (gain) loss   (2,814 )   (5,818 )
           Changes in assets and liabilities:            
                                         Decrease (Increase) in accounts receivable   207,221     (140,034 )
                                         Decrease in inventory   212,569     264,156  
                                         Decrease (Increase) in prepaid and other assets   16,462     (34,925 )
                                         Increase (Decrease) in accounts payable   (225,042 )   106,629  
                                         Increase in accrued expenses   448     38,697  
                                         Increase in due to related parties   43,214     -  
                                                                     Net cash used in operating activities   (103,435 )   (330,961 )
Cash flows from investing activities            
           Increase in restricted cash   (195,026 )   -  
                                                                     Net cash used in investing activities   (195,026 )   -  
             
Cash flows from financing activities            
           Proceeds from short-term bank loans   265,520     -  
           Proceeds advanced from related parties   59,104     168,000  
                                                                     Net cash provided by financing activities   324,624     168,000  
             
Effect of exchange rate changes on cash and cash equivalents   (1,305 )   (1,157 )
             
Net increase (decrease) in cash and cash equivalents   24,858     (164,118 )
             
Cash and cash equivalents            
           Beginning   91,801     342,978  
           Ending $  116,659   $  178,860  
             
Supplemental disclosure of cash flows            
           Cash paid during the year for:            
           Interest expense $  9,127   $  -  
           Income tax $  -   $  -  

See accompanying Notes to Condensed Consolidated Financial Statements

F-3


OMPHALOS, CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2014

1.

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   

Basis of Presentation— The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contained in this report reflect all adjustments that are normal and recurring in nature and considered necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the interim period are not necessarily indicative of the results expected for the full year. These unaudited, condensed consolidated financial statements, footnote disclosures and other information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

   

Organization — Omphalos Corp. was incorporated as Soyodo Group Holdings, Inc. (the “Soyodo”) under the laws of Delaware in March 2003. On February 5, 2008, Soyodo acquired the outstanding shares of Omphalos Corp. Omphalos Corp. (the “Omphalos BVI) 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 Corp. (B.V.I.) and its subsidiaries supply a wide range of equipment and parts including reflow soldering ovens and automated optical inspection machines for printed circuit board (PCB) manufacturers in Taiwan and China.

   

Effective April 18, 2008 Soyodo entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Omphalos, Corp., a Nevada corporation. Pursuant to the Merger Agreement, Soyodo was merged with and into the surviving corporation, Omphalos Corp. The certificate of incorporation and bylaws of the surviving corporation became the certificate of incorporation and bylaws of the Company, and the directors and officers of Soyodo became the members of the board of directors and officers of the Company. Following the execution of the Merger Agreement, the Company filed 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.

   

Going Concern— The Company has incurred a significant net loss during the past two years and had an accumulated deficit of $734,394 and $367,959 as of September 30, 2014 and December 31, 2013, respectively. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the 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.

F-4


There can be no assurances that there will be adequate financing available to the Company and the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

The Company has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: (1) Tightly budgeting and controlling all expenses; (2) Expanding product lines and recruiting a strong sales team to significantly increase sales revenue and profit in 2014; (3) The Company plans to continue actively seeing additional funding opportunities to improve and expand upon its product lines.

Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents— Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

As of September 30, 2014 and December 31, 2013, $195,026 and $0 of cash was restricted as collateral for a commercial line of credit obtained from Bank SinoPac (Taiwan) (see Note 2). These amounts were designated as restricted cash under current assets on the Company’s balance sheets.

Accounts Receivable — Accounts receivables are carried at original invoice amount less estimates made for doubtful receivables. Management determines the allowance for doubtful accounts on a quarterly basis based on a review of the current status of existing receivables, account aging, historical collection experience, subsequent collections, management's evaluation of the effect of existing economic conditions, and other known factors. The provision is provided for the above estimates made for all doubtful receivables. Account balances are charged off against the allowance only when the Company considers it is probable that a receivable will not be recovered. Recoveries of trade receivables previously written off are recorded when received.

Inventory — Inventory is carried at the lower of cost 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 $453,669 and $612,216 at September 30, 2014 and December 31, 2013, respectively.

