ITEM 1. BUSINESS
Unless the context otherwise requires, all references in this Annual Report on Form 10-K to the “Company”, “Odimo”, “we”, “our”, “ours”, and “us” refers to Odimo Incorporated , a Delaware corporation.
Recent Developments
On October 29, 2010, we entered into a Share Exchange Agreement with Standard Crushed Stone Industry Limited, a Cayman Islands company (SCSI”) and its sole shareholder Republic Rock United Industry Limited, a BVI company (“Republic Rock“). On November 11, 2010, we closed the transactions under the Share Exchange Agreement and acquired from Republic Rock all of the outstanding shares of SCSI in exchange for the issuance of 235,281,759 shares of Odimo Common Stock (the “Reverse Merger”). SCSI, through its affiliated entities located and operating in the Shiyan Region of the People’s Republic of China, is engaged in the manufacture and distribution of cement and cement products.
On February 4, 2011 the parties rescinded the Share Exchange Agreement and voided, the Reverse Merger (the “Rescission”). In January 2011, we were advised by local governmental authorities in the Hubei Province of the People’s Republic of China (“PRC”) that our application made under the Circular on Issues Relevant to Foreign Exchange Control with Respect to the Round-trip Investment of Funds Raised by Domestic Residents Through Offshore Special Purpose Vehicles (“Circular 75”) issued in October 2005 by the PRC State Administration of Foreign Exchange (“SAFE”) had not been approved (the “Non-Approval”). As a result of the Non-Approval, Odimo is precluded from engaging in equity financing outside of China for Hubei Jinlong Cement Company (“Hubei Jinlong”), the PRC company whose business operations had become controlled by Odimo pursuant to the Reverse Merger and accordingly Hubei Jinlong would not be able to carry out its business plan. The parties to the Share Exchange Agreement determined that it was fair to and in the best interests of their respective corporations and shareholders to rescind the Share Exchange Agreement and unwind the Reverse Merger and the other transactions contemplated thereby as if they never occurred, upon the terms and subject to the conditions set forth in the Rescission Agreement.
Pursuant to the Rescission, we returned to Republic Rock all shares of Standard Crushed we acquired under the Share Exchange Agreement and all 235,281,759 shares of common stock of Odimo issued in connection with the Reverse Merger were returned to us.
As a result of the Rescission, Odimo resumed its status as a shell company and will seek to effect a merger, acquisition or other business combination with an operating company, including an operating company based in China, by using a combination of capital stock, cash on hand, or other funding sources, if available, Alan Lipton is the sole member of our Board of Directors and Amerisa Kornblum is our President and Chief Financial Officer.
In connection with the closing of the Reverse Merger, we expended approximately $28,000 to cover transfer agent, printing and accounting fees and costs. We used another $50,000 to cover legal fees of Hubei Jinlong. We may seek to raise additional capital through the issuance of equity or debt, including loans from related parties, to acquire sufficient liquidity to satisfy our future liabilities. Such additional capital may not be available timely or on terms acceptable to us, if at all. Our plans to repay our liabilities as they become due may be impacted adversely by our inability to have sufficient liquid assets to satisfy our liabilities.
Non-Operating Shell Company
We are a non operating shell corporation. We intend to effect a merger, acquisition or other business combination with an operating company by using a combination of capital stock, cash on hand, or other funding sources, if available. We intend to devote substantially all of our time to identifying potential merger or acquisition candidates. There can be no assurances that we will enter into such a transaction in the near future or on terms favorable to us, or that other funding sources will be available.
Cessation of Online Retailing Business of the Company
Prior to May 2006, we were an online retailer of high quality diamonds and fine jewelry, current season brand name watches and luxury goods through three websites, www.diamond.com, www.worldofwatches.com and www.ashford.com. In May 2006, we sold assets related to our online diamond and jewelry business operations, including our domain name www.diamond.com. In December 2006, we sold assets related to our online watch business operations, including our domain name www.worldofwatches.com. In April 2007, we sold our domain name www.ashford.com and related intellectual property rights, product images and other intangibles.
Other than Amerisa Kornblum, our President and Chief Executive Officer, who, commencing in 2008, serves the Company for no compensation, we have no full time employees.
Going Concern
Our independent registered public accounting firm’s report on our financial statements for the fiscal year ended December 31, 2011 includes an explanatory paragraph regarding our ability to continue as a going concern. As shown in our historical financial statements, we have incurred significant recurring net losses and negative cash flows from operations for the past several years and as of December 31, 2011, our financial statements reflect negative working capital and a stockholders’ equity deficiency.
