OMPHALOS, CORP - Annual Report: 2016 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the fiscal year ended December 31, 2016.
OR
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
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
(Registrants
telephone number, including area code)
Copies of all communications 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
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001 per share.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
[_] No [X]
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 if the registrant is not required to
file reports pursuant to Section 13 or 15(d) of the Exchange Act.
[
] Yes [X] No
Indicate by check mark whether registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 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.) [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[X]
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]
At June 30, 2016, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant: approximately $1,202,550.
The number of shares of registrants common stock outstanding, as of March 15, 2017 was 30,063,759.
TABLE OF CONTENTS
. . . . . . .
PART I
Item 1. Business.
Soyodo Group Holdings, Inc. (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.
Omphalos Corp. was incorporated on February 13, 1991 under the laws of Republic of China (TWN), initially serving as a sales agent for an equipment and used machine dealer. Omphalos Corp. (B.V.I.) was incorporated on October 30, 2001 under the laws of the British Virgin Islands. All Fine Technology Co., Ltd. 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.
On July 4, 2007, Omphalos Corp. (BVI) acquired Omphalos (TWN) and All Fine Technology Co. (TWN), through a share exchange with the shareholders of these two entities. On October 19, 2007 Omphalos (BVI) purchased All Fine Tech (BVI).
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. Shen-Peir Yang beneficially owned 55,347,485 shares of common stock and was elected a director and appointed as the Companys President. Chi Pi Yun beneficially owned 2,049,907 shares of common stock and was appointed as the Companys Chief Financial Officer. Li Shen-Ren beneficially owned 4,099,814 shares of common stock and was appointed as the Companys Chief Operating Officer. 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.
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. was incorporated on April 15, 2008, under the laws of the State of Nevada. The main purpose of the merger is to change Soyodos name to Omphalos, Corp.
Omphalos, Corp. and these four corporations are referred to herein collectively as the "Company" or Omphalos.
Overview of Business
Omphalos, through its wholly-owned subsidiaries which serve as third-party resellers, supplies a wide range of equipment and parts including refurbished and modified reflow soldering ovens and automated optical inspection machines for printed circuit board (PCB) manufacturers in Taiwan and China. Omphalos also provides after sale services such as maintenance and repairs to its customers and sells parts for the equipment for that purpose.
A reflow oven is a machine used primarily for reflow soldering of surface mount electronic components to printed circuit boards. Reflow soldering represents the most common means to attach a component to a circuit board, and typically consists of applying solder paste, positioning the components, and reflowing the solder in a specialized oven. The goal of the reflow process is to melt the powder particles in the solder paste, with the surfaces being joined together, and solidify the solder to create a strong metallurgical bond.
Omphalos markets its products in both Taiwan and China. Omphalos’ clients are mainly big name Taiwanese electronics manufacturing giants, including Quanta Computer Inc., Universal Scientific Industrial Co., and Advantech in Taiwan, and QSMC, in China.
Products
Omphalos offers a wide range of products, including the following:
Tamura N2 Reflow Ovens. Omphalos offers the Tamura N2 Reflow Oven as its preferred choice for reflow soldering. The ovens have multiple temperature controlled heat emitting infrared radiation compartments that create a phase change in flux (Small Soldier Particles) turning the solid into a liquid. When cooled in the final compartment, the flux undergoes another phase change turning from a liquid back into a solid forming a bond between the surface mount component and etched circuit board. The Tamura Line takes the additional step of being an oxygen-free environment, instead it utilizes nitrogen gas to minimize oxidation.
Gryphon Laser Marking System. This system is placed at the beginning of the SMT production line where it Laser Etches a Uniquely Identifiable 2-Dimensional Barcode onto the surface of a printed circuit board. 2D barcodes allow for more data to be physically written to the circuit board, usually the threshold is when more than 20 characters need to be written, 2D barcoding is required. The 2D barcode helps to simplify Management Information System (MIS) by making more information available offline, such as an identification number, time of fabrication, plant of fabrication, etc making it easier to track defects and finished products to their final destination. This barcode works best when combined with the Argus Management Information System throughout the fabrication process as its life will be tracked and analyzed. To date, the Company has not derived any significant revenues from this system.
During the year ended December 31, 2016, the Company obtained 24%, 22%, 12% and 10% of the equipment and parts that it sells to its customers from four local suppliers: Jonghuei Co., Ltd.; A& P Instrument, Co., Ltd.; Mingray Co., Ltd.; and Cognex Corporation, respectively. These vendors are all Taiwanese companies.
Marketing
Most of the Omphalos’ business is generated through personal relationships with its major customers. In addition, it may participate in trade shows and occasionally run advertisements in trade journals and newspapers.
Markets and Customers
Omphalos’ customers include a number of major electronic manufacturing companies. For the year ended December 31, 2016, four customers, Delta Electronics Int'l (Singapore) Pte. Ltd.; Wistron Corporation; Shangdong Shenlipei Co., Ltd; and Shenzhen Octavia Technology Co., Ltd., accounted for approximately 96.9% of Omphalos’ total revenue.
Regulations
Omphalos is not subject to any significant government regulation that is particular to its business.
Competition
Omphaloss industry is highly competitive. Omphalos believes that its principal direct competitors are the manufacturers of the equipment themselves. These include Japanese companies such as Sayaka, Tamura Furukawa and Ishikawa.
There are also a number of companies in Asia that resell refurbished equipment. They include Daichi International, Panasonic, Hitachi and Sony Corporation.
Some of these companies have significantly greater financial, technical and human resources than we do, as well as a wider range of products than we have. In addition, many of our competitors have much greater experience in marketing their products, as well as more established relationships with our target customers. Our competitors may also have greater name recognition and more extensive customer bases that they can use to their benefit. As a result, we may have difficulty maintaining our market share.
We believe that our competitive edge is our responsiveness to our customers needs, both in terms of speed as well as in our ability to modify the equipment in accordance with the customers instructions.
Intellectual Property
Omphalos has been granted the following patents:
Name | Patent No | Country | Patent Term | |||
Automatically Labeling and Inspecting Apparatus and Method of Use | M277230 | Taiwan | expires 1.20.2015 | |||
Automatically Marking and Reading/Distinguishing Apparatus and Method of Use | M277229 | Taiwan | expires 1.30.2015 | |||
Vehicle Camera Apparatus | M345732 | Taiwan | expires 3.19.2018 | |||
Automatically Marking and Reading/Distinguishing | I287752 | Taiwan | expires 1.30.2050 | |||
Servo Motor Control Method and Apparatus Using the Same | I325031 | Taiwan | expires 4.19.2027 | |||
Laser Machining Module And Laser Machining Table | M411305 | Taiwan | expires 2.3.2021 | |||
Automatic Board-Flipping Mechanism | M411758 | Taiwan | expires 6.7.2026 | |||
Automatically Marking and Reading/Distinguishing | 11/248,212 | U.S.A | expires 6.7. 2026 | |||
Laser Machining Module And Laser Machining
Table |
ZL20112 0073538.7 |
China |
expires 3.18. 2021 | |||
Automatic Board-Flipping
Mechanism |
ZL20112 0073727.4 |
China |
expires 3.18. 2021 | |||
Laser Machining Module And Laser Machining Table | 3175212 | Japan | expires 4.4. 2022 | |||
Automatic Board-Flipping Mechanism | 3175211 | Japan | expires 4.4. 2022 | |||
Laser Machining Module And Laser Machining Table | 201120392907.9 | China | expires 3.05.2021 |
In the future, we expect to expand the number and type of products we are able to provide to our customers. We intend to use our patents and improve or add functions to current products, and plan to use these patents in future products. The issued patents and applications relate to techniques developed by us for automatically labeling and inspecting, automatically marking and reading apparatus.
There can be no guarantee that the patents held by us will not be challenged or invalidated, that patents will be issued for any of our pending applications or that any claims allowed from existing or pending patents will be of sufficient scope or strength (or issue in the countries where products incorporating our technology may be sold) to provide meaningful protection or any commercial advantage to us. In any event, effective protection of intellectual property rights may be unavailable or be limited in certain countries.
Employees
As of March 15, 2017, Omphalos had 16 full-time employees. None of its employees is represented by a labor union, and Omphalos considers its employee relations to be excellent. Omphalos seeks to use contract workers and anticipates maintaining a small full-time employee base.
