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UNITED STATES Form 10-Q (Mark One) [ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2012 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM __________TO __________ COMMISSION FILE NUMBER 000-32341 OMPHALOS, CORP.
Indicate by check mark whether the
registrant (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares of registrant’s common stock outstanding, as of May 7, 2012 was 30,063,759. TABLE OF CONTENTS 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. CONTENTS
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See accompanying Notes to Condensed Consolidated Financial Statements 4
See accompanying Notes to Condensed Consolidated Financial Statements 5
See accompanying Notes to Condensed Consolidated Financial Statements 6 OMPHALOS, CORP.
7 Basis of Consolidation— The consolidated financial statements include the accounts of Omphalos Corp. and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated. Going Concern— The Company has incurred a significant net loss during the past two years. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business. This presentation presumes funds will be available to finance ongoing research and development, operations and capital expenditures and permit the realization of assets and the payment of liabilities in the normal course of operations for the foreseeable future. There can be no assurances that there will be adequate financing available to the Company and the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. The Company has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: (1) Tightly budgeting and controlling all expenses; (2) Expanding product lines and recruiting a strong sales team to significantly increase sales revenue and profit in 2012; (3) The Company plans to continue actively seeing additional funding opportunities to improve and expand upon its product lines. Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents— Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. 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 $461,743 and $625,359 at March 31, 2012 and December 31, 2011, respectively. Intangible Assets —Include cost of patent applications that are deferred and charged to operations over their useful lives. The accumulated amortization is $5,089 and $4,665 at March 31, 2012 and December 31, 2011, respectively. Annual amortization expense of such intangible assets is expected to be $1,180 per year for the next five years. 8 Foreign-currency Transactions — Foreign-currency transactions are recorded in New Taiwan dollar (“NTD”) at the rates of exchange in effect when the transactions occur. Gains or losses resulting from the application of different foreign exchange rates when cash in foreign currency is converted into New Taiwan dollar, or when foreign-currency receivables or payables are settled, are credited or charged to income in the year of conversion or settlement. On the balance sheet dates, the balances of foreign-currency assets and liabilities are restated at the prevailing exchange rates and the resulting differences are charged to current income except for those foreign currencies denominated investments in shares of stock where such differences are accounted for as translation adjustments under stockholders’ equity. Translation Adjustment —The Company financial statements are presented in the U.S. dollar ($), which is the Company’s reporting currency, while its functional currency is New Taiwan dollar (“NTD”). Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the consolidated statements of income. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange ruling at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the statements of income. In accordance with ASC 830, Foreign Currency Matters, the Company translates the assets and liabilities into U.S. dollar ($) using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from NTD into U.S. dollar are recorded in stockholders’ equity as part of accumulated other comprehensive income. Recently Issued Accounting Pronouncements — In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and IFRS. The amended guidance changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. The Company adopted the provisions of this ASU in the first quarter of 2012 and does not believe the adoption will have a material impact on its condensed consolidated financial statements. In September 2011, the FASB issued ASU 2011-08, "Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment”, which modifies the impairment test for goodwill. Under the new guidance, an entity is permitted to make a qualitative assessment of whether it is more likely than not that the reporting unit’s fair value is less than the carrying value before applying the two-step goodwill impairment model that is currently in place. If it is determined through the qualitative assessment that a reporting unit's fair value is more likely than not greater than its carrying value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. The Company adopted the provisions of this ASU in the first quarter of 2012 and does not believe the adoption will have a material impact on its condensed consolidated financial statements. 9
