Attached files
file | filename |
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EX-32.1 - OmniaLuo, Inc. | v166504_ex32-1.htm |
EX-32.2 - OmniaLuo, Inc. | v166504_ex32-2.htm |
EX-31.1 - OmniaLuo, Inc. | v166504_ex31-1.htm |
EX-31.2 - OmniaLuo, Inc. | v166504_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
The Quarter Ended September 30, 2009
Commission
File Number 000-52040
OMNIALUO,
INC.
(Name
of Small Business Issuer in Its Charter)
State
of Delaware
|
88-1581799
|
(State
of Incorporation)
|
(IRS
Employer I.D. Number)
|
Room
101, Building E6
Huaqiaocheng
East Industrial Park
Nashan
District
Shenzhen
518053
The
People’s Republic of China
(Address
of principal executive offices)
(+86)
755 - 8245 - 1808
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
Registrant was required to submit and post such files).Yes o No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
|
Accelerated filer ¨
|
Non-accelerated filer ¨
|
Smaller reporting company x
|
|
(Do not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
The
number of shares outstanding of the issuer’s common stock, $.01 par value per
share, as of November 16, 2009, as 22,840,000.
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
OmniaLuo,
Inc.
Condensed
consolidated financial statements
For
the three and nine months ended
September
30, 2009 and 2008
(Stated
in US Dollars)
OmniaLuo,
Inc.
Condensed
Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008
Index to
Condensed Consolidated Financial Statements
Pages
|
||
Condensed
Consolidated Statements of Operations and Comprehensive (Loss)
Income
|
1
|
|
Condensed
Consolidated Balance Sheets
|
2
|
|
Condensed
Consolidated Statements of Cash Flows
|
3
|
|
Notes
to Condensed Consolidated Financial Statements
|
4 -
18
|
OmniaLuo,
Inc.
Condensed
Consolidated Statements of Operations and Comprehensive (Loss)
Income
For the
three and nine months ended September 30, 2009 and 2008
(Stated
in US Dollars)
Three months ended
September 30,
(Unaudited)
|
Nine months ended
September 30,
(Unaudited)
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues
|
$ | 1,854,884 | $ | 4,993,937 | $ | 6,371,721 | $ | 11,275,040 | ||||||||
Cost
of revenues
|
(2,863,239 | ) | (2,180,121 | ) | (4,816,147 | ) | (4,805,199 | ) | ||||||||
Gross
(loss) profit
|
(1,008,355 | ) | 2,813,816 | 1,555,574 | 6,469,841 | |||||||||||
Expenses
|
||||||||||||||||
General
and administrative expenses
|
685,690 | 755,200 | 1,600,376 | 2,180,486 | ||||||||||||
Depreciation
|
73,544 | 74,571 | 214,341 | 182,314 | ||||||||||||
Selling
and marketing expenses
|
449,482 | 810,050 | 1,726,006 | 1,715,136 | ||||||||||||
1,208,716 | 1,639,821 | 3,540,723 | 4,077,936 | |||||||||||||
(Loss)
income from operations
|
(2,217,071 | ) | 1,173,995 | (1,985,149 | ) | 2,391,905 | ||||||||||
Interest
income
|
133 | 1,911 | 7,434 | 12,442 | ||||||||||||
Other
income
|
5,466 | 7,803 | 41,574 | 22,659 | ||||||||||||
Finance
costs
|
(7,146 | ) | (814 | ) | (32,675 | ) | (16,558 | ) | ||||||||
(Loss)
income before income taxes
|
(2,218,618 | ) | 1,182,895 | (1,968,816 | ) | 2,410,448 | ||||||||||
Income
taxes credit - Note 4
|
72,533 | - | - | - | ||||||||||||
Net
(loss) income
|
$ | (2,146,085 | ) | $ | 1,182,895 | $ | (1,968,816 | ) | $ | 2,410,448 | ||||||
Other
comprehensive income (loss)
|
||||||||||||||||
Foreign
currency translation adjustments
|
12,998 | 27,809 | (1,076 | ) | 531,966 | |||||||||||
Comprehensive
(loss) income
|
$ | (2,133,087 | ) | $ | 1,210,704 | $ | (1,969,892 | ) | $ | 2,942,414 | ||||||
(Loss)
earnings per ordinary share - Note 5
|
||||||||||||||||
Basic
|
$ | (0.09 | ) | $ | 0.05 | $ | (0.09 | ) | $ | 0.11 | ||||||
Diluted
|
$ | (0.09 | ) | $ | 0.05 | $ | (0.09 | ) | $ | 0.11 | ||||||
Weighted
average number of shares outstanding
|
||||||||||||||||
Basic
|
22,840,000 | 22,840,000 | 22,840,000 | 22,840,000 | ||||||||||||
Diluted
|
22,840,000 | 22,841,927 | 22,840,000 | 22,879,456 |
See the
accompanying notes to condensed consolidated financial statements
- 1
-
OmniaLuo,
Inc.
Condensed
Consolidated Balance Sheets
As of
September 30, 2009 and December 31, 2008
(Stated
in US Dollars)
As of
|
As of
|
|||||||
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 1,000,164 | $ | 1,253,997 | ||||
Trade
receivables, net - Note 6
|
2,591,663 | 2,199,756 | ||||||
Inventories,
net - Note 7
|
3,969,198 | 6,460,621 | ||||||
Other
receivables and deposits - Note 8
|
4,248,785 | 4,285,219 | ||||||
Total
current assets
|
11,809,810 | 14,199,593 | ||||||
Property
and equipment, net - Note 9
|
875,280 | 1,084,289 | ||||||
TOTAL
ASSETS
|
$ | 12,685,090 | $ | 15,283,882 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
LIABILITIES
|
||||||||
Current
liabilities
|
||||||||
Bank
loans - Note 11
|
$ | 469,440 | $ | 440,100 | ||||
Trade
payables
|
743,085 | 734,077 | ||||||
Loan
from a stockholder - Note 12
|
44,757 | 8,052 | ||||||
Other
payables, deposits received and accrued expenses - Note 13
|
2,835,948 | 3,795,958 | ||||||
Total
current liabilities
|
4,093,230 | 4,978,187 | ||||||
TOTAL
LIABILITIES
|
4,093,230 | 4,978,187 | ||||||
COMMITMENTS
AND CONTINGENCIES - Note 15
|
||||||||
STOCKHOLDERS’
EQUITY
|
||||||||
Common
stock : par value $0.01 per share
|
||||||||
Authorized
40,000,000 shares; issued and outstanding
|
||||||||
22,840,000
shares
|
228,400 | 228,400 | ||||||
Preferred
stock : par value $0.01 per share
|
||||||||
Authorized
10,000,000 shares; none issued and outstanding
|
- | - | ||||||
Additional
paid-in capital
|
9,149,646 | 8,893,589 | ||||||
Statutory
reserve
|
512,709 | 512,709 | ||||||
Accumulated
other comprehensive income
|
832,755 | 833,831 | ||||||
Accumulated
deficit
|
(2,131,650 | ) | (162,834 | ) | ||||
TOTAL
STOCKHOLDERS’ EQUITY
|
8,591,860 | 10,305,695 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 12,685,090 | $ | 15,283,882 |
See the
accompanying notes to condensed consolidated financial
statements
- 2
-
OmniaLuo,
Inc.
