OmniaLuo, Inc. - FORM 10-Q - August 15, 2011

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - OmniaLuo, Inc.	v232101_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - OmniaLuo, Inc.	v232101_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - OmniaLuo, Inc.	v232101_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - OmniaLuo, Inc.	v232101_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended June 30, 2011

		OR

¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934

		For the transition period from ________________ and ____________________

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 ¨ No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See 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 ¨ (Do not check if a smaller reporting company)		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of August 15, 2011, was 22,840,000.

OMNIALUO, INC.

INDEX

TABLE OF CONTENTS

		Page
	Forward-Looking Statements

Part I.	Financial Information
Item 1.	Financial Statements
	(a) Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2011 and 2010 (Unaudited)	1
	(b) Condensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010	2
	(c) Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010 (Unaudited)	3
	(d) Notes to Condensed Consolidated Financial Statements for the Three and Six Months Ended June 30, 2011 and 2010 (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4.	Controls and Procedures	22

Part II	Other Information	23
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Reserved	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
Signatures		24

Exhibits

Certifications

OMNIALUO, INC.

FORWARD-LOOKING STATEMENTS

The discussions of the business and activities of OmniaLuo, Inc. (together with its direct and indirect subsidiaries, “we,” “us,” “our” or “the Company”) set forth in this Form 10-Q and in other past and future reports and announcements by the Company may contain forward-looking statements and assumptions regarding future activities and results of operations of the Company. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties. Forward-looking statements include statements regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategies, (c) anticipated trends in our industry, (d) our future financing plans and (e) our anticipated needs for working capital. They are generally identifiable by use of the words "may," "will," "should," "anticipate," "estimate," "plans," “potential," "projects," "continuing," "ongoing," "expects," "management believes," "we believe," "we intend" or the negative of these words or other variations on these words or comparable terminology. These statements may be found under "Management's Discussion and Analysis of Financial Condition and Results of Operations” as well as in this Form 10-Q generally. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.

Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" and matters described in the most recent Form 10-K filed by the Company. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

We undertake no obligation to update forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

OmniaLuo, Inc.

Condensed Consolidated Financial Statements

For the three and six months ended

June 30, 2011 and 2010

(Stated in US Dollars)

OmniaLuo, Inc.

Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010

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 - 17

OmniaLuo, Inc.

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

For the three and six months ended June 30, 2011 and 2010

(Stated in US Dollars)

	Three months ended June 30, (Unaudited)						Six months ended June 30, (Unaudited)
	2011			2010			2011			2010

Revenues	$	2,023,885		$	2,174,551		$	4,338,356		$	4,069,765
Cost of revenues		(699,969	)		(739,159	)		(1,554,628	)		(1,538,566	)

Gross profit		1,323,916			1,435,392			2,783,728			2,531,199

Expenses
General and administrative expenses		670,633			509,433			1,215,329			943,878
Depreciation		73,725			72,656			146,184			145,411
Selling and marketing expenses		707,275			627,498			1,274,615			1,068,093

		1,451,633			1,209,587			2,636,128			2,157,382

(Loss) income from operations		(127,717	)		225,805			147,600			373,817
Interest income		2,369			1,055			15,811			1,901
Other income		97,336			18,132			108,057			21,491
Finance costs		(34,691	)		(32,706	)		(44,655	)		(86,854	)

(Loss) income before income taxes		(62,703	)		212,286			226,813			310,355

Income taxes - Note 4		(33,708	)		(32,183	)		(69,682	)		(52,656	)

Net (loss) income	$	(96,411	)	$	180,103		$	157,131		$	257,699

Other comprehensive income
Foreign currency translation adjustments		85,044			7,941			126,113			7,996

Comprehensive (loss) income	$	(11,367	)	$	188,044		$	283,244		$	265,695

(Loss) earnings per ordinary share - Note 5
- Basic and diluted	$	(0.00	)	$	0.01		$	0.01		$	0.01

Weighted average number of shares outstanding
- Basic and diluted		22,840,000			22,840,000			22,840,000			22,840,000

See the accompanying notes to condensed consolidated financial statements

- 1 -

OmniaLuo, Inc.

Condensed Consolidated Balance Sheets

As of June 30, 2011 and December 31, 2010

(Stated in US Dollars)

	As of			As of
	June 30, 2011			December 31, 2010
	(Unaudited)
ASSETS
Current assets
Short-term investments - Note 3	$	309,400		$	-
Cash and cash equivalents		538,385			1,629,530
Trade receivables, net - Note 6		1,838,098			1,511,102
Inventories, net - Note 7		4,617,430			4,063,135
Loan to a related party - Note 8		1,082,900			-
Loan to a third party - Note 9		62,909			-
Other receivables and deposits - Note 10		4,518,085			3,862,525
Restricted cash - Note 11		618,800			455,100
Deferred tax asset		31,534			44,054

Total current assets		13,617,541			11,565,446
Property and equipment, net - Note 12		482,542			594,545

TOTAL ASSETS	$	14,100,083		$	12,159,991

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Current liabilities
Short-term secured bank loan - Note 14	$	1,547,000		$	986,050
Current maturities of long-term secured bank loan - Note 15		440,895			280,645
Trade payables		1,820,604			1,387,804
Loan from a stockholder - Note 16		239,961			8,005
Other payables, deposits received and accrued expenses - Note 17		3,184,487			2,750,464
Income tax payable		50,469			-

Total current liabilities		7,283,416			5,412,968
Long-term secured bank loan - Note 15		719,355			932,955

TOTAL LIABILITIES		8,002,771			6,345,923

COMMITMENTS AND CONTINGENCIES - Note 19

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		9,280,977			9,280,977
Statutory reserve		568,115			568,115
Accumulated other comprehensive income		1,161,111			1,034,998
Accumulated deficit		(5,141,291	)		(5,298,422	)

TOTAL STOCKHOLDERS’ EQUITY		6,097,312			5,814,068

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	14,100,083		$	12,159,991

See the accompanying notes to condensed consolidated financial statements

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OmniaLuo, Inc.