Available Information
We file or furnish annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), with the SEC. These reports will be available as soon as reasonably practical after such reports are electronically filed with, or furnished to, the SEC. All of these documents are available in print without charge to stockholders upon request. Our SEC filings are available to the public over the Internet at the SECs web site at http://www.sec.gov. You may also read and copy any document we file at the SECs public reference rooms in Washington, D.C.
Item 1A. Risk Factors.
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or which we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected.
Risk Factors Related to Our Business.
We may need to raise capital to fund our operations, and our failure to obtain funding when needed may force us to delay, reduce or eliminate our expansion efforts.
If in the future, we are not capable of generating sufficient revenues from operations and our capital resources are insufficient to meet future requirements, we may have to raise funds to continue the development, commercialization, marketing and sale of our products.
We cannot be certain that funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct our business. If we are unable to raise additional capital if required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our products, obtain funds by entering into agreements on unattractive terms or restrict or cease our operations and go out of business.
Our declining operating revenues may cause substantial doubt about our ability to continue as a going concern.
Our audited financial statements for the year ended December 31, 2016 were prepared based on the assumption that we will continue our operations as a going concern. We has net losses of $283,527 and $592,278 during the years ended December 31, 2016 and 2015, respectively. As a result, there may be substantial doubt about our ability to continue as a going concern. Our future is dependent upon our ability to implement our business plans and upon our future profitable operations.
The success of our business depends on our ability to successfully obtain a supply of merchandise for our buyers and to attract and retain active professional buyers to create sufficient demand for our sellers.
Our ability to increase our revenue and maintain profitability depends on whether we can successfully expand the supply of merchandise available for sale and attract and retain active professional buyers to purchase the merchandise. Our ability to attract sufficient quantities of suitable merchandise and new buyers will depend on various factors, some of which are out of our control. These factors include our ability to:
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offer buyers a sufficient supply of merchandise; | |
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develop and implement effective sales and marketing strategies; | |
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comply with corporate seller requirements affecting marketing and disposition of certain categories of merchandise; | |
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efficiently catalogue, handle, store, ship and track merchandise; and | |
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achieve high levels of seller and buyer satisfaction with the trading experience. |
Omphalos is exposed to risks as a result of ongoing changes in the semiconductor and semiconductor-related industries.
The global industries in which we operate are characterized by ongoing changes, including: (1) higher capital requirements for building and operating new semiconductor and LCD fabrication plants and the resulting effect on customers ability to raise the necessary capital; (2) differing rates of market growth for, and capital investments by, various semiconductor device makers, such as memory (including NAND Flash and DRAM), logic and foundry, as well as LCD and solar manufacturers; (3) industry growth rates; (4) the increasing cost and decreasing affordability of research and development due to many factors, including decreasing line widths, the increasing number of materials, applications and process steps, and the greater complexity of process development and chip design; (5) the increasing difficulty for customers to move from product design to volume manufacturing; (6) the importance of reducing the cost of system ownership, due in part to the increasing significance of consumer electronics as a driver for semiconductor and LCD demand and the related focus on lower prices; (7) varying levels of business information technology spending; (8) the heightened importance to customers of system reliability and productivity, and the effect on demand for systems as a result of their increasing productivity, device yield and reliability; (9) the growing types and varieties of semiconductors and expanding number of applications across multiple substrate sizes, resulting in customers divergent technical demands; (10) demand for shorter cycle times for the development, manufacture and installation of manufacturing equipment; (11) the challenge to semiconductor manufacturers of moving volume manufacturing from one technology node to the next smaller technology node, and the resulting impact on the technology transition rate and the rate of investment in capital equipment; (12) price trends for certain semiconductor devices and LCDs; (13) difficulties associated with transitioning to larger substrate sizes; and (14) the increasing importance of the availability of spare parts to assure maximum system uptime. If we do not successfully manage the risks resulting from the ongoing changes occurring in the semiconductor and semiconductor-related industries, its business, financial condition and results of operations could be materially and adversely affected.
The industries that Omphalos serves are volatile and unpredictable.
As a supplier to the global semiconductor, computer and related industries, we are subject to business cycles, the timing, length and volatility of which can be difficult to predict and which may vary by reportable segment. The industries have historically been cyclical due to sudden changes in customers manufacturing capacity requirements and spending, which depend in part on capacity utilization, demand for customers products, and inventory levels relative to demand. The effects on Omphalos of these changes in demand, including end-customer demand, are occurring more rapidly. These changes have affected the timing and amounts of customers’ purchases and investments in technology, and continue to affect our orders, net sales, gross margin, contributed profit and results of operations.
We must effectively manage our resources to meet rapidly changing demand. During periods of decreasing demand for our products, we must be able to appropriately align our cost structure with prevailing market conditions, motivate and retain key employees, and effectively manage our supply chain. During periods of increasing demand, we must have sufficient inventory to meet customer demand; attract, retain and motivate a sufficient number of qualified individuals; and effectively manage our supply chain. If we are not able to timely and appropriately adapt to changes in industry cycles, our business, financial condition or results of operations may be materially and adversely affected.
Omphalos is exposed to risks associated with a highly concentrated customer base in the semiconductor and flat panel display industries.
Our semiconductor and other customer base historically has been, and is becoming even more, highly concentrated. For the year ended December 31, 2016, four major customers accounted for approximately 96.9% of Omphalos’ total revenues. Orders from a relatively limited number of manufacturers have accounted for, and are expected to continue to account for, a substantial portion of our net sales. In addition, the mix and type of customers, and sales to any single customer, may vary significantly from quarter to quarter and from year to year. If customers do not place orders, or they delay or cancel orders, we may not be able to replace the business. As our products are configured to customer specifications, changing, rescheduling or canceling orders may result in significant, non-recoverable costs. Major customers may also seek, and on occasion receive, pricing, payment, intellectual property-related, or other commercial terms that are less favorable to us. In addition, certain customers have undergone significant ownership changes, have outsourced manufacturing activities, and/or have entered into strategic alliances or industry consortia that have increased the influence of key semiconductor manufacturers in technology decisions made by their partners, which may result in additional complexities in managing customer relationships and transactions. These factors could have a material, adverse effect on our business, financial condition and results of operations.
Omphalos is highly dependent on four suppliers.
For the year ended December 31, 2016, Omphalos obtained 69% of the equipment and parts that it sells to its customers from four vendors. If any of these vendors was to cease supplying us with products for any reason, this would force us to find alternative sources for our products. A change in suppliers could cause a delay in availability of products and a possible loss of sales, which could adversely affect our operating results.
Manufacturing interruptions or delays could affect our ability to meet customer demand, while the failure to estimate customer demand accurately could result in excess or obsolete inventory.
Our business depends on our ability to supply equipment, services and related products that meet the rapidly changing technical and volume requirements of our customers, which depends in part on the timely delivery of parts, components and subassemblies (collectively, parts) from suppliers. Some key parts may be subject to long lead-times and/or obtainable only from a single supplier or limited group of suppliers, and some sourcing or subassembly is provided by suppliers in developing regions, including China. Significant interruptions of manufacturing operations or the delivery of services as a result of: (1) the failure or inability of suppliers to timely deliver quality parts; (2) volatility in the availability and cost of materials; (3) difficulties or delays in obtaining required export approvals; (4) information technology or infrastructure failures; (5) natural disasters (such as earthquakes, floods or storms); or (6) other causes (such as regional economic downturns, pandemics, political instability, terrorism, or acts of war), could result in delayed deliveries, manufacturing inefficiencies, increased costs or order cancellations. Moreover, if actual demand for our products is different than expected, we may purchase more/fewer parts than necessary or incur costs for canceling, postponing or expediting delivery of parts. Any or all of these factors could materially and adversely affect our business, financial condition and results of operations.
We may not be able to effectively manage our growth, which may harm our profitability.