Condensed
Consolidated Statements of Cash Flows
For the
three and nine months ended September 30, 2009 and 2008
(Stated
in US Dollars)
Nine months ended
|
||||||||
September 30,
|
||||||||
(Unaudited)
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
(loss) income
|
$ | (1,968,816 | ) | $ | 2,410,448 | |||
Adjustments
to reconcile net (loss) income to net cash
|
||||||||
provided
by (used in) operating activities :
|
||||||||
Depreciation
|
214,341 | 184,581 | ||||||
Allowance
for doubtful accounts
|
398,967 | 3,823 | ||||||
Allowance
for obsolete inventories
|
822,038 | - | ||||||
Loss
(gain) on disposal of property and equipment
|
386 | (459 | ) | |||||
Share-based
compensation
|
256,057 | - | ||||||
Changes
in operating assets and liabilities
|
||||||||
Trade
receivables
|
(790,581 | ) | (1,506,715 | ) | ||||
Inventories
|
1,667,517 | (2,833,942 | ) | |||||
Other
receivables and deposits
|
36,408 | (762,570 | ) | |||||
Trade
payables
|
9,001 | 563,894 | ||||||
Other
payables, deposits received and accrued liabilities
|
(959,298 | ) | 1,090,419 | |||||
Net
cash flows used in operating activities
|
(313,980 | ) | (850,521 | ) | ||||
Cash
flows from investing activities
|
||||||||
Proceeds
from disposal of property and equipment
|
322 | 4,395 | ||||||
Acquisition
of property and equipment
|
(6,197 | ) | (324,066 | ) | ||||
Net
cash flows used in investing activities
|
(5,875 | ) | (319,671 | ) | ||||
Cash
flow from financing activities
|
||||||||
Proceeds
from bank loans
|
29,318 | - | ||||||
Loans
(repayment of loans) from stockholders
|
36,678 | (6,242 | ) | |||||
Net
cash flows provided by (used in) financing activities
|
65,996 | (6,242 | ) | |||||
Effect
of foreign currency translation on cash and cash
equivalents
|
26 | 104,097 | ||||||
Net
decrease in cash and cash equivalents
|
(253,833 | ) | (1,072,337 | ) | ||||
Cash
and cash equivalents - beginning of period
|
1,253,997 | 3,083,715 | ||||||
Cash
and cash equivalents - end of period
|
$ | 1,000,164 | $ | 2,011,378 | ||||
Supplemental
disclosures for cash flow information
|
||||||||
Cash
paid for interest
|
$ | 24,009 | $ | - | ||||
Cash
paid for income taxes
|
$ | - | $ | - |
See the
accompanying notes to condensed consolidated financial
statements
- 3
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
1.
|
Corporation
information
|
|
(a)
|
OmniaLuo,
Inc. (the “Company”) was incorporated in the State of Delaware on March 7,
2001 under the name of Wentworth II, Inc. for the purpose of pursuing a
business combination. On November 16, 2007, the Company changed
its name to OmniaLuo, Inc.
|
The
Company’s common stock began trading on the Over-the-Counter Bulletin Board
under the ticker symbol “OLOU” on January 10, 2008.
|
(b)
|
On
October 9, 2007, the Company entered into a share exchange agreement with
Omnia Luo Group Limited (“Omnia BVI”), the shareholders of Omnia BVI and
certain of the then Company’s principal stockholders. Pursuant
to the share exchange agreement, the Company agreed to issue to the
shareholders of Omnia BVI 16,800,000 shares of the Company’s common stock
in exchange for all of the then issued and outstanding shares of Omnia
BVI.
|
The
aforesaid share exchange transaction was completed on October 9, 2007 and
thereafter Omnia BVI became a wholly-owned subsidiary of the Company and the
former shareholders of Omnia BVI became the majority stockholders of the
Company. This transaction constituted a reverse takeover transaction
(the “RTO”).
Concurrent
with the consummation of the RTO, the Company issued 4,920,000 shares of its
common stock and five-year warrants to purchase an aggregate of 4,920,000 shares
of the Company’s common stock at $1.5625 per share for an aggregate purchase
price of $6.15 million, to a total of 38 investors in a private placement (the
“2007 Private Placement”). In connection with this private placement,
the Company issued five-year warrants to purchase 492,000 shares of the
Company’s common stock at $1.5625 per share to Keating Securities, LLC (“Keating
Securities”), as a financial advisory fee in partial consideration of their
services in connection with the private placement. Prior to the
consummation of the RTO and the 2007 Private Placement, the Company was deemed
to have been an affiliate of Keating Securities by reason of the ownership of
shares of the Company’s common stock by principals and executives of Keating
Securities. The warrants issued to the investors and Keating
Securities have been classified in equity and were outstanding as of September
30, 2009.
Omnia BVI
is a business company organized under the laws of the British Virgin Islands
(the “BVI”) on August 11, 2006. It has conducted no business and is a
holding company whose only asset is a 100% equity interest in Shenzhen Oriental
Fashion Co., Ltd. (“Oriental Fashion”). Oriental Fashion was
established on September 19, 2006 in the People’s Republic of China (the
“PRC”).
- 4
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
1.
|
Corporate
information (Cont’d)
|
|
(c)
|
Pursuant
to the preferred stock purchase and shareholders agreements dated as of
December 15, 2006 and December 20, 2006, Omnia BVI had issued an aggregate
of 2,147 convertible preferred shares (the “BVI Preferred Shares”) and
detachable warrants to purchase up to $365,940 in ordinary shares, based
on the offering price in the next financing of Omnia BVI (the “BVI
Warrants”), to a private venture capital investment fund (the “Lead
Investor”) and several individual investors for a total cash investment of
$729,980.
|
|
By
agreements dated as of October 9, 2007: (i) among Omnia BVI, the Lead
Investor, Ms. Zheng Luo (the principal stockholder and chief executive
officer of the Company) and another of the Company’s stockholders, and
(ii) among Omnia BVI, Ms. Zheng Luo and each of the other holders of BVI
Preferred Shares and Warrants, effective upon the closing of the RTO, each
BVI Preferred Share was converted into a specified number of ordinary
shares of Omnia BVI, with each such ordinary share of Omnia BVI then being
exchanged for 319.8294 shares of the Company’s common stock, and each BVI
Warrant was exchanged for warrants to purchase the Company’s common stock,
exercisable at any time during a two-year period commencing on December
17, 2007, at a per share price of
$1.25.
|
292,752
warrants were issued in exchange for the BVI Warrants. Their exercise
price is subject to adjustment for share subdivisions, share combinations,
mergers or consolidation. These warrants have been classified in
equity and were outstanding as of September 30, 2009.
The
Company’s common stock issuable under the aforementioned agreements were
included in the 16,800,000 shares of the Company’s common stock issued in
relation to the RTO as detailed in note 1(b) to the condensed consolidated
financial statements.
2.
|
Description
of business
|
Following
the RTO, the Company commenced to be engaged in the design, marketing,
distribution and sales of women’s apparel under the brand names of “OMNIALUO”
and “OMNIALO” (collectively referred to herein as the “OMNIALUO Brands”) through
a network of over 135 retail stores across the PRC as of September 30,
2009. The Company offers a complete line of business casual women’s
wear, including bottoms, tops and outerwear, as well as
accessories.
There are
currently three different types of retail stores that carry the OMNIALUO Brands:
(i) Company-owned stores, which stores are owned exclusively by the Company and
carry only the OMNIALUO Brands, (ii) co-owned stores, which stores are owned
jointly by the Company and a third party, and carry the OMNIALUO Brands
exclusively, and (iii) independent distributor stores, which stores are owned
exclusively by third parties and carry the OMNIALUO Brands
exclusively.
- 5
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
3.
|
Summary
of significant accounting policies
|
Basis of
presentation
The
accompanying condensed consolidated financial statements of the Company and its
subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim
consolidated financial information. Accordingly, they do not include
all the information and notes necessary for comprehensive consolidated financial
statements.
In the
opinion of the management of the Company, all adjustments, which are of a normal
recurring nature, necessary for a fair statement of the results for the three-
and nine-month periods have been made. Results for the interim
periods presented are not necessarily indicative of the results that might be
expected for the entire fiscal year. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company’s Form 10-K
as filed with the Securities and Exchange Commission (the “SEC”) on March 31,
2009.
Principles
of consolidation
The
condensed consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Use of
estimates
In
preparing financial statements in conformity with U.S. GAAP, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting periods. These accounts and estimates
include, but are not limited to, the valuation of trade and other receivables,
inventories and deferred income taxes, provision for warranty and the estimation
on useful lives of property and equipment and fair value of stock based
compensation. Management makes these estimates using the best
information available at the time the estimates are made; however, actual
results could differ materially from those estimates.
Concentrations
of credit risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and cash equivalents, trade and other
receivables. As of September 30, 2009, the Company’s cash and cash equivalents
were held by major financial institutions located in the PRC and Hong Kong,
which management believes are of high credit quality. With respect to trade
receivables, the Company extends credit based on an evaluation of the customer’s
financial condition. The Company generally does not require collateral for trade
receivables and maintains an allowance for doubtful accounts of trade
receivables.