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2011 and 2010

(Stated in US Dollars)

	Six months ended June 30, (Unaudited)
	2011			2010
Cash flows from operating activities
Net income	$	157,131		$	257,699
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		146,184			145,411
Income taxes		13,221			52,656
Allowance for doubtful accounts		75,855			-
Loss on disposal of property and equipment		-			373
Share-based compensation		-			43,420
Investment income		(527	)		(1,227	)
Changes in operating assets and liabilities
Trade receivables		(369,164	)		205,495
Inventories		(467,877	)		(960,594	)
Other receivables and deposits		(571,763	)		66,832
Trade payables		400,167			438,798
Other payables, deposits received and accrued expenses		384,120			(919,637	)
Income tax payable		49,823			-

Net cash flows used in operating activities		(182,830	)		(670,774	)

Cash flows from investing activities
Acquisition of short-term investments		(761,980	)		(731,556	)
Proceeds from disposal of short-term investments		458,687			732,783
Proceeds from disposal of property and equipment		-			56
Acquisition of property and equipment		(24,007	)		(11,501	)
Loan to a related party		(1,069,040	)		-
Loan to a third party		(62,103	)		-
Increase in restricted cash		(152,720	)		-

Net cash flows used in investing activities		(1,611,163	)		(10,218	)

Cash flows from financing activities
Proceeds from bank loans		1,527,200			2,194,671
Repayment of bank loans		(1,069,040	)		(936,393	)
Loan from a stockholder		228,995			172
Increase in restricted cash		-			(438,934	)

Net cash flows from financing activities		687,155			819,516

Effect of foreign currency translation on cash and cash equivalents		15,693			1,855

Net (decrease) increase in cash and cash equivalents		(1,091,145	)		140,379

Cash and cash equivalents - beginning of period		1,629,530			869,495

Cash and cash equivalents - end of period	$	538,385		$	1,009,874

Supplemental disclosures for cash flow information
Interest paid	$	63,162		$	42,125
Income taxes paid	$	6,638		$	-

See the accompanying notes to condensed consolidated financial statements

- 3 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (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 June 30, 2011.

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”).

On July 15, 2011, a new subsidiary, namely Shenzhen Luozheng Oriental Aesthetics Creative Co., Ltd. 深圳市罗峥东方美学创意设计有限公司 (“Oriental Aesthetics”) was established in the PRC. Oriental Fashion contributed $154,700 to Oriental Aesthetics on May 25, 2011 as the initial capital, representing 100% equity interest. Oriental Aesthetics has no business activity yet and is planning to be engaged in design and development of apparel and related products. As of June 30, 2011, the registration was in progress and the injected capital of $154,700 was deposited in the temporary capital bank account of Oriental Aesthetics and was classified as restricted cash (Note 11) in these condensed consolidated financial statements.

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OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

1.	Corporate information (Cont’d)

(c)

Pursuant to 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 its 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 Shares 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 and have expired.

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 115 retail stores across the PRC as of June 30, 2011. 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.

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OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (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 six-month period 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 Company’s consolidated financial statements for the year ended December 31, 2010 and the notes thereto included in the Company’s Form 10K as filed with the Securities and Exchange Commission on March 31, 2011.

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. 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, restricted cash, short-term investments and trade receivables. As of June 30, 2011, the Company’s cash and cash equivalents, restricted cash and short-term investments 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.

During the six months ended June 30, 2011, there was no customer whose revenue contributed 10% or more to the Company’s total revenue. As of June 30, 2011, there were two suppliers whose trade deposits represented approximately 36% and 17% of the Company’s total trade deposits paid to suppliers.

- 6 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

3.	Summary of significant accounting policies (Cont’d)

Concentrations of credit risk (cont’d)

During the six months ended June 30, 2010, there was a customer whose revenue represented approximately 14% of the Company’s total revenue. As of June 30, 2010, there were three suppliers whose trade deposits represented approximately 42%, 38% and 11% of the Company’s total trade deposits paid to suppliers.

Short-term investments

Short-term investments represented the Company’s investment in structured product offered by a PRC financial institution. The Company could not call the redemption of the investment from the financial institution and will receive the redemption price based on the rate of return as announced by the financial institution.

The investments as of June 30, 2011 had a maturity period of 29 days.

Stock-based compensation

The Company adopted the fair value method of accounting for share-based compensation. Under the fair value 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, the estimated fair value of the Company’s common stock and the 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

ASC 820 requires the disclosure of the estimated fair value of financial instruments including those financial instruments for which fair value option was not elected. Except for the bank loan disclosed below, the carrying amounts of other financial assets and liabilities approximate their fair values due to short maturities :-

	As of June 30, 2011				As of December 31, 2010
	(Unaudited)
	Carrying				Carrying
	amount		Fair value		amount		Fair value

Long-term secured bank loan	$	1,160,250	$	1,153,252	$	1,213,600	$	1,206,614

The fair value of bank loan is calculated using the Company’s current incremental borrowing rates for similar types of borrowing arrangements.