Our strategy envisions expanding our business. If we fail to effectively manage our growth, our financial results could be adversely affected. Growth may place a strain on our management systems and resources. We must continue to refine and expand our business development capabilities, our systems and processes and our access to financing sources. As we grow, we must continue to hire, train, supervise and manage new employees. We cannot assure you that we will be able to:
| meet our capital needs; | |
| expand our systems effectively or efficiently or in a timely manner; | |
| allocate our human resources optimally; | |
| identify and hire qualified employees or retain valued employees; or | |
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incorporate effectively the components of any business that we may acquire in our effort to achieve growth. |
If we are unable to manage our growth, our operations and our financial results could be adversely affected by inefficiency, which could diminish our profitability.
Loss of Sheng-Peir Yang, our Chief Executive Officer, could impair our ability to operate.
If we lose our key employee, Sheng-Peir Yang, our Chief Executive Officer, our business could suffer. Our success is highly dependent on our ability to attract and retain qualified technical and management personnel. We are highly dependent on our management. Mr. Yang has an employment agreement with the Company. However, the loss of Mr. Yangs services could have a material adverse effect on our operations. If we were to lose this individual, we may experience difficulties in competing effectively, developing our technology and implementing our business strategies. We do not have key-man life insurance in place for any person working for us.
Our management team does not have extensive experience in public company matters, which could impair our ability to comply with legal and regulatory requirements.
Our management team has had limited public company management experience or responsibilities. This could impair our ability to comply with legal and regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable federal securities laws including filing required reports and other information required on a timely basis. There can be no assurance that our management will be able to implement and effect programs and policies in an effective and timely manner that adequately respond to increased legal, regulatory compliance and reporting requirements imposed by such laws and regulations. Our failure to comply with such laws and regulations could lead to the imposition of fines and penalties and further result in the deterioration of our business.
RISKS RELATED TO OUR COMMON STOCK
There has been a limited trading market for our common stock. There is no assurance of an established public trading market, which would adversely affect the ability of our investors to sell their securities in the public markets.
It is anticipated that there will continue to be a limited trading market for the Company's common stock, quoted on the OTCQB. The lack of an active public market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active public market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies or technologies by using common stock as consideration.
You may have difficulty trading and obtaining quotations for our common stock.
The common stock may not be actively traded, and the bid and asked prices for our common stock quoted on the OTCQB may fluctuate widely. As a result, investors may find it difficult to dispose of, or to obtain accurate quotations of the price of, our securities. This severely limits the liquidity of the common stock, and would likely reduce the market price of our common stock and hamper our ability to raise additional capital.
The market price of our common stock may, and is likely to continue to be, highly volatile and subject to wide fluctuations.
The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:
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dilution caused by our issuance of additional shares of common stock and other forms of equity securities, which we may make in connection with future capital financings to fund our operations and growth, to attract and retain valuable personnel and in connection with future strategic partnerships with other companies; | |
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announcements of new acquisitions, discoveries or other business initiatives by our competitors; | |
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our ability to take advantage of new acquisitions, discoveries or other business initiatives; | |
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quarterly variations in our revenues and operating expenses; | |
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changes in the valuation of similarly situated companies, both in our industry and in other industries; | |
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changes in analysts estimates affecting the Company, our competitors and/or our industry; | |
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changes in the accounting methods used in or otherwise affecting our industry; | |
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additions and departures of key personnel; | |
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fluctuations in interest rates and the availability of capital in the capital markets; and | |
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significant sales of our common stock, including sales by the investors and/or future investors in future offerings we expect to make to raise additional capital. |
These and other factors are largely beyond our control, and the impact of these risks, singly or in the aggregate, may result in material adverse changes to the market price of our common stock and/or our results of operations and financial condition.
We do not expect to pay dividends in the foreseeable future.
We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms or at all. Investors cannot be assured of a positive return on investment or that they will not lose the entire amount of their investment in the common stock.
If we fail to maintain effective internal controls over financial reporting, the price of our common stock may be adversely affected.
Our internal controls over financial reporting, while they appear to be sufficient for our needs, may have weaknesses and conditions that will need to be addressed, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or operating results. In addition, management's assessment of our internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal controls over financial reporting or disclosure of management's assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.
We are controlled by current officers, directors and principal stockholders.
Our directors, executive officers and principal stockholders and their affiliates beneficially own approximately 64% of the outstanding shares of our common stock. So long as our directors, executive officers and principal stockholders and their affiliates control a majority of our fully diluted equity, they will continue to have the ability to elect our directors and determine the outcome of votes by our stockholders on corporate matters, including mergers, sales of all or substantially all of our assets, charter amendments and other matters requiring stockholder approval. This controlling interest may have a negative impact on the market price of our common stock by discouraging third-party investors.
Applicable SEC rules governing the trading of penny stocks limit the trading and liquidity of our common stock, which may affect the trading price of our common stock.
Shares of common stock may be considered a penny stock and be subject to SEC rules and regulations which impose limitations upon the manner in which such shares may be publicly traded and regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customers account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchasers written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules which may increase the difficulty investors may experience in attempting to liquidate such stock.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal executive offices are located at Unit 2, 15 Fl., 83, Nankan Rd. Sec. 1, Luchu, Taoyuan County, Taiwan and No.1371-1, Sec. 3, Fuguo Rd., Lujhu Township, Taoyuan County 338, Taiwan.
Omphalos does not own any real property. The Company leases an office and a warehouse from the wife of our sole director, Mr. Yang. The office maintains administration and sales facilities and the warehouse maintains inventory. The locations of the office and warehouse are Unit 2, 15 Fl., 83, Nankan Rd. Sec. 1, Luchu, Taoyuan County, Taiwan and No.92, Bagu Rd., Lujhu Township, Taoyuan County 338, Taiwan, respectively. The office space is approximately 3,700 square feet, and the warehouse space is approximately 3,334 square feet.
Generally, Omphalos maintains short-term leases for its office and warehouse, with options to renew, where possible. The terms of the lease for office and warehouse have been extended to January 31, 2019. The Company paid a monthly rent of approximately $1,800 for the periods ended December 31, 2016 and 2015. Accordingly, rent expense under the office and warehouse lease agreements amounted to approximately $20,852 and $21,170 for the periods ended December 31, 2016 and 2015, respectively.
Item 3. Legal Proceedings.
None
Item 4. [Removed and Reserved.]
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is quoted on the OTCQB under the trading symbol "OMPS".
The following table sets forth, for the period indicated, the range of the high and low sales prices of our common stock, as reported by the OTCQB. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.
Year Ended December 31, | |||||||||||||||
First | Second | Third | Fourth | ||||||||||||
2016 | High | $ | 0.071 | $ | * | $ | * | $ | * | ||||||
Low | $ | 0.04 | $ | * | $ | * | $ | * | |||||||
2015 | High | $ | * | $ | 0.18 | $ | 0.18 | $ | 0.15 | ||||||
Low | $ | * | $ | 0.18 | $ | 0.15 | $ | 0.07 | |||||||
2014 | High | $ | 0.20 | $ | * | $ | * | $ | * | ||||||
Low | $ | 0.19 | $ | * | $ | * | $ | * |
*no public trading volume
There were approximately 72 holders of record of our common stock as of March 15, 2017.
Although we paid dividends on our common stock in 2008 totaling $175,260, or approximately $0.00583 per share, we paid no dividends on our common stock in 2009, 2010, 2011, 2012, 2013, 2014, 2015 or 2016. We do not have a policy of paying regular dividends and do not expect to pay any dividends on our common stock in the foreseeable future. We currently intend to retain any future earnings for our business. The payment of any future dividends on our common stock will be determined by our Board of Directors and will depend on business conditions, our financial earnings and other factors.
Recent Transactions Involving Unregistered Securities
None
Item 6. Selected Financial Data.
Not applicable.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
Some of the statements contained in this Form 10-K that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Form 10-K, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties, and other factors affecting our operations, market growth, services, products, and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:
1. |
Our ability to attract and retain management, and to integrate and maintain technical information and management information systems; | |
2. |
Our ability to generate customer demand for our services; | |
3. |
The intensity of competition; and | |
4. |
General economic conditions. |
All written and oral forward-looking statements made in connection with this Form 10-K that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements. This MD&A should also be read in conjunction with the Item 1.A. Risk Factors.
