Item
2.01 Completion of Acquisition or Disposition of Assets
See
Item
1.01 hereof.
NOTE:
The
discussion contained in this Item 2.01 relates primarily to Omphalos.
Information relating to the business and results of operations of the Company
and all other information relating to the Company has been previously reported
in its Annual Report on Form 10-KSB for the year ended December 31, 2006 and
other periodic filings with the SEC and is herein incorporated by reference
to
those reports.
DESCRIPTION
OF OMPHALOS BUSINESS
Organizational
History
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).
Overview
of Business
Omphalos
Corp., through its wholly-owned subsidiaries, 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
to
its customers and sells parts for the equipment.
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.
From
its
in Shenzhen, Shanghai and Kunshan, Omphalos markets its products in both Taiwan
and China. Omphalos’s clients are mainly big name Taiwanese electronics
manufacturing giants, including Quanta Computer Inc., MiTAC International Corp.,
Universal Scientific Industrial Co., ASUS, Gigabyte, and Advantech in Taiwan,
and Foxconn group, QSMC, in China.
Products
Omphalos
offers a wide range of products, including the following:
Saki
Optical Inspection Devices.
The main
purpose of using AOI is to inspect the process of the SMT production line which
can also be considered as the tool for quality assurance and quality
control.
Quality
assurance is the assurance for the back-end process, i.e. the 100% assurance
for
zero-defect of production quality. All defects must be found and then repaired
to achieve this requirement. AOI is normally used at the post-reflow
process for this purpose. Therefore, the AOI plays an important role to detect
all defects and also to support the reparability of all defects.found. Quality
Control is aimed to keep the highest process quality in the factory. In order
to
achieve this purpose, AOI is usually used at the pre-reflow, pre-IC-mounting
or
post-printing processes which enable the monitoring the real situation of the
production line by inspecting all of and the defects. Furthermore, the causes
of
defects are able to be analyzed in real time. During the years ended December
31, 2006 and 2007, approximately 53% and 77% of Omphalos’s revenues were
generated by these devices, respectively.
Tamura
N2 Reflow Ovens.
Omphalos offers the Tamura 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. During
the
years ended December 31, 2006 and 2007, approximately 47% and 23% of Omphalos’s
revenues were generated by these machines, respectively.
Argus
Management Information System.
This
system consists of Scanner Stations networked to a Datastore. These scanners
can
be placed at any point in the production line as they are intended to collect
and analyze production data. As a laser barcoded pcb passes through the Argus
Scanner Station, the circuit board is identified (scanned), the time is noted
and stored. Data is then aggregated and analyzed to compute bottle necks in
production (actual vs. desired). To date, the Company has not derived any
significant revenues from this system.
Marketing
Most
of
the Omphalos’s 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’s
customers include a number of major electronic manufacturing companies,
including the following
Name
|
|
Location
|
|
Percentage Revenues for
the Year ended
December 31, 2006
|
|
|
|
|
|
|
|
Quanta
Computer
|
|
Taiwan
based publicly traded company; original design manufacturer of laptop
computers
|
|
39
|
%
|
|
|
|
|
|
|
Hon
Hai
|
|
Taiwan
based publicly traded company; manufacturing services provider to
Computer, Communication and Consumer-electronics leaders
|
|
21
|
%
|
|
|
|
|
|
|
Universal
Scientific Industrial
|
|
US
based publicly traded company; Information and communications
products
|
|
10
|
%
|
|
|
|
|
|
|
MiTac
|
|
Taiwan
based publicly traded company; Computer products design and
production
|
|
9
|
%
|
Regulations
Omphalos
is not subject to any significant government regulation that is particular
to
its business.
Competition
Omphalos’s
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.
Omphalos
has been granted the following patents:
Name
|
|
Patent
No
|
|
Country
|
|
Patent
Term
|
Automatically
Labeling and Inspecting Apparatus and Method of Use
|
|
M277230
|
|
Taiwan
|
|
2005/10/1-20/15-1/30
|
Automatically
Marking and Reading/Distinguishing Apparatus and Method of
Use
|
|
M277229
|
|
Taiwan
|
|
2005/10/1-20/15-1/30
|
In
addition it has the following patents pending:
Name
|
|
Number
|
|
Country
|
Automatically
Labeling and Inspecting Apparatus and Method of Use
|
|
200510052694.4
|
|
China
|
Automatically
Marking and Reading/Distinguishing Apparatus and Method of
Use
|
|
200510052693.X
|
|
China
|
Servo
Motor Conntrol Method and Apparatus Using the Same
|
|
2007-241297
|
|
Japan
|
Servo
Motor Conntrol Method and Apparatus Using the Same
|
|
096114150
|
|
Taiwan
|
Servo
Motor Conntrol Method and Apparatus Using the Same
|
|
200710107348.0
|
|
China
|
Automatically
Labeling and Inspecting Apparatus and Method of Use
|
|
11/248,218
|
|
U.S.A
|
Automatically
Marking and Reading/Distinguishing Apparatus and Method of
Use
|
|
11/248,212
|
|
U.S.A
|
Employees
As
of
December 1, 2007, Omphalos had 20 full-time employees, as follows:
Management
|
|
3
|
Technical
|
|
10
|
Administrative
|
|
4
|
Sales
|
|
3
|
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.
Omphalos
does not own any real property. The company leases an office and a warehouse
from a shareholder. The office maintains office administration and sales
facilities and the warehouse maintains inventory, and research and design
facilities. The location of the office and warehouse are 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. The office space is
approximately 3,700 square feet and the warehouse space is approximately 4,034
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 are
both from January 1, 2007 to December 31, 2008 and the company pays a
monthly rent of approximately $2,200 for the periods ended September
30, 2007 and 2006, respectively. Rent expenses under the office and
warehouse lease agreements amounted to approximately $19,800 and $11,880 for
the
periods ended September 30, 2007 respectively.
Legal
Proceedings
From
time
to time, Omphalos may be named in claims arising in the ordinary course of
business. Currently, no legal proceedings or claims are pending against or
involving Omphalos that could reasonably be expected to have a material adverse
effect on its business and financial condition.
MANAGEMENT’S
DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
Forward
Looking Statements
Some
of
the statements contained in this Form 8-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 8-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
8-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.
Company
Overview
Omphalos
Corp., through its wholly-owned subsidiaries 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
to
its customers and sells parts for the equipment.
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
equivalents are included at cost, which approximates market. At September 30,
2007, the Company’s cash equivalents were held primarily by three financial
institutions. The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents, while those having
original maturities in excess of three months are classified as investments
or
as long-term investments when maturities are in excess of one year. Investment
and long-term investments consist of certificates of deposit (CDs) and
marketable securities.
At
the
date of acquisition of an investment security, management designates the
security as belonging to a trading portfolio, an available-for-sale portfolio,
or a held-to-maturity portfolio. Currently, the Company holds no securities
designated as held-to-maturity or available-for-sale. All investment securities
are classified as trading according to management’s intent and carried at fair
value. Unrealized holding gains and losses for trading securities are included
in earnings.
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 $156,871 and $203,704 at
September 30, 2007 and December 31, 2006, respectively.
Intangible
Assets
—
Include
cost of patent applications that are deferred and charged to operations over
their useful lives. The accumulated amortization is $1,004 and $629 at September
30, 2007 and December 31, 2006, respectively. Annual amortization expense of
such intangible assets is expected to be $495 per year for the next five
years.
Foreign-currency
Transactions
—
Foreign-currency
transactions are recorded in New Taiwan dollars (“NTD”) at the rates of exchange
in effect when the transactions occur. Gains or losses resulting from the
application of different foreign exchange rates when cash in foreign currency
is
converted into New Taiwan dollars, or when foreign-currency receivables or
payables are settled, are credited or charged to income in the year of
conversion or settlement. On the balance sheet dates, the balances of foreign
currency assets and liabilities are restated at the prevailing exchange rates
and the resulting differences are charged to current income except for those
foreign currencies denominated investments in shares of stock where such
differences are accounted for as translation adjustments under stockholders’
equity.
Translation
Adjustment
—
The
accounts of the Company was maintained, and its financial statements were
expressed, in New Taiwan Dollar (“NTD”). Such financial statements were
translated into U.S. Dollars (“$” or “USD”) in accordance SFAS No. 52, "Foreign
Currency Translation", with the NTD as the functional currency. According to
the
Statement, all assets and liabilities are translated at the current exchange
rate, stockholder's equity are translated at the historical rates and income
statement items are translated at the weighted average exchange rate for the
period. The resulting translation adjustments are reported under other
comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive
Income" as a component of shareholders’ equity.
As
of
September 30, 2007 and December 31, 2006 the exchange rates between the NTD
and
the USD ($) were NTD1=$0.03063 and NTD1=$0.03069, respectively. The
weighted-average rates of exchange between NTD and USD were NTD1=$0.03031 and
NTD1=$0.03086 for the nine months ended September 30, 2007 and September 30,
2006, respectively. Total translation adjustment recognized as of September
30,
2007 and December 31, 2006 is $289,094 and $213,824, respectively.
Recently
Issued Accounting Pronouncements
—
In
February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments-an amendment of FASB Statements No. 133 and 140", to
simplify and make more consistent the accounting for certain financial
instruments. SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", to permit fair value re-measurement for
any
hybrid financial instrument with an embedded derivative that otherwise would
require bifurcation, provided that the whole instrument is accounted for on
a
fair value basis. SFAS No. 155 amends SFAS No. 140, "
Accounting
for the Impairment or Disposal of Long-Lived Assets
", to
allow a qualifying special-purpose entity to hold a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. SFAS No. 155 applies to all financial instruments acquired
or issued after the beginning of an entity's first fiscal year that begins
after
September 15, 2006, with earlier application allowed. The adoption of this
statement did not have a material effect on the Company's financial position
or
results of operations.