- 7 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

3.	Summary of significant accounting policies (Cont’d)

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 common stock outstanding during the reporting periods.

Diluted earnings per share are computed using the sum of weighted average number of shares outstanding and dilutive potential shares outstanding during the periods presented. During the three and six months ended June 30, 2011 and 2010, there were no dilutive potential shares.

Recently issued accounting pronouncements

In July 2010, the FASB issued ASU 2010-20 “Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”. The objective of ASU 2010-20 is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. Under ASU 2010-20, an entity is required to provide disclosures so that financial statement users can evaluate the nature of the credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed to arrive at the allowance for credit losses, and the changes and reasons for those changes in the allowance for credit losses. ASU 2010-20 is applicable to all entities, both public and non-public and is effective for interim and annual reporting periods beginning on or after December 15, 2010. Comparative disclosure for earlier reporting periods that ended before initial adoption is encouraged but not required. However, comparative disclosures are required to be disclosed for those reporting periods ending after initial adoption. The adoption of this ASU has no material impact on the Company’s financial statements.

The FASB issued ASU 2011-01 “Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20”. The amendments in this Update temporarily delay the effective date of the disclosure about troubled debt restructurings in ASU 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructuring for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. The adoption of this ASU has no material impact on the Company’s financial statements.

In April 2011, the FASB issued ASU 2011-02 “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”. The amendments to Topic 310 clarify the guidance on a creditor’s evaluation of whether a debtor is experiencing financial difficulties. A creditor should evaluate whether it is probable that the debtor would be in payment default on any of its debts in foreseeable future without the modification. In addition, the amendments to Topic 310 clarify that a creditor is precluded from using the effective interest rate test in the debtor’s guidance on restructuring of payables (paragraph 470-60-55-10) when evaluating whether a restructuring constitutes a troubled debt restructuring. An entity should disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired under Section 310-10-35 for which impairment was previously measured under Subtopic 450-20, Contingencies – Loss Contingencies. The guidance in this ASU is anticipated to be effective for interim and annual periods beginning on or after December 15, 2011. The management is assessing the impact of this ASU on the Company’s financial statements.

- 8 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

3.	Summary of significant accounting policies (Cont’d)

Recently issued accounting pronouncements (cont’d)

In April 2011, the FASB issued ASU 2011-03 “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements”. The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The management is assessing the impact of this ASU on the Company’s financial statements.

In May 2011, the FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. The FASB and the International Accounting Standard Board (IASB) work together to ensure that fair value has the same meaning in U.S. GAAP and IFRSs and that their respective fair value measurement and disclosure requirements are the same (except for minor differences in wording and style). The Boards concluded that the amendments in this ASU will improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs. The amendments in this ASU explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted. The management is assessing the impact of this ASU on the Company’s financial statements.

In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”. In this ASU, the entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This Update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this ASU are to be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early application by public entities is permitted. The management is assessing the impact of this ASU on the Company’s financial statements.

- 9 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

4.	Income taxes

United States

The Company is subject to the United States of America Tax law at tax rate of 34%. It has no assessable profit for the three and six months ended June 30, 2011 and 2010, respectively. The Company has not recognized a deferred tax liability for the undistributed earnings of its non-U.S. subsidiaries as of June 30, 2011 and December 31, 2010 respectively, because the Company currently does not expect those unremitted earnings to reverse and become taxable to the Company in the foreseeable future. A deferred tax liability will be recognized when the Company no longer plans to permanently reinvest undistributed earnings. Calculation of related unrecognized deferred tax liability is not practicable.

BVI

Omnia BVI was incorporated in the BVI and, under the current laws of the BVI, is not subject to income tax.

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 years’ exemption, from the first profit making calendar year of operations after offset of accumulated taxable losses, followed by 50% tax reduction for the immediate next three calendar years. This tax holiday commenced in the fiscal financial year 2007. Oriental Fashion was subject to EIT rate of 12% and 11% during the three and six months ended June 30, 2011 and 2010 respectively.

ASC 740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and considered that no provision for uncertainty in income taxes was necessary as of June 30, 2011.

5.	(Loss) earnings per share - basic and diluted

The basic (loss) earnings per share is calculated using the net (loss) income and the weighted average number of shares outstanding during the reporting periods.

5,412,000 warrants issued to investors and Keating Securities, and options to purchase 1,369,840 shares of the Company’s common stock granted to the Company’s director and employees outstanding as of June 30, 2011 and 2010 have not been included in the computation of diluted (loss) earnings per share for the three and six months then ended because to do so would have an anti-dilutive effect. Accordingly, the basic and diluted (loss) earnings per share for the three and six months ended June 30, 2011 and 2010 are the same.