Property and Equipment — Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets as follows:

F-5



Automobile 5 years
Furniture and fixtures 3 years
Machinery and equipment 3 to 5 years
Leasehold improvements 55 years

Expenditures for major renewals and betterment that extend the useful lives of property and equipment are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the asset and accumulated depreciation are removed from the accounts and the resulting profit or loss is reflected in the statement of income for the period.

Intangible Assets —Include cost of patent applications that are deferred and charged to operations over their useful lives. The accumulated amortization is $27,931 and $25,597 at September 30, 2014 and December 31, 2013, respectively. Amortization of intangible assets was $2,875 and $1,547 for the nine months ended September 30, 2014 and 2013, respectively.

Revenue Recognition — The Company derives revenues from the sale of equipment and parts to customers. The Company’s standard shipping term is Free on Board (FOB) shipping point. The Company recognizes revenue upon shipment for the sales under the term FOB shipping point. For the sales under other shipping term arrangements, such as FOB destination, the Company recognizes revenue when title passes to and the risks and rewards of ownership have transferred to the customer based on the terms of the sales. Usually no returns, discounts or other allowances are provided to customers. Shipping and handling charges to customers are included in net sales. Shipping and handling charges incurred by the Company are included in cost of goods sold.

Research and Development Expenses — Research and development costs are generally expensed as incurred.

Income Taxes — The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.

Stock Based Compensation — The Company applies the fair value provisions of ASC 718, Compensation-Stock Compensation (“ASC 718”). ASC 718 requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options. ASC 718 requires companies to estimate the fair value of share-based payment awards on the grant date using an option pricing model. The Company does not have any awards of stock-based compensation issued and outstanding at September 30, 2014 and December 31, 2013.

Loss Per Share — The Company has adopted Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”) which specifies the computation, presentation and disclosure requirements of earnings per share information. Basic earnings per share have been calculated based upon the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of the diluted loss per share if their effect would be anti-dilutive. For the nine months ended September 30, 2014 and 2013, the Company did not have any common equivalent shares.

F-6


Impairment of Long-Lived Assets — The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. Management has determined that no impairments of long-lived assets currently exist.

Foreign-currency Transactions — Foreign-currency transactions are recorded in New Taiwan dollar (“NTD”) at the rates of exchange in effect when the transactions occur. Gains or losses resulting from the application of different foreign exchange rates when cash in foreign currency is converted into New Taiwan dollar, or when foreign-currency receivables or payables are settled, are credited or charged to income in the year of conversion or settlement. On the balance sheet dates, the balances of foreign-currency assets and liabilities are restated at the prevailing exchange rates and the resulting differences are charged to current income except for those foreign currencies denominated investments in shares of stock where such differences are accounted for as translation adjustments under stockholders’ equity.

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

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

Recently Issued Accounting Pronouncements In February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income.” This ASU does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, this guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. For public entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2012. For nonpublic entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

F-7


In July 2013, the FASB issued ASU 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.” An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For public entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2013. For nonpublic entities, the guidance is effective prospectively for reporting periods beginning after December 15, 2014. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In May 2014, the FASB issued ASU 2014-9, “Revenue from Contracts with Customers”. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. For a public entity, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In August 2014, FASB issued ASU No. 2014-15, “Preparation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern”. Under U.S. GAAP, continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity's liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity's liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30, Presentation of Financial Statements—Liquidation Basis of Accounting. Even when an entity's liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. In those situations, financial statements should continue to be prepared under the going concern basis of accounting, but the amendments in this Update should be followed to determine whether to disclose information about the relevant conditions and events. The amendments in this Accounting Standards Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company will evaluate the going concern considerations in this ASU, however, at the current period, management does not believe that it has met conditions which would subject these condensed consolidated financial statements for additional disclosure.

F-8



2.