Overview
The Company, through Omphalos Corp. - Taiwan, is in the business of supplying a wide range of equipment and parts including reflow soldering ovens and Automated Optical Inspection (AOI) machines to printed circuit board (PCB) manufacturers in Taiwan and China. The clients are mainly Taiwanese electronics manufacturing companies, including Quanta Computer Inc., Universal Scientific Industrial Co., and Advantech in Taiwan, and QSMC, in China.
The major equipment manufacturer Omphalos represents is TAMURA, which has complete technical support licensed from the original manufacturers.
The Company operates in an industry characterized by rapid technological changes. It will need additional investments to complete the development and improvement necessary for the development and production of the testing equipment and parts for PCB assembly processes.
The Company's business strategy is to increase its market share by expanding into other industries. Since PCB has a vast application range, the Company is currently researching and developing many additional uses for testing equipment and parts.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations are based on our financial statements that have been prepared under accounting principle generally accepted in the United States of America. 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 the 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, Investments, 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.
Accounts Receivable - Accounts receivable 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 $416,428 and $485,767 at December 31, 2016 and 2015, respectively.
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 currency denominated investments in shares of stock where such differences are accounted for as translation adjustments under stockholders' equity.
Recently Issued Accounting Pronouncements — In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control (“ASU 2016-17”). ASU 2016-17 changes how a reporting entity considers indirect interests held by related parties under common control when evaluating whether it is the primary beneficiary of a VIE. ASU 2016-17 is effective on a retrospective basis for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 reduces diversity in practice by providing guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASU 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. ASU 2016-15 is effective on a retrospective basis for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases," which requires recognition of lease assets and lease liabilities on the balance sheet of lessees. ASU 2016-02 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2018, or in fiscal 2020. Early adoption is permitted. ASU 2016-02 requires a modified retrospective transition approach and provides certain optional transition relief. The Company is currently evaluating the effect the adoption of this guidance will have on our consolidated results of operations, financial position and cash flows.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. The original effective date for ASU 2014-09 would have required the Company to adopt beginning in its first quarter of 2018. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for one year and permits early adoption as early as the original effective date of ASU 2014-09. Accordingly, the Company may adopt the standard in either its first quarter of 2018 or 2019.In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (“ASU 2016-08”), which clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing (“ASU 2016-10”), which amends the guidance in ASU 2014-09 related to identifying performance obligations and accounting for licenses of intellectual property. The Company must adopt ASU 2016-08 and ASU 2016-10 with ASU 2014-09.The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the timing of its adoption and the impact of adopting the new revenue standard on its consolidated financial statements.
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 consolidated financial statements for additional disclosure.
Results of Operations
The following table presents the consolidated results of the Company for the years ended December 31, 2016 and 2015.
Net Sales. Net sales for the year ended December 31, 2016, were $803,165, compared to $88,833for the year ended December 31, 2015, an increase of $714,332. The sales increase was primarily a result of an increase in laser marking system unit shipments. We did not have any shipments for reflow soldering ovens sales to printed circuit board (PCB) manufacturers in 2016 and 2015. Our average selling price for reflow soldering ovens and laser marking system remained unchanged in 2016 compared to 2015. Net sales from our service and parts sales were $15,317 in 2016 and $15,833 in 2015.
Cost of Sales; Gross Margin. Cost of sales for the year ended December 31, 2016, was $416,136 or 51.8% of net sales, as compared to $59,208 or 66.7% of net sales for the year ended December 31, 2015. Gross income for 2016 was $387,029, compared to $29,625 for 2015, an increase of $357,404. Gross profit as a percent of net sales was 48.2% in 2016, compared to 33.3% in 2015. The increase in gross profit percentage was due to that we sold more laser marking system with higher margin.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended December 31, 2016, were $656,442 or 81.7 % of net sales, as compared to $610,376 or 687.1 % of net sales for the year ended December 31, 2015. The increase in selling, general and administrative expenses was primarily due to increases in payroll, and traveling costs.
Loss from Operations. Loss from operations for the year ended December 31, 2016, was $(269,413), as compared to $(580,751) for the year ended December 31, 2015. The decrease in loss from operations for the year ended December 31, 2016, compared with loss from operations for the year ended December 31, 2015, resulted primarily from an increase in gross profit which was partially offset by an increase in operating expenses.
Other Income (expenses). Other income (expenses) for the year ended December 31, 2016, was $(12,882) as compared to $(11,527) for the year ended December 31, 2015. This change was primarily attributable to an increase in interest expense and foreign currency exchange gain, and the decrease in interest income.
Net Loss. Net loss for the year ended December 31, 2016, was $(283,527) as compared to $(592,278) for the year ended December 31, 2015. The increase in net loss was due to the reasons described above.
Liquidity and Capital Resources
Our principal sources of liquidity are cash and cash equivalents, and cash flow from operations. Our cash and cash equivalent decreased from $78,982 at December 31, 2015, to $37,643 at December 31, 2016.
Net cash flow used in operating activities was $357,750 during the year ended December 31, 2016, as compared to net cash flow used in operating activities of $220,754 during the year ended December 31, 2015, an increase of $136,996.
Net cash flow used in operating activities during the year ended December 31, 2015, was mainly due to our net loss of $(592,278), a decrease in accounts receivable of $100,716, an increase in inventory of $81,301, an increase in prepaid expenses and other assets of $9,714, an increase in accounts payable and accrued expenses of $22,489, an increase in advance from customers of $60,232, and an increase in due to related parties of $269,793. Net cash flow used in operating activities during the year ended December 31, 2016, was mainly due to our net loss of $(283,527), an increase in accounts receivable of $105,468, a decrease in inventory of $85,997, a decrease in prepaid expenses and other assets of $16,966, an increase in accounts payable and accrued expenses of $43,352, a decrease in advance from customers of $35,745, and a decrease in due to related parties of $24,105.
Net cash used in investing activities was $1,330 during the year ended December 31, 2016, and $0 during the year ended December 31, 2015. It was for the purchase of fixed assets.
Net cash flow provided by financing activities was $310,304 during the year ended December 31, 2016, and $189,010 during the year ended December 31, 2015. For the year ended December 31, 2015, the cash flow provided by financing activity was from loans from shareholders, which was partially offset by repayment of bank loans. For the year ended December 31, 2016, the cash flow provided by financing activity was from loans from shareholders.
In light of the significant decreases in our net sales over the past fiscal year and current uncertain market and economic conditions, we are aggressively managing our cost structure and cash position to ensure that we will meet our financial obligations while preserving the ability to make investments that will enable us to respond to customer requirements and achieve long-term profitable growth. We currently believe that our cash and cash equivalents, working capital, and cash generated from operations, will be sufficient to meet our forecasted operating expenses and capital expenditures through 2017.
Capital Expenditures
Total capital expenditures during the years ended December 31, 2016 and 2015 was $1,330 and $0, respectively.
Currency Exchange Fluctuations
Translation Adjustment — The accounts of the Company was maintained, and its financial statements were expressed, in New Taiwan Dollar (“NTD”). Such financial statements were translated into U.S. Dollars (“$” or “USD”) in accordance ASC 830, "Foreign Currency Matters", 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 as a component of stockholders’ equity.
As of December 31, 2016 and December 31, 2015 the exchange rates between the NTD and the USD ($) were NTD1=$0.03086 and NTD1=$0.03050, respectively. The weighted-average rates of exchange between NTD and USD were NTD1=$0.03103 and NTD1=$0.03150 for the years ended December 31, 2016 and December 31, 2015, respectively. Total translation adjustment recognized as of December 31, 2016 and December 31, 2015 is $578,405 and $587,062, respectively.
Inflation
Our opinion is that inflation has not had, and is not expected to have, a 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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of December 31, 2016, and December 31, 2015.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of Omphalos, Corp, including the notes thereto, together with the report thereon of KCCW Accountancy Corp. is presented beginning at page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Management’s Report of Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Exchange Act Rule 13a-15. With the participation of our Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2016, based on those criteria. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
This Annual Report does not include an attestation report of the Company’s registered accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports or submitted under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Offices and Corporate Governance. Directors and Executive Officers
Name | Age | Position | ||
Sheng-Peir Yang | 60 | President, CEO and Director | ||
Chu Pi Yun | 46 | Chief Financial Officer |
Shen-Peir Yang, President, Chief Executive Officer and Director
Mr. Yang is the Companys sole director. He has been President and Chief Executive Officer of Omphalos since 1991. He holds a degree in Mechanical Engineering from National Taipei University of Technology. Having run the Companys business for almost 20 years, he is very well-qualified, having extensive knowledge of the performance of our business in a variety of economic cycles, to effectively manage our operations during these challenging economic times.