In
March
2006, the FASB issued Statement No. 156, "Accounting for Servicing of Financial
Assets”(“SFAS 156”), an amendment of FASB Statement No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
This statement requires all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable, and permits
for
subsequent measurement using either fair value measurement with changes in
fair
value reflected in earnings or the amortization and impairment requirements
of
Statement No. 140. The subsequent measurement of separately recognized servicing
assets and servicing liabilities at fair value eliminates the necessity for
entities that manage the risks inherent in servicing assets and servicing
liabilities with derivatives to qualify for hedge accounting treatment and
eliminates the characterization of declines in fair value as impairments or
direct write-downs. SFAS No. 156 is effective for an entity's first fiscal
year
beginning after September 15, 2006. The adoption of this statement did not
have
a material effect on the Company's financial position or results of
operations.
In
July
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes
a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. This Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. This Interpretation is effective for fiscal years
beginning after December 15, 2006, with earlier adoption permitted. The adoption
of this statement did not have a material effect on the Company's financial
position or results of operations.
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurement,
which provides guidance for applying the definition of fair value to various
accounting pronouncements” (“SFAS 157”). SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. The
Company is currently evaluating the provisions of SFAS
157.
In
September 2006, the FASB also issued Statement No. 158, “Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). SFAS
158 amends SFAS 87, 88, 106, and 132R, and requires employers to recognize
the
overfunded or underfunded status of defined benefit postretirement plans as
an
asset or liability in its statement of financial position. SFAS No. 158 is
effective as of the end of fiscal years ending after December 15, 2006. SFAS
158
is not applicable to the Company, as it does not have a defined benefit pension
plan. In September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin 108 ("SAB 108"), considering the Effect of Prior Year
Misstatements when Quantifying Misstatements in the Current Year Financial
Statements, that addresses how uncorrected errors in previous years should
be
considered when quantifying errors in the current year financial statements.
SAB
108 is effective for fiscal years ending November 15, 2006 and, upon adoption,
companies are allowed to record the effects as a cumulative-effect adjustment
to
retained earnings. The adoption of this statement did not have a material effect
on the Company's financial position or results of operations.
In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an Amendment of FASB Statement No. 115”. This statement permits
entities to choose to measure many financial instruments and certain other
items
at fair value. Most of the provisions of SFAS No. 159 apply only to entities
that elect the fair value option. However, the amendment to SFAS No. 115
“Accounting for Certain Investments in Debt and Equity Securities” applies to
all entities with available-for-sale and trading securities. SFAS No. 159 is
effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provision of SFAS No. 157, “Fair Value Measurements”. This adoption
of this statement is not expected to have a significant effect on the Company’s
future reported financial position or results of operations.
Results
of Operations
Three
Months Ended September 30, 2007 and September 30,
2006
Net
Sales.
Net
sales for the three months ended September 30, 2007 were $2,907,249 compared
to
$3,148,646 for the three months ended September 30, 2006. The decrease in net
sales was due to a general decrease in business to existing customers, as
compared to sales volume in the 2006 period, which was affected by the increased
competition.
Cost
of Sales.
Cost of
sales for the three months ended September 30, 2007 was $1,897,694 or 65.3%
of
net sales, as compared to $1,954,056 or 62.1% of net sales, for the three months
ended September 30, 2006. The increase in cost of sales as a percentage of
net
sales was due to an increase in purchase cost, which was affected by the
increase in vendors’ manufacturing costs, especially the cost increase in
materials, such as stainless steel.
Selling,
General and Administrative Expenses
.
Selling,
general and administrative expenses for the three months ended September 30,
2007 were $468,093 or 16.1% of net sales, as compared to $310,603 or 9.9% of
net
sales, for the three months ended September 30, 2006. The increase in selling,
general and administrative expenses as a percentage of net sales was due to
the
decrease in sales, increases in traveling expenses, payroll expenses, and
professional service fees.
Income
from Operations
.
Income
from operations for the three months ended September 30, 2007 was $ 541,462
as
compared to $883,987 for the three months ended September 30, 2006. The decrease
in income from operations for the three months ended September 30, 2007 compared
with income from operations for the three months ended September 30, 2007
resulted primarily from a decrease in net sales and an increase in selling,
general and administrative expenses as described above.
Other
Income
.
Other
income for the three months ended September 30, 2007 was $288,762 as compared
to
$111,030 for the three months ended September 30, 2006. This change was
primarily attributable to the additional income recognized on a lawsuit
settlement.
Net
Income
.
Net
income for the three months ended September 30, 2007 was $830,224 as compared
to
$995,017 for the three months ended September 30, 2006. The decrease in net
income was due to the reasons described above.
Nine
Months Ended September 30, 2007 and September 30,
2006
Net
Sales
.
Net
sales for the nine months ended September 30, 2007 were $7,820,401 compared
to
$12,837,880 for the nine months ended September 30, 2006. The decrease in net
sales was due to a general decrease in business to existing customers, as
compared to sales volume in the 2006 period, which was affected by the increased
competition.
Cost
of Sales
.
Cost of
sales for the nine months ended September 30, 2007 was $5,161,989 or 66.0%
of
net sales, as compared to $9,226,621 or 71.9% of net sales, for the nine months
ended September 30, 2006. The decrease in cost of sales as a percentage of
net
sales was due to that the Company had a fixed price purchase contract with
one
of its major vendor for Automated Optical Inspection (AOI) machines for the
2007
period. Therefore, the purchase cost remained relatively constant as compared
to
the increase in sales prices. The decrease in purchase cost as a percentage
of
sales for AOI machines was partially offset by an increase in purchase cost
of
other products, which was affected by the increase in vendors’ manufacturing
costs, especially the cost increase in materials, such as stainless
steel.
Selling,
General and Administrative Expenses
.
Selling,
general and administrative expenses for the nine months ended September 30,
2007
were $1,330,919 or 17.0% of net sales, as compared to $1,026,940 or 8.0% of
net
sales, for the nine months ended September 30, 2006. The increase in selling,
general and administrative expenses as a percentage of net sales was due to
the
decrease in sales, increases in traveling expenses, payroll expenses, and
professional service fees.
Income
from Operations
.
Income
from operations for the nine months ended September 30, 2007 was $ 1,327,493
as
compared to $2,584,319, for the nine months ended September 30, 2006. The
decrease in income from operations for the nine months ended September 30,
2007
compared with income from operations for the nine months ended September 30,
2007 resulted primarily from a decrease in net sales and an increase in selling,
general and administrative expenses as described above.
Other
Income
.
Other
income for the nine months ended September 30, 2007 was $463,895 as compared
to
$386,345 for the nine months ended September 30, 2006. This change was primarily
attributable to the additional income recognized on a lawsuit
settlement.
Net
Income
.
Net
income for the nine months ended September 30, 2007 was 1,791,388 as compared
to
$2,970,664 for the nine months ended September 30, 2006. The decrease in net
income was due to the reasons described above.
Years
Ended December 31, 2006 and December 31, 2005
Net
Sales
.
Net
sales for the year ended December 31, 2006 were $13,782,980 compared to
$17,309,701 for the year ended December 31, 2005. The decrease in net sales
was
due to a general decrease in business to existing customers, as compared
to
sales volume in the 2005 period.
Cost
of Sales
.
Cost of
sales for the year ended December 31, 2006 was $10,085,907 or 73.2% of net
sales, as compared to $14,367,572 or 83.0% of net sales, for the year ended
December 31, 2005. Cost of sales decreased by 9.8% as a percentage of net
sales.
The Company replaced a vendor of reflow soldering ovens with another in 2005.
Since it was the first year business relationship with the new vendor, the
purchase term was not as favorable. The Company was able to negotiate for
better
purchase prices with the vendor in 2006.
Selling,
General and Administrative Expenses
.
Selling,
general and administrative expenses for the year ended December 31, 2006
were
$2,378,892 or 17.3% of net sales, as compared to $1,848,955 or 10.7% of net
sales, for the year ended December 31, 2005. The increase in selling, general
and administrative expenses was mainly due to the increase in employee bonus
and
professional service fees.
Income
from Operations
.
Income
from operations for the year ended December 31, 2006 was $ 1,318,181 as compared
to $1,093,174, for the year ended December 31, 2005. The increase in income
from
operations for the year ended December 31, 2006 compared with income from
operations for the year ended December 31, 2005 resulted primarily from a
increase in sales margin, which was partially offset by an increase in selling,
general and administrative expenses as described above.
Other
Income
.
Other
income for the year ended December 31, 2006 was $317,736 as compared to $377,310
for the year ended December 31, 2005. This change was primarily attributable
to
decrease in commission income and gain on currency exchange, which is partially
offset by the increase in interest income and decease in loss on inventory
value
decline.
Net
Income
.
Net
income for the year ended December 31, 2006 was $1,635,916 as compared to
$1,470,485 for the year ended December 31, 2005. The increase in net income
was
due to the reasons described above.
Liquidity
and Capital Resources
Cash
and
cash equivalents were $5,673,891 at September 30, 2007 and $9,124,178 at
December 31, 2006. Our total current assets were $14,294,402 at September
30,
2007 as compared to $12,035,540 at December 31, 2006. Our total current
liabilities were $4,544,425 at September 30, 2007 as compared to $4,357,378
at
December 31, 2006.
We
had
working capital at September 30, 2007 of $9,749,977 compared with working
capital of $7,678,162 at December 31, 2006. This increase in working capital
was
due to increases in accounts receivable and in due from shareholders. During
the
nine months ended September 30, 2007, net cash used in operating activities
was
$991,877. Net cash used in investing activities was $272,031, and net cash
provided by financing activities was $(4,609,566). Net change in cash and
cash
equivalents was $(3,450,287).