- 10 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

6.	Trade receivables, net

	As of			As of
	June 30,			December 31,
	2011			2010
	(Unaudited)

Trade receivables	$	2,744,565		$	2,324,642
Allowance for doubtful accounts		(906,467	)		(813,540	)

	$	1,838,098		$	1,511,102

An analysis of the allowance for doubtful accounts for the six months ended June 30, 2011 and 2010 is as follows :-

	Six months ended June 30, (Unaudited)
	2011		2010

Balance at beginning of period	$	813,540	$	754,290
Addition of bad debts expenses, net		75,855		-
Translation adjustments		17,072		889

Balance at end of period	$	906,467	$	755,179

7.	Inventories

	As of			As of
	June 30,			December 31,
	2011			2010
	(Unaudited)

Raw materials	$	656,121		$	570,487
Work in progress		2,032,562			502,620
Finished goods		2,327,306			3,380,858

		5,015,989			4,453,965
Allowance for obsolete inventories		(398,559	)		(390,830	)

	$	4,617,430		$	4,063,135

8.	Loan to a related party

The loan is due from Shenzhen Oumeng Sound Investment Co., Ltd. 深圳市欧萌尚德投资有限公司, of which the Company’s director Ms. Xiaoyin Luo is a minority stockholder and director. It is unsecured, interest-bearing at 9% per annum and repayable on June 21, 2012.

9.	Loan to a third party

The loan is unsecured, interest-bearing at 8% per annum and repayable on August 31, 2011.

- 11 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

10.	Other receivables and deposits

	As of			As of
	June 30,			December 31,
	2011			2010
	(Unaudited)

Other receivables, rental, utilities and other deposits	$	407,735		$	448,561
Allowance for doubtful debts		(83,513	)		(81,893	)

		324,222			366,668
Trade deposits to suppliers		4,193,863			3,495,857

	$	4,518,085		$	3,862,525

11.	Restricted cash

	As of		As of
	June 30,		December 31,
	2011		2010
	(Unaudited)

Pledged for the bank loans granted to the Company and unrelated parties (Note 14)	$	464,100	$	455,100
Capital injection to a newly established subsidiary (Note 1(b))		154,700		-

	$	618,800	$	455,100

12.	Property and equipment, net

	As of			As of
	June 30,			December 31,
	2011			2010
	(Unaudited)

Office equipment and computers	$	982,002		$	939,901
Machinery		18,352			17,207
Leasehold improvement		572,052			560,958
Motor vehicles		19,569			19,190

		1,591,975			1,537,256
Accumulated depreciation		(1,109,433	)		(942,711	)

Property and equipment, net	$	482,542		$	594,545

13.	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.

- 12 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

14.	Short-term secured bank loan

The bank loan is denominated in Renminbi and repayable within one year. It carries interest at 8.203% per annum.

The bank loan is guaranteed by (i) Ms. Zheng Luo, who did not receive any compensation for acting as guarantor; (ii) the Company’s bank deposit of $464,100 and (iii) bank deposits of three unrelated parties in the amount of $1,392,300.

The Company’s restricted cash of $464,100 was also pledged to the bank to secure the bank loans of $4,641,000 granted to the aforementioned unrelated parties. The restricted cash will be released by the bank after the Company and the unrelated parties have fully repaid their borrowings.

15.	Loan-term secured bank loan

The bank loan is denominated in Renminbi and has a 2-year term. It carries interest at 0.495% per month and is guaranteed by (i) Ms. Zheng Luo, who did not receive any compensation for acting as guarantor; (ii) a third party, who received $19,072 from the Company for acting as guarantor and (iii) the property owned by Ms. Zheng Luo.

The long-term secured bank loan as of June 30, 2011 will be repayable in :-

Fiscal year ending on June 30,
2012	$	440,895
2013		719,355

	$	1,160,250

16.	Loan from a stockholder

The loan is interest-free, unsecured and repayable on demand. The stockholder advanced $228,995 and $172 to the Company during the six months ended June 30, 2011 and 2010, respectively.

17.	Other payables, deposits received and accrued expenses

	As of		As of
	June 30,		December 31,
	2011		2010
	(Unaudited)

Other payables and accruals	$	589,100	$	613,255
Amounts due to partners of co-owned stores		274,528		287,921
Receipts in advance from customers		747,109		714,066
Deposits received		379,817		368,811
Business tax and value-added taxes payable		1,193,933		766,411

	$	3,184,487	$	2,750,464

- 13 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

18.	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 $0.60 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 $0.60 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 six months ended June 30, 2011 is presented below :-

			Average		Remaining	Aggregate
	Number of		exercise price		contractual	intrinsic
	shares		per share		term	value

Outstanding as of January 1, 2011		1,369,840	$	0.67
Granted		-		-
Exercised/Forfeited/Cancelled		-		-

Outstanding as of June 30, 2011		1,369,840	$	0.67	7.5 years	$	-

Exercisable as of June 30, 2011		1,369,840	$	0.67	7.5 years	$	-

Aggregate intrinsic value represents the value of the Company’s closing stock price on June 30, 2011 of $0.05 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 non-cash share-based compensation expenses were fully amortized in the fiscal year 2010. The Company recorded non-cash share-based compensation expense of $43,420 for the six months ended June 30, 2010 in respect of the share options, which was allocated to general and administrative expenses.

- 14 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

18.	Stock option plan (Cont’d)

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	%

19.	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 2011 to 2015. The minimum future commitments payable under these agreements as of June 30, 2011 was $88,728 which fall due within one year.

Rental expenses under operating leases were $224,731 and $288,883 for the six months ended June 30, 2011 and 2010 respectively.

Contingencies

In accordance with the PRC tax regulations, the Company’s sales are subject to value added tax (“VAT”) at 17% upon the issuance of VAT invoices to its customers. When preparing these financial statements, the Company recognized revenue when goods were delivered, and made full tax provision in accordance with relevant national and local laws and regulations of the PRC.