These conditions raise substantial doubt about our ability to continue as a going concern. Further, the registered public accounting firm’s report states that the financial statements do not include any adjustments that might result from the outcome of this uncertainty.
We may seek to raise additional capital through the issuance of equity or debt, including loans from related parties, to acquire sufficient liquidity to satisfy our future liabilities. Such additional capital may not be available timely or on terms acceptable to us, if at all. Our plans to repay our liabilities as they become due may be impacted adversely by our inability to have sufficient liquid assets to satisfy our liabilities.
Available Information
We make available free of charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. All of our filings with the SEC may be obtained at the SEC’s Public Reference Room. The SEC maintains an Internet site that contains reports, proxy and other information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.
ITEM 1A.
ITEM 1A. RISK FACTORS
Some of the statements in this report and in particular, statements found in Management’s Discussion and Analysis of Financial Condition and Results of Operations, that are not historical in nature may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are often identified by the words “will,” “should,” “anticipate,” “believe,” “expect,” “intend,” “estimate,” “hope,” or similar expressions. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties. There are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. These factors, risks and uncertainties include, but are not limited to, the factors described below.
Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on our results of operations or financial condition. In view of these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We expressly disclaim any obligation to publicly revise any forward-looking statements that have been made to reflect the occurrence of events after the date hereof.
You should carefully consider the risks and uncertainties described below, together with all other information included in this report, including the financial statements and the related notes herein, as well as in our other public filings, before making any
investment decision regarding our stock. If any of the following risks actually occurs, our business, financial condition, results of operations and future prospects would likely be materially and adversely affected. In that event, the market price of our stock could decline and you could lose all or part of your investment.
We are a non-operating shell company.
We are a public shell company with no operations and we are seeking to effect a merger, acquisition or other business combination with an operating company by using a combination of capital stock, cash on hand, or other funding sources, if available. There can be no assurances that we will be successful in identifying acquisition candidates or that if identified we will be able to consummate a transaction on terms acceptable to us.
If we do not have sufficient liquid assets to satisfy our liabilities we will seek to raise additional capital through the issuance of equity or debt, including loans from related parties. Such additional capital may not be available timely or on terms acceptable to us, if at all. Our plans to repay our liabilities as they become due may be impacted adversely by our inability to have sufficient liquid assets to satisfy our liabilities. Our independent registered public accounting firm’s report on our financial statements for the fiscal year ended December 31, 2011 includes an explanatory paragraph regarding our ability to continue as a going concern. As shown in our historical financial statements, we have incurred significant recurring net losses and negative cash flows from operations for the past several years and as of December 31, 2011, our financial statements reflect negative working capital and a stockholders’ equity deficiency.
We do not intend to pay dividends on our common stock, and, consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates.
We have never declared or paid any cash dividends on our common stock and do not intend to pay dividends on our common stock for the foreseeable future. We intend to invest our future earnings, if any, to fund our growth.
Our common stock is currently quoted for trading on the OTC Pink Market-which may adversely impact the liquidity of our shares and reduce the value of an investment in our stock.
Effective August 14, 2006, our common stock was delisted from quotation on the Nasdaq Global Market (formerly known as the Nasdaq National Market) and on the same day our common stock became quoted on the Over-The-Counter Market on the NASD Electronic Bulletin Board (OTCBB) and it now is quoted for trading on the OTC Pink -electronic quotation system-Current Information Tier of the OTC Markets. Our common stock has historically been sporadically or “thinly traded” (meaning that the number of persons interested in purchasing our shares at or near ask prices at any given time may be relatively small or non-existent) and no assurances can be given that a broader or more active public trading market for our common stock will develop or be sustained in the future or that current trading levels will be sustained. You may be unable to sell at or near ask prices or at all if you desire to liquidate your shares. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price.
Because our common stock is considered a “penny stock” any investment in our common stock is considered to be a high-risk investment and is subject to restrictions on marketability.
Our common stock is currently traded on the OTC Pink Market and is considered a “penny stock.” The OTC Pink Market is generally regarded as a less efficient trading market than the NASDAQ Market.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock.
Since our common stock is subject to the regulations applicable to penny stocks, the market liquidity for our common stock could be adversely affected because the regulations on penny stocks could limit the ability of broker-dealers to sell our common stock and thus your ability to sell our common stock in the secondary market. There is no assurance our common stock will be quoted on NASDAQ or the NYSE or listed on any exchange, even if eligible.
Our stock price has been and may continue to be volatile.
The market price for our common stock has been and is likely to continue to be volatile. The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control.