Capital
Expenditure
Total
capital expenditures during the nine months ended September 30, 2007 was
$(10,883).
Current
Exchange Fluctuations
As
of
September 30, 2007, the accounts of Omphalos, Inc. were maintained, and their
financial statements were expressed, in New Taiwan Dollar (“NTD”). Such
financial statements were translated into U.S. Dollars (“$” or “USD”) in
accordance with Statement of Financial Accounts Standards (SFAS) No. 52,
"Foreign Currency Translation", with the NTD as the functional currency.
According to the Statement, all assets and liabilities were translated at
the
current exchange rate, stockholder's equity is translated at the historical
rates and income statement items are translated at the weighted average exchange
rate for the period. The resulting translation adjustments are reported under
other comprehensive income in accordance with SFAS No. 130, "Reporting
Comprehensive Income" as a component of shareholders’ equity.
As
of
September 30, 2007 and December 31, 2006 the exchange rates between the NTD
and
the USD ($) were NTD1=$0.03063 and NTD1=$0.03069, respectively. The
weighted-average rates of exchange between NTD and USD were NTD1=$0.03031
and
NTD1=$0.03086 for the nine months ended September 30, 2007 and September
30,
2006, respectively. Total translation adjustment recognized as of September
30,
2007 and December 31, 2006 is $289,094 and $213,824, respectively.
RISK
FACTORS
An
investment in our securities involves a high degree of risk. In determining
whether to purchase our securities, you should carefully consider all of
the
material risks described below, together with the other information contained
in
this Current Report on Form 8-K before making a decision to purchase our
securities. You should only purchase our securities if you can afford to
suffer
the loss of your entire investment.
RISKS
RELATED TO OUR BUSINESS
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 on our
online marketplaces 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 regulatory or 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.
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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 linewidths, 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 and production capacity to meet rapidly
changing demand. During periods of decreasing demand for our products, we
must
be able to appropriately align its cost structure with prevailing market
conditions, motivate and retain key employees, and effectively manage its
supply
chain. During periods of increasing demand, we must have sufficient
manufacturing capacity and inventory to meet customer demand; attract, retain
and motivate a sufficient number of qualified individuals; and effectively
manage its 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, 2006, three
customers, each of whom accounted for more than 10% of Omphalos’s total
revenues, represented approximately 74% of the its 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 two suppliers.
For
the
year ended December 31, 2006, Omphalos obtained 98% of the equipment that
it
sells to its customers from only two vendors. If either one of these two
vendors
or both were 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 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 its ability to supply equipment, services and related
products that meet the rapidly changing technical and volume requirements
of its
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:
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meet
our capital needs;
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expand
our systems effectively or efficiently or in a timely
manner;
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allocate
our human resources optimally; \
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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.
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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. Yang’s 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 affect 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 and no
market.
It
is
anticipated that there will be a limited trading market for the Company's
common
stock on the National Association of Securities Dealers' ("NASD")
Over-the-Counter Bulletin Board. The lack of an active 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 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 on the NASD's Over-the-Counter Bulletin Board 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 expect to make in the Offering
and 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, reserve discoveries or other business initiatives
by
our competitors;
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our
ability to take advantage of new acquisitions, reserve discoveries
or
other business initiatives;
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fluctuations
in revenue from our oil and gas business as new reserves come to
market;
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changes
in the market for oil and natural gas commodities and/or in the
capital
markets generally;
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·
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changes
in the demand for oil and natural gas, including changes resulting
from
the introduction or expansion of alternative fuels;
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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 our 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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announcements
of technological innovations or new products available to the oil
and gas
industry;
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announcements
by relevant governments pertaining to incentives for alternative
energy
development programs;
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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 following
registration of the shares of common stock issued in this Offering
and/or
future investors in future offerings we expect to make to raise
additional
capital.
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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.
Our
operating results may fluctuate significantly, and these fluctuations may
cause
our stock price to decline.
Our
operating results will likely vary in the future primarily as the result
of
fluctuations in our revenues and operating expenses, including the coming
to
market of oil and natural gas reserves that we are able to develop, expenses
that we incur, the prices of oil and natural gas in the commodities markets
and
other factors. If our results of operations do not meet the expectations
of
current or potential investors, the price of our common stock may
decline.
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.
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 or quoted on the NASD's automated quotation
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). 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 customer’s
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 purchaser’s 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 securities.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information, as of February 5, 2008 with
respect to the beneficial ownership of the Company’s outstanding common stock by
(i) any holder of more than five (5%) percent; (ii) each of the named executive
officers, directors and director nominees; and (iii) our directors, director
nominees and named executive officers as a group. Except as otherwise indicated,
each of the stockholders listed below has sole voting and investment power
over
the shares beneficially owned.
Name
of Beneficial Owner
|
|
Common Stock
Beneficially
Owned
|
|
Percentage of
Common Stock
Beneficially
Owned (1)
|
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Sheng-Peir
Yang
|
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55,347,485
|
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61.3
|
%
|
|
|
|
|
|
|
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|
Chi
Pi Yun
|
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|
2,049,907
|
|
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2.3
|
%
|
|
|
|
|
|
|
|
|
Li
Shen-Ren
|
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4,099,814
|
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4.5
|
%
|
|
|
|
|
|
|
|
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All
officers and directors as a group (5 persons)
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61,497,206
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68.2
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%
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*
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 90,195,000 shares of common stock that were issued and
outstanding as of February 5, 2008. 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 January 5, 2008. 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 person’s name, subject to community property laws, where
applicable, unless otherwise noted in the applicable footnote.
DIRECTORS
AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Executive
Officers and Directors
Below
are
the names and certain information regarding the Company's executive officers,
directors and director nominees. Officers are elected annually by the Board
of
Directors. Each of the following officers and directors were elected on November
22, 2006.
Name
|
|
Age
|
|
Position
|
Sheng-Peir
Yang
|
|
50
|
|
President
and Director
|
Chi
Pi Yun
|
|
36
|
|
Chief
Financial Officer
|
Li
Shen-Ren
|
|
44
|
|
Chief
Operating Officer
|
Shen-Peir
Yang, Chief Executive Officer
Mr.
Yang
has been President of Omphalos since 1991. He holds a degree in Mechanical
Engineering from National Taipei University of Technology.
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.
Li
Shen-Ren, Chief Operating Officer
Mr.
Shen-Ren has been with Omphalos since 1997. He has worked primarily in sales
and
was appointed our Chief Operating Officer in 2007. He holds a degree from
the
Department of Mechanics at Taiwan Technical University.
Our
directors and officers hold office until the earlier of their resignation,
or
removal or until their successors have been duly elected and
qualified.
We
have
entered into the follow Employment Agreements:
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Sheng-Peir
Yang entered into an Employment Agreement (the “Agreement”) with Omphalos
on November 30, 2007, to serve as the Company’s Chief Executive Officer
for a term of 2 years at an annual salary of New Taiwan Dollars
(“NTD”)
185,000 (approximately $4,433). Mr. Yang will have the right to
subscribe
to the Company’s stock, as well as receive other such benefits as may be
made available from time to time by the Company. Mr. Yang will
also be
required to comply with the Non-Competition provision contained
within the
Agreement. Either party, with proper notice, may terminate the
Agreement,
and the Agreement will be governed and construed by the laws of
the
Republic of China.
|
|
·
|
Shen-Ren
Li entered into an Employment Agreement (the “Agreement”) with Omphalos on
November 30, 2007, to serve as the Company’s Chief Operating Officer for a
term of 2 years at an annual salary of NTD96,000 (approximately
$2,300).
Mr. Li will have the right to subscribe to the Company’s stock, as well as
receive other such benefits as may be made available from time
to time by
the Company. Mr. Li will also be required to comply with the
Non-Competition provision contained within the Agreement. Either
party,
with proper notice, may terminate the Agreement, and the Agreement
will be
governed and construed by the laws of the Republic of
China.
|
|
·
|
Pi-Yun
Chu entered into an Employment Agreement (the “Agreement”) with Omphalos
on November 30, 2007, to serve as the Company’s Chief Financial Officer
for a term of 2 years at an annual salary of NTD55,200 (approximately
$1,323). Mr. Chu will have the right to subscribe to the Company’s stock,
as well as receive other such benefits as may be made available
from time
to time by the Company. Mr. Chu will also be required to comply
with the
Non-Competition provision contained within the Agreement. Either party,
with proper notice, may terminate the Agreement, and the Agreement
will be
governed and construed by the laws of the Republic of
China.
|
See
Item
2.01 above.
Item
5.01 Changes in Control of Registrant.
See
Items
1.01 and 2.01 above.
Item
5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
See
Item
2.01 above.
(a)
Financial statements of business acquired.
OMPHALOS
CORP., OMPHALOS CORP. (B.V.I.),
ALL
FINE TECHNOLOGY CO., LTD.,
AND
ALL FINE TECHNOLOGY CO., LTD. (B.V.I.)
COMBINED
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER
31, 2006 AND 2005 AND
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONDENSED
COMBINED FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
CONTENTS
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Page
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|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
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F-1
|
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FINANCIAL
STATEMENTS
|
|
|
|
|
|
|
|
|
|
Combined
Balance Sheets
|
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|
F-2
- F-3
|
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|
Combined
Statements of Income
|
|
|
F-4
|
|
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|
|
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|
Combined
Statements of Changes in Shareholders' Equity and Comprehensive
Income
|
|
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F-5
|
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|
Combined
Statements of Cash Flows
|
|
|
F-6
|
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Notes
to Combined Financial Statements
|
|
|
F-7
- F-17
|
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Page
|
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Condensed
Combined Balance Sheets
|
|
|
F-18
-F-19
|
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|
|
|
Condensed
Combined Statements of Income
|
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F-20
|
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Condensed
Combined Statements of Cash Flows
|
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F-21
|
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|
|
|
|
|
Notes
to Combined Financial Statements
|
|
|
F-22-
F-26
|
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors
Omphalos
Corp., Omphalos Corp.(B.V.I.),
All
Fine
Technology Co., Ltd., and All Fine Technology Co., Ltd.(B.V.I.)