The Company follows the practice of reporting its revenue for PRC tax purposes when invoices are issued. In the local statutory financial statements prepared under the PRC GAAP, the Company recognized revenue on an “invoice basis” instead of when goods are delivered. Accordingly, despite the fact that the Company has made full tax provision in these condensed consolidated financial statements, the Company may be subject to a penalty for the deferred reporting of tax obligations. The exact amount of penalty cannot be estimated with any reasonable degree of certainty. The management considers it is very unlikely that the tax penalty will be imposed.

20.	Defined contribution plan

Pursuant to the relevant PRC regulations, the Company is required to make contributions to a defined contribution retirement scheme organized by a state-sponsored social insurance plan in respect of the retirement benefits for the Company’s employees. The only obligation of the Company with respect to the 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 defined contribution plan contributions were charged to profit or loss. The Company contributed $41,847 and $40,567 during the six months ended June 30, 2011 and 2010, respectively.

- 15 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

21.	Related party transactions

Apart from the transactions and information as disclosed in notes 8, 14, 15 and 16 to the condensed consolidated financial statements and below, the Company did not have other material related party transactions during the six months ended June 30, 2011 and 2010, respectively.

	Three months ended June 30, (Unaudited)				Six months ended June 30, (Unaudited)
	2011		2010		2011		2010

Rent paid to director, Ms. Zheng Luo	$	25,288	$	48,421	$	50,397	$	48,421

The rent was determined by the Company and Ms. Luo with reference to market rent of similar property.

22.	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 as defined by ASC Topic 280 “Segment Reporting”.

	Retail sales						Sales to distributors				Total
	Six months ended						Six months ended				Six months ended
	June 30, (Unaudited)						June 30, (Unaudited)				June 30, (Unaudited)
	2011			2010			2011		2010		2011		2010

Revenues	$	2,285,406		$	1,464,866		$	2,052,950	$	2,604,899	$	4,338,356	$	4,069,765
Segment (loss) profit	$	(251,009	)	$	(491,067	)	$	451,592	$	926,054	$	200,583	$	434,987

	Retail sales						Sales to distributors				Total
	Three months ended						Three months ended				Three months ended
	June 30, (Unaudited)						June 30, (Unaudited)				June 30, (Unaudited)
	2011			2010			2011		2010		2011			2010

Revenues	$	1,138,091		$	685,536		$	885,794	$	1,489,015	$	2,023,885		$	2,174,551
Segment (loss) profit	$	(251,670	)	$	(270,519	)	$	155,596	$	521,714	$	(96,074	)	$	251,195

	As of		As of		As of		As of		As of		As of
	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2011		2010		2011		2010		2011		2010
	(Unaudited)				(Unaudited)				(Unaudited)

Segment assets	$	7,410,242	$	4,651,091	$	6,656,523	$	7,493,125	$	14,066,765	$	12,144,216

- 16 -

OmniaLuo, Inc.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2011 and 2010 (Unaudited)

(Stated in US Dollars)

22.	Segment information (Cont’d)

A reconciliation is provided for unallocated amounts relating to corporate operations which is not included in the segment information:-

	Three months ended June 30, (Unaudited)						Six months ended June 30, (Unaudited)
	2011			2010			2011			2010

Total consolidated revenue	$	2,023,885		$	2,174,551		$	4,338,356		$	4,069,765

Total (loss) income for reportable segments	$	(96,074	)	$	251,195		$	200,583		$	434,987
Unallocated amounts relating to
operations :-
Other income		73,261			-			73,261			-
General and administrative expenses		(39,890	)		(19,246	)		(47,031	)		(81,212	)
Stock-based compensation		-			(19,663	)		-			(43,420	)

(Loss) income before income taxes	$	(62,703	)	$	212,286		$	226,813		$	310,355

	As of		As of
	June 30,		December 31,
	2011		2010
	(Unaudited)
Assets

Total assets for reportable segments	$	14,066,765	$	12,144,216
Cash and cash equivalents		33,318		15,775

	$	14,100,083	$	12,159,991

All of the Company’s long-lived assets and customers are located in the PRC. Accordingly, no geographic information is presented.

23.	Subsequent events

A new subsidiary was established after the balance sheet date (Note 1(b)). The Company has evaluated all other events or transactions that occurred through the date the condensed consolidated financial statements were issued, and has determined that there were no material recognizable nor subsequent events or transactions which would require recognition or disclosure in the condensed consolidated financial statements.

- 17 -

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the condensed consolidated financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and notes in Item I above and with the audited consolidated financial statements and notes, and with the information under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from the results described in or implied by these forward-looking statements as a result of various factors, including those discussed in this report and under the heading “Risk Factors” in our most recent Annual Report on Form 10-K.

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) Omnialuo BVI, a wholly-owned subsidiary of Omnialuo, Inc. organized under the laws of the British Virgin Islands, and (iii) Oriental Fashion, a wholly-owned subsidiary of Omnialuo BVI organized under the laws of the People’s Republic of China (the “PRC).

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 its indirect wholly-owned subsidiary, 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 across the People’s Republic of China (“PRC” or “China”), which consisted of 115 stores as of June 30, 2011, and 115 stores as of June 30, 2010, in 29 provinces throughout China. Until our acquisition of Omnia BVI on October 9, 2007, our operations were very limited.