Future sales of our common stock may cause our stock price to decline.
A small number of our current stockholders hold a substantial number of shares of our common stock. Shares held by our officers, directors and principal stockholders are considered “restricted securities” within the meaning of Rule 144 under the Securities Act and, are eligible for resale subject to the volume, manner of sale, holding period and other limitations of Rule 144.
Sales of a substantial number of shares, or the expectation that such sale may occur, could significantly reduce the market price of our common stock. Moreover, the holders of a substantial number of our shares of common stock have rights to require us to file registration statements to permit the resale of their shares in the public market or to include their shares in registration statements that we may file for ourselves or other stockholders. We also have registered all common stock that we may issue under our stock incentive plan. Accordingly, these shares, when registered, can be freely sold in the public market upon issuance, subject to restrictions under the securities laws. If any of these stockholders cause a large number of securities to be sold in the public market, the sales could reduce the trading price of our common stock. These sales also could impede our ability to raise future capital.
Anti-takeover provisions in our organizational documents and Delaware law may discourage or prevent a change in control, even if an acquisition would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.
Our restated certificate of incorporation and restated bylaws contain provisions that may delay or prevent a change in control, discourage bids at a premium over the market price of our common stock and adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. These provisions include:
•
Our board of directors has the exclusive right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
•
Our stockholders may not act by written consent. As a result, a holder or holders controlling a majority of our capital stock would be able to take certain actions only at a stockholders’ meeting;
•
No stockholder may call a special meeting of stockholders. This may make it more difficult for stockholders to take certain actions;
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Our stockholders may not remove a director without cause, and our certificate of incorporation provides for a classified board of directors with staggered, three-year terms. As a result, it could take up to three years for stockholders to replace the entire board;
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Our certificate of incorporation does not provide for cumulative voting in the election of directors. This limits the ability of minority stockholders to elect director candidates;
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Stockholders must provide advance notice to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting. These provisions may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and
•
Our board of directors may issue, without stockholder approval, shares of undesignated preferred stock. The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.
As a Delaware corporation, we are also subject to certain Delaware anti-takeover provisions. Under Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Our board of directors could rely on Delaware law to prevent or delay an acquisition of us.
A significant portion of our voting power is concentrated and, as a result, our other stockholders’ ability to influence corporate matters may be limited.
Elao, LLC, a limited liability company controlled by Alan Lipton and a trust established for the benefit of Mr. Lipton’s child together own approximately 38.6% of our outstanding voting stock. Two other stockholders control an additional 34.52% of our outstanding common stock. Accordingly, each of these stockholders will have significant influence over the management and affairs of Odimo and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of Odimo or its assets, for the foreseeable future. This concentrated control limits the ability of our other stockholders to influence corporate matters and, as a result, these stockholders may take actions that Odimo’s other stockholders do not view as beneficial.
Our ability to use net operating loss carryforwards may be limited.
Section 382 of the Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in its stock ownership. We have preliminarily reviewed the applicability of the annual limitations imposed by Section 382 caused by previous changes in our stock ownership and believe the availability of our net operating loss carryforwards is substantially limited. There can be no assurance that we will be able to utilize any net operating loss carryforwards in the future. This limitation may adversely affect our ability to attract certain business combination candidates and/or consummate a business combination with an operating business.
Our limited resources make it impracticable to conduct a complete and exhaustive search for a business combination.
Our limited resources and the lack of extensive management will likely make it impracticable to conduct a complete and exhaustive investigation and analysis of a business opportunity before we commit our resources thereto. Management decisions, therefore, will likely be made without detailed feasibility studies, independent analysis, market surveys and the like which, if we had more funds available to us, would be desirable. We will be particularly dependent in making decisions upon information provided by the promoter, owner, sponsor, or others associated with the business opportunity seeking our participation.
ITEM 2.
ITEM 2. PROPERTIES
Our corporate office address is 9858 Clint Moore Road, Boca Raton, Florida, 33496 where we lease approximately 200 square feet pursuant to a month to month agreement. We pay approximately $200 per month for this space.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock was quoted for trading on the Nasdaq National Market from February 15, 2005 through August 13, 2006 and currently is quoted on the OTC Pink Market. The following table sets forth the high and low closing sales prices for our common stock as reported on the OTCBB for the quarterly periods for fiscal years 2011 and 2010. The high and low bid prices for the periods indicated reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.
The approximate number of holders of record of our common stock as of March 25, 2012 is 39, inclusive of those brokerage firms and/or clearing houses holding shares of common stock for their clientele (with each such brokerage house and/or clearing house being considered as one holder).