We
have
audited the accompanying combined balance sheets of Omphalos Corp., Omphalos
Corp. (B.V.I.),
All
Fine
Technology Co., Ltd., and All Fine Technology Co., Ltd.(B.V.I.) as of December
31, 2006 and 2005, and the related combined statements of income, shareholders’
equity and comprehensive income (loss), and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We
conducted our audits 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 audits provide a
reasonable basis for our opinion.
In
our
opinion, such financial statements present fairly, in all material respects,
the
combined financial position of Omphalos Corp., Omphalos Corp. (B.V.I.), All
Fine
Technology Co., Ltd., and All Fine Technology Co., Ltd.(B.V.I.) as of December
31, 2006 and 2005, and the combined results of their operations and their
combined cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
Simon
& Edward, LLP
City
of
Industry, California
March
15,
2007
OMPHALOS
CORP., OMPHALOS CORP. (B.V.I.),
ALL
FINE TECHNOLOGY CO., LTD.,
AND
ALL FINE TECHNOLOGY CO., LTD. (B.V.I.)
COMBINED
BALANCE SHEETS
December
31, 2006 and 2005
|
|
2006
|
|
2005
|
|
Assets
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
9,124,178
|
|
$
|
8,102,156
|
|
Accounts
receivable, net
|
|
|
1,795,676
|
|
|
5,733,419
|
|
Inventory,
net
|
|
|
941,986
|
|
|
1,381,460
|
|
Prepaid
and other current assets
|
|
|
93,213
|
|
|
141,079
|
|
Advances
to shareholders
|
|
|
-
|
|
|
62,798
|
|
Short-term
investments
|
|
|
80,487
|
|
|
77,735
|
|
Total
current assets
|
|
|
12,035,540
|
|
|
15,498,647
|
|
|
|
|
|
|
|
|
|
Leasehold
Improvements and Equipment, net
|
|
|
196,061
|
|
|
209,217
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
20,375
|
|
|
20,708
|
|
Deposits
|
|
|
11,601
|
|
|
11,506
|
|
Long-term
investments
|
|
|
1,902,166
|
|
|
1,344,465
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
14,165,743
|
|
$
|
17,084,543
|
|
The
Accompanying Notes Are an Integral Part of the Financial
Statements.
OMPHALOS
CORP., OMPHALOS CORP. (B.V.I.),
ALL
FINE TECHNOLOGY CO., LTD.,
AND
ALL FINE TECHNOLOGY CO., LTD. (B.V.I.)
COMBINED
BALANCE SHEETS
December
31, 2006 and 2005
|
|
2006
|
|
2005
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts
payable
|
|
$
|
3,194,389
|
|
$
|
8,389,573
|
|
Accrued
salaries and bonus
|
|
|
1,057,659
|
|
|
527,188
|
|
Accured
expenses
|
|
|
58,332
|
|
|
47,761
|
|
Customer
deposits
|
|
|
-
|
|
|
733
|
|
Advances
from shareholders
|
|
|
46,998
|
|
|
-
|
|
Total
current liabilities
|
|
|
4,357,378
|
|
|
8,965,255
|
|
|
|
|
|
|
|
|
|
Lont-term
notes payable
|
|
|
-
|
|
|
10,246
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
Capital
contribution
|
|
|
434,215
|
|
|
434,215
|
|
Subscription
receivable
|
|
|
(100,000
|
)
|
|
(100,000
|
)
|
Other
comprehensive income
|
|
|
213,824
|
|
|
150,417
|
|
Retained
Earnings
|
|
|
9,260,326
|
|
|
7,624,410
|
|
Total
shareholders' equity
|
|
|
9,808,365
|
|
|
8,109,042
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
14,165,743
|
|
$
|
17,084,543
|
|
The
Accompanying Notes Are an Integral Part of the Financial
Statements.
OMPHALOS
CORP., OMPHALOS CORP. (B.V.I.),
ALL
FINE TECHNOLOGY CO., LTD.,
AND
ALL FINE TECHNOLOGY CO., LTD. (B.V.I.)
COMBINED
STATEMENTS OF INCOME
For
the Years Ended December 31, 2006 and 2005
|
|
2006
|
|
2005
|
|
Net
sales
|
|
$
|
13,782,980
|
|
$
|
17,309,701
|
|
Cost
of sales
|
|
|
10,085,907
|
|
|
14,367,572
|
|
Gross
profit
|
|
|
3,697,073
|
|
|
2,942,129
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
2,378,892
|
|
|
1,848,955
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
1,318,181
|
|
|
1,093,174
|
|
|
|
|
|
|
|
|
|
Other
income (expenses)
|
|
|
|
|
|
|
|
Commission
income
|
|
|
24,175
|
|
|
181,025
|
|
Rental
income
|
|
|
332
|
|
|
337
|
|
Interest
expense
|
|
|
-
|
|
|
(3,512
|
)
|
Interest
income
|
|
|
266,076
|
|
|
175,289
|
|
Loss
due to inventory value decline
|
|
|
(53,105
|
)
|
|
(194,463
|
)
|
Gain
on foreign currency exchange
|
|
|
76,257
|
|
|
228,833
|
|
Gain
on investment
|
|
|
2,118
|
|
|
3,627
|
|
Miscellaneous
income (expenses)
|
|
|
1,881
|
|
|
(13,825
|
)
|
Total
other income
|
|
|
317,736
|
|
|
377,310
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
1,635,916
|
|
|
1,470,485
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,635,916
|
|
$
|
1,470,485
|
|
The
Accompanying Notes Are an Integral Part of the Financial
Statements.
OMPHALOS
CORP., OMPHALOS CORP. (B.V.I.),
ALL
FINE TECHNOLOGY CO., LTD.,
AND
ALL FINE TECHNOLOGY CO., LTD. (B.V.I.)
COMBINED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE
INCOME
For
the Years Ended December 31, 2006 and 2005
|
|
Capital
|
|
Retained
|
|
Subscription
|
|
Comprehensive
|
|
|
|
|
|
Contribution
|
|
Earning
|
|
Receivable
|
|
Income
(Loss)
|
|
Total
|
|
Balance
at January 1, 2005
|
|
$
|
384,215
|
|
$
|
6,153,925
|
|
$
|
(50,000
|
)
|
$
|
368,910
|
|
$
|
6,857,050
|
|
Capital
contribution
|
|
|
50,000
|
|
|
|
|
|
(50,000
|
)
|
|
|
|
|
-
|
|
Translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
(218,493
|
)
|
|
(218,493
|
)
|
Net
income
|
|
|
-
|
|
|
1,470,485
|
|
|
|
|
|
-
|
|
|
1,470,485
|
|
Balance
at December 31, 2005
|
|
|
434,215
|
|
|
7,624,410
|
|
|
(100,000
|
)
|
|
150,417
|
|
|
8,109,042
|
|
Translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
63,407
|
|
|
63,407
|
|
Net
income
|
|
|
-
|
|
|
1,635,916
|
|
|
|
|
|
-
|
|
|
1,635,916
|
|
Balance
at December 31, 2006
|
|
$
|
434,215
|
|
$
|
9,260,326
|
|
$
|
(100,000
|
)
|
$
|
213,824
|
|
$
|
9,808,365
|
|
The
Accompanying Notes Are an Integral Part of the Financial
Statements.
OMPHALOS
CORP., OMPHALOS CORP. (B.V.I.),
ALL
FINE TECHNOLOGY CO., LTD.,
AND
ALL FINE TECHNOLOGY CO., LTD. (B.V.I.)
COMBINED
STATEMENTS OF CASH FLOWS
For
the Years Ended December 31, 2006 and 2005
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
$
|
1,635,916
|
|
$
|
1,470,485
|
|
Adjustments
to reconcile net income to net cash provided by
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
15,407
|
|
|
31,245
|
|
Loss
due to inventory value decline
|
|
|
13,936
|
|
|
194,463
|
|
Foreign
currency exchange (gains)
|
|
|
(76,257
|
)
|
|
(228,833
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
Decrease in accounts receivable
|
|
|
3,992,622
|
|
|
(3,173,008
|
)
|
(Increase)
Decrease in inventory
|
|
|
437,765
|
|
|
(310,293
|
)
|
Decrease
in prepaid and other assets
|
|
|
49,121
|
|
|
130,726
|
|
Increase
(Decrease) in accounts payable
|
|
|
(5,274,379
|
)
|
|
4,972,462
|
|
Increase
(Decrease) in accrued expenses
|
|
|
536,628
|
|
|
(436,829
|
)
|
Increase
(Decrease) in other long-term liabilities
|
|
|
(10,350
|
)
|
|
10,492
|
|
Net
cash provided by operating activities
|
|
|
1,320,409
|
|
|
2,660,910
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Acquisition
of equipment
|
|
|
-
|
|
|
(7,391
|
)
|
Acquisition
of intangible assets
|
|
|
-
|
|
|
(21,332
|
)
|
Purchases
of investments
|
|
|
(549,846
|
)
|
|
(41,271
|
)
|
Net
cash (used in) investing activities
|
|
|
(549,846
|
)
|
|
(69,994
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Loans
from (repayment to) related parties
|
|
|
110,528
|
|
|
(64,304
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
110,528
|
|
|
(64,304
|
)
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
140,931
|
|
|
15,066
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
1,022,022
|
|
|
2,541,677
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
Beginning
|
|
|
8,102,156
|
|
|
5,560,479
|
|
Ending
|
|
$
|
9,124,178
|
|
$
|
8,102,156
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flows
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
-
|
|
$
|
3,512
|
|
Income
tax
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of noncash financing activity
|
|
|
|
|
|
|
|
Subscription
receivable from issuance of stocks
|
|
$
|
-
|
|
$
|
50,000
|
|
The
Accompanying Notes Are an Integral Part of the Financial
Statements.