SHORT-TERM BANK LOANS

   

On February 25, 2014, the Company entered a six-month line of credit agreement with Bank SinoPac (Taiwan). The outstanding balance bearing interest at a floating rate of prime rate plus 1.05%, of which prime rate was based on four-to-six month time deposit interest rate of Bank SinoPac(Taiwan). The actual interest rate as of September 30, 2014 was 1.99%. The Company borrowed NT$2,000,000, approximately equivalent to $65,700, on February 27, 2014, March 4, 2014, March 17, 2014, and May 5, 2014, totaling NT$8,000,000, or $262,800, and the principals were due on August 26, 2014, September 3, 2014, September 16, 2014, and November 4, 2014, respectively.

   

On October 7, 2014, the Company repaid one of line of credits that was due on August 26, 2014. On September 4, 2014, and September 17, 2014, two bank loans, totaling NT$4,000,000, or $131,400, were extended for another six months, which are due on March 4, 2015, and March 17, 2015, respectively. The line of credit is collateralized by a real property owned by one of the Company's shareholders, and also guaranteed by the shareholder. As of September 30, 2014 and December 31, 2013, $195,026 and $0 of cash was restricted as collateral, which were designated as restricted cash under current assets on the Company’s balance sheets.

   

Interest expense of short-term bank loans was approximately $2,533 for the nine months ended September 30, 2014.

   
3.

RELATED-PARTY TRANSACTIONS

   

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 $16,728 and $16,934 for the periods ended September 30, 2014 and 2013, respectively.

   

Loan from related party

   

On July 26, 2013, the Company entered a loan agreement bearing interest at a fixed rate at 3% per annum with its shareholder to advance NT$5,000,000, equivalent approximately $164,200 for working capital purpose. The term of the loan started from July 30, 2013 with maturity date on July 29, 2015.

F-9



On December 31, 2013, the Company entered another loan agreement bearing interest at a fixed rate at 3% per annum with its officer and shareholder to advance NT$5,000,000, equivalent approximately $164,200 for working capital purpose. The term of the loan started from January 1, 2014 with maturity date on December 31, 2015.

   

As of September 30, 2014 and December 31, 2013, there were $328,500 and $275,508 advances outstanding, respectively. Interest expense was $7,424 for the nine months ended September 30, 2014.

   

Advances from related party- The Company also has advanced funds from its officer and shareholder for working capital purposes. The Company has not entered into any agreement on the repayment terms for these advances. As of September 30, 2014, there were $105,636 advances outstanding.

   
4.

CONTINGENCIES AND LEGAL PROCEEDINGS

   

On January 24, 2013, Artic Automation Co., Ltd. (the “Plaintiff”) filed a complaint against All Fine Technology Co. (TWN), (the Company), at Taiwan Taoyuan District Court in Taiwan, for not paying accounts payable of NT$ 990,875, equivalent to approximately $ 32,540. The Plaintiff claimed that the Company has the obligation to pay off the dues after receiving the products. However, the Company disputed Plaintiff’s claim that the received products were defective and not able to re-sell. The case went to trial on March 20, 2013, and the court pronounced its judgment that the Company had to repay the liability. An appeal was filed on December 27, 2013 by the Company. The hearing for the appeal was held on January 2, 2014 at Taiwan High Court in Taipei City, Taiwan. On April 23, 2014, the Company and the Plaintiff reached a settlement that the Company will repay NT$820,000, equivalent to approximately $26,930 to the plaintiff on May 7, 2014. As such, the case was closed. The liability has been paid off as of September 30, 2014.

   
5.

SUBSEQUENT EVENTS

   

The Company evaluated all events or transactions that occurred after September 30, 2014 up through the date the Company issued these financial statements.

******

F-10


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, 2013.

           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, 2014 Compared to the Three Months Ended September 30, 2013

Net sales for the three months ended September 30, 2014 were $242,682, as compared to $367,907 for the three months ended September 30, 2013. This represents a decrease of $125,225 or approximately 34.0% compared to the prior year period. The decrease in net sales is primarily the result of a decrease in demand for the new models.