****** 10 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q, including this discussion and analysis by management, contains or incorporates forward-looking statements. All statements other than statements of historical fact made in report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations. The potential risks and uncertainties that could cause our actual results to differ materially from those expressed or implied herein are set forth in our Annual Report on Form 10-K for the year ended December 31, 2011. The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management. Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011 Net sales for the three months ended March 31, 2012 were $42,494, as compared to $243,215 for the three months ended March 31, 2011. This represents a decrease of $200,721 or approximately 83% compared to the prior year period. The decrease in net sales is primarily the result of decrease in demand for end products due to poor economic conditions. Cost of sales decreased by $126,367 or approximately 92% to $11,271 for the three months ended March 31, 2012, as compared to $137,638 for the three months ended March 31, 2011. Gross profit for the three months ended March 31, 2012 was $31,223, compared to $105,577 for the same period in 2011. Gross profit as a percentage of net sales was approximately 73% in the first quarter of 2012, compared to approximately 43% in the same period in 2011. The higher gross profit rate in the first quarter of 2012 was primarily due to the costs of machinery sold which was reduced for allowance for price declines in previous periods. For the three months ended March 31, 2012, selling, general and administrative expenses totaled $218,079. This was a decrease of $30,202 or approximately 12% as compared to the same period in 2011. The decrease in selling, general and administrative expenses is primarily the result of the decrease in commission, salary and travel and entertainment expenses. For the three months ended March 31, 2012, loss from operations decreased to $(186,856) as compared to $(142,704) for the three months ended March 31, 2011. This represents an increased loss of $(44,152) or approximately 31% comparing the two periods. The increase of loss from operations for the three months ended March 31, 2012 is primarily the result of a decrease in gross profit due to reduced sales volume, which is partially offset by a decrease in operating expenses. 11 Other income (expenses) was $(13,031) and $17,458 for the three months ended March 31, 2012 and 2011, respectively. This represents increased expense of $(30,489) or a decrease of approximately (175)%. The main reason for this decreased income was a loss on foreign currency exchange of $(13,477), as compared to gain of $17,208 for the prior year period. Our net loss was $(199,887) for the three months ended March 31, 2012 compared to a net loss of $(125,246) for the three months ended March 31, 2011. The decreased loss for the three months ended March 31, 2012 was due to the reasons described above. Liquidity and Capital Resources Cash and cash equivalents were $707,676 at March 31, 2012 and $826,955 at December 31, 2011. Our total current assets were $1,910,022 at March 31, 2012, as compared to $2,075,759 at December 31, 2011. Our total current liabilities were $135,047 at March 31, 2012 as compared to $149,913 at December 31, 2011. We had working capital at March 31, 2012 of $1,774,975 compared with working capital of $1,925,846 at December 31, 2011. This decrease in working capital was primarily due to a decrease in cash and cash equivalents, account receivable, and accrued expenses and an increase in inventory. During the three months ended March 31, 2012, net cash used in operating activities was $122,132. Increased net cash used in operating activities was mainly due to our net loss of $199,887, a decrease in accounts receivable of approximately $81,865, a decrease in inventory of approximately $3,972, an increase in prepaid and other asset of approximately $5,796, an increase in accounts payable of approximately $5,527, and a decrease in accrued expenses of approximately $24,370. Net cash used in investing activities for the three months ended March 31, 2012 was $5,372, which was primarily due to the payment of patent registration. Net change in cash and cash equivalents was a decrease of $119,279 during the three months ended March 31. 2012. Inflation Our opinion is that inflation has not had a material effect on our operations and is not expected to have any material effect on our operations. Climate Change Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk. N/A. Item 4. Controls and Procedures. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (1) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure; and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. 12 There was no change to our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II Item 1. Legal Proceedings. We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business. Item 1A.Risk Factors. The risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2011, filed on March 29, 2012 have not changed except that we disclose a new risk factor related to our securities as follows: The market price of our common stock may limit its eligibility for clearing house deposit. We are advised that if the market price for shares of our common stock is less than $0.10 per share, Depository Trust Company and other securities clearing firms may decline to accept our shares for deposit and refuse to clear trades in our securities. This would materially and adversely affect the marketability and liquidity of our shares and, accordingly may materially and adversely affect the value of an investment in our common stock. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Not Applicable. Item 3. Defaults Upon Senior Securities. Not Applicable. Item 4. Mine Safety Disclosures. None. Item 5. Other Information. Not applicable. 13 Item 6. Exhibits.
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*filed herewith 15 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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