Chu Pi Yun, Chief Financial Officer
Ms. Yun has been with Omphalos since 2000. During that time she functioned in various accounting related positions. She was appointed our Chief Financial Officer in October 2007. Ms. Yun has done extensive accounting coursework. Our director and officers hold office until the earlier of their resignation, or removal or until their successors have been duly elected and qualified.
There are no family relationships among our director or executive officers.
To our knowledge, during the last ten years, none of our director and executive officers (including those of our subsidiaries) been subject to any of the following:
-
A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
-
Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
-
The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
(i) |
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; | |
(ii) |
Engaging in any type of business practice; or | |
(iii) |
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws; |
| The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this item, or to be associated with persons engaged in any such activity; | |
| Found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated; | |
| Found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; | |
| The subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: |
(i) |
Any federal or state securities or commodities law or regulation; or | |
(ii) |
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or | |
(iii) |
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
|
The subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Section 16 Compliance
The Company is not aware of any securities transaction during the fiscal year ended December 31, 2016, or subsequent thereto what would require a filing pursuant to Section 16 of the Exchange Act of 1934, as amended.
Audit Committee Financial Expert
Our current director acts as our audit committee. The current director was elected President in connection with the merger and is not independent. By virtue of his education, business experience and specific experience with the financial reports for the Company, Mr. Sheng-Peir Yang satisfies the requirements for service as an audit committee financial expert, except for his position as the Companys President, which disqualifies him as an independent director, as the term is used in Item 407 of Regulation S-K. An informal search is under way to identify a suitable candidate for service on the Board of Directors as an independent director who would be qualified as an audit committee financial expert.
Audit Committee
We have not yet appointed an audit committee, and our director currently acts as our audit committee. At the present time, we believe that our director is capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The Company, however, recognizes the importance of good corporate governance and intends to add additional directors to the Board of Directors and appoint an audit committee comprised entirely of independent directors, including at least one financial expert.
Limitation on Liability and Indemnification of Directors and Officers
Our articles of incorporation provide that no director or officer shall have any liability to the Company if that person acted in good faith and with the same degree of care and skill as a prudent person in similar circumstances.
Our articles of incorporation and bylaws provide that we will indemnify our directors and officers and may indemnify our employees or agents to the fullest extent permitted by law against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices or positions with us. However, nothing in our articles of incorporation or bylaws protects or indemnifies a director, officer, employee or agent against any liability to which that person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of that persons office or position. To the extent that a director has been successful in defense of any proceeding, the Nevada Revised Statutes provide that the director shall be indemnified against reasonable expenses incurred in connection with the proceeding.
Code of Ethics
We have not as yet adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as we have had only to executive officers and we have not been able to establish a process for auditing compliance or reporting noncompliance. We plan to adopt a code of ethics as independent directors are added to the Board of Directors and additional executive officers are engaged by the Company, when it will be in a better position to implement a process for assuring continued compliance with such code of ethics, at which time, it will be available in print to any person who requests it and on our website, when our website is completed. Any amendments and waivers to the code will also be available in print and on our website.
Item 11. Executive Compensation.
SUMMARY COMPENSATION TABLE
Name and principal position |
Year |
Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan ($) |
Non-
qualified Deferred Compen- sation Earnings ($) |
All other compen- sation ($) |
Total ($) |
||||||||||||||||||
2016 | $ | 68,887 | $ | 68,887 | |||||||||||||||||||||||
Sheng-Peir Yang | 2015 | $ | 69,930 | $ | 69,930 | ||||||||||||||||||||||
CEO and President | 2014 | $ | 73,260 | | | | | | | $ | 73,260 | ||||||||||||||||
Pi-Yun Chu | 2016 | $ | 20,554 | $ | 20,554 | ||||||||||||||||||||||
CFO | 2015 | $ | 20,866 | | | | | | | $ | 20,866 | ||||||||||||||||
2014 | 21,860 | 21,860 |
We have entered into the follow employment agreements:
-
Sheng-Peir Yang entered into an employment agreement with Omphalos on November 30, 2007, to serve as its Chief Executive Officer for a term of two (2) years at an monthly salary of New Taiwan Dollars (NTD) 185,000(approximately $5,741). Mr. Yang is required to comply with the non-competition provision contained within the employment agreement. Either party, with proper notice, may terminate the employment agreement, and the employment agreement will be governed and construed by the laws of the Republic of China. The agreement has renewed annually and remains in effect.
-
Pi-Yun Chu entered into an employment agreement with Omphalos on November 30, 2007, to serve as its Chief Financial Officer for a term of two (2) years at an monthly salary of NTD55,200 (approximately $1,713). Ms. Chu is required to comply with the non-competition provision contained within the employment agreement. Either party, with proper notice, may terminate the employment agreement, and the employment agreement will be governed and construed by the laws of the Republic of China. The agreement has renewed annually and remains in effect.
Outstanding Equity Awards at Fiscal Year-End
As of our fiscal years ended December 31, 2016 and 2015, we did not have any stock option plan or stock incentive plan and there were no outstanding equity awards as of our fiscal years ended December 31, 2016 and 2015. No equity awards were granted during the year ended December 31, 2016.
COMPENSATION OF DIRECTORS
Our Director did not receive compensation for services as a director. Our director did not receive any reimbursement for travel or other expenses incurred in connection with attending meetings of the board and its committees, if any.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of common stock beneficially owned as of March 15, 2016 by (i) those persons or groups known to us to beneficially own more than 5% of our common stock; (ii) each director; (iii) each executive officer; and (iv) all directors and executive officers as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Exchange Act based upon information furnished by persons listed or contained in filings made by them with the SEC or by information provided by such persons directly to us. Except as indicated below, each of the stockholders listed below possesses sole voting and investment power with respect to their shares and the address of each person is c/o Omphalos, Corp.
Percentage of | ||||||
Common Stock | Common Stock | |||||
Beneficially | Beneficially | |||||
Name of Beneficial Owner | Owned | Owned (1) | ||||
Sheng-Peir Yang | 18,449,162 | 61.3% | ||||
Chu Pi Yun | 683,302 | 2.3% | ||||
All officers and directors as a group (2 persons) | 19,132,464 | 63.6% |
* Denotes less than 1%
Beneficial ownership percentages gives effect to the completion of the Share Exchange, and are calculated based on shares of common stock issued and outstanding and is based on a total of 30,063,759 shares of common stock that were issued and outstanding as of March 15, 2017. Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act. The number of shares beneficially owned by a person includes shares of common stock underlying options or warrants held by that person that are currently exercisable or exercisable within 60 days of March 15, 2017. The shares issuable pursuant to the exercise of those options or warrants are deemed outstanding for computing the percentage ownership of the person holding those options and warrants but are not deemed outstanding for the purposes of computing the percentage ownership of any other person. The persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite that persons name, subject to community property laws, where applicable, unless otherwise noted in the applicable footnote.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Our sole director, Mr. Yang, is a named executive officer of the Company and, accordingly, is not independent for purposes of any securities market requirements.
Omphalos does not own any real property. The Company leases an office and a warehouse from the wife of our sole director, Mr. Yang. The annual rent of NT672,000 (NT$56,000 monthly), is approximately US$20,852.
Item 14. Principal Accounting Fees and Services.
Summary of Principal Accounting Fees for Professional Services Rendered
The following table presents the aggregate fees for professional audit services and other services rendered by KCCW Accountancy Corp.
Year | Year | |||||
Ended | Ended | |||||
December | December | |||||
31, 2016 | 31, 2015 | |||||
Audit Fees | $ | 31,000 | $ | 31,000 | ||
Audit-Related Fees | ||||||
Tax Fees | ||||||
All Other Fees | ||||||
$ | 31,000 | $ | 31,000 |
Audit Fees consist of fees billed for the annual audit of our financial statements and other audit services including the provision of consents and the review of documents filed with the SEC.