OMPHALOS
CORP., OMPHALOS CORP. (B.V.I.), ALL FINE TECHNOLOGY CO.,
LTD.,
AND
ALL FINE TECHNOLOGY CO., LTD. (B.V.I.)
NOTES
TO
COMBINED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2006 AND 2005
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Organization
— Omphalos
Corp. was incorporated on February 13, 1991 under the laws of Republic of China.
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. Omphalos Corp., Omphalos Corp. (B.V.I.), All Fine Technology
Co., Ltd., and All Fine Technology Co., Ltd.(B.V.I.) (collectively the
“Company”) supply a wide range of equipments and parts including reflow
soldering ovens and automated optical inspection machines for printed circuit
board (PCB) manufacturers in Taiwan and China.
Basis
of Combination
— The
combined financial statements include the accounts of Omphalos Corp., Omphalos
Corp. (B.V.I.), All Fine Technology Co., Ltd., and All Fine Technology Co.,
Ltd.(B.V.I.). These companies are under common control and ownership. All
significant intercompany accounts and transactions are eliminated.
Use
of Estimates
— The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Contingencies
— Certain
conditions may exist as of the date the financial statements are issued, which
may result in a loss to the Company but which will only be resolved when one
or
more future events occur or fail to occur. The Company's management and legal
counsel assess such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to
legal proceedings that are pending against the Company or unasserted claims
that
may result in such proceedings, the Company's legal counsel evaluates the
perceived merits of any legal proceedings or unasserted claims as well as the
perceived merits of the amount of relief sought or expected to be
sought.
If
the
assessment of a contingency indicates that it is probable that a material loss
has been incurred and the amount of the liability can be estimated, then the
estimated liability would be accrued in the Company's financial statements.
If
the assessment indicates that a potential material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material would be
disclosed.
Loss
contingencies considered to be remote by management are generally not disclosed
unless they involve guarantees, in which case the guarantee would be
disclosed.
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Cash
Equivalents, Investments, and Long-term
Investments
— Cash
equivalents are included at cost, which approximates market. At December 31,
2006, the Company’s cash equivalents were held primarily by three financial
institutions. The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents, while those having
original maturities in excess of three months are classified as investments
or
as long-term investments when maturities are in excess of one year. Investment
and long-term investments consist of certificates of deposit (CDs) and
marketable securities.
At
the
date of acquisition of an investment security, management designates the
security as belonging to a trading portfolio, an available-for-sale portfolio,
or a held-to-maturity portfolio. Currently, the Company holds no securities
designated as held-to-maturity or available-for-sale. All investment securities
are classified as trading according to management’s intent and carried at
fair value. Unrealized holding gains and losses for trading securities are
included in earnings.
Accounts
Receivable
— Accounts
receivable are carried at original invoice amount less an estimate for doubtful
receivables based on a review of all outstanding amounts at year end. Management
determines the allowance for doubtful accounts by using historical experience
applied to an aging of accounts. Trade receivables are written off when deemed
uncollectible. 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 $203,704 and $189,909 at
December 31, 2006 and 2005, 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.
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Other
Intangible Assets
— Other
intangible assets consist of patents and are accounted for at historical costs.
The Company amortizes other intangible assets over their useful lives, as
applicable.
Effective
July 2002, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets." The adoption of SFAS
No. 142 requires an initial impairment assessment involving a comparison of
the
fair value of trademarks, patents and other intangible assets to current
carrying value. No impairment loss was recognized for the year ended December
31, 2006. Patents, trademarks, and other intangible assets determined to have
indefinite useful lives are not amortized. The Company tests such intangible
assets with indefinite useful lives for impairment annually, or more frequently
if events or circumstances indicate that an asset might be impaired. Trademarks,
patents, and other intangible assets determined to have definite lives are
amortized over their useful lives or the life of the trademark and other
intangible asset, whichever is less.
Revenue
Recognition
— The
Company recognizes revenue in accordance with Staff Accounting Bulletin No.
104,
Revenue Recognition ("SAB104"), which superceded Staff Accounting Bulletin
No.
101, Revenue Recognition in Financial Statements ("SAB101"). SAB 104 requires
that four basic criteria must be met before revenue can be recognized: (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred; (3)
the
selling price is fixed and determinable; and (4) collectibility is reasonably
assured. Determination of criteria (3) and (4) are based on management's
judgments regarding the fixed nature of the selling prices of the products
delivered and services performed and the collectibility of those amounts.
Provisions for discounts and rebates to customers, estimated returns and
allowances, and other adjustments are provided for in the same period the
related sales are recorded. The Company defers any revenue for which the product
has not been delivered or service has not been performed or is subject to refund
until such time that the Company and the customer jointly determine that the
product or service has been delivered or performed or no refund will be
required.
The
Company derives revenues from the sale of equipments and parts to customers.
The
Company recognizes this revenue when title passes to and the risks and rewards
of ownership have transferred to the customer based on the terms of the sales,
and is recorded net of returns, discounts and allowances. Shipping and handling
charges to customers are included in net sales. Shipping and handling charges
incurred by the Company are included in cost of good sold.
SAB
104
incorporates Emerging Issues Task Force 00-21 ("EITF 00-21"),
Multiple-Deliverable Revenue Arrangements. EITF 00-21 addresses accounting
for
arrangements that may involve the delivery or performance of multiple products,
services and/or rights to use assets. The effect of implementing EITF 00-21
on
the Company's financial position and results of operations was not
significant.
Research
and Development Expenses
— Research
and development costs are generally expensed as incurred.
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Warranty
Costs
— Substantially
all of the Company’s equpiments are sold with a one- to two-year warranty. The
Company periodically assesses the adequacy of its recorded warranty accrual
and
adjusts the amounts as necessary. The Company estimates its warranty costs
based
on historical warranty claim experience and applies this estimate to the revenue
stream for products under warranty. Future costs for warranties applicable
to
revenue recognized in the current period are charged to cost of revenue. The
warranty accrual is reviewed quarterly to verify that it properly reflects
the
remaining obligation based on anticipated expenditures over the balance of
the
obligation period. Adjustments are made when accrual warranty claim experience
differs from estimate.
To
date,
warranty costs incurred have been minimal in relation to the volume of revenues
and have been within management’s expectation.
Income
Taxes
— Provisions
for income taxes are based on taxes payable or refundable for the current year
and deferred taxes on temporary differences between the amount of taxable income
and pretax financial income and between the tax bases of assets and liabilities
and their reported amounts in the financial statements.
Deferred
income tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective income
tax bases. Deferred income tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled as prescribed in SFAS No. 109. A valuation
allowance is established against deferred tax assets if it is more likely than
not that all, or some portion, of such assets will not be realized.
Stock
Based Compensation
— The
Company adopted Statement of Financial Accounting Standards No 123(R),
“Share-Based Payments” (“SFAS No. 123R”) effective January 1, 2006.
SFAS No. 123R amends existing accounting pronouncements for share-based
payment transactions in which an enterprise receives employee and certain
non-employee services in exchange for (a) equity instruments of the
enterprise or (b) liabilities that are based on the fair value of the
enterprise’s equity instruments or that may be settled by the issuance of such
equity instruments. SFAS No. 123R generally requires such transactions be
accounted for using a fair-value-based method. The Company does not have any
awards of stock-based compensation issued and outstanding at December 31, 2006
and 2005.
Impairment
of Long-Lived Assets
— The
Company adopted SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets", effective December 15, 2001. The Company periodically
evaluates long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. If the estimated future cash flows (undiscounted and without
interest charges) from the use of an asset were less than the carrying value,
a
write-down would be recorded to reduce the related asset to its estimated fair
value.
The
assumptions used by management in determining the future cash flows are
critical. In the event these expected cash flows are not realized, future
impairment losses may be recorded. Management has determined that no impairments
of long-lived assets currently exist.
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
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 equipments 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, 2006, three customers, each of
who
accounted for more than 10% of the Company’s total revenues, represented
approximately 74% of the its total revenues, and 72% of accounts receivable
in
aggregate at December 31, 2006. For the year ended December 31, 2005, four
customers, each of who accounted for more than 10% of the Company’s total
revenues, represented approximately 85% of the its total revenues, and 89%
of
accounts receivable in aggregate at December 31, 2005.
Suppliers:
For the
year ended December 31, 2006, 98% of the Company’s inventory is purchased from
two vendors. Management believes other vendors could supply similar products,
but their terms may not be as favorable as currently being offered by these
vendors. A change in suppliers, however, could cause a delay in availability
of
products and a possible loss of sales, which could adversely affect operating
results.
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.
Translation
Adjustment
— The
accounts of the Company was maintained, and its financial statements were
expressed, in New Taiwan Dollar (“NTD”). Such financial statements were
translated into U.S. Dollars (“$” or “USD”) in accordance SFAS No. 52, "Foreign
Currency Translation", with the NTD as the functional currency. According to
the
Statement, all assets and liabilities are translated at the current exchange
rate, stockholder's equity are translated at the historical rates and income
statement items are translated at the weighted average exchange rate for the
period. The resulting translation adjustments are reported under other
comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive
Income" as a component of shareholders’ equity.
