Forward Looking Statements
Some of the statements contained in this Form 10-K that are not historical facts are "forward-looking statements" which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Form 10-K, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties, and other factors affecting our operations, market growth, services, products, and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:
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1. Our ability to attract and retain management, and to integrate and maintain technical information and management information systems; 2. Our ability to generate customer demand for our services; 3. The intensity of competition; and 4. General economic conditions.
All written and oral forward-looking statements made in connection with this Form 10-K that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements. This MD&A should also be read in conjunction with the Item 1.A. "Risk Factors."
Overview
The Company, through
The major equipment manufacturer Omphalos represents is TAMURA, which has complete technical support licensed from the original manufacturers.
The Company operates in an industry characterized by rapid technological changes. It will need additional investments to complete the development and improvement necessary for the development and production of the testing equipment and parts for PCB assembly processes.
The Company's business strategy is to increase its market share by expanding into other industries. Since PCB has a vast application range, the Company is currently researching and developing many additional uses for testing equipment and parts.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of
operations are based on our financial statements that have been prepared under
accounting principle generally accepted in
Basis of Consolidation - The consolidated financial statements include the
accounts of
Going Concern - The Company has incurred net losses during the past two years
and had an accumulated deficit of
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There can be no assurances that there will be adequate financing available to the Company and the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
The Company has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: (1) Tightly budgeting and controlling all expenses; (2) Expanding product lines and recruiting a strong sales team to significantly increase sales revenue and profit; (3) The Company plans to continue actively seeing additional funding opportunities to improve and expand upon its product lines.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in
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.
Accounts Receivable - Accounts receivable are carried at original invoice amount
less estimates made for doubtful receivables. Management determines the
allowance for doubtful accounts on a quarterly basis based on a review of the
current status of existing receivables, account aging, historical collection
experience, subsequent collections, management's evaluation of the effect of
existing economic conditions, and other known factors. The provision is provided
for the above estimates made for all doubtful receivables. Account balances are
charged off against the allowance only when the Company considers it is probable
that a receivable will not be recovered. Recoveries of trade receivables
previously written off are recorded when received. Allowance for doubtful debts
amounted to
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. Allowance for slow-moving inventory amounted to
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:
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. The accumulated depreciation was
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Intangible Assets - Include cost of patent applications that are deferred and
charged to operations over their useful lives. The accumulated amortization is
Impairment of Long-Lived Assets - The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment ("ASC 360-10"). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. Management has determined that no impairments of long-lived assets currently exist.
Revenue Recognition - During the fiscal year 2018, the Company has adopted
Accounting Standards Codification ("ASC"), Topic 606 (ASC 606), Revenue from
Contracts with Customers, using the modified retrospective method to all
contracts that were not completed as of
Pursuant to ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines is within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration the Company is entitled to in exchange for the goods or services the Company transfers to the customers. At inception of the contract, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Merchandise Sales: The Company recognizes net revenues from machinery product sales when customers obtain control of the Company's products, which typically occurs upon delivery to customer. Product revenues are recorded at the net sales price, or "transaction price," which includes applicable reserves for variable consideration, including discounts, allowances, and returns.
Trade discount and allowances: The Company generally provides invoice discounts on product sales to its customers for prompt payment. The Company estimates that, based on its experience, its customers will earn these discounts and fees, and deducts the full amount of these discounts and fees from its gross product revenues and accounts receivable at the time such revenues are recognized.
Product returns: The Company estimates the amount of each product that will be returned and deducts these estimated amounts from its gross revenues at the time the revenues are recognized. For special ordered and customized machinery, no sales returns were allowed.
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To date, product allowance and returns have been minimal and, based on its experience, the Company believes that returns of its products will continue to be minimal.
The following tables provide details of revenue by major products and by geography.
Revenue by Major Products
For the year ended December 31, 2019 December 31, 2018 Laser Machine $ 129,460 $ 439,972 Machine Parts 56,839 87,661 Total $ 186,299 $ 527,633 Revenue by Geography For the year ended December 31, 2019 December 31, 2018 Asia Pacific $ 186,299 $ 527,633 Total $ 186,299 $ 527,633
Leases - The Company adopted FASB Accounting Standards Codification, Topic 842,
Leases ("ASC 842") using the modified retrospective approach, electing the
practical expedient that allows the Company not to restate its comparative
periods prior to the adoption of the standard on
The Company applied the following practical expedients in the transition to the new standard and allowed under ASC 842:
Practical Description
Expedient
Reassessment
and to purchase the underlying asset) and in assessing impairment of right-to-use assets. ReassessmentThe Company elected not to evaluate existing or expired land of existing easements that were not previously accounted for as leases under ASC or expired 840, as allowed under the transition practical expedient. Going land forward, new or modified land easements will be evaluated under ASU easements No. 2016-02. Separation Lease agreements that contain both lease and non-lease components of lease and are generally accounted for separately. non- lease components Short-term The Company also elected the short-term lease recognition exemption lease and will not recognize ROU assets or lease liabilities for leases recognition with a term less than 12 months. exemption
The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use ("ROU") assets and lease liabilities. ROU assets represent the Company's right to use underlying assets for the lease terms and lease liabilities represent the Company's obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. The Company's future minimum based payments used to determine the Company's lease liabilities mainly include minimum based rent payments. As most of Company's leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
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The Company recognized lease liabilities, with corresponding ROU assets, based
on the present value of unpaid lease payments for existing operating leases
longer than twelve months as of
The adoption of ASC 842 had a substantial impact on the Company's consolidated
balance sheets. The most significant impact was the recognition of the operating
lease right-of-use assets and the liability for operating leases. Accordingly,
adoption of this standard resulted in the recognition of operating lease
right-of-use assets of
In addition, the adoption of the standard did not have a material impact on the Company's results of operations or cash flows. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in Selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur.