We do not have an independent audit committee and the full Board of Directors, therefore, serves as the audit committee for all purposes relating to communication with our auditors and responsibility for our audit. All engagements for audit services, audit- related services and tax services are approved in advance by our full Board of Directors. Our Board of Directors has considered whether the provision of the services described above for the fiscal year ended December 31, 2016, is compatible with maintaining the auditors independence.
All audit and non-audit services that may be provided by our principal accountant to us shall require pre-approval by the Board of Directors. Further, our auditor shall not provide those services to us specifically prohibited by the SEC, including bookkeeping or other services related to the accounting records or financial statements of the audit client; financial information systems design and implementation; appraisal or valuation services, fairness opinion, or contribution-in-kind reports; actuarial services; internal audit outsourcing services; management functions; human resources; broker-dealer, investment adviser, or investment banking services; legal services and expert services unrelated to the audit; and any other service that the Public Company Oversight Board determines, by regulation, is impermissible.
Item 15. Exhibits, Financial Statement Schedules.
1. |
Financial Statements: See Index to Consolidated Financial Statements in Part II, Item 8 of the Form 10-K. |
2. |
Financial Statement Schedule: Schedules are included in the Consolidated Financial Statements or notes of this Form 10-K or are not required. |
3. |
Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K. |
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 Companys current report on Form 8-K, filed with the Securities and Exchange Commission (the SEC) on February 11, 2008. | |
3.1 |
Certificate 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 |
Articles of Amendment to the Articles of Incorporation of the Company (incorporated by reference to the Proxy Statement). | |
3.3 |
Agreement and Plan of Merger between Quixit, Inc., a Colorado corporation, and TOP Group Corporation (now known as SOYODO Group Holdings, Inc.), a Delaware corporation (incorporated by reference to the Proxy Statement). | |
3.4 |
By-Laws of the Company (incorporated by reference to the ProxyStatement). | |
3.5 |
Amended and Restated Certificate of Incorporation of the Company Incorporated by reference to the information statement on Schedule 14c filed with the SEC on March 15, 2005). | |
3.6 |
Articles of Amendment to the Articles of Incorporation of the Company (incorporated by reference to the information statement on Schedule 14C filed with SEC on August 26, 2005). | |
3.7 |
Amended and Restated By-Laws of Omphalos, Corp., incorporated by reference to Exhibit 3.7 of the Companys Annual Report on Form 10-K filed with the SEC on March 31, 2009. | |
10.1 |
Employment Agreement with Pi-Yun Chu, incorporated by reference to Exhibit 10.1 to the Companys current report on Form 8-K/A, filed with the SEC on February 20, 2008. | |
10.2 |
Employment Agreement with Shen-Ren Li, incorporated by reference to Exhibit 10.2 to the Companys current report on Form 8-K/A, filed with the SEC on February 20, 2008. | |
10.3 |
Employment Agreement with Sheng-Peir Yang, , incorporated by reference to Exhibit 10.3 to the Companys current report on Form 8-K/A, filed with the SEC on February 20, 2008. | |
10.4 |
Purchase and Sale Agreement with Tamura Corporation, incorporated by reference to Exhibit 10.4 to the Companys Annual Report on Form 10-K, filed with the SEC on March 29, 2011. | |
10.5 |
Lease Agreement for property, incorporated by reference to Exhibit 10.5 to the Companys 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 Companys Annual Report on Form 10-K, filed with the SEC on March 29, 2011. | |
31.1 | ||
31.2 | ||
32.1 |
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act++ | |
32.2 |
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act++ |
++filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Omphalos, Corp. | ||
Dated: March 27, 2017 | By: | /s/ Sheng-Peir Yang |
Sheng-Peir Yang | ||
Chief Executive Officer |
In accordance with the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name | Title | Date | ||
/s/Sheng-Peir Yang | ||||
Chief Executive Officer and Director | March 27, 2017 | |||
Sheng-Peir Yang | ||||
/s/ Chu Pi Yun | Chief Financial Officer (principal | |||
financial and accounting officer) | March 27, 2017 | |||
Chu Pi Yun |
OMPHALOS, CORP.
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2016 AND 2015 AND
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To Board of Directors of
Omphalos Corp.
We have audited the accompanying consolidated balance sheets of Omphalos Corp. and subsidiaries (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders equity, and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial positions of Omphalos Corp. as of December 31, 2016 and 2015, and the consolidated results of their operations and their consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company had net losses of $283,527and $592,278 during the years ended December 31, 2016 and 2015, respectively. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KCCW Accountancy Corp.
Diamond Bar, California
March 25, 2017
The Accompanying Notes Are an Integral Part of the Financial
Statements.
1
OMPHALOS, CORP.
CONSOLIDATED BALANCE SHEETS
December 31, | December 31, | |||||
2016 | 2015 | |||||
Assets | ||||||
Current Assets | ||||||
Cash and cash equivalents | $ | 37,643 | $ | 74,982 | ||
Accounts receivable, net | 82,541 | 777 | ||||
Inventory, net | 97,900 | 106,963 | ||||
Prepaid and other current assets | 26,778 | 43,008 | ||||
Total current assets | 244,862 | 225,730 | ||||
Leasehold Improvements and Equipment, net | 4,295 | 7,194 | ||||
Intangible assets, net | 18,502 | 21,329 | ||||
Deposits | 3,293 | 3,379 | ||||
Total Assets | $ | 270,952 | $ | 257,632 | ||
Liabilities and Stockholders' Equity | ||||||
Current Liabilities | ||||||
Accounts payable | $ | 74,372 | $ | 42,629 | ||
Accrued salaries and bonus | 27,462 | 24,292 | ||||
Accrued expenses | 20,388 | 12,451 | ||||
Income tax payable | 1,225 | - | ||||
Advance from customers | 23,459 | 58,311 | ||||
Due to related parties | 335,322 | 355,025 | ||||
Loan from shareholders, current portion | 154,321 | - | ||||
Total current liabilities | 636,549 | 492,708 | ||||
Non-current Liabilities | ||||||
Loan from shareholders | 771,607 | 609,944 | ||||
Total liabilities | 1,408,156 | 1,102,652 | ||||
Stockholders' Equity | ||||||
Common
stock, $0.0001 par value, 120,000,000 shares authorized,
30,063,759 shares issued and outstanding as of December 31, 2016 and 2015, respectively |
3,007 | 3,007 | ||||
Additional paid-in capital | 47,523 | 47,523 | ||||
Other comprehensive income | 578,405 | 587,062 | ||||
Accumulated deficit | (1,482,612 | ) | ||||
(1,766,139 | ) | |||||
Total Stockholders' equity | (1,137,204 | ) | (845,020 | ) | ||
Total Liabilities and Stockholders' Equity | $ | 270,952 | $ | 257,632 |
The Accompanying Notes Are an Integral Part of the Financial
Statements.
2
OMPHALOS, CORP.
CONSOLIDATED STATEMENTS OF
OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
2016 | 2015 | |||||
Sales, net | $ | 803,165 | $ | 88,833 | ||
Cost of sales | 416,136 | 59,208 | ||||
Gross profit | 387,029 | 29,625 | ||||
Selling, general and administrative expenses | 656,442 | 610,376 | ||||
Loss from operations | (269,413 | ) | (580,751 | ) | ||
Other income (expenses) | ||||||
Interest income | 57 | 281 | ||||
Interest expense | (23,273 | ) | (14,458 | ) | ||
Gain (loss) on foreign currency exchange | 10,334 | 2,650 | ||||
Total other income (expenses) | (12,882 | ) | (11,527 | ) | ||
Loss before provision for income taxes | (282,295 | ) | (592,278 | ) | ||
Provision for income taxes | 1,232 | - | ||||
Net loss | $ | (283,527 | ) | $ | (592,278 | ) |
Weighted average number of common shares: | ||||||
Basic and diluted | 30,063,759 | 30,063,759 | ||||
Net loss per share: | ||||||
Basic and diluted | $ | (0.01 | ) | $ | (0.02 | ) |
Other Comprehensive (Loss) Income: | ||||||
Net loss | $ | (283,527 | ) | $ | (592,278 | ) |
Foreign currency translation adjustment, net of tax | (8,657 | ) | 29,178 | |||
Comprehensive (Loss) Income | $ | (292,184 | ) | $ | (563,100 | ) |
The Accompanying Notes Are an Integral Part of the Financial
Statements.