As of
September 30, 2009, there was a customer whose trade receivable and turnover
represented approximately 17% and 13% of the Company’s total net trade
receivables and total turnover, respectively. In addition, as of September 30,
2009, there were 5 suppliers whose trade deposits represented approximately 12%,
14%, 14%, 23% and 24% of the Company’s total trade deposits paid to
suppliers.
- 6
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
3.
|
Summary
of significant accounting policies
(Cont’d)
|
Stock-based
compensation
The
Company adopted the fair value method of accounting for share-based
compensation. Under the fair value based method, compensation cost related to
employee stock options or similar equity instruments which are equity-classified
awards, is measured at the grant date based on the value of the award and is
recognized over the requisite service period, which is usually the vesting
period. The cost of a liability-classified award is measured based on its
current fair value.
Fair
value of share options granted is determined using the Black-Scholes model.
Under this model, certain assumptions, including the risk-free interest rate,
the expected life of the options and the estimated fair value of the Company’s
common stock and expected volatility, are required to determine the fair value
of the options. If different assumptions had been used, the fair value of the
options would have been different from the amount the Company computed and
recorded, which would have resulted in either an increase or decrease in the
compensation expense.
Fair
value of financial instruments
The
Company considers the carrying values reported in the condensed consolidated
balance sheets for current assets and current liabilities qualifying as
financial instruments approximate their fair values due to the short-term
maturity of such instruments.
It is the
management’s opinion that the Company is not exposed to significant interest,
price, foreign currency or credit risks arising from these financial
instruments.
Basic and
diluted earnings per share
Basic
earnings per share is computed using the weighted average number of shares
outstanding during the periods presented. The weighted average number
of shares of the Company represents the average number of shares of common stock
outstanding during the reporting periods.
Diluted
earnings per share is computed using the sum of weighted average number of
shares outstanding and dilutive potential shares outstanding during the periods
presented. During the three and nine months ended September 30, 2009, there were
no dilutive potential shares. During the three and nine months ended September
30, 2008, dilutive potential shares were warrants issued to
investors.
|
Recently
issued accounting pronouncements
|
FASB
Accounting Standards Codification (Accounting Standards Update “ASU” No.
2009-1)
In June
2009, the Financial Accounting Standard Board (“FASB”) approved its Accounting
Standards Codification (“Codification”) as the single source of authoritative
United States accounting and reporting standards applicable for all
non-governmental entities, with the exception of the SEC and its staff. The
Codification is effective for interim or annual financial periods ending after
September 15, 2009 and impacts the Company’s financial statements as all future
references to authoritative accounting literature will be referenced in
accordance with the Codification. There have been no changes to the content of
the Company’s financial statements or disclosures as a result of implementing
the Codification.
- 7
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
3.
|
Summary
of significant accounting policies
(Cont’d)
|
Recently
issued accounting pronouncements (cont’d)
FASB
Accounting Standards Codification (Accounting Standards Update “ASU” No. 2009-1)
(cont’d)
As a
result of the Company’s implementation of the Codification during the current
quarter, previous references to new accounting standards and literature are no
longer applicable. In these financial statements, the Company will provide
reference to both new and old guidance to assist in understanding the impacts of
recently adopted accounting literature, particularly for guidance adopted since
the beginning of the current fiscal year but prior to the
Codification.
Noncontrolling
Interests (Included in amended Topic ASC 810 “Consolidation”, previously SFAS
No. 160 “Noncontrolling Interests in Consolidated Financial Statements”, an
amendment of ARB No. 51)
The
amended topic establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity
in the consolidated financial statements. The adoption of this amended topic has
no material impact on the Company’s financial statements.
Business
Combinations (Included in amended Topic ASC 805 “Business Combinations”,
previously SFAS No. 141(R))
This ASC
guidance addresses the accounting and disclosure for identifiable assets
acquired, liabilities assumed, and noncontrolling interests in a business
combination. The adoption of this amended topic has no material impact on the
Company’s financial statements.
Intangibles
- Goodwill and Other (Included in amended Topic ASC 350, previously FASB Staff
Position (“FSP”) No. 142-3 “Determination of the Useful Life of Intangible
Assets”)
The
amended topic amends the factors an entity should consider in developing renewal
or extension assumptions used in determining the useful life of recognized
intangible assets. This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets in business
combinations and asset acquisitions. The amended topic is effective
for financial statements issued for fiscal years and interim periods beginning
after December 15, 2008. Early adoption is prohibited. The adoption of this
amended topic has no material effect on the Company's financial
statements.
Interim
Disclosures about Fair Value of Financial Instruments (Included in amended Topic
ASC 825 “Financial Instruments”, previously FSP SFAS No. 107-1)
This
guidance requires that the fair value disclosures required for all financial
instruments be included in interim financial statements. This guidance also
requires entities to disclose the method and significant assumptions used to
estimate the fair value of financial instruments on an interim and annual basis
and to highlight any changes from prior periods. The amended topic was effective
for interim periods ended after 15 September 2009. The adoption of this amended
topic has no material impact on the Company’s financial
statements.
- 8
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
3.
|
Summary
of significant accounting policies
(Cont’d)
|
Recently
issued accounting pronouncements (cont’d)
Business
Combinations (Included in amended Topic ASC 805, previously FSP No. 141R-1
“Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies”)
Amended
topic ASC 805 amends the requirements for the provisions for the initial
recognition and measurement, subsequent measurement and accounting, and
disclosures for assets and liabilities arising from contingencies in business
combinations. The amended topic eliminates the distinction between contractual
and non-contractual contingencies, including the initial recognition and
measurement criteria and instead carries forward most of the provisions for
acquired contingencies. The amended topic is effective for contingent assets and
contingent liabilities acquired from business combinations for which the
acquisition data is on or as of December 15, 2008. The adoption of this amended
topic has no material effect on the Company's financial statements.
Fair
Value Measurements and Disclosures (Included in amended Topic ASC 820,
previously FSP No. 157-4 “Determining Whether a Market is Not Active and a
Transaction Is Not Distressed”)
The
amended topic clarifies when markets are illiquid or that market pricing may not
actually reflect the “real” value of an asset. If a market is determined to be
inactive and market price is reflective of a distressed price then an
alternative method of pricing can be used, such as a present value technique to
estimate fair value. The amended topic identifies factors to be considered when
determining whether or not a market is inactive. The amended topic is effective
for interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009 and shall be applied
prospectively. The adoption of this amended topic has no material effect on the
Company's financial statements.
Investments
- Debt and Equity Securities - Overall - Transition and Open Effective Date
Information (Included in amended Topic ASC 320, previously FSP No. 115-2 and
SFAS No. 124-2 “Recognition and Presentation of Other-Than-Temporary
Impairments”)
The
amended topic amends the other-than-temporary impairment guidance in U.S. GAAP
for debt securities through increased consistency in the timing of impairment
recognition and enhanced disclosures related to the credit and noncredit
components of impaired debt securities that are not expected to be sold. In
addition, increased disclosures are required for both debt and equity securities
regarding expected cash flows, credit losses, and securities with unrealized
losses. The adoption of this amended topic has no material impact on the
Company’s financial statements.
Subsequent
Events (Included in amended Topic ASC 855 “Subsequent Events”, previously SFAS
No. 165)
The
amended topic establishes accounting and disclosure requirements for subsequent
events. The amended topic details the period after the balance sheet date during
which the Company should evaluate events or transactions that occur for
potential recognition or disclosure in the financial statements, the
circumstances under which the Company should recognize events or transactions
occurring after the balance sheet date in its financial statements and the
required disclosures for such events. The Company adopted this amended topic
effective June 1, 2009.