As
of
December 31, 2006 and December 31, 2005 the exchange rates between the NTD
and
the USD ($) were NTD1=$0.03069 and NTD1=$0.03044, respectively. The
weighted-average rates of exchange between NTD and USD were NTD1=$0.03075 and
NTD1=$0.03117 for the years ended December 31, 2006 and December 31, 2005,
respectively. Total translation adjustment recognized as of December 31, 2006
and December 31, 2005 is $213,824 and $150,417, respectively.
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Statement
of Cash Flows
— In
accordance with SFAS No. 95, "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.
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
May 2005, the FASB issued Statement No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154"), a replacement of Accounting Principles Board Opinion
No. 20, "Accounting Changes", and Statement No. 3, "Reporting Accounting Changes
in Interim Financial Statements". SFAS 154 changes the requirements for the
accounting for, and reporting of, a change in accounting principle. Previously,
voluntary changes in accounting principles were generally required to be
recognized by way of a cumulative effect adjustment within net income during
the
period of the change. SFAS 154 requires retrospective application to prior
periods' financial statements, unless it is impracticable to determine either
the period of specific effects or the cumulative effect of the change. SFAS
154
is effective for accounting changes made in fiscal years beginning after
December 15, 2005; however, the statement does not change the transition
provisions of any existing accounting pronouncements. The Company does not
believe adoption of SFAS 154 will have a material effect on its financial
position, cash flows or results of operations.
In
February 2006, the FASB issued Statement No. 155, "Accounting for Certain Hybrid
Financial Instruments" ("SFAS 155"), which amends Statement No. 133, "Accounting
for Derivatives Instruments and Hedging Activities" ("SFAS 133") and Statement
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" ("SFAS 140"). SFAS 155 amends SFAS 133 to narrow
the scope exception for interest-only and principal-only strips on debt
instruments to include only such strips representing rights to receive a
specified portion of the contractual interest or principle cash flows. SFAS
155
also amends SFAS 140 to allow qualifying special-purpose entities to hold a
passive derivative financial instrument pertaining to beneficial interests
that
itself is a derivative instruments. The Company is currently evaluating the
impact this new Standard, but believes that it will not have a material impact
on the Company's financial position.
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recently
Issued Accounting Pronouncements (Continued)
—
In
March
2006, the FASB issued Statement No. 156, "Accounting for
Servicing of Financial Assets” (“SFAS 156”), an amendment of FASB Statement No.
140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement requires all separately
recognized servicing assets and servicing liabilities be initially measured
at
fair value, if practicable, and permits for subsequent measurement using either
fair value measurement with changes in fair value reflected in earnings or
the
amortization and impairment requirements of Statement No. 140. The subsequent
measurement of separately recognized servicing assets and servicing liabilities
at fair value eliminates the necessity for entities that manage the risks
inherent in servicing assets and servicing liabilities with derivatives to
qualify for hedge accounting treatment and eliminates the characterization
of
declines in fair value as impairments or direct write-downs. SFAS No.
156 is effective for an entity's first fiscal year beginning after
September 15, 2006. This adoption of this statement is not expected to have
a
significant effect on the Company’s future reported financial position or
results of operations.
In
July
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes
a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. This Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. This Interpretation is effective for fiscal years
beginning after December 15, 2006, with earlier adoption permitted. The company
is currently evaluating the provisions of FIN 48.
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurement,
which provides guidance for applying the definition of fair value to various
accounting pronouncements” (“SFAS 157”). SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. The
Company is currently evaluating the provisions of SFAS 157.
In
September 2006, the FASB also issued Statement No. 158, “Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). SFAS
158 amends SFAS 87, 88, 106, and 132R, and requires employers to recognize
the
overfunded or underfunded status of defined benefit postretirement plans as
an
asset or liability in its statement of financial position. SFAS No. 158 is
effective as of the end of fiscal years ending after December 15, 2006. SFAS
158
is not applicable to the Company, as it does not have a defined benefit pension
plan.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin 108 ("SAB 108"), considering the Effect of Prior Year Misstatements
when Quantifying Misstatements in the Current Year Financial Statements, that
addresses how uncorrected errors in previous years should be considered when
quantifying errors in the current year financial statements. SAB 108 is
effective for fiscal years ending November 15, 2006 and, upon adoption,
companies are allowed to record the effects as a cumulative-effect adjustment
to
retained earnings. The Company will adopt SAB 108 for its fiscal year ending
December 31, 2006 and is assessing what impact, if any, the adoption of SAB
108
will have on its financial position and results of operations.
2.
|
PROPERTY
AND EQUIPMENT
|
The
following is a summary of the Company’s property and equipment for the years
ended December 31:
|
|
2006
|
|
2005
|
|
Automobiles
|
|
$
|
29,156
|
|
$
|
28,918
|
|
Building
and fixtures
|
|
|
147,890
|
|
|
146,685
|
|
Machinery
and equipment
|
|
|
49,709
|
|
|
49,304
|
|
Leashold
improvements
|
|
|
3,560
|
|
|
3,530
|
|
Land
|
|
|
78,506
|
|
|
77,867
|
|
|
|
|
308,821
|
|
|
306,304
|
|
Less:
accumulated depreciation
|
|
|
(112,760
|
)
|
|
(97,088
|
)
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
196,061
|
|
$
|
209,217
|
|
3.
|
OTHER
INTANGIBLE ASSETS
|
The
following reconciliation of other intangible assets is as follows:
|
|
Gross Carrying
Value
|
|
Accumulated
Amortization
|
|
Patents
|
|
$
|
21,004
|
|
$
|
629
|
|
Amortization
of intangible assets was $504 and $125 for the year ended December 31, 2006
and
2005, respectively.
Estimated
amortization expense for the years ending December 31 is as
follows:
2007
|
|
$
|
504
|
|
2008
|
|
$
|
504
|
|
2009
|
|
$
|
504
|
|
2010
|
|
$
|
504
|
|
2011
|
|
$
|
504
|
|
Income
before income taxes for the years ended December 31, 2006 and 2005 includes
the
results of operations of Taiwan and BVI. 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 provision
for
income taxes calculated at the statutory rates in the combined statements of
income is as follows for the years ended December 31:
|
|
2006
|
|
2005
|
|
Current
provision:
|
|
|
|
|
|
Computed
(provision for) income taxes
at
statutory rates in BVI
|
|
$
|
-
|
|
$
|
-
|
|
Computed
(provision for) income taxes
at
statutory rates in Taiwan
|
|
|
-
|
|
|
-
|
|
Total
current provision
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Deferred
provision:
|
|
|
-
|
|
|
-
|
|
BVI
|
|
|
-
|
|
|
-
|
|
Taiwan
|
|
|
-
|
|
|
|
|
Valuation
allowance
|
|
|
-
|
|
|
-
|
|
Total
deferred provision
|
|
|
-
|
|
|
-
|
|
Provision
for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
Deferred
tax assets and liabilities are measured based on the difference between the
financial statement and tax bases of assets and liabilities at the applicable
tax rates. There were no significant components of the deferred tax for the
years ended December 31, 2006 and 2005.
5.
|
RELATED-PARTY
TRANSACTIONS
|
Operating
Leases
---
The
Company leases its facility from a shareholder under an operating lease
agreement which expires on December 31, 2007. The monthly base rent is
approximately $2,200. Rent expense under this lease agreement amounted to
approximately $26,000 and $26,000 for the years ended December 31, 2006 and
2005, respectively.
Approximately
future minimum annual obligations under the above operating lease at December
31, 2006 are as follows:
2007
|
|
$
|
26,000
|
|
Total
|
|
$
|
26,000
|
|
Advances
to / from Shareholders -
The
advances to or from shareholders are non-interest bearing and without fixed
terms of repayment.
Employees
earn annual vacation leave at the rate of seven days per year for the first
year. Upon completion of the first year of employment, employees earn one
additional day for each additional year. At termination, employees are paid
for
any accumulated annual vacation leave. As of December 31, 2006, vacation
liability existed in the amount of $3,371.
7.
|
OTHER
COMPREHENSIVE INCOME
|
Balances
of related after-tax components comprising accumulated other comprehensive
income (loss), included in stockholders' equity, at December 31, 2006 and 2005
are as follows:
|
|
Foreign Currency
|
|
Accumulated Other
|
|
|
|
Translation
Adjustment
|
|
Comprehensive
Income
|
|
Balance
at January 1, 2005
|
|
$
|
368,910
|
|
$
|
368,910
|
|
Change
for 2005
|
|
|
(218,493
|
)
|
$
|
(218,493
|
)
|
Balance
at December 31, 2005
|
|
|
150,417
|
|
|
150,417
|
|
Change
for 2006
|
|
|
63,407
|
|
|
63,407
|
|
Balance
at December 31, 2006
|
|
$
|
213,824
|
|
$
|
213,824
|
|
Omphalos
Corp. (Taiwan) and All Fine Technology Co., Ltd. (Taiwan) were required to
make
monthly contributions, equal to 2% of salaries and wages, to a pension fund
that
is administered by a pension fund monitoring committee and deposited in the
Central Trust of China in the Republic of China (Taiwan).
Taiwan
has a new pension scheme law effective July 1, 2005. The new pension scheme
is a defined contribution scheme. All new employees who joined Omphalos Corp.
(Taiwan) and All Fine Technology Co., Ltd. (Taiwan) after July 1, 2005 must
participate in the new scheme. Existing employees can choose to stay with the
old scheme or to join the new scheme. Under the new scheme, Omphalos Corp.
(Taiwan) and All Fine Technology Co. (Taiwan) are required to contribute 6%
of
the employees’ salary into employees’ own pension fund accounts managed by the
government.
Contributions
to the pension plan totaled $20,073 and $9,218 for the years ended December
31,
2006 and 2005, respectively.