Principal Products

We offer a complete line of business casual women’s wear including bottoms, tops and outerwear as well as accessories. All apparel is marketed under the OMNIALUO brands through a network of retail stores across China. Our main product line is “fashionable business casual,” which is suitable for both business and casual environments. Fashionable business casual is clothing that can be worn to work as well as outside the office environment. In recent years, fashionable business casual has gained significant market share in the fashion industry. We also have a smaller “business casual” product line.

Apparel under the OMNIALUO brands is made of high quality materials, and many pieces contain intricate and delicate craftwork. The designs are made to accentuate a woman’s figure while providing a unique cut and stitching to the material, which provide a slimming look. The majority of materials used are composed of tatting and knitwear. Tatting and knitwear are soft fabrics and allow women’s skin to “breathe” thus providing comfort in addition to style.

Customers

Since 2009, our target customers have been “white-collar”, “pink-collar” and “golden-collar” professional urban working females between the ages of 28 to 45. Before 2009, we targeted professional urban working females between the ages of 25 to 35. The annual income of our targeted customers ranges from $3,700 to $45,000. We increased the ages of our target customers by offering premium and mature styles of apparel. We believe professional urban working females in this age group has the most purchasing power and our strategy of focusing on this female segment is intended to capitalize on this consumption pattern.

In China, professional women are generally divided into three categories, “white-collar”, “pink-collar” and “golden-collar”. “Pink-collar” workers usually work in high-paying industries such as finance, consulting, legal services, or assume senior positions in government agencies. Our business casual collections as well as our fashionable business casual collection appeal to pink-collar women. “White collar” workers usually work in junior or middle positions in an office environment. This includes positions such as secretaries, administrators, operators, IT staff, accounting staff and junior saleswomen. Usually, there is no strict dress code for “white-collar” professionals in the office. “White-collar” professionals can wear “relaxed” business style apparel instead of business suits in their workplaces. In this sense, our fashionable business casual can be worn by “white-collar” females both in and out of the work environment. Currently, “golden-collar” generally refers to the class of professionals with annual incomes from $30,000 to $45,000. They typically hold executive positions in corporations or operate their own businesses. “Golden-collar” females usually tend to wear luxury brands.

- 18 -

Distribution Network and Methods

Our products are sold in the following types of stores: (i) Company-owned stores, which are owned exclusively by the Company, (ii) co-owned stores, which are owned jointly by the Company and a third party, and (iii) independent distributor stores, which are owned exclusively by third parties. All three types of stores carry the OMNIALUO brands exclusively. We refer to Company-owned stores and co-owned stores collectively as retail stores. All three types of stores are located throughout China. We also run special, limited-time outlet sales in major malls to sell excess inventories at the end of each season. We currently do not have franchisees or franchised stores. As of June 30, 2011 and June 30, 2010, the total number of stores remained at 115, respectively, each consisting of 26 and 27 company-owned stores, respectively, 9 and 8 co-owned stores, respectively, and each of 80 independent distributor stores, respectively.

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 style. We target moderate to premium priced women’s wear. 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.

Results of Operations for the Three Months and Six Months ended June 30, 2011 and June 30, 2010

As of June 30, 2011, we operated or had distribution relationships with 115 stores, comprising 26 Company-owned stores, 9 co-owned stores, and 80 independent distributor stores, as compared to 115 stores for the same period of 2010, comprising 27 Company-owned stores, 8 co-owned stores and 80 independent distributor stores.

Before 2009, we targeted professional urban working females between the ages of 25 to 35, who prefer clothing with youthful or trendy styles and concern lower prices with less focus on quality or material. The pricing of our clothing was reflected in our lines for this target market. Generally, the profit margin for medium and lower-end clothing lines is low and its success is largely dependent on sales volume. Because of rising labor costs and the growing impact of inflation, medium to lower-end clothing lines are becoming even less profitable. In order to stay competitive and to leverage one of our core competencies, our strong design capability, we have shifted our focus to professional urban working females between the ages of 35 and 40. Women in this age group generally have more disposable income and prefer clothing with higher quality, better design and more elegant style. We have been adjusting our product styles and quality to meet the needs of customers in this age group. In implementing our market and product strategies, we expect to emphasize our company-owned and co-owned stores, over which we have more control in areas of store design, product image and personnel. Although compared to the quarter ended June 30, 2010, we generally maintained the ratio among our company-owned, co-owned and independent distributor stores as of June 30, 2011, we intend to gradually adjust our store mix with more emphasis on company-owned and co-owned stores and will gradually discontinue certain non-performing independent distributor stores. We also plan to eventually develop a franchise program to admit franchise stores.

Our total revenue for the three months ended June 30, 2011 was $2,023,885, representing a decrease of 6.93% from our total revenue of $2,174,551 for the same period of 2010, while our cost of revenues for the three months ended June 30, 2011 was $699,969, representing a decrease of 5.30% from our cost of revenues for the same period of 2010. The decrease for the three months ended June 30, 2011 was primarily a result of decrease in sales generated by independent distributor stores located in tier 2 and tier 3 cities whose clientele is less able to afford our upgraded, higher-priced products. As we are upgrading our clothing lines, some of the traditional clientele of our independent distributor stores located in tier 2 and tier 3 cities are gradually priced out of our current target market. Additionally, the growing impact of inflation in recent months also contributed to the decrease. The decrease in sales generated from such distributor stores were partially offset by the increase in sales generated from our company-owned stores and co-owned stores in tier 1 cities. We believe one of the keys to succeed in the current economic and market environment is to enhance the performance of our company-owned and co-owned stores through the strengthening of our brand prestige and sales force.