- 9
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
3.
|
Summary
of significant accounting policies
(Cont’d)
|
Recently
issued accounting pronouncements (cont’d)
Accounting
for Transfers of Financial Assets (Included in amended Topic ASC 860 “Transfers
and Servicing”, previously SFAS No. 166 “Accounting for Transfers of Financial
Assets - an Amendment of FASB Statement No. 140”)
The
amended topic addresses information a reporting entity provides in its financial
statements about the transfer of financial assets; the effects of a transfer on
its financial position, financial performance, and cash flows; and a
transferor’s continuing involvement in transferred financial assets. Also, the
amended topic removes the concept of a qualifying special purpose entity, limits
the circumstances in which a transferor derecognizes a portion or component
of a financial asset, defines participating interest and enhances the
information provided to financial statement users to provide greater
transparency. The amended topic is effective for the first annual reporting
period beginning after November 15, 2009 and will be effective for the Company
as of January 1, 2010. The management is in the process of evaluating the impact
of adopting this amended topic on the Company’s financial
statements.
Consolidation
of Variable Interest Entities - Amended (Included in amended Topic ASC 810
“Consolidation”, previously SFAS 167 “Amendments to FASB Interpretation No.
46(R)”)
The
amended topic require an enterprise to perform an analysis to determine the
primary beneficiary of a variable interest entity; to require ongoing
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity and to eliminate the quantitative approach previously required
for determining the primary beneficiary of a variable interest entity. The
amended topic also requires enhanced disclosures that will provide users of
financial statements with more transparent information about an enterprise’s
involvement in a variable interest entity. The amended topic is effective for
the first annual reporting period beginning after November 15, 2009 and will be
effective for the Company as of January 1, 2010. The management is in the
process of evaluating the impact of adopting this amended topic on the Company’s
financial statements.
In August
2009, the FASB issued ASU No. 2009-05, an update to ASC 820 “Fair Value
Measurements and Disclosures”. This update provides amendments to reduce
potential ambiguity in financial reporting when measuring the fair value of
liabilities. Among other provisions, this update provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the valuation techniques described in ASU No. 2009-05. ASU
No. 2009-05 will become effective for the Company’s annual financial statements
for the year ending December 31, 2009. The management is in the process of
evaluating the impact of adopting this ASU on the Company’s financial
statements.
- 10
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
3.
|
Summary
of significant accounting policies
(Cont’d)
|
Recently
issued accounting pronouncements (cont’d)
In
October 2009, the FASB issued ASU No. 2009-13 “Revenue Recognition (Topic 605):
Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging
Issues Task Force”. This update provides application guidance on whether
multiple deliverables exist, how the deliverables should be separated and how
the consideration should be allocated to one or more units of accounting. This
update establishes a selling price hierarchy for determining the selling price
of a deliverable. The selling price used for each deliverable will be based on
vendor-specific objective evidence, if available, third-party evidence if
vendor-specific objective evidence is not available, or estimated selling price
if neither vendor-specific or third-party evidence is available. The Company
will be required to apply this guidance prospectively for revenue arrangements
entered into or materially modified after January 1, 2011; however, earlier
application is permitted. The management is in the process of evaluating the
impact of adopting this ASU on the Company’s financial statements.
4.
|
Income
taxes
|
A. United
States
The
Company is subject to the United States of America Tax law at a tax rate of
34%. It had no assessable profit for the three- and nine-month
periods ended September 30, 2009 and 2008. The Company has not
provided deferred taxes on the undistributed earnings of its non-U.S.
subsidiaries as of September 30, 2009 and 2008, as it was the Company’s current
policy to reinvest these earnings in non-U.S. operations.
B.
BVI
Omnia BVI
was incorporated in the BVI and, under the current laws of the BVI, is not
subject to income tax.
C.
PRC
Oriental
Fashion is subject to the PRC Enterprise Income Tax (“EIT”). As Oriental Fashion
was a wholly-foreign owned enterprise engaged in manufacture industry which was
duly approved by the PRC tax authority, it was entitled to two year’s exemption,
from the first profit making calendar year of operations after offset of
accumulated taxable losses, followed by a 50% tax reduction of the
immediate next three calendar year. This tax holiday commenced in the fiscal
financial year 2007. Oriental Fashion was subject to EIT at a rate of
10% during the nine-month period ended September 30, 2009.
No
provision for EIT has been made for the nine-month period ended September 30,
2009 since Oriental Fashion had no assessable profit for the
period. The tax credit for the three-month period ended September 30,
2009 in the condensed consolidated statements of operations and comprehensive
(loss) income represented the over-provision for EIT in the preceding two
quarters.
- 11
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
5.
|
Earnings
per share
|
The
following table sets forth the computation of basic and diluted (loss) earnings
per share for the periods presented:
Three months ended
September 30,
(Unaudited)
|
Nine months ended
September 30,
(Unaudited)
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net
(loss) income
|
$ | (2,146,085 | ) | $ | 1,182,895 | $ | (1,968,816 | ) | $ | 2,410,448 | ||||||
Denominator:
|
||||||||||||||||
Weighted
average common shares used to compute
|
||||||||||||||||
basic
(loss) earnings per share
|
22,840,000 | 22,840,000 | 22,840,000 | 22,840,000 | ||||||||||||
Dilutive
potential from assumed exercise of warrants
|
- | 1,927 | - | 39,456 | ||||||||||||
Weighted
average common shares used to compute
|
||||||||||||||||
diluted
(loss) earnings per share
|
22,840,000 | 22,841,927 | 22,840,000 | 22,879,456 | ||||||||||||
(Loss)
earnings per share - Basic
|
$ | (0.09 | ) | $ | 0.05 | $ | (0.09 | ) | $ | 0.11 | ||||||
(Loss)
earnings per share - Diluted
|
$ | (0.09 | ) | $ | 0.05 | $ | (0.09 | ) | $ | 0.11 |
5,704,752
warrants issued to investors and Keating Securities, and options to purchase
1,369,840 shares granted to the Company’s director and employees outstanding as
of September 30, 2009 had not been included in the computation of diluted loss
per share for the three- and nine-month periods then ended because to do so
would have an anti-dilutive effect. Accordingly, the basic and diluted loss per
share for the three- and nine-month periods ended September 30, 2009 are the
same.
5,704,752
warrants issued to investors outstanding as of September 30, 2008 have been
included in the computation of diluted earnings per share for the three- and
nine-month periods then ended.
6.
|
Trade
receivables, net
|
As of
|
As of
|
|||||||
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Trade
receivables
|
$ | 3,003,953 | $ | 2,212,780 | ||||
Allowance
for doubtful accounts
|
(412,290 | ) | (13,024 | ) | ||||
2,591,663 | 2,199,756 |
- 12
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
6.
|
Trade
receivables, net (Cont’d)
|
An
analysis of the allowance for doubtful accounts for the nine months ended
September 30, 2009 and 2008 is as follows:
Nine months ended
September 30,
(Unaudited)
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Balance
at beginning of period
|
$ | 13,023 | 8,656 | |||||
Additions
of bad debt expense, net
|
398,967 | 3,823 | ||||||
Translation
adjustments
|
300 | 659 | ||||||
Balance
at end of period
|
$ | 412,290 | $ | 13,138 |
7.
|
Inventories,
net
|
As of
|
As of
|
|||||||
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Raw
materials
|
$ | 142,576 | $ | 153,303 | ||||
Work
in progress
|
385,915 | - | ||||||
Finished
goods
|
4,283,291 | 6,327,247 | ||||||
4,811,782 | 6,480,550 | |||||||
Allowance
for obsolete inventories
|
(842,584 | ) | (19,929 | ) | ||||
$ | 3,969,198 | $ | 6,460,621 |
Allowance
for obsolete inventories of $822,038 and $Nil was recognized during the nine
months ended September 30, 2009 and 2008, respectively, and was included in cost
of revenues.