3
OMPHALOS, CORP.
CONSOLIDATED STATEMENTS OF CHANGE
IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Common Stock | Additional | Accumulated | Comprehensive | |||||||||||||||
Shares | Amount | Paid-in Capital | Deficits | Income | Total | |||||||||||||
Balance at December 31, 2014 | 30,063,759 | 3,007 | 47,523 | (890,334 | ) | 557,884 | (281,920 | ) | ||||||||||
Translation adjustment | - | - | - | - | 29,178 | 29,178 | ||||||||||||
Net loss | - | - | - | (592,278 | ) | - | (592,278 | ) | ||||||||||
Balance at December 31, 2015 | 30,063,759 | $ | 3,007 | $ | 47,523 | $ | (1,482,612 | ) | $ | 587,062 | $ | (845,020 | ) | |||||
Translation adjustment | - | - | - | - | (8,657 | ) | (8,657 | ) | ||||||||||
Net loss | - | - | - | (283,527 | ) | - | (283,527 | ) | ||||||||||
Balance at December 31, 2016 | 30,063,759 | $ | 3,007 | $ | 47,523 | $ | (1,766,139 | ) | $ | 578,405 | $ | (1,137,204 | ) |
The Accompanying Notes Are an Integral Part of the Financial
Statements.
4
OMPHALOS, CORP.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
2016 | 2015 | |||||
Cash flows from operating activities | ||||||
Net loss | $ | (283,527 | ) | $ | (592,278 | ) |
Adjustments to reconcile net income to net cash used in operating activities: | ||||||
Bad debt expense | 23,273 | - | ||||
Amortization and depreciation | 7,432 | 7,812 | ||||
Allowance for inventory value decline | (75,591 | ) | 4,147 | |||
Foreign currency exchange (gain) loss | (10,334 | ) | (2,650 | ) | ||
Changes in assets and liabilities: | ||||||
Decrease (increase) in accounts receivable | (105,468 | ) | 100,716 | |||
Decrease (increase) in inventory | 85,997 | (81,301 | ) | |||
Decrease (increase) in prepaid and other assets | 16,966 | (9,714 | ) | |||
Increase (decrease) in accounts payable | 31,398 | 34,701 | ||||
Increase (decrease) in accrued expenses | 10,722 | (12,212 | ) | |||
Increase (decrease) in income tax payable | 1,232 | - | ||||
Increase (decrease) in advance from customers | (35,745 | ) | 60,232 | |||
Increase(decrease) in due to related parties | (24,105 | ) | 269,793 | |||
Net cash used in operating activities | (357,750 | ) | (220,754 | ) | ||
Cash flows from investing activities | ||||||
Purchase of fixed assets | (1,330 | ) | - | |||
Net cash used in investing activities | (1,330 | ) | - | |||
Cash flows from financing activities | ||||||
Repayment of short-term bank loans | - | (126,007 | ) | |||
Proceeds from loan from shareholders | 310,304 | 315,017 | ||||
Net cash provided by financing activities | 310,304 | 189,010 | ||||
Effect of exchange rate changes on cash and cash equivalents | 11,437 | (302 | ) | |||
Net increase (decrease) in cash and cash equivalents | (37,339 | ) | (32,046 | ) | ||
Cash and cash equivalents | ||||||
Beginning | 74,982 | 107,028 | ||||
Ending | $ | 37,643 | $ | 74,982 | ||
Supplemental disclosure of cash flows | ||||||
Cash paid during the year for: | ||||||
Interest expense | $ | 22,497 | $ | 14,458 | ||
Income tax | $ | - | $ | - |
The Accompanying Notes Are an Integral Part of the Financial
Statements.
5
OMPHALOS, CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 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.
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 companys 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 net loss of $283,527 and $592,278 during the years ended December 31, 2016 and 2015, respectively. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Companys assets and the satisfaction of liabilities in the normal course of business. This presentation presumes funds will be available to finance ongoing research and development, operations and capital expenditures and permit the realization of assets and the payment of liabilities in the normal course of operations for the foreseeable future.
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; (3) The Company plans to continue actively seeing additional funding opportunities to improve and expand upon its product lines.
Accounting 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.
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. Allowance for doubtful debts amounted to $23,148 and $0 as of December 31, 2016 and December 31, 2015, respectively.
Inventory Inventory is carried at the lower of cost or market. Cost is determined by using the specific identification method. The Company periodically reviews the age and turnover of its inventory to determine whether any inventory has become obsolete or has declined in value, and charges to operations for known and anticipated inventory obsolescence. Inventory consists substantially of finished goods and is net of an allowance for slow-moving inventory of $416,428 and $485,767 at December 31, 2016 and 2015, respectively.
Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets as follows:
Automobile | 5 years |
Furniture and fixtures | 3 years |
Machinery and equipment | 3 to 5 years |
Leasehold improvements | 55 years |
Expenditures for major renewals and betterment that extend the useful lives of property and equipment are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the asset and accumulated depreciation are removed from the accounts and the resulting profit or loss is reflected in the statement of income for the period.
Revenue Recognition The Company derives revenues from the sale of equipments and parts to customers. The Companys standard shipping term is Free on Board (FOB) shipping point. The Company recognizes revenue upon shipment for the sales under the term FOB shipping point. For the sales under other shipping term arrangements, such as FOB destination, the Company recognizes revenue when title passes to and the risks and rewards of ownership have transferred to the customer based on the terms of the sales. Usually no returns, discounts or other allowances are provided to customers. Shipping and handling charges to customers are included in net sales. Shipping and handling charges incurred by the Company are included in cost of goods sold.
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 December 31, 2016 and 2015.
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 years ended December 31, 2016 and 2015, the Company did not have any common equivalent shares.
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.
Concentrations
Credit Risk: Financial instruments that subject the Company to credit risk consist primarily of trade accounts receivable and investments. The Company performs ongoing credit evaluations of its customers and maintains an allowance for potential credit losses. The Company regularly evaluates securities to determine whether there has been any diminution in value that is deemed to be other than temporary.
Customers: The Company sells equipment and parts to printed circuit board (PCB) manufacturers in Taiwan and China. The Company performs ongoing credit evaluations of its customers financial condition and generally, requires no collateral. For the year ended December 31, 2015, only one customer accounted for more than 10% of the Companys total revenues, represented approximately 84.6% of its total revenues, and 0% of accounts receivable in aggregate at December 31, 2015. For the year ended December 31, 2016, four customers accounted for more than 10% of the Companys total revenues, represented approximately 96.9% of its total revenues, and 89.4% of accounts receivable in aggregate at December 31, 2016.
Sales for the year | A/R balance as of | ||||||||||||
Customer | 2016 | 2015 | 12/31/2016 | 12/31/2015 | |||||||||
A | $ | 438,210 | $ | 74,393 | $ | - | $ | - | |||||
B | 144,159 | - | 70,454 | - | |||||||||
C | 108,607 | - | 23,148 | - | |||||||||
D | 85,906 | - | - | - |
Suppliers: For the year ended December 31, 2015, 96% of the Companys inventory was purchased from five vendors. For the year ended December 31, 2016, 68.9% of the Companys inventory was purchased from four vendors.
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.
Statement of Cash Flows Cash flows from the Company's operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
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 ASC 830, "Foreign Currency Matters", 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 an average exchange rate for the period.
The resulting translation adjustments are reported under other comprehensive income as a component of stockholders’ equity.
Comprehensive Income — Comprehensive income includes accumulated foreign currency translation gains and losses. The Company has reported the components of comprehensive income on its statements of stockholders’ equity and comprehensive income (loss).
Fair Value of Financial Instruments — The carrying amounts of cash and cash equivalents, accounts receivable, deposits and accounts payable approximate their fair value because of the short maturity of those instruments.
The carrying amounts of the Company's long-term debt approximate their fair value because of the short maturity and/or interest rates which are comparable to those currently available to the Company on obligations with similar terms.