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Revenue for the six months ended June 30, 2011 was $4,338,356, representing an increase of 6.60% from our total revenues of $4,069,765 for the same period of 2010, while our cost of revenues for the six months ended June 30, 2011 was $1,554,628, representing an increase of 1.04% from our cost of revenues for the same period of 2010.

Revenue from sales to independent distributors for the three months ended June 30, 2011 was $885,794 (43.77% of the total sales revenue for the period), $603,221 (or 40.51%) less than the revenue from sales to distributors for the three months ended June 30, 2010 of $1,489,015 (68.47% of the total sales revenue for the period). The reason for the decrease in sales to independent distributors as a percentage of total sales for the three months ended June 30, 2011 as compared to that for the same period of 2010 was attributable to the impact of our product adjustment and the impact of growing inflation as described above.

Revenue from sales to independent distributors for the six months ended June 30, 2011 was $2,052,950 (47.32% of the total sales revenue for the period), $551,949 (or 21.19%) less than revenue from sales to distributors for the six months ended June 30, 2010 of $2,604,899 (64.01% of the total sales revenue for the period). Besides the impact of our product adjustment and the impact of growing inflation as described above, another reason for the decrease was the longer winter season in 2011 as compared to that in 2010.

Revenue from retail sales for the three months ended June 30, 2011, including from company-owned and co-owned stores, was $1,138,091, (56.23% of the total sales revenue for the period), representing $452,555 (or 66.01%) increase over retail sales for the three months ended June 30, 2010 of $685,536 (31.53% of the total sales revenue for the period). In the second quarter of 2011, we continue to adjust the sales strategy to expand the investment and management of the company-owned stores so as to strengthen the market control and promotion. In addition, we spend efforts in upgrading the image of our company-owned and co-owned stores and improving the quality of the products, which directly contributed to the increase of revenue from retail sales. We also emphasized on improving our sales forced by providing continuous internal training to our sales representatives.

Revenue from retail sales for the six months ended June 30, 2011, including from company-owned and co-owned stores, was $2,285,406, (52.68% of the total sales revenue for the period), representing $820,540 (or 56.01%) increase over retail sales for the six months ended June 30, 2010 of $1,464,866 (35.99% of the total sales revenue for the period). The increase was mainly due to the reasons as describe above.

Overall gross profit for the three months ended June 30, 2011 was $1,323,916 (representing an overall gross profit margin of 65.41%), compared with overall gross profit of $1,435,392 (representing an overall gross profit margin of 66.01%) for the three months ended June 30, 2010, almost the same gross profit level as compared to the same period last year.

Overall gross profit for the six months ended June 30, 2011 was $2,783,728 (representing an overall gross profit margin of 64.17%), compared with overall gross profit of $2,531,199 (representing an overall gross profit margin of 62.20%) for the six months ended June 30, 2010, almost the same gross profit level as compared to the same period last year.

General and administrative expenses, which include rental expenses for headquarters, salary expenses for management and headquarters staff, and travel and entertainment expenses for the three months ended June 30, 2011 were $670,633 (33.14% of the total sales revenues), compared with $509,433 for the three months ended June 30, 2010 (23.43% of the total sales revenues), an increase of $161,200 (or 31.64%). The increase was mainly due to the following reasons:

(1)

In the second quarter, companies in Southern China encountered a labor shortage and a general inflation, both of which resulted in a salary increment in order to maintain a stable workforce; and

(2)

The attendance of 2011 China International Clothing & Accessories Fair in Beijing and Shenzhen and the 2011 Autumn & Winter Trade Fair, which increased our travel and entertainment expenses.

General and administrative expenses for the six months ended June 30, 2011 were $1,215,329 (28.01% of the total sales revenues), compared with $943,878 for the six months ended June 30, 2010 (23.19% of the total sales revenues), an increase of $271,451 (or 28.76%). The increase was mainly due to the reasons as described above.

Selling and marketing expenses, which include all costs associated with sales, marketing and distribution functions, were $707,275 for the three months ended June 30, 2011 (34.95% of the total sales revenues), compared with $627,498 for the three months ended June 30, 2010 (28.86% of the total sales revenues), an increase of $79,777 (or 12.71%). The primary reasons for the increase were because of the increased selling and marketing expenses associated with our operations of company-owned stores, including the management fees paid to the malls that housed our company owned-stores, and the salaries and training expenses of our sales force.

Selling and marketing expenses were $1,274,615 for the six months ended June 30, 2011 (29.38% of the total sales revenues), compared with $1,068,093 for the six months ended June 30, 2010 (26.24% of the total sales revenues), an increase of $206,522 (or 19.34%). The primary reasons for the increase are described above.

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Loss from operations for the three months ended June 30, 2011 was $127,717, compared with income from operations for the three months ended June 30, 2010 of $225,805 (10.38% of the total sales revenues), representing a decrease of $353,522 (or 156.56%). The loss was mainly attributable to our market and product strategy adjustment that we implemented in the second quarter of 2011. We did not increase sales revenue, while we had to increase expenses relating to management and marketing, as well as payroll expenses due to the labor shortage and the impact of inflation.