8.
|
Other
receivables and deposits
|
As of
|
As of
|
|||||||
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Other
receivables, rental, utilities and other deposits
|
$ | 773,931 | $ | 301,214 | ||||
Trade
deposits to suppliers
|
3,474,854 | 3,984,005 | ||||||
$ | 4,248,785 | $ | 4,285,219 |
- 13
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
9.
|
Property
and equipment, net
|
As of
|
As of
|
|||||||
September 30,
|
December 31,
|
|||||||
2009
|
2009
|
|||||||
(Unaudited)
|
||||||||
Office
equipment and computers
|
$ | 874,745 | $ | 869,424 | ||||
Machinery
|
15,468 | 15,466 | ||||||
Leasehold
improvements
|
542,469 | 542,469 | ||||||
Motor
vehicles
|
18,557 | 18,558 | ||||||
1,451,239 | 1,445,917 | |||||||
Accumulated
depreciation
|
(575,959 | ) | (361,628 | ) | ||||
Property
and equipment, net
|
$ | 875,280 | $ | 1,084,289 |
During
the nine-month periods ended September 30, 2009 and 2008, property and equipment
with net book value og $708 and $3,936 at a consideration of $322 and $4,395
respectively, resulting in the loss(gain) of $386 and $(459)
respectively.
10.
|
Trademarks
|
Oriental
Fashion currently owns four trademarks, namely “Omnialuo”, “Omnialo”, “歐柏蘭羅” and “歐柏蘭奴” which were
registered in the PRC. These trademarks were transferred to the subsidiary from
a major stockholder of the Company for nil consideration during
2006.
11.
|
Bank
loans
|
The
Company has 2 bank loans, both of which are denominated in
Renminbi.
The bank
loan of $176,040 is repayable within one year. It carries interest at
7.623% per annum, is guaranteed by Ms. Zheng Luo, who did not receive any
compensation for acting as guarantor, and is secured by a guarantee put up by a
guaranty company.
The other
bank loan of $293,400 is repayable within three months. It carries interest at
9.6% per annum, is guaranteed by Ms. Zheng Luo and another director, Mr. Fang
Wen Bin, both of whom did not receive any compensation for acting as guarantor,
and is secured by a guarantee put up by a guaranty company.
12.
|
Loan
from a stockholder
|
A
stockholder extended a loan to the Company in 2006, which is interest-free,
unsecured and repayable on demand. The stockholder advanced $36,705 to the
Company during the nine months ended September 30, 2009.
- 14
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
13.
|
Other
payables, deposits received and accrued
expenses
|
As of
|
As of
|
|||||||
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
Other
payables and accruals
|
605,765 | $ | 247,754 | |||||
Amounts
due to partners of co-owned stores
|
317,350 | 324,347 | ||||||
Receipts
in advance from customers
|
1,151,801 | 1,754,379 | ||||||
Deposits
received
|
535,300 | 783,220 | ||||||
Value-added
taxes payable
|
225,732 | 686,258 | ||||||
$ | 2,835,948 | $ | 3,795,958 |
14.
|
Stock
option plan
|
On April
23, 2008, the board of directors adopted the 2008 Equity Incentive Plan (the
“Plan”). The purposes of the Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees, directors and consultants, and to promote the
success of the Company’s business. The maximum aggregate number of
shares that may be issued under the Plan is 5,000,000 shares.
Pursuant
to the Plan, on January 6, 2009, the Company granted options to purchase 735,200
and 137,040 shares of common stock with an exercise price of $0.6 and $1.25 per
share, respectively, to a director and several employees of the
Company. In accordance with the vesting provisions of the grants, 50%
of the options were vested on the date of grant and 12.5% will vest thereafter
on each of the following March 31, June 30, September 30 and December 31, until
fully vested. The options granted expire in ten years after the date of grant or
are exercisable for 36 months after the optionee ceases to be a service provider
to the Company.
Pursuant
to the Plan, on January 20, 2009, the Company granted options to purchase
497,600 shares of common stock with an exercise price of $0.6 per share to a
director and several employees of the Company. In accordance with the
vesting provisions of the grants, 50% of the options will vest on the first
anniversary date of the date of grant and 12.5% will vest thereafter on each of
the following March 31, June 30, September 30 and December 31, until fully
vested. The options granted expire in ten years after the date of grant or are
exercisable for 36 months after the optionee ceases to be a service provider to
the Company.
A summary
of share option plan activity for the nine months ended September 30, 2009 is
presented below:
Average
|
Remaining
|
Aggregate
|
|||||||||||
Number of
|
exercise price
|
contractual
|
intrinsic
|
||||||||||
shares
|
per share
|
term
|
value
|
||||||||||
Outstanding
as of January 1, 2009
|
- | $ | - | ||||||||||
Granted
|
1,369,840 | 0.67 | |||||||||||
Exercised/Forfeited/Cancelled
|
- | - | |||||||||||
Outstanding
as of September 30, 2009
|
1,369,840 | $ | 0.67 |
9.25 years
|
$ | - | |||||||
Exercisable
as of September 30, 2009
|
763,210 | $ | 0.70 |
9.25 years
|
$ | - |
- 15
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
14.
|
Stock
option plan (Cont’d)
|
Aggregate
intrinsic value represents the value of the Company’s closing stock price on
September 30, 2009 of $0.20 in excess of the exercise price multiplied by the
number of options outstanding or exercisable.
The
weighted average grant-date fair value of options granted on January 6, 2009 and
January 20, 2009 was $0.27 and $0.32 per share, respectively. The Company
recorded non-cash share-based compensation expense of $256,057 for the nine
months ended September 30, 2009, in respect of share options granted on January
6, 2009 and January 20, 2009, which was allocated to general and administrative
expenses.
The fair
value of the above option awards granted on January 6, 2009 and January 20, 2009
was estimated on the date of grant using the Black-Scholes Option Valuation
Model that uses the following assumptions.
Expected
volatility
|
119.66%
|
|
Expected
dividends
|
Nil
|
|
Expected
life
|
1.5
years - 2 years
|
|
Risk-free
interest rate
|
1%
|
As of
September 30, 2009, there were unrecognized compensation costs of $131,331
related to the above non-vested share options. These costs are expected to be
recognized over a weighted average period of 0.68 year.
15.
|
Commitments
and contingencies
|
Operating
lease arrangements
The
Company leases office premises and showrooms under various non-cancelable
operating lease agreements that expire at various dates through years 2009 to
2013. The minimum future commitments payable under these agreements as of
September 30, 2009 and December 31, 2008 were $781,858 and $1,011,423,
respectively.
Rental
expenses under operating leases were $326,433 and $355,904 for the nine months
ended September 30, 2009 and 2008, respectively.
16.
|
Defined
contribution plan
|
The
Company’s subsidiary has a defined contribution plan for all its qualified
employees in the PRC. The Company’s subsidiary and its employees are
each required to make contributions to the plan at the rates specified in the
plan. The only obligation of the Company’s subsidiary with respect to
a retirement scheme is to make the required contributions under the plan. No
forfeited contribution is available to reduce the contribution payable in future
years. The contributions to the defined contribution plan were charged to the
condensed consolidated statement of income. The Company’s subsidiary
contributed $30,197 and $18,391 for the nine months ended September 30, 2009 and
2008, respectively.
- 16
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
17.
|
Related
party transactions
|
Apart
from the transactions and information as disclosed in notes 11 and 12 to the
condensed consolidated financial statements, the Company had the following
material transactions with Shenzhen Oumeng Industrial Co., Ltd. (“Oumeng”)
during the reporting periods:
Three months ended
September 30,
(Unaudited)
|
Nine months ended
September 30,
(Unaudited)
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Purchase
of finished goods from Oumeng
|
$ | - | $ | - | $ | - | 532,233 |
Certain
of the Company’s principal stockholders were also principal shareholders of
Oumeng during the reporting period, and a director of Oriental Fashion, who is
also the spouse of a principal stockholder of the Company and a director of
Oriental Fashion, managed part of the business of Oumeng during the reporting
periods. Therefore, Oumeng is deemed to have been under common control with the
Company during the periods.
The
Company believes the terms obtained and consideration paid in connection with
the transactions described above were no less favorable than those that would
have been obtained by the Company in arm’s-length transactions with an unrelated
party.
18.
|
Segment
information
|
The
Company uses the “management approach” in determining reportable operating
segments. The management approach considers the internal organization
and reporting used by the Company’s chief operating decision maker for making
operating decisions and assessing performance as the source for determining the
Company’s reportable segments. Management, including the chief
operating decision maker, reviews the operating results of retail sales
(including Company-owned and co-owned stores) and sales to distributors and
as such, the Company has determined that it has two operating
segments.