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.
Equity Compensation Plan
The following table details our equity compensation plan as of December 31, 2011:
2011 EQUITY COMPENSATION PLAN INFORMATION
Repurchases of Equity Securities
None.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 6.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth previously under the caption “Risk Factors.” This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report.
Overview
We ceased operations as an online retailer at December 31, 2006 and, other than commissions we earned prior to April 2007 which were based on a percentage of gross sales made to visitors to our www.ashford.com homepage who were redirected to websites owned and operated by others, we have recorded no net sales or other operating revenue since our fiscal year ended December 31, 2007. We do not expect to generate operating revenue until such time as we consummate a business combination with an operating business, if at all. Our historical operating results disclosed in this Report on Form 10-K are not meaningful to our future results.
In May 2011 and February 2012, we borrowed the sum of $20,000 and $10,000 from Elao, LLC. The Lily Maya Lipton Family Trust is the sole member of Elao, LLC and Alan Lipton is the sole trustee of the Lily Trust and his daughter Lily Maya Lipton is the sole lifetime beneficiary. In December 2011 and February 2012, we borrowed the sum of $10,000 and $5,000 from our shareholder, Strategic Turnaround Equity Partners, LP (Cayman). We are obligated to repay to Elao, LLC the $20,000 and to STEP
the $10,000, together with accrued interest at 5% per annum, on the earlier to occur of (i) May 1, 2014; or (ii) the date we consummate a reverse merger transaction. We are obligated to repay to Elao, LLC the $10,000 and to STEP the $5,000, together with accrued interest at 5% per annum, on the earlier to occur of (i) May 1, 2015; or (ii) the date we consummate a reverse merger transaction or (iii) the date we recover sufficient funds, if any, from an action we may pursue against Hubei Jinlong Cement Co. and/or their affiliates.
Our independent registered public accounting firm’s report on our financial statements for the fiscal year ended December 31, 2011 includes an explanatory paragraph regarding our ability to continue as a going concern. As shown in our historical financial statements, we have incurred significant recurring net losses and negative cash flows from operations for the past several years and as of December 31, 2011, our financial statements reflect negative working capital and a stockholders’ equity deficiency.
These conditions raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Results of Operations
Comparison of Years Ended December 31, 2011 and 2010
General and Administrative Expenses. General and administrative expenses for the years ended December 31, 2011 and 2010 were $89,000 and $175,000, respectively. During 2011, such expenses consisted primarily of rent, accounting and other general and administrative expenses. We anticipate that our general and administrative expenses will remain low until such time as we effect a merger or other business combination with an operating business, if at all.
Net Income(Loss). Net Income for the year ended December 31, 2011 was $140,000. During 2011, the Company recorded income of $230,000 resulting from the write-off of accounts payable. Net loss for the year ended 2010 was $175,000.
Liquidity and Capital Resources
As of December 31, 2011, we had cash of approximately $9,000 and total liabilities of approximately $53,000. We intend to continue devoting substantially all of our time to identifying merger or acquisition candidates. In the event we locate an acceptable operating business, we intend to effect the transaction utilizing any combination of our Common Stock, cash on hand, or other funding sources that we reasonably believe are available. However, there can be no assurances that we will be able to consummate a merger or acquisition of an operating business on terms favorable to us, if at all, or that other funding sources will be available. If such shares of Common Stock are issued, our stockholders will experience a dilution of their ownership interest. If a substantial number of shares of common stock are issued in connection with a business combination, a change in control may occur.
Discussion of Cash Flows
Net cash used in operating activities for the year ended December 31, 2011 and December 31, 2010 was $24,000 and $119,000, respectively.
Net cash provided by investing activities in the years ended December 31, 2011 and 2010 was $0. Net cash provided by financing activities in the year ended December 31, 2011 and 2010 was $30,000 and $0. Net cash provided by financing activities in 2011 includes $30,000 in loans from a related party.
Liquidity Sources
Our current source of liquidity consists of cash on hand. As of December 31, 2011, we had $9,000 of cash on hand. Until required for other purposes, our cash and cash equivalents are maintained in deposit accounts or highly liquid investments with original maturities of 90 days or less at the time of purchase.