Cost of sales decreased by $494,146 or approximately 79.2% to $129,791 for the three months ended September 30, 2014, as compared to $623,937 for the three months ended September 30, 2013. Gross profit (loss) for the three months ended September 30, 2014 was $112,891, compared to $(256,030) for the same period in 2013. Gross profit (loss) as a percentage of net sales was approximately 46.5% in the third quarter of 2014, compared to approximately (69.6) % in the same period in 2013. The lower gross profit rate in the third quarter of 2013 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 that period.

For the three months ended September 30, 2014, selling, general and administrative expenses totaled $158,314. This was an increase of $5,148 or approximately 3% as compared to $163,462 for the same period in 2013. There was no significant change in selling, general and administrative expenses.

For the three months ended September 30, 2014, loss from operations was $(45,423) as compared to $(419,492) for the three months ended September 30, 2013. This represents a decreased loss of $374,069 or approximately 89.2% comparing the two periods. The decrease of loss from operations for the three months ended September 30, 2014 is primarily the result of an increase in gross profit.

F-10


Other income (expenses) was $1,673 and $(484) for the three months ended September 30, 2014 and 2013, respectively. This represents increased income of $2,157 or approximately 445.7% . The main reason for this increased other income was an increase in interest expense and a gain on foreign currency exchange, which is partially offset by an increase in interest expense, as compared to the quarter ended September 30, 2013.

Our net loss was $(43,750) for the three months ended September 30, 2014 compared to a net loss of $(419,976) for the three months ended September 30, 2013. The decreased loss for the three months ended September 30, 2014 was due to the reasons described above (increase in gross profit).

Nine Months Ended September 30, 2014 Compared to the Nine Months Ended September 30, 2013

Net sales for the nine months ended September 30, 2014 were $435,091, as compared to $523,427 for the nine months ended September 30, 2013. This represents a decrease of $88,336 or approximately 16.9%

compared to the prior year period. The decrease in net sales is primarily the result of a decrease in demand for the new models.

Cost of sales decreased by $530,448 or approximately 67.1% to $260,531 for the nine months ended September 30, 2014, as compared to $790,979 for the nine months ended September 30, 2013. Gross profit (loss) for the nine months ended September 30, 2014 was $174,560, compared to $(267,552) for the same period in 2013. Gross profit as a percentage of net sales was approximately 40.0% for the nine months ended September 30, 2014, compared to approximately (51.1) % in the same period in 2013. The higher gross profit rate for the nine months ended September 30, 2014 was primarily due to the sales of new models and parts, compared to the discounted sales of old models in the same period in 2013.

For the nine months ended September 30, 2014, selling, general and administrative expenses totaled $536,785. This was an increase of $21,714 or approximately 4.2% as compared to $515,071 for the same period in 2013. The increase in selling, general and administrative expenses is primarily the result of the increase in rent, salary, travel, and professional expenses.

For the nine months ended September 30, 2014, loss from operations decreased to $(362,225) as compared to $(782,623) for the nine months ended September 30, 2013. This represents a decreased loss of $420,398 or approximately 53.7% comparing the two periods. The decrease of loss from operations for the nine months ended September 30, 2014 is primarily the result of an increase in gross profit which is partially offset by an increase in selling, general and administrative expenses.

Other income (expenses) was $(4,210) and $5,851 for the nine months ended September 30, 2014 and 2013, respectively. This represents decreased income of $10,061 or approximately 172%. The main reason for this decreased other income was an increase in interest expense, and a decrease in loss on foreign currency exchange, which is partially offset by an increase in interest income, as compared to the nine months ended September 30, 2013.

Our net loss was $(366,435) for the nine months ended September 30, 2014 compared to a net loss of $(776,772) for the nine months ended September 30, 2013. The decreased loss for the nine months ended September 30, 2014 was due to the reasons described above (increase in gross profit).

Liquidity and Capital Resources

Cash and cash equivalents were $116,659 at September 30, 2014 and $91,801 at December 31, 2013. Our total current assets were $578,449 at September 30, 2014, as compared to $804,593 at December 31, 2013. Our total current liabilities were $430,021 at September 30, 2014 as compared to $353,815 at December 31, 2013.