Retail sales
|
Sales to distributors
|
Total
|
||||||||||||||||||||||
Nine months ended
|
Nine months ended
|
Nine months ended
|
||||||||||||||||||||||
September 30, (Unaudited)
|
September 30, (Unaudited)
|
September 30, (Unaudited)
|
||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
Revenues
|
$ | 2,381,877 | $ | 3,703,602 | $ | 3,989,844 | $ | 7,571,438 | $ | 6,371,721 | $ | 11,275,040 | ||||||||||||
Segment
(loss) profit
|
$ | (1,060,162 | ) | $ | 470,155 | $ | (375,936 | ) | $ | 2,785,610 | $ | (1,436,098 | ) | $ | 3,255,765 |
Retail sales
|
Sales to distributors
|
Total
|
||||||||||||||||||||||
Three months ended
|
Three months ended
|
Three months ended
|
||||||||||||||||||||||
September 30,
(Unaudited)
|
September 30, (Unaudited)
|
September 30, (Unaudited)
|
||||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
Revenues
|
$ | 463,116 | $ | 1,630,866 | $ | 1,391,768 | $ | 3,363,071 | $ | 1,854,884 | $ | 4,993,937 | ||||||||||||
Segment
(loss) profit
|
$ | (624,872 | ) | $ | 208,696 | $ | (1,475,797 | ) | $ | 1,240,225 | $ | (2,100,669 | ) | $ | 1,448,921 |
- 17
-
OmniaLuo,
Inc.
Notes to
Condensed Consolidated Financial Statements
For the
three and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated
in US Dollars)
18.
|
Segment
information (Cont’d)
|
Retail Sales
|
Sales to distributors
|
Total
|
||||||||||||||||||||||
As of
|
As of
|
As of
|
As of
|
As of
|
As of
|
|||||||||||||||||||
September
30,
|
December
31,
|
September
30,
|
December
31,
|
September
30,
|
December
31,
|
|||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
||||||||||||||||||||||
Segment
assets
|
$ | 4,611,704 | $ | 6,550,246 | $ | 7,724,990 | $ | 8,198,225 | $ | 12,336,694 | $ | 14,748,471 |
A
reconciliation is provided for unallocated amounts relating to corporate
operations which is not included in the segment information:
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30, (Unaudited)
|
September 30, (Unaudited)
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Total
consolidated revenues
|
$ | 1,854,884 | $ | 4,993,937 | $ | 6,371,721 | $ | 11,275,040 | ||||||||
Total
(loss) income for reportable segments
|
$ | (2,100,669 | ) | $ | 1,448,921 | $ | (1,436,098 | ) | $ | 3,255,765 | ||||||
Unallocated
amounts relating to operations :-
|
||||||||||||||||
Other
income
|
1 | 8 | 7 | 15 | ||||||||||||
General
and administrative expenses
|
(117,950 | ) | (266,034 | ) | (532,725 | ) | (845,332 | ) | ||||||||
|
|
|||||||||||||||
(Loss)
income before income taxes
|
$ | (2,218,618 | ) | $ | 1,182,895 | $ | (1,968,816 | ) | $ | 2,410,448 |
As of
|
As of
|
|||||||
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Assets
|
||||||||
Total
assets for reportable segments
|
$ | 12,336,694 | $ | 14,748,471 | ||||
Cash
and cash equivalents
|
348,396 | 535,411 | ||||||
$ | 12,685,090 | $ | 15,283,882 |
All of
the Company’s long-lived assets and customers are located in the
PRC. Accordingly, no geographic information is
presented.
19. Subsequent
events
The
Company has evaluated all subsequent events through November 16, 2009, the date
these financial statements were issued, and determined that there were no
subsequent events or transactions that required recognition or disclosure in the
financial statements.
- 18
-
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
following discussion of our financial condition and results of operations should
be read in conjunction with our consolidated financial statements and the notes
to those statements included elsewhere in this Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 2009. In addition to the historical
consolidated financial information, the following discussion and analysis
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended
December 31, 2008 filed with the Securities and Exchange Commission and
elsewhere in that Annual Report and in this Quarterly Report.
Except
as otherwise specifically stated or unless the context otherwise requires, the
"Company,” "we," "us," "our," and the "Registrant" refer to, collectively, (i)
OmniaLuo, Inc. (formerly Wentworth II, Inc.), (ii) Omnia BVI, a wholly-owned
subsidiary of OmniaLuo, Inc. organized under the laws of the British Virgin
Islands, and (iii) Shenzhen Oriental Fashion Co., Ltd., a wholly-owned
subsidiary of Omnia BVI organized under the laws of the People’s Republic of
China (the “PRC” or “China”).
Overview
OmniaLuo,
Inc. is a holding company that conducts all of its business operations through
its direct wholly-owned subsidiary, Omnia BVI, established in August 2006, and
Omnia BVI’s Chinese subsidiary, Shenzhen Oriental Fashion Co., Ltd., (“Oriental
Fashion”), established in September 2006. Oriental Fashion designs, develops,
markets and distributes women’s apparel under the brand names of OMNIALO and
OMNIALUO through its network of retail stores in 29 provinces throughout China,
which consisted of 242 stores as of September 30, 2008, and 135 stores as
of September 30, 2009. Until our acquisition of Omnia BVI on October 9, 2007,
our operations were very limited. We conduct all of our business operations
through Oriental Fashion.
Recent
Developments
Store
opening strategy and its result as of September 30, 2009
One of
our growth strategies is expanding store numbers while enlarging sales revenue.
Since our formation in the third quarter of 2006, we have continued to open new
stores. By March 31, 2008, we had opened 196 stores. As of October
31, 2008, we had 245 stores. However, as a result of the global economic
recession and the decrease in Chinese consumer spending, particularly in the
fourth quarter of 2008, we were forced to close certain stores that did not meet
their pre-determined sales requirements. We believe that it was necessary to
remove non-performers from an otherwise strong network of retail outlets.
While formerly on pace to meet our goal of 250 stores by year-end 2008, it
became necessary in the fourth quarter to cease pursuit of this goal and trim
store count for the long-term good of the Company. As such, we closed 37 stores
in November and December 2008, and by December 31, 2008, there were 208
stores remaining.
In the
first quarter of 2009, additional stores that did not meet performance
requirements were closed. As of March 31, 2009, we had 165 total stores,
consisting of 27 company-owned stores, 31 co-owned stores and 107 independent
distributor stores. In the second quarter of 2009, we did not open any new
stores or close any existing stores. In the third quarter of 2009, we closed
another 30 stores. As of September 30, 2009, we had 135 stores in 29
provinces throughout China, consisting of 27 company owned stores, 15
co-owned stores and 93 independent distributor stores.
The total
store count is still subject to change based on prevailing market conditions. We
also plan to open new stores as the consumer market improves.
Factors
Relevant to Evaluating Our Business and Financial Performance
We
design, develop, and market a diversified selection of women’s wear with a focus
on fashionable business casual styles. We target moderate to premium priced
categories of the women’s wear market. In evaluating our performance, management
reviews certain key performance indicators, including:
Gross margin - Gross margin
measures our ability to control direct costs associated with the manufacturing
and selling of our products. Gross margin is the difference between the net
sales and cost of sales, which is comprised of direct inventory costs for
merchandise sold, including all costs to transport merchandise from third-party
suppliers to our distribution center.
Operating income - Operating
income is a measure of our earning power from ongoing operations and is measured
as our earnings before interest and income taxes.
- 19
-
Results
of Operations for the Three Months and Nine Months ended September 30, 2009 and
September 30, 2008
Since our
formation in the third quarter of 2006, we have focused on implementing our
strategy of building a design and marketing workforce and an independent
distributor and retail store sales network to design, develop, market and
distribute “fashionable business casual,” our main product line. By September
30, 2009, we had hired and established a design team of 15 designers. By
September 30, 2009, we operated or had distribution relationships with 135 stores, compared with
242 total stores as of September 30, 2008.