Letter
of Credit -Inventory
- At
December 31, 2006, the Company has an outstanding irrevocable letter of credit
in the amount of JPY ¥ 7,600,000 or $63,840. This letter of credit, which has
term of three months, collateralizes the Company’s obligation to a third party
for the purchase of inventory. The fair value of this letter of credit
approximates contract values based on the nature of the fee arrangements with
the issuing bank.
Operating
Leases
- The
Company leases office facilities (Note 5), warehouses, and certain equipments
under operating leases that expire through 2008. Rental expense for these leases
was $64,704 and $86,481 for the years ended December 31, 2006 and 2005,
respectively. Future minimum lease commitments on non-cancelable operating
leases are as follows:
For
the year ended
|
|
|
|
|
|
Amount
|
|
2007
|
|
$
|
54,394
|
|
2008
|
|
|
1,440
|
|
|
|
|
|
|
Total
|
|
$
|
55,834
|
|
******
ALL
FINE TECHNOLOGY CO., LTD. (B.V.I.),
OMPHALOS
CORP. (B.V.I.) AND ITS SUBSIDIARIES
CONDENSED
COMBINED BALANCE SHEETS
(Unaudited)
|
|
September 30,
2007
|
|
December 31,
2006
|
|
Assets
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,673,891
|
|
$
|
9,124,178
|
|
Accounts
receivable, net
|
|
|
3,234,455
|
|
|
1,795,676
|
|
Inventory,
net
|
|
|
644,055
|
|
|
941,986
|
|
Prepaid
and other current assets
|
|
|
130,676
|
|
|
93,213
|
|
Due
from shareholders
|
|
|
4,611,325
|
|
|
-
|
|
Short-term
investments
|
|
|
-
|
|
|
80,487
|
|
Total
current assets
|
|
|
14,294,402
|
|
|
12,035,540
|
|
|
|
|
|
|
|
|
|
Leasehold
Improvements and Equipment, net
|
|
|
13,543
|
|
|
196,061
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
23,177
|
|
|
20,375
|
|
Deposits
|
|
|
3,676
|
|
|
11,601
|
|
Long-term
investments
|
|
|
1,600,435
|
|
|
1,902,166
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
15,935,233
|
|
$
|
14,165,743
|
|
The
Accompanying Notes Are an Integral Part of the Financial
Statements.
ALL
FINE TECHNOLOGY CO., LTD. (B.V.I.),
OMPHALOS
CORP. (B.V.I.) AND ITS SUBSIDIARIES
CONDENSED
COMBINED BALANCE SHEETS
(Unaudited)
|
|
2007
|
|
2006
|
|
Liabilities
and Shareholders' Equity
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts
payable
|
|
$
|
4,428,871
|
|
$
|
3,194,389
|
|
Accrued
salaries and bonus
|
|
|
39,490
|
|
|
1,057,659
|
|
Accured
expenses
|
|
|
76,064
|
|
|
58,332
|
|
Advances
from shareholders
|
|
|
-
|
|
|
46,998
|
|
Total
current liabilities
|
|
|
4,544,425
|
|
|
4,357,378
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
Capital
contribution
|
|
|
100,000
|
|
|
434,215
|
|
Subscription
receivable
|
|
|
-
|
|
|
(100,000
|
)
|
Other
comprehensive income
|
|
|
239,094
|
|
|
213,824
|
|
Retained
earnings
|
|
|
11,051,714
|
|
|
9,260,326
|
|
Total
shareholders' equity
|
|
|
11,390,808
|
|
|
9,808,365
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$
|
15,935,233
|
|
$
|
14,165,743
|
|
The
Accompanying Notes Are an Integral Part of the Financial
Statements.
ALL
FINE TECHNOLOGY CO., LTD. (B.V.I.),
OMPHALOS
CORP. (B.V.I.) AND ITS SUBSIDIARIES
CONDENSED
COMBINED STATEMENTS OF INCOME
For
the
Nine Months Ended September 30, 2007 and 2006
(Unaudited)
|
|
Nine
Months Ended
|
|
Three
Months Ended
|
|
|
|
September
30, 2007
|
|
September
30, 2006
|
|
September
30, 2007
|
|
September
30, 2006
|
|
Net
sales
|
|
$
|
7,820,401
|
|
|
12,837,880
|
|
$
|
2,907,249
|
|
$
|
3,148,646
|
|
Cost
of sales
|
|
|
5,161,989
|
|
|
9,226,621
|
|
|
1,897,694
|
|
|
1,954,056
|
|
Gross
Profit
|
|
|
2,658,412
|
|
|
3,611,259
|
|
|
1,009,555
|
|
|
1,194,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
1,330,919
|
|
|
1,026,940
|
|
|
468,093
|
|
|
310,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
1,327,493
|
|
|
2,584,319
|
|
|
541,462
|
|
|
883,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
139,044
|
|
|
150,786
|
|
|
23,476
|
|
|
48,274
|
|
Gain
(loss) on foreign currency exchange
|
|
|
(111,706
|
)
|
|
191,183
|
|
|
(132,520
|
)
|
|
39,713
|
|
Gain
on investment
|
|
|
57,179
|
|
|
33,384
|
|
|
18,756
|
|
|
14,811
|
|
Loss
on sale of property
|
|
|
-
|
|
|
-
|
|
|
2,527
|
|
|
-
|
|
Income
from lawsuit settlement
|
|
|
376,398
|
|
|
-
|
|
|
376,398
|
|
|
-
|
|
Miscellaneous
income
|
|
|
2,980
|
|
|
10,992
|
|
|
125
|
|
|
8,232
|
|
Total
other income
|
|
|
463,895
|
|
|
386,345
|
|
|
288,762
|
|
|
111,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before provision for income taxes
|
|
|
1,791,388
|
|
|
2,970,664
|
|
|
830,224
|
|
|
995,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
$
|
1,791,388
|
|
$
|
2,970,664
|
|
$
|
830,224
|
|
$
|
995,017
|
|
The
Accompanying Notes Are an Integral Part of the Financial
Statements.
ALL
FINE TECHNOLOGY CO., LTD. (B.V.I.),
OMPHALOS
CORP. (B.V.I.) AND ITS SUBSIDIARIES
CONDENSED
COMBINED STATEMENTS OF CASH FLOWS
For
the
Nine Months Ended September 30, 2007 and 2006
(Unaudited)
|
|
September 30,
2007
|
|
September 30,
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
income
|
|
$
|
1,791,388
|
|
$
|
2,970,664
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
9,974
|
|
|
11,806
|
|
Loss
on sale of property
|
|
|
2,527
|
|
|
-
|
|
Foreign
currency exchange loss (gains)
|
|
|
111,706
|
|
|
(191,183
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase)
Decrease in accounts receivable
|
|
|
(1,427,222
|
)
|
|
284,538
|
|
Decrease
in inventory
|
|
|
292,997
|
|
|
409,177
|
|
(Increase)
Decrease in prepaid and other assets
|
|
|
(29,432
|
)
|
|
50,565
|
|
Increase
(Decrease) in accounts payable
|
|
|
1,227,765
|
|
|
(1,998,125
|
)
|
(Decrease)
in accrued expenses
|
|
|
(987,826
|
)
|
|
(531,221
|
)
|
Increase
in other long-term liabilities
|
|
|
-
|
|
|
3,722
|
|
Net
cash provided by operating activities
|
|
|
991,877
|
|
|
1,009,943
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Capital
contribution
|
|
|
96,598
|
|
|
(65,167
|
)
|
Redemption
(purchase) of investments
|
|
|
374,390
|
|
|
-
|
|
Purchase
of equipment
|
|
|
(10,883
|
)
|
|
-
|
|
Proceeds
received from disposition of equipment
|
|
|
115,026
|
|
|
-
|
|
Investments
in subsidiaries
|
|
|
(303,100
|
)
|
|
-
|
|
Purchases
of investments
|
|
|
-
|
|
|
-
|
|
Net
cash provided by (used in) investing activities
|
|
|
272,031
|
|
|
(65,167
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Loans
from (repayment to) related parties
|
|
|
(4,609,566
|
)
|
|
178,571
|
|
Net
cash provided by (used in) financing activities
|
|
|
(4,609,566
|
)
|
|
178,571
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(104,629
|
)
|
|
108,451
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(3,450,287
|
)
|
|
1,231,798
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
Beginning
|
|
|
9,124,178
|
|
|
8,102,156
|
|
Ending
|
|
$
|
5,673,891
|
|
$
|
9,333,954
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flows
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
-
|
|
$
|
-
|
|
Income
tax
|
|
$
|
-
|
|
$
|
-
|
|
The
Accompanying Notes Are an Integral Part of the Financial
Statements.
ALL
FINE TECHNOLOGY CO., LTD. (B.V.I.),
OMPHALOS
CORP. (B.V.I.) AND ITS SUBSIDIARIES
NOTES
TO
THE UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
September
30, 2007
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Basis
of Presentation
—
The
accompanying unaudited condensed combined financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (the “SEC”) Item 310 of Regulation S-B and generally accepted
accounting principles for interim financial reporting. Accordingly, they do
not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for fair presentation have been included. Operating results
for the nine-month period ended September 30, 2007 are not necessarily
indicative of the results that may be expected for the year ended December
31,
2007.
Organization
—
Omphalos Corp. was incorporated on February 13, 1991 under the laws of Republic
of China. 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. These companies are under common control
and
ownership.
On
July
4, 2007, Omphalos Corp. (B.V.I,) acquired both All Fine Technology Co., Ltd.
and
Omphals Corp as wholly owned subsidiaries.