5


We had working capital at September 30, 2014 of $148,428 compared with working capital of $450,778 at December 31, 2013. This decrease in working capital was primarily due to a decrease in accounts receivable, inventory, and prepaid and other current assets, and increase in amounts due to related parties and accrued expenses, which is partially offset by increases in cash and cash equivalents, and decreases in accounts payable and accrued salaries.

Net cash flow used in operating activities during the nine months ended September 30, 2014 was $103,435, a decrease of $227,526 compared to $330,961 net cash used in operating activities during the nine months ended September 30, 2013. The decrease in the cash used in operating activities was primarily due to decreased net loss, increases in amortization and depreciation, and amounts due to related parties, and a decrease in allowance for inventory value decline, foreign currency exchange gain, accrued expenses, accounts receivable, inventory, prepaid expenses, and accounts payable.

Net cash used in investing activities for the nine months ended September 30, 2014 was $195,026, which was primarily due to an increase in restricted cash as collateral for bank loan.

Net cash used in financing activities for the nine months ended September 30, 2014 was $324,624, which was primarily due to proceeds from short-term bank loans and loans from an officer and shareholder.

Net change in cash and cash equivalents was an increase of $91,801 during the nine months ended September 31, 2014.

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.

As a smaller reporting company, we are not required to provide this information.

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 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 Commission's rules and forms.

6


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.

PART II

Item 1.       Legal Proceedings.

On January 24, 2013, Artic Automation Co., Ltd. (the “Plaintiff”) filed a complaint against All Fine Technology Co. (TWN), (the “Company”), at Taiwan Taoyuan District Court in Taiwan, for not paying accounts payable of NT$ 990,875, equivalent to approximately $ 32,540. The Plaintiff claimed that the Company had the obligation to pay for certain products. However, the Company disputed Plaintiff’s claim, as those products were defective and not able to be sold. The case went to trial on March 20, 2013, and the court pronounced its judgment that the Company had to pay the requested amount. An appeal was filed on December 27, 2013, by the Company. The hearing for the appeal was held on January 2, 2014 at Taiwan High Court in Taipei City, Taiwan. On April 23, 2014, the Company and the Plaintiff reached a settlement that the Company will repay NT$820,000, equivalent to approximately $26,930 to the Plaintiff on May 7, 2014. As such, the case was closed. The liability has been paid as of September 30, 2014.

Item 1A.    Risk Factors.

As a smaller reporting company, we are not required to provide this information; provided, however:

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

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

None.

Item 3.       Defaults Upon Senior Securities.

None.

Item 4.       Mine Safety Disclosures.

Not applicable.

Item 5.       Other Information.

None.

7


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 Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on February 11, 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 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 September 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 Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed with the Commission on February 20, 2008)

     
10.2

Employment Agreement with Shen-Ren Li (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K/A filed with the Commission on February 20, 2008)

     
10.3

Employment Agreement with Sheng-Peir Yang (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K/A filed with the Commission on February 20, 2008)

     
10.4

Purchase and Sale Agreement with Tamura Corporation, incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 29, 2011.

8



10.5

Lease Agreement for property, incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 29, 2011.

     
21

List of Subsidiaries, incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K, filed with the SEC on March 29, 2011.

     
31.1  

Certification by Principal Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.*

     
31.2  

Certification by Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.*

     
32.1  

Certification by Principal 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 Principal 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.*

     
101.INS  

XBRL Instance Document+

101.SCH  

XBRL Taxonomy Extension Schema+

101.CAL  

XBRL Taxonomy Extension Calculation Linkbase+

101.DEF  

XBRL Taxonomy Extension Definition Linkbase+

101.LAB  

XBRL Taxonomy Extension Label Linkbase+

101.PRE  

XBRL Taxonomy Extension Presentation Linkbase+

*filed herewith
+submitted herewith

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.

OMPHALOS, CORP.

 

Date: November 4, 2014 By: /s/ Sheng-Peir Yang
    Sheng-Peir Yang
    Chief Executive Officer, President
    and Chairman of the Board
     
     
Date: November 4, 2014 By: /s/ Chu Pi Yun
    Chu Pi Yun
    Chief Financial Officer, Chief Accounting
    Officer and Director

9