In 2008,
under the make good escrow provisions we needed to fulfill our net income target
of $4.3 million. Consequently, we hired a new sales and marketing team to
execute this goal. The new sales and marketing team applied opening new
distributor stores, expanding production and increasing inventory methods to
fulfill this net income goal. As a result, the new store opening speed was very
fast. By March 31, 2008, we had 196 stores, and as of October 31, 2008, we
already had 245 stores. Due to the expansion of production but low sales
speed through those newly opened stores, we had accumulated a huge amount of
inventory, amounting to $6,460,621 as of December 31, 2008. This excessive
inventory dramatically reduced our inventory turn over speed
and impacted our cash flow. The financial crisis exacerbated this
position.
In 2009,
one of the main tasks in front of us was to reduce the inventory
overhang and reduce the number of non-performing stores. As such, we
closed 37 stores in November and December 2008. In the first quarter of
2009, additional stores that did not meet performance requirements were closed.
As of March 31, 2009, we had 165 total stores; subsequently, we closed another
30 stores. As of September 30, 2009, we had 135 stores altogether.
As the
result of product expansion, we had $6,460,621 of inventory at the end of 2008.
As some of this inventory would become obsolete, we sold certain
items at a high discount. By the end of the third quarter of
2009, excess inventory of $1,659,254 was sold for $837,216, resulting in a
write down of $822,038 as an allowance for obsolete inventories.
Sales
revenue for the three months ended September 30, 2009 was $1,854,884, compared
with $4,993,937 for the three months ended September 30, 2008, reflecting a
62.86% decrease which is primarily attributable to the recent global financial
crisis and its consequent effect. For the same reason, sales revenue for the
nine months ended September 30, 2009 was $6,371,721, compared with $11,275,040
for the nine months ended September 30, 2008, reflecting a 43.49%
decrease.
Revenue
from sales to distributors represents revenue from products sold through
independent distributor stores. Revenue from sales to distributors for the three
months ended September 30, 2009 was $1,391,768 (75.03% of the total sales
revenue for the period), representing a 58.62% decrease over revenue from sales
to distributors of $3,363,071 for the three months ended September 30, 2008
(67.34% of the total sales revenue for the period). Revenue from sales to
distributors for the nine months ended September 30, 2009 was $3,989,844 (62.62%
of the total sales revenue for the period), representing a 47.30% decrease over
revenue from sales to distributors of $7,571,438 for the nine months ended
September 30, 2008 (67.15% of the total sales revenue for the
period).
Revenue
from retail sales for the three months ended September 30, 2009, including from
company-owned and co-owned stores, was $463,116 (24.97% of the total sales
revenue for the period), representing a 71.60% decrease over retail sales for
the three months ended September 30, 2008. Revenue from retail sales for the
nine months ended September 30, 2009, including from company-owned and co-owned
stores, was $2,381,877, (37.38% of the total sales revenue for the period),
representing a 35.69% decrease over retail sales of $3,703,602 for the nine
months ended September 30, 2008 (32.85% of the total sales revenue for the
period).
Overall
gross loss for the three months ended September 30, 2009 was $1,008,355
(representing an overall gross profit margin of -54.36%), compared with overall
gross profit of $2,813,816 (representing an overall gross profit margin of
56.34%) for the three months ended September 30, 2008. In the third quarter of
2009, excess inventory was sold for lower than cost in order to reduce the
inventory level and increase cash flow.. Overall gross profit for the nine
months ended September 30, 2009 was $1,555,574 (representing an overall gross
profit margin of 24.41%), compared with overall gross profit of $6,469,841
(representing an overall gross profit margin of 57.38%) for the nine months
ended September 30, 2008. As the result of the allowance for obsolete inventory,
our overall gross profit for the nine months ended September 30, 2009 was
negatively affected.
General
and administrative expenses, which include rental expenses for headquarters,
salary expenses for management and headquarter staff, and travel and
entertainment expenses, were $685,690 for the three months ended September 30,
2009 (36.97% of the total sales revenues) and $755,200 for the three months
ended September 30, 2008 (15.12% of the total sales revenues). We made great
effort to cut general and administrative expenses in order to cope with the
economic recession. However, due to the decreases in our revenue, the percentage
of general and administrative expenses in total sales revenue was unusually
high. General and administrative expenses were $1,600,376 for the nine months
ended September 30, 2009 (25.12% of the total sales revenues) and
$2,180,486 for the nine months ended September 30, 2008 (19.34% of the
total sales revenues).
- 20
-
Selling
and marketing expenses, which include all costs associated with sales, marketing
and distribution functions, were $449,482 for the three months ended September
30, 2009 (24.23% of the total sales revenues), compared with $810,050 for the
three months ended September 30, 2008 (16.22% of the total sales revenues).
Selling and marketing expenses were $1,726,006 for the nine months ended
September 30, 2009 (27.09% of the total sales revenues), compared with
$1,715,136 for the nine months ended September 30, 2008 (15.21% of the total
sales revenues). Because of the decrease in our sales revenue, the
percentage of selling and marketing expenses to total sales revenue was
higher than last year. The absolute increase in the selling and marketing
expenses was a result of our heightened sales and marketing efforts during
the financial crisis and our efforts to reduce our inventory volume. We expect
the percentage of selling and marketing expenses to sales revenue to remain
fairly stable in the near term, and possibly decline slightly over time as
revenues increase.
Overall
segment loss for the three months ended September 30, 2009 was $2,100,669, which
represents an overall profit segment margin of -113.25%, compared with overall
segment profit for the three months ended September 30, 2008 of $1,448,921,
which represents an overall segment profit margin of 29.01%. The overall segment
loss percentage was mainly due to the discounting and promotional activities in
the shopping malls, while sales revenue dropped dramatically compared with the
same period of 2008. Segment loss for the three months ended September 30,
2009 on sales to distributors was $1,475,797, resulting in a segment profit
margin of -106.04%. Segment loss for the three months ended September
30, 2009 on retail sales (including company-owned and co-owned stores) was
$624,872, resulting in a negative segment profit margin.
Overall
segment loss for the nine months ended September 30, 2009 was $1,436,098, which
represented an overall profit segment margin of -22.54%, compared with
overall segment profit for the nine months ended September 30, 2008 of
$3,255,765, which represented an overall segment profit margin of 28.88%. The
loss was mainly due to our retaining the same selling and marketing expense
levels as during the same period of last year, while emphasizing discounting and
promotional activities in the shopping malls, and selling certain
inventory below book value. Segment loss for the nine months ended
September 30, 2009 on sales to distributors was $375,936, resulting in a segment
profit margin of -9.42%. Segment loss on retail sales (including
company-owned and co-owned stores) was $1,060,162 for the nine months ended
September 30, 2009, with a negative segment profit margin. In the first nine
months of 2009, our affiliated shopping malls discounted our products more than
usual to promote sales. As a result, the segment profit on retail sales
(including company-owned and co-owned stores) was negative.
Loss from
operations for the three months ended September 30, 2009 was $2,217,071
(-119.52% of the total sales revenues), compared with income from operations for
the three months ended September 30, 2008 of $1,173,995 (23.51% of the total
sales revenues), representing a decrease of 288.85% for the reasons described
above. Loss from operations for the nine months ended September 30, 2009 was
$1,985,149 (-31.16% of the total sales revenues), compared with income from
operations for the nine months ended September 30, 2008 of $2,391,905 (21.21% of
the total sales revenues), representing a decrease of 182.3% for the reasons
described above.
Net loss
for the three months ended September 30, 2009 was $2,146,085, compared with net
income of $1,182,895 for the three months ended September 30, 2008,
representing a decrease of 281.42% for the reasons described above. Net loss for
the nine months ended September 30, 2009 was $1,968,816, compared with
$2,410,448 for the nine months ended September 30, 2008, representing a
decrease of 181.68% for the reasons described above.
Liquidity
and Capital Resources
As of
September 30, 2009, the Company’s net cash position was $1,004,164,924, compared
with $1,253,997 as of December 31, 2008. Its working capital was
$7,716,580, compared with $9,221,406 as of December 31, 2008.