Omphalos
Corp., Omphalos Corp. (B.V.I.), All Fine Technology Co., Ltd., and All Fine
Technology Co., Ltd.(B.V.I.) (collectively the “Company”) supply a wide range of
equipments and parts including reflow soldering ovens and automated optical
inspection machines for printed circuit board (PCB) manufacturers in Taiwan
and
China.
Basis
of Consolidation / Combination
—
The
combined financial statements include the accounts of All Fine Technology Co.,
Ltd. (B.V.I.) and Omphalos Corp. (B.V.I.) and its wholly owned subsidiaries.
All
significant intercompany accounts and transactions are eliminated.
Use
of Estimates
—
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Cash
Equivalents, Investments, and Long-term Investments
—
Cash
equivalents are included at cost, which approximates market. At September 30,
2007, the Company’s cash equivalents were held primarily by three financial
institutions. The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents, while those having
original maturities in excess of three months are classified as investments
or
as long-term investments when maturities are in excess of one year. Investment
and long-term investments consist of certificates of deposit (CDs) and
marketable securities.
At
the
date of acquisition of an investment security, management designates the
security as belonging to a trading portfolio, an available-for-sale portfolio,
or a held-to-maturity portfolio. Currently, the Company holds no securities
designated as held-to-maturity or available-for-sale. All investment securities
are classified as trading according to management’s intent and carried at fair
value. Unrealized holding gains and losses for trading securities are included
in earnings.
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 $156,871 and $203,704 at
September 30, 2007 and December 31, 2006, respectively.
Intangible
Assets
—Include
cost of patent applications that are deferred and charged to operations over
their useful lives. The accumulated amortization is $1,004 and $629 at September
30, 2007 and December 31, 2006, respectively. Annual amortization expense of
such intangible assets is expected to be $495 per year for the next five
years.
Foreign-currency
Transactions
—
Foreign-currency transactions are recorded in New Taiwan dollars (“NTD”) at the
rates of exchange in effect when the transactions occur. Gains or losses
resulting from the application of different foreign exchange rates when cash
in
foreign currency is converted into New Taiwan dollars, or when foreign-currency
receivables or payables are settled, are credited or charged to income in the
year of conversion or settlement. On the balance sheet dates, the balances
of
foreign-currency assets and liabilities are restated at the prevailing exchange
rates and the resulting differences are charged to current income except for
those foreign currencies denominated investments in shares of stock where such
differences are accounted for as translation adjustments under stockholders’
equity.
Translation
Adjustment
—
The
accounts of the Company was maintained, and its financial statements were
expressed, in New Taiwan Dollar (“NTD”). Such financial statements were
translated into U.S. Dollars (“$” or “USD”) in accordance SFAS No. 52, "Foreign
Currency Translation", with the NTD as the functional currency. According to
the
Statement, all assets and liabilities are translated at the current exchange
rate, stockholder's equity are translated at the historical rates and income
statement items are translated at the weighted average exchange rate for the
period. The resulting translation adjustments are reported under other
comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive
Income" as a component of shareholders’ equity.
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Translation
Adjustment (Continued)
—
As
of
September 30, 2007 and December 31, 2006 the exchange rates between the NTD
and
the USD ($) were NTD1=$0.03063 and NTD1=$0.03069, respectively. The
weighted-average rates of exchange between NTD and USD were NTD1=$0.03031 and
NTD1=$0.03086 for the nine months ended September 30, 2007 and September 30,
2006, respectively. Total translation adjustment recognized as of September
30,
2007 and December 31, 2006 is $289,094 and $213,824, respectively.
Recently
Issued Accounting Pronouncements
—
In
February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments-an amendment of FASB Statements No. 133 and 140", to
simplify and make more consistent the accounting for certain financial
instruments. SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", to permit fair value re-measurement for
any
hybrid financial instrument with an embedded derivative that otherwise would
require bifurcation, provided that the whole instrument is accounted for on
a
fair value basis. SFAS No. 155 amends SFAS No. 140, "
Accounting
for the Impairment or Disposal of Long-Lived Assets
", to
allow a qualifying special-purpose entity to hold a derivative financial
instrument that pertains to a beneficial interest other than another derivative
financial instrument. SFAS No. 155 applies to all financial instruments acquired
or issued after the beginning of an entity's first fiscal year that begins
after
September 15, 2006, with earlier application allowed. The adoption of this
statement did not have a material effect on the Company's financial
position or results of operations.
In
March
2006, the FASB issued Statement No. 156, "Accounting for
Servicing of Financial Assets” (“SFAS 156”), an amendment of FASB Statement No.
140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement requires all separately
recognized servicing assets and servicing liabilities be initially measured
at
fair value, if practicable, and permits for subsequent measurement using either
fair value measurement with changes in fair value reflected in earnings or
the
amortization and impairment requirements of Statement No. 140. The subsequent
measurement of separately recognized servicing assets and servicing liabilities
at fair value eliminates the necessity for entities that manage the risks
inherent in servicing assets and servicing liabilities with derivatives to
qualify for hedge accounting treatment and eliminates the characterization
of
declines in fair value as impairments or direct write-downs. SFAS No. 156
is effective for an entity's first fiscal year beginning after September 15,
2006. The adoption of this statement did not have a material effect on the
Company's financial position or results of operations.
In
July
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance
with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes
a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. This Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. This Interpretation is effective for fiscal years
beginning after December 15, 2006, with earlier adoption permitted. The adoption
of this statement did not have a material effect on the Company's financial
position or results of operations.
1.
|
ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Recently
Issued Accounting Pronouncements (Continued)
—
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurement,
which provides guidance for applying the definition of fair value to various
accounting pronouncements” (“SFAS 157”). SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. The
Company is currently evaluating the provisions of SFAS 157.
In
September 2006, the FASB also issued Statement No. 158, “Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans” (“SFAS 158”). SFAS
158 amends SFAS 87, 88, 106, and 132R, and requires employers to recognize
the
overfunded or underfunded status of defined benefit postretirement plans as
an
asset or liability in its statement of financial position. SFAS No. 158 is
effective as of the end of fiscal years ending after December 15, 2006. SFAS
158
is not applicable to the Company, as it does not have a defined benefit pension
plan.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin 108 ("SAB 108"), considering the Effect of Prior Year Misstatements
when Quantifying Misstatements in the Current Year Financial Statements, that
addresses how uncorrected errors in previous years should be considered when
quantifying errors in the current year financial statements. SAB 108 is
effective for fiscal years ending November 15, 2006 and, upon adoption,
companies are allowed to record the effects as a cumulative-effect adjustment
to
retained earnings. The adoption of this statement did not have a material
effect on the Company's financial position or results of
operations.
In
February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No.
159, “
The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
Amendment of FASB Statement No. 115
”.
This
statement permits entities to choose to measure many financial instruments
and
certain other items at fair value. Most of the provisions of SFAS No. 159 apply
only to entities that elect the fair value option. However, the amendment to
SFAS No. 115 “
Accounting
for Certain Investments in Debt and Equity Securities
”
applies
to all entities with available-for-sale and trading securities. SFAS No. 159
is
effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provision of SFAS No. 157, “
Fair
Value Measurements”.
This
adoption of this statement is not expected to have a significant effect on
the
Company’s future reported financial position or results of
operations.
2.
|
RELATED-PARTY
TRANSACTIONS
|
Operating
Leases---
The
Company leases its facility from a shareholder under an operating lease
agreement which expires on December 31, 2007. The monthly base rent is
approximately $2,200. Rent expense under this lease agreement amounted to
approximately $19,800 and $19,800 for the periods ended September 30, 2007
and
2006, respectively.
Approximately
future minimum annual obligations under the above operating lease at September
30, 2007 are as follows:
For
the twelve months ended
|
|
|
|
September
30, 2008
|
|
$
|
6,600
|
|
Total
|
|
$
|
6,600
|
|
Advances
to / from Shareholders -
The
advances to or from shareholders are non-interest bearing and without fixed
terms of repayment.
3.
|
OTHER
COMPREHENSIVE INCOME
|
Balances
of related after-tax components comprising accumulated other comprehensive
income (loss), included in stockholders' equity, at September 30, 2007 and
December 31, 2006 are as follows:
|
|
Foreign
Currency
|
|
Accumulated
Other
|
|
|
|
Translation Adjustment
|
|
Comprehensive Income
|
|
Balance
at January 1, 2006
|
|
$
|
150,417
|
|
$
|
150,417
|
|
Change
for 2006
|
|
|
63,407
|
|
$
|
63,407
|
|
Balance
at December 31, 2006
|
|
|
213,824
|
|
|
213,824
|
|
Change
for 2007
|
|
|
75,270
|
|
|
75,270
|
|
Balance
at September 30, 2007
|
|
$
|
289,094
|
|
$
|
289,094
|
|
On
October 19, 2007, Omphalos Corp. (B.V.I.) completed its acquisition of All
Fine
Technology Co., Ltd. (B.V.I.). The purchase price was $2,095,230, representing
the book value of assets, less liabilities, of All Fine Technology Co., Ltd.
(B.V.I.) at June 30, 2007.
******
(b)
Pro
forma financial information.
Not
applicable.
(c)
Exhibits
Exhibit
Number
|
|
Description
|
2.1
|
|
Share
Exchange Agreement dated February 5, 2008, between the Company and
the
parties set forth on the signature page thereof.*
|
10.1
|
|
Employment
Agreement with Pi-Yun Chu (1)
|
10.2
|
|
Employment
Agreement with Shen-Ren Li (1)
|
10.3
|
|
Employment
Agreement with Sheng-Peir Yang (1)
|
*
Previously filed.
(1)
Attached herewith
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Dated:
February 20, 2008
|
Soyodo
Group Holdings, Inc.
|
|
|
|
|
By:
|
/
s/ Sheng-Peir Yang
|
|
Chief
Executive Officer
|