In May 2011 and February 2012, we borrowed the sum of $20,000 and $10,000 from Elao, LLC. The Lily Maya Lipton Family Trust is the sole member of Elao, LLC and Alan Lipton is the sole trustee of the Lily Trust and his daughter Lily Maya Lipton is the sole lifetime beneficiary. In December 2011 and February 2012, we borrowed the sum of $10,000 and $5,000 from our shareholder, Strategic Turnaround Equity Partners, LP (Cayman). We are obligated to repay to Elao, LLC the $20,000 and to STEP the $10,000, together with accrued interest at 5% per annum, on the earlier to occur of (i) May 1, 2014; or (ii) the date we consummate a reverse merger transaction. We are obligated to repay to Elao, LLC the $10,000 and to STEP the $5,000, together with accrued interest at 5% per annum, on the earlier to occur of (i) May 1, 2015; or (ii) the date we consummate a reverse merger transaction or (iii) the date we recover sufficient funds, if any, from an action we may pursue against Hubei Jinlong Cement Co. and/or their affiliates.
We may seek to raise additional capital through the issuance of equity or debt, including loans from related parties, to acquire sufficient liquidity to satisfy our future liabilities. Such additional capital may not be available timely or on terms acceptable to us, if at all. Our plans to repay our liabilities as they become due may be impacted adversely by our inability to have sufficient liquid assets to satisfy our liabilities.
Contractual Obligations
As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this section.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements.
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to income taxes, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 1 to our financial statements included in this report, we believe the policies discussed below are the most critical to understanding our financial position and results of operations.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized by applying statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance against our deferred tax assets. We have recorded a full valuation allowance against our deferred tax assets since we have determined that it is more likely than not that we may not be able to realize our deferred tax asset in the future.
Recent Accounting Standards Adopted in 2011
In January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-06 “Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements”, which provides amendments to Subtopic 820-10 that requires new disclosures as follows:
1. Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers.
2. Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).
This Update provides amendments to Subtopic 820-10 that clarifies existing disclosures as follows:
1. Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities.
2. Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.
This Update also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets (Subtopic 715-20). The conforming amendments to Subtopic 715-20 change the terminology from major categories of assets to classes of assets and provide a cross reference to the guidance in Subtopic 820-10 on how to determine appropriate classes to present
fair value disclosures. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.
In April 2010, the FASB issued ASU No. 2010-13, “Compensation - Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades” (“ASU 2010-13”). This update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010.
In August 2010, the FASB issued ASU 2010-21, “Accounting for Technical Amendments to Various SEC Rules and Schedules: Amendments to SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies” (“ASU 2010-21”), was issued to conform the SEC’s reporting requirements to the terminology and provisions in ASC 805, Business Combinations, and in ASC 810-10, Consolidation. ASU No. 2010-21 was issued to reflect SEC Release No. 33-9026, “Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies,” which was effective April 23, 2009. The ASU also proposes additions or modifications to the XBRL taxonomy as a result of the amendments in the update.
In August 2010, the FASB issued ASU 2010-22, “Accounting for Various Topics: Technical Corrections to SEC Paragraphs” (“ASU 2010-22”), which amends various SEC paragraphs based on external comments received and the issuance of SEC Staff Accounting Bulletin (SAB) No. 112, which amends or rescinds portions of certain SAB topics. The topics affected include reporting of inventories in condensed financial statements for Form 10-Q, debt issue costs in conjunction with a business combination, sales of stock by subsidiary, gain recognition on sales of business, business combinations prior to an initial public offering, loss contingent and liability assumed in business combination, divestitures, and oil and gas exchange offers.
In December 2010, the FASB issued the FASB Accounting Standards Update No. 2010-28 “Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (“ASU 2010-28”).Under ASU 2010-28, if the carrying amount of a reporting unit is zero or negative, an entity must assess whether it is more likely than not that goodwill impairment exists. To make that determination, an entity should consider whether there are adverse qualitative factors that could impact the amount of goodwill, including those listed in ASC 350-20-35-30. As a result of the new guidance, an entity can no longer assert that a reporting unit is not required to perform the second step of the goodwill impairment test because the carrying amount of the reporting unit is zero or negative, despite the existence of qualitative factors that indicate goodwill is more likely than not impaired. ASU 2010-28 is effective for public entities for fiscal years, and for interim periods within those years, beginning after December 15, 2010, with early adoption prohibited.
In December 2010, the FASB issued the FASB Accounting Standards Update No. 2010-29 “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”). ASU 2010-29 specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this Update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amended guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted.
Recent Accounting Standards not yet Adopted
In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The ASU clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring (“TDR”), both for purposes of recording an impairment loss and for disclosure of a TDR. In evaluating whether a restructuring constitutes a TDR, a creditor must separately conclude that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. The amendments to ASU Topic 310, Receivables, clarify the guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. ASU No. 2011-02 is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption.