Research and Development Expenses - Research and development costs are generally
expensed as incurred. The Company did not incur any significant research and
development expenses during the years ended
Income Taxes - The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.
Loss Per Share - The Company has adopted Accounting Standards Codification
subtopic 260-10, Earnings Per Share ("ASC 260-10") which specifies the
computation, presentation and disclosure requirements of earnings per share
information. Basic earnings per share have been calculated based upon the
weighted average number of common shares outstanding. Common equivalent shares
are excluded from the computation of the diluted loss per share if their effect
would be anti-dilutive. For the years ended
Fair Value Measurements - FASB ASC 820, "Fair Value Measurements" defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It requires that an entity measure its financial instruments to base fair value on exit price, maximize the use of observable units and minimize the use of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability of the inputs as follows:
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• Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted prices in active markets that are readily and regularly available. • Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 - Valuations based on inputs that are unobservable and not corroborated by market data. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies, or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability.
The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable, inventory, prepaid expenses, accounts payable, accrued liabilities, and due to related parties, approximate to fair value due to their relatively short maturities. The carrying amounts of the Company's long-term debt approximate to 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.
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 (deficit).
Statement of cash flows - Cash flows from the Company's operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
Translation Adjustment - The accounts of the Company were maintained, and its
financial statements were expressed, in New
Comprehensive Income (Loss) - 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 statements of operations and comprehensive income (loss).
Reclassifications - Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net loss or accumulated deficit.
Recently Issued Accounting Pronouncements
Fair Value Measurement: In
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In
Results of Operations
The following table presents the consolidated results of the Company for the
years ended
Years ended December 31, Change in 2019 2018 $ % Net sales$ 186,299 $ 527,633 $ (341,334 ) (64.7 )% Cost of sales 132,286 308,996 (176,710 ) (57.2 )% Gross profit 54,013 218,637 (164,624 ) (75.3 )% Selling, general and administrative expenses 261,361 386,626 (125,265 ) (32.4 )% Loss from operations (207,348 ) (167,989 ) (39,359 ) 23.4 % Other expenses, net (19,522 ) (23,829 ) 4,307 (18.1 )% Loss before provision for income tax (226,870 ) (191,818 ) (35,052 ) 18.3 % Provision for income taxes - - - - Net Loss$ (226,870 ) $ (191,818 ) $ (35,052 ) 18.3 %
Cost of Sales: Cost of sales was
Gross Margin: Gross profit was
Selling, General and Administrative Expenses: Selling, general and
administrative expenses were
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Loss from Operations: Loss from operations has increased by
Other Expenses, net: Other expenses, net was
Net Loss: Net loss was
Liquidity and Capital Resources
Our consolidated financial statements are prepared using generally accepted
accounting principles in
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. These matters raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until it becomes profitable. If we are unable to obtain adequate capital, it could be forced to cease operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Management's Plan to Continue as a Going Concern
The Company has taken certain restructuring steps to provide the necessary capital to continue its operations. These steps included: (1) Tightly budgeting and controlling all expenses; (2) Expanding product lines and recruiting a strong sales team to significantly increase sales revenue and profit; (3) The Company plans to continue actively seeking additional funding opportunities to improve and expand upon its product lines.
Our principal sources of liquidity are cash and cash equivalents, and cash flow
from operations. As of
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For the Years EndedDecember 31, 2019 2018
Net cash provided by (used in) operating activities
12,961 - Net cash provided by (used in) financing activities - -
Effect of exchange rate change on cash and cash equivalents (333 ) (1,245 )
Net (decrease) increase in cash and cash equivalents
Net cash flow used in operating activities was
Net cash provided by investing activities was
The Company did not have any cash flow used in or provided by financing
activities during the years ended
In light of the significant decreases in our net sales over the past fiscal year and current uncertain market and economic conditions, we are aggressively managing our cost structure and cash position to ensure that we will meet our financial obligations while preserving the ability to make investments that will enable us to respond to customer requirements and achieve long-term profitable growth. We currently believe that our cash and cash equivalents, working capital, and cash generated from operations, will be sufficient to meet our forecasted operating expenses and capital expenditures through 2020.
Capital Expenditures
Total capital expenditures during the years ended
Currency Exchange Fluctuations
Translation Adjustment - The accounts of the Company were maintained, and its
financial statements were expressed, in New
As of
Inflation
Our opinion is that inflation has not had, and is not expected to have, a material effect on our operations.
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Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of
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