Recently Issued Accounting Pronouncements — In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-17, Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control (“ASU 2016-17”). ASU 2016-17 changes how a reporting entity considers indirect interests held by related parties under common control when evaluating whether it is the primary beneficiary of a VIE. ASU 2016-17 is effective on a retrospective basis for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 reduces diversity in practice by providing guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASU 2016-15 clarifies that when cash receipts and cash payments have aspects of more than one class of cash flows and cannot be separated, classification will depend on the predominant source or use. ASU 2016-15 is effective on a retrospective basis for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases," which requires recognition of lease assets and lease liabilities on the balance sheet of lessees. ASU 2016-02 is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2018, or in fiscal 2020. Early adoption is permitted. ASU 2016-02 requires a modified retrospective transition approach and provides certain optional transition relief. The Company is currently evaluating the effect the adoption of this guidance will have on our consolidated results of operations, financial position and cash flows.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. The original effective date for ASU 2014-09 would have required the Company to adopt beginning in its first quarter of 2018. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) – Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for one year and permits early adoption as early as the original effective date of ASU 2014-09. Accordingly, the Company may adopt the standard in either its first quarter of 2018 or 2019.In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606) – Principal versus Agent Considerations (“ASU 2016-08”), which clarifies the implementation guidance for principal versus agent considerations in ASU 2014-09. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606) – Identifying Performance Obligations and Licensing (“ASU 2016-10”), which amends the guidance in ASU 2014-09 related to identifying performance obligations and accounting for licenses of intellectual property. The Company must adopt ASU 2016-08 and ASU 2016-10 with ASU 2014-09. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the timing of its adoption and the impact of adopting the new revenue standard on its consolidated financial statements.
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 StatementsLiquidation 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 consolidated financial statements for additional disclosure.
NOTE 2. PROPERTY AND EQUIPMENT
The following is a summary of the Companys property and equipment for the years ended December 31:
2016 | 2015 | ||||||
Machinery and equipment | $ | 64,314 | $ | 62,242 | |||
Vehicle | 37,016 | 36,576 | |||||
Leasehold improvements | 11,023 | 10,892 | |||||
112,353 | 109,710 | ||||||
Less: accumulated depreciation | (108,058 | ) | (102,516 | ) | |||
Property and equipment, net | $ | 4,295 | $ | 7,194 |
Depreciation expense for the years ended December 31, 2016 and 2015 were $4,332 and $4,665 respectively.
NOTE 3. OTHER INTANGIBLE ASSETS
The following reconciliation of other intangible assets is as follows:
Gross Carrying | Accumulated | ||||||
Value | Amortization | ||||||
Amortized intangible assets: | |||||||
Patents | $ | 47,082 | $ | 28,580 |
Amortization of intangible assets was $3,100 and $3,147 for the years ended December 31, 2016 and 2015, respectively.
Estimated amortization for the next five years and thereafter is as follows:
2017 | 3,100 | ||
2018 | 3,100 | ||
2019 | 3,100 | ||
2020 | 3,100 | ||
2021 | 3,100 | ||
Thereafter | 3,002 | ||
$ | 18,502 |
NOTE 4. INCOME TAXES
The Company is incorporated in the State of Nevada in the United States of America and is subject to the U.S. federal and state taxation. No provision for income taxes have been made as the Company has no taxable income. Income before income taxes for the years ended December 31, 2016 and 2015 includes the results of operations of Taiwan and British Virgin Islands. Omphalos Corp. (B.V.I.) and All Fine Technology Co., Ltd. (B.V.I.) are incorporated in British Virgin Islands and are not required to pay income tax. Omphalos Corp. and All Fine Technology Co., Ltd. are incorporated in Taiwan and are subject to Taiwan tax law. The statutory tax rate under Taiwan tax law is 17%. Omphalos Corp. and All Fine Techonolgy Co., Ltd. incurred losses for the years 2016 and 2015. As a result, no tax liability was incurred. Omphalos Corp.s losses were qualified for net operating losses carryforward for ten years for income tax purposes under Taiwan tax law. The Company believes that it is more likely than not that the net operating loss will not be utilized in the future. Therefore, the Company has provided full valuation allowance for the deferred tax assets arising from the losses as of December 31, 2016 and 2015. The provision for income taxes calculated at the statutory rates in the combined statements of income is as follows for the years ended December 31:
2016 | 2015 | ||||||
Current provision: | |||||||
Computed (provision for) income taxes at statutory rates in U.S. | $ | - | $ | - | |||
Computed (provision for) income taxes at statutory rates in BVI | - | - | |||||
Computed (provision for)income taxes at statutory rates in Taiwan | 1,232 | - | |||||
Total current provision | 1,232 | - | |||||
Deferred provision: | |||||||
U.S | - | - | |||||
BVI | - | - | |||||
Taiwan- Net operating loss carryforward | 34,941 | 34,341 | |||||
Valuation allowance | (34,941 | ) | (34,341 | ) | |||
Total deferred provision | - | - | |||||
Provision for income taxes | $ | 1,232 | $ | - |
The following is a reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31, 2016 and 2015:
2016 | 2015 | |||
U.S. Federal tax at statutory rate | 34% | 34% | ||
Valuation allowance | (34%) | (34%) | ||
Foreign income tax- Taiwan | 17% | 17% | ||
Other (a) | 0% | (17%) | ||
Effective tax rate | 17% | 0% |
(a) |
Other represents expenses incurred by the Company that are not deductible for Taiwan income taxes and changes in valuation allowance for Taiwanese entities for the years ended December 31, 2016 and 2015, respectively. |
NOTE 5. RELATED-PARTY TRANSACTIONS
Operating Leases
The Company leases its facility from a shareholder under an operating lease agreement which expires on January 31, 2019. The monthly base rent is approximately $1,800. Rent expense under this lease agreement amounted to approximately $20,852 and $21,170 for the years ended December 31, 2016 and 2015, 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 $154,321 for working capital purpose. The term of the loan started from July 30, 2013 with maturity date on July 29, 2015. On July 31, 2015, the loan with the same amount of NT$5,000,000, equivalent approximately $154,321, and the same fixed interest rate of 3% per annum was extended for another two years starting from August 1, 2015 with maturity date on July 31, 2017.
On 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 $154,321 for working capital purpose. The term of the loan started from January 1, 2014 with maturity date on December 31, 2015. On December 31, 2015, the loan with the same amount of NT$5,000,000, equivalent approximately $154,321, and the same fixed interest rate of 3% per annum was extended for another two years starting from January 1, 2016 with maturity date on December 31, 2018.
On July 5, 2015, the Company entered another loan agreement bearing interest at a fixed rate at 3% per annum with its shareholder to advance NT$10,000,000, equivalent approximately $308,643, for working capital purpose. The term of the loan started from July 1, 2015 with maturity date on June 30, 2018.
On July 1, 2016, the Company entered another loan agreement bearing interest at a fixed rate at 3% per annum with its shareholder to advance NT$10,000,000, equivalent approximately $308,643, for working capital purpose. The term of the loan started from July 1, 2016 with maturity date on June 30, 2019.
As of December 31, 2016 and December 31, 2015, there were $925,928 and $609,944 advances outstanding, of which $154,321 and $0 was presented under current liabilities, respectively.
Interest expense was $23,273 and $14,176 for the years ended December 31, 2016 and 2015, respectively.
Advances from related party
The Company also has advanced funds from its officer and shareholder for working capital purposes. The Company has not entered into any agreement on the repayment terms for these advances. The advances bear no interest rate and are due upon demand by shareholders. As of December31, 2016 and December 31, 2015, there were $335,322 and $355,025 advances outstanding, respectively. The outstanding balance bears no interest and is due upon request.
NOTE 6. COMMITTMENT
Operating Leases
The Company leases its office from a related party (Note 5) and warehouse facilities from outside parties under operating leases that expire on various dates through 2020. Rental expense for these leases consisted of approximately $48,736 and $50,105 for the years ended December 31, 2016 and 2015, respectively.
Future minimum lease payments under the operating leases are summarized as follows:
Fiscal Year | Amount | ||
2017 | $ | 43,190 | |
2018 | 35,160 | ||
2019 | 13,151 | ||
2020 | 8,378 | ||
2021 | - | ||
Total | $ | 99,879 |
NOTE 7. SUBSEQUENT EVENTS
The Company evaluated all events or transactions that occurred after December 31, 2016 up through the date the Company issued these financial statements.
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