Income from operations for the six months ended June 30, 2011 was $147,600 (3.40% of the total sales revenues), compared with income from operations for the six months ended June 30, 2010 of $373,817 (9.19% of the total sales revenues), representing a decrease of 60.51%. The decrease was primarily due to our market and product strategy adjustment and the impact of inflation in the second quarter as described above.

Net loss for the three months ended June 30, 2011 was $96,411, compared with net income $180,103 for the three months ended June 30, 2010, representing a decrease of $276,514 (or 153.53%). The loss was primarily due to the market and product strategy adjustment as described above.

Net income for the six months ended June 30, 2011 was $157,131, compared with $257,699 for the six months ended June 30, 2010, representing a decrease of $100,568 (or 39.03%). The decrease was primarily due to the market and product strategy adjustment and the impact of inflation on our cost of products and management expenses as described above.

Liquidity and Capital Resources

As of June 30, 2011, the Company’s net cash position was $538,385, compared with $1,629,530 as of December 31, 2010. Its working capital was $6,334,125, compared with $6,152,478 as of December 31, 2010.

As of June 30, 2011, inventories were $4,617,430, an increase of $554,295 (or 13.64%), compared with $4,063,135 as of December 31, 2010. The increase was primarily caused by our market and product strategy adjustment. Fabrics used to make lower end clothing are generally ordinary materials that are readily available in the market while fabrics used for higher end clothing lines with design features must possess features and qualities that can meet the design requirements for the clothing line and they are less available and more expensive. As we are upgrading our clothing lines to medium to high end clothing lines, in order to ensure the availability of raw material for our production, we are required to purchase raw materials well in advance and maintain a higher inventory level of these materials. Additionally, for certain fabrics, such as silk, that are frequently used as basic materials for our clothing products, we purchased a larger quantity of these fabrics beyond our immediate manufacturing needs to minimize the impact of inflation.

As of June 30, 2011, trade receivables were $1,838,098, an increase of $326,996 (or 21.64%), compared with trade receivables of $1,511,102 as of December 31, 2010. The increase was primarily attributable to lower collection rate related to our independent distributors as they are adapting to our market and product strategy adjustment.

As of June 30, 2011, other receivables and deposits were $4,518,085, an increase of $655,560 (or 16.97%), compared with $3,862,525 as of December 31, 2010. The increase was primarily attributable to the increase in trade deposits to suppliers in order to take advantage of lower and/or fixed pricing of materials offered by the suppliers as a way to minimize the impact of inflation.

Net cash used in operating activities for the six months ended June 30, 2011 was $182,830, compared with net cash used in operating activities of $670,774 for the six months ended June 30, 2010, a decrease of $487,944 (or 72.74%). The decrease was primarily due to less cash outflows in trade and other payables, deposits received and accrued expenses compared with the second quarter of 2010.

The Company’s investing activities consisted mainly of the loans to a related party and a third party, and short-term investments. For the six months ended June 30, 2011 and 2010, the net cash used in investing activities was $1,611,163 and $10,218, respectively, an increase of $1,600,945. The increase was mainly because of the loans to a related party of $1,069,040 and a third party of $62,103. The loans to the related party and the third party are repayable on June 21, 2012 and August 31, 2011 respectively.

Net cash flows from financing activities for the six months ended June 30, 2011 was $687,155, compared with $819,516 of net cash flows from financing activities for the six months ended June 30, 2010. The net cash flows for the six months ended June 30, 2011 included mainly the proceeds from bank loans of $1,527,200, the repayment of the principal for short-term bank loans of $1,069,040 and advances from a stockholder of $228,995.

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The Company had a short-term secured bank loan of $1,547,000 and a long-term secured bank loan of $1,160,250 as of June 30, 2011. The short-term bank loan is denominated in Renminbi and repayable within one year. It carries interest at 8.203% per annum. The bank loan is guaranteed by (i) Ms. Zheng Luo, who did not receive any compensation for acting as guarantor; (ii) the Company’s bank deposit of $464,100 and (iii) bank deposits of three unrelated parties in the amount of $1,392,300. The long-term bank loan is denominated in Renminbi and has a 2-year term. It carries interest at 0.495% per month and is guaranteed by (i) Ms. Zheng Luo, who did not receive any compensation for acting as guarantor; (ii) a third party, who received $19,072 from the Company for acting as guarantor and (iii) the property owned by Ms. Zheng Luo.

We believe that our currently available working capital should be adequate to sustain our operations at our current levels. Thereafter, based on our current operating plan and our available cash and cash equivalents, we expect that we will need to obtain additional financing in the future 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

Our critical accounting policies are set out in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 that we filed with the Securities and Exchange Commission on March 31, 2011. During the three months ended June 30, 2011, there was no change to our critical accounting policies.

Recently Issued Accounting Pronouncements

Please refer to note 3 to the Condensed Consolidated Financial Statements for the three months and six months ended June 30, 2011.

Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not applicable.

Item 4 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 June 30, 2011, 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 June 30, 2011, 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.

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PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

None.

Item1A.

Risk Factors

Not applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Reserved

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.

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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: August 15, 2011		/s/ Zheng Luo
		Zheng Luo
		President & Chief Executive Officer
		(Principal Executive Officer)


Date: August 15, 2011	/s/ David Wang
	David Wang
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

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OmniaLuo, Inc. - FORM 10-Q - August 15, 2011

Attached files

OmniaLuo, Inc. Reports