In May 2011, the Financial Accounting Standards Board (FASB) issued ASU No. 2011-04 Fair Value Measurement (Topic 820) which amended standards to achieve a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards. For assets and liabilities categorized as Level 3 and recognized at fair value, these amended standards require disclosure of quantitative information about unobservable inputs, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements. In addition, these amended standards require that we disclose the level in the fair value hierarchy for financial instruments disclosed at fair value but not recorded at fair value. The amendments in this ASU are effective during interim and annual periods beginning after December 15, 2011. The adoption of this ASU is not expected to have a material impact on the consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” Under the amendments in this ASU, an entity has two options for presenting its total comprehensive income: to present total comprehensive income and its components along with the components of net income in a single continuous statement, or in two separate but consecutive statements. The amendments in this ASU are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The adoption of ASU No. 2011-05 will not have any material impact on the Company’s consolidated financial position and results of operations.
In September 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-08 Intangibles - Goodwill and Other (Topic 350) Testing Goodwill for Impairment. The ASU simplifies how entities, both public and nonpublic, test goodwill for impairment. The revised standard allows an entity to first assess qualitatively whether it is necessary to perform step one of the two-step annual goodwill impairment test. An entity is required to perform step one only if the entity concludes that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, a likelihood of more than 50 percent. An entity can choose to perform the qualitative assessment on none, some, or all of its reporting units. Moreover, an entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one of the impairment test, and then perform the qualitative assessment in any subsequent period. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company does not believe this guidance will have any impact on its consolidated financial position, results of operations, or cash flows.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 7A.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the list of financial statements filed with this report under Item 15 below.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
a. Evaluation of Disclosure Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to Amerisa Kornblum, our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Due to the material weakness (discussed below in subsection c of this Item), our disclosure controls and procedures were not effective as of December 31, 2011 to ensure that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the requisite time periods and that such information is accumulated and disclosed appropriately.
Notwithstanding this material weakness, we believe that the financial statements included herein fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods and dates presented.
b. Changes in Internal Control Over Financial Reporting.
Our management has determined that there have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
c. Management Report On Internal Control Over Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework. Based on our assessment using those criteria, our management concluded that our internal control over financial reporting was not effective as of December 31, 2011 because we create, review and process financial data without internal independent review.
Since January 2007, Amerisa Kornblum began to serve as both our Chief Executive Officer and Chief Financial Officer whereas prior to that date, Ms. Kornblum was the Chief Financial Officer. Commencing January 1, 2007, we have observed that, although our operations subsequent to the year ended December 31, 2006 are limited, we have a material weakness in our internal controls over financial reporting in that we create, review and process financial data without internal independent review due to our not having sufficient personnel. Due to this material weakness, there is more than a remote likelihood that a material misstatement of our financial statements could occur and not be detected, prevented or corrected. Notwithstanding this material weakness, we believe that the financial statements included in this Form 10-K fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods and dates presented.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth our executive officer and director, their ages and present positions with Odimo as of March 25, 2011. There are currently no committees of the Board of Directors.
Alan Lipton was our Chairman of our Board of Directors from May 2004 and a member of our Board of Directors from November 1999 through November 11, 2010, the date of the closing of the Reverse Merger. Mr. Lipton resumed his tenure as a director on February 4, 2011 in connection with the Rescission of the Reverse Merger. From November 1999 through May 11, 2006, Mr. Lipton was our Chief Executive Officer and President. In 1994, Mr. Lipton founded the Lipton Foundation, a philanthropic organization. From 1994 to the present, Mr. Lipton has been involved with the Lipton Foundation and in various real estate development projects in South Florida. We believe Mr. Lipton’s business experience, including experience in public companies qualifies him to serve on our Board of Directors.
Amerisa Kornblum was our Chief Financial Officer and Treasurer from November 1999, our Secretary from November 2005 and our Chief Executive Officer and President from January 2007 through November 11, 2010, the date of the closing of the Reverse Merger. Ms. Kornblum resumed her status as President, Chief Financial Officer, Secretary and Treasurer on February 4, 2011 in connection with the Rescission of the Reverse Merger. Ms. Kornblum is a certified public accountant in the State of Florida.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that our directors and executive officers and persons who own more than 10% of our common stock file initial reports of ownership and reports of changes of ownership with the SEC. Reporting persons are required by the SEC regulations to furnish us with copies of all Section 16(a) forms they file. These reports are available for review on our website at www.odimo.com. Based solely on a review of these reports, we believe that all directors and executive officers complied with all Section 16(a) filing requirements for 2011.
Code of Conduct and Ethics
Our Board of Directors has adopted a code of business conduct and ethics applicable to our directors, officers and employees, in accordance with applicable federal securities laws and the Nasdaq Rules. Upon written request to our Corporate Secretary, Odimo Incorporated, 9858 Clint Moore Road, Boca Raton, FL, we will provide, without charge, any person with a copy of our Code of Conduct and Ethics.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Except for the period from November 11, 2010 (the date of the closing of the Reverse Merger) through February 4, 2011 (the date of the Rescission of the Reverse Merger) since January 2007, Amerisa Kornblum has been our only executive officer. From January 2007 through December 2007, we paid Ms. Kornblum $2,500 per month. Commencing January 2008, Ms. Kornblum agreed to continue to serve in her capacity as our sole executive officer for no compensation. Since January 2007, Ms. Kornblum has served us as our sole executive officer with no written employment agreement. Due to our severely limited resources we are unable to attract other executive talent and we are unable to offer any compensation to Ms. Kornblum. While we have, in the past and may in the future grant stock options as a means to attract and provide equity incentives to executives, no options have been granted since 2004 and all options that have heretofore been granted to prior executive officers have been cancelled.
Amerisa Kornblum, our sole executive officer (the “Named Executive”) was paid no compensation and no amounts were accrued for her services during 2010 and 2011.
Stock Options /Equity Awards
No stock options or equity awards were granted, exercised or outstanding in favor of any of the Named Executive during our fiscal year ended December 31, 2011.
Pension Benefits
We do not have any plan that provides for payments or other benefits at, following, or in connection with, retirement.
Nonqualified Deferred Compensation
We do not have any plan that provides for deferred compensation.
Stock Ownership Guidelines
We have not implemented stock ownership guidelines for our executive officers.
Director Compensation
We do not pay our directors compensation but have in the past, reimbursed directors for certain expenses incurred by them in connection with their duties to the Company.
Communications with Director
Stockholders may communicate with Alan Lipton, the sole member of our Board of Directors by sending a letter addressed to him in care of Amerisa Kornblum, our Corporate Secretary, Odimo Incorporated, 9858 Clint Moore Road, Boca Raton, FL, in an envelope clearly marked “Stockholder Communication.” Ms. Kornblum will forward such correspondence unopened to Mr. Lipton. If multiple communications are received on a similar topic, Ms. Kornblum may, in her discretion, forward only representative correspondence.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Stock Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 25, 2012, certain information with respect to the beneficial ownership of Odimo’s Common Stock by (i) each stockholder known by Odimo to be the beneficial owner of more than 5% of Odimo’s Common Stock, (ii) each director of Odimo, (iii) the Named Executive, and (iv) all directors and executive officers of Odimo as a group. This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC.
Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock held by them and their address is our address.
Applicable percentage ownership in the following table is based on 11,086,575 shares of common stock outstanding as of March 25, 2012.
PRINCIPAL STOCKHOLDERS
(1) Lily Maya Family Trust (the “Lily Trust”) is the sole member of Elao, LLC, a Florida limited liability company. Alan Lipton is the sole trustee of the Lily Trust and his daughter Lily Maya Lipton is the sole lifetime beneficiary. Both the Lily Trust and Alan Lipton have shared voting and dispositive power over the shares owned by Elao, LLC. Alan Lipton has shared voting and dispositive over the shares owned by the Lily Trust.
(2) Includes 1,682 shares held by Lipton Partnership, a general partnership in which Alan Lipton has a beneficial interest.
(3) Represents 816,482 shares of Common Stock held by Mr. Galloway’s Individual Retirement Account which Mr. Galloway has sole power to vote and dispose, 31,500 shares of Common Stock held by Mr. Galloway’s children for which he has the sole power to vote and dispose, and 1,800,395 shares of Common Stock held by Strategic Turnaround Equity Partners, LP (Cayman) (“STEP”) for which Messrs. Galloway and Herman have the shared power to vote and dispose. Messrs. Galloway and Herman are managing members of Galloway Capital Management, LLC, the general partner of STEP. Messrs. Galloway and Herman disclaim beneficial ownership of the shares of Common Stock directly beneficially owned by STEP except for: (i) indirect interests therein by virtue of being a member of Galloway Capital Management LLC, and (ii) the indirect interests of Mr. Galloway by virtue of his being a limited partner of STEP.
(4) Does not include shares held by Elao, LLC. Each of Ms. Kornblum and an entity , the principals of which are the same principals of Relao 2, LLC have a contingent contractual right to receive 33.3% of the proceeds upon sale of these shares. The principals of Relao, LLC and Relao 2, LLC are shareholders, directors and officers of Rennert Vogel Mandler & Rodriguez, P.A., a law firm who has and continues to provide legal services to the Company.
Changes In Control
We are not aware of any arrangement that might result in a change of control in the future.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
We may seek to raise additional capital through the issuance of equity or debt, including loans from related parties, to acquire sufficient liquidity to satisfy our future liabilities. Such additional capital may not be available timely or on terms acceptable to us, if at all. Our plans to repay our liabilities as they become due may be impacted adversely by our inability to have sufficient liquid assets to satisfy our liabilities.
Our Board of Directors, which only consists of one person is charged with monitoring and reviewing issues involving potential conflicts of interests and reviewing and approving all related party transactions. In general under regulations promulgated by the SEC, a related party transaction is a transaction, or a material amendment to any such transaction, involving a related party and the Company involving $120,000 or more one percent of the average of a smaller reporting company’s total assets at year end for the last two completed fiscal years. In reviewing and approving any related party transaction or material amendment to any such transaction, the Board of Directors must satisfy itself that it has been fully informed as to the related party’s relationship to the Company and interest in the transaction and as to the material facts of the transaction, and must determine that the related party transaction is fair to the Company.
In May 2011 and February 2012, we borrowed the sum of $20,000 and $10,000 from Elao, LLC. The Lily Maya Lipton Family Trust is the sole member of Elao, LLC and Alan Lipton is the sole trustee of the Lily Trust and his daughter Lily Maya Lipton is the sole lifetime beneficiary. In December 2011 and February 2012, we borrowed the sum of $10,000 and $5,000 from our shareholder, Strategic Turnaround Equity Partners, LP (Cayman). We are obligated to repay to Elao, LLC the $20,000 and to STEP the $10,000, together with accrued interest at 5% per annum, on the earlier to occur of (i) May 1, 2014; or (ii) the date we consummate a reverse merger transaction. We are obligated to repay to Elao, LLC the $10,000 and to STEP the $5,000, together with accrued interest at 5% per annum, on the earlier to occur of (i) May 1, 2015; or (ii) the date we consummate a reverse merger transaction or (iii) the date we recover sufficient funds, if any, from an action we may pursue against Hubei Jinlong Cement Co. and/or their affiliates.
Director Independence
Alan Lipton is the sole member of our Board of Directors. He is not an “independent director” as that term is defined in the listing standards of the American Stock Exchange. Such independence definition includes a series of objective tests, including that the director is not an employee of the company and has not engaged in various types of business dealings with the company.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Effective December 3, 2010, Marcum LLP (“Marcum”) was dismissed as our certifying independent accountant. The Board of Directors (“Board”) of the Company approved such dismissal on December 3, 2010.
Marcum’s report on the Registrant’s financial statements for the two years ended December 31, 2009 did not contain any adverse opinions or disclaimers of opinion, and were not qualified or modified as audit scope, or accounting principles, but included an explanatory paragraph regarding the Company’s ability to continue as a going concern.
For the two years ended December 31, 2009 and through the date of their dismissal, there were no disagreements with Marcum on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Marcum would have caused it to make reference to this subject matter of the disagreements in connection with its report, nor were there any “reportable events” as such term as described in Item 304(a)(1)(v) of Regulation S-K.
Effective on December 3, 2010, PMB Helin Donovan, LLP (“PMBHD”), was engaged to serve as our independent certifying accountant to audit our financial statements.
Prior to engaging PMBHD, we had not consulted PMBHD regarding the application of accounting principles to a specified transaction, completed or proposed, the type of audit opinion that might be rendered on our financial statements or a reportable event, nor did we consult with PMBHD regarding any disagreements with our prior auditor on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the prior auditor, would have caused it to make a reference to the subject matter of the disagreements in connection with its reports.
Audit and Non-Audit Fees
The following table sets forth fees billed to us by Marcum for services provided during the period for the period from January 1, 2010 through December 3, 2010:
(1) Consists of fees related to due diligence activities relating to the Reverse Merger.
The following table sets forth fees billed to us by PMB Helin Donovan, LLP for services provided from December 3, 2010 through December 31, 2010 and for the fiscal year ended December 31, 2011:
Audit Fees. Consists of fees billed for professional services rendered for the audit of Odimo’s consolidated financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by its independent registered accounting firms in connection with statutory and regulatory filings or engagements.
Audit-Related Fees. Odimo did not incur any additional fees under this category.
Tax Fees. Odimo did not incur any additional fees under this category.
All