As of
September 30, 2009, inventories were $3,969,198, a decrease of $2,491,423 (or
38.57%), compared with $6,460,621 as of December 31, 2008. In 2008,
in order to fulfill our net income target of $4.3 million under the make good
escrow provisions, we expanded our production and increased our inventory
throughout 2008. However, due to the global economic recession, we were not able
to sell this large amount of inventory as planned. Consequently, for
the first nine months of 2009, we endeavored to reduce this large inventory by
stimulating the sale of our products. In the third quarter of 2009, we
tried to sell some of our inventory through our distributors below
its book value. In this process, we gained $837,216 in incremental cash
flow, but at a cost of $good sold of 1,659,254. In addition, considering some of
the remaining inventory could become obsolete, we wrote down $822,038 as an
allowance for obsolete inventory. As of September 30, 2009, we had $3,969,198 in
inventory, and we intend to aggressively reduce this amount. As the
majority of our outstanding inventory consists of clothes for the fall and
winter seasons, we expect to be able to sell this inventory with less expense
during the fourth quarter of 2009.
As of
September 30, 2009, trade receivables were $2,591,663, which was an increase of
$391,907 compared with trade receivables of $2,199,756 as of December 31,
2008.
- 21
-
As of
September 30, 2009, other receivables and deposits were $4,248,785, which was a
decrease of $36,434 compared with $4,285,219 as of December 31,
2008.
Net cash
used by operating activities for the nine months ended September 30,
2009 was $313,980, compared with net cash used in operating activities
of $850,521 for the nine months ended September 30, 2008. This was mainly
because our effort of reducing inventory volume. As we said above, in the third
quarter of 2009, we sold some of our inventory through our distributors
under its book value. In this process, we gained $837,216 in cash at a cost
of goods of $1,659,254.
The
Company’s investing activities to date have consisted mainly of the purchase of
property and equipment. For the nine months ended September 30, 2009 and 2008,
the net use of cash in investing activities was $5,875 and $319,671,
respectively.
The
company had combined bank loans of $469,440 as of September 30, 2009, which were
guaranteed by Ms. Zheng Luo and Mr. Wenbin Fang, both of whom did not receive
any compensation for acting as guarantor. In addition, the bank loans were
secured by a guarantee put up by a guaranty company.
We
believe that our currently available working capital is adequate to sustain our
operations at our current levels through at least the next 3
months. Thereafter, based on our current operating plan and our
available cash and cash equivalents, we expect that we will need to obtain
additional financing through the sale of equity securities, private placements,
and loans to fund our cash needs and continue our presently planned operations.
However, depending on our future needs and changes and trends in the capital
markets affecting our shares and the Company, we may determine to seek
additional equity or debt financing in the private or public markets. Additional
financing, whether through public or private equity or debt financing,
arrangements with stockholders or other sources to fund operations, may not be
available, or if available, may be on terms unacceptable to
us.
Critical
Accounting Policies
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires our management to make
assumptions, estimates and judgments that affect the amounts reported in the
financial statements, including the notes thereto, and related disclosures of
commitments and contingencies, if any. We consider our critical accounting
policies to be those that require the more significant judgments and estimates
in the preparation of financial statements, including the
following:
Use of estimates. In
preparing financial statements in conformity with U.S. GAAP, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting periods. These accounts and estimates
include, but are not limited to, the valuation of trade and other receivables,
inventories and deferred income taxes, provision for warranty and the estimation
on useful lives of property and equipment and fair value of stock-based
compensation. Management makes these estimates using the best
information available at the time the estimates are made; however, actual
results could differ materially from those estimates.
Concentrations of credit
risk. Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and cash equivalents and trade
receivables. As of September 30, 2009, the Company’s cash and cash equivalents
were held by major financial institutions located in the PRC, Hong Kong and the
United States, which management believes are of high credit quality. With
respect to trade receivables, the Company extends credit based on an evaluation
of the customer’s financial condition. The Company generally does not require
collateral for trade receivables and maintains an allowance for doubtful
accounts of trade receivables. During the reporting periods,, there
was a customer whose trade receivable and turnover represented approximately 17%
and 13% of the Company’s total net trade receivables and total turnover,
respectively. In addition, as of September 30, 2009, there were 5 suppliers
whose trade deposits represented approximately 12%, 14%, 14%, 23% and 24% of the
Company’s total trade deposits paid to suppliers.
Income Taxes.
United
States: The Company is subject to the United States of America tax law at a tax
rate of 34%. It had no assessable profit for the nine months ended
September 30, 2009 and 2008. The Company has not provided deferred
taxes on undistributed earnings of its non-U.S. subsidiaries as of September 30,
2009 and 2008, as it was the Company’s current policy to reinvest these earnings
in non-U.S. operations.
BVI:
Omnia BVI was incorporated in the BVI and, under the current laws of the BVI, is
not subject to income tax.
- 22
-
PRC:
Oriental Fashion is subject to the PRC Enterprise Income Tax (“EIT”). As
Oriental Fashion was a wholly-foreign owned enterprise engaged in the
manufacturing industry, it was entitled to two year’s exemption from the first
profit making calendar year of operations after offset of accumulated taxable
losses. This is followed by a 50% reduction of taxes in the
subsequent three calendar years. This tax holiday commenced in fiscal year
2007. Oriental Fashion was subject to an EIT rate of 10% during the
nine months ended September 30, 2009.
Stock-based
compensation
The
Company adopted the fair value method of accounting for share-based
compensation. Under the fair value based method, compensation cost related to
employee stock options or similar equity instruments which are equity-classified
awards, is measured at the grant date based on the value of the award and is
recognized over the requisite service period, which is usually the vesting
period. The cost of a liability-classified award based on its current fair
value.
Fair
value of share options granted is determined using the Black-Scholes model.
Under this model, certain assumptions, including the risk-free interest rate,
the expected life of the options and the estimated fair value of the Company’s
common stock and expected volatility, are required to determine the fair value
of the options. If different assumptions had been used, the fair value of the
options would have been different from the amount the Company computed and
recorded, which would have resulted in either an increase or decrease in the
compensation expense.
Item 4T. Controls and
Procedures
Disclosure
Controls and Procedures
Our
management, with the participation of our chief executive officer and chief
financial officer, Ms. Zheng Luo and Mr. David Wang, respectively, evaluated the
effectiveness of our disclosure controls and procedures. The term “disclosure
controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, means controls and other procedures of a company that are designed
to ensure that information required to be disclosed by a company in the reports,
such as this report, that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the
company’s management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on that evaluation, our management concluded that as of September 30,
2009, and as of the date that the evaluation of the effectiveness of our
disclosure controls and procedures was completed, our disclosure controls
and procedures were effective to satisfy the objectives for which they are
intended.
Changes
in Internal Controls over Financial Reporting
During
the three months ended September 30, 2009, there were no changes in our internal
control over financial reporting identified in connection with the evaluation
performed during the fiscal year covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Pursuant
to the Company’s 2008 Equity Incentive Plan, on January 6, 2009, the Company
granted options to purchase 735,200 and 137,040 shares of the Company’s common
stock with an exercise price of $0.6 and $1.25 per share respectively to a
director and several employees of the Company. Additionally, on January 20,
2009, the Company granted additional options to purchase 497,600 shares of the
Company’s common stock with an exercise price of $0.6 per share to a
director and several employees of the Company. The Company relied on
the exemption from registration provided by Section 4(2) of the Securities Act
for the issuance of these options to our directors and employees.
Item
3.
|
Defaults
Upon Senior Securities
|
|
None.
|
- 23
-
Item
4.
|
Submission
of Matters to a Vote of Common
Shareholders
|
|
None.
|
Item
5.
|
Other
Information
|
|
None.
|
|
|
Item
6.
|
Exhibits
|
Exhibit
No.
|
Description
|
31.1
|
Certification
of Principal Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Principal Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
32.2
|
Certification
of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
- 24
-
OMNIALUO,
INC.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
OMNIALUO,
INC.
|
||
(Registrant)
|
||
Date:
November 16, 2009
|
/s/
Zheng Luo
|
|
Zheng
Luo
|
||
President
& Chief Executive Officer
(Principal
Executive Officer)
|
||
Date:
November 16, 2009
|
/s/
David Wang
|
|
David
Wang
|
||
Chief
Financial Officer
|
||
(Principal
Financial and Accounting
Officer)
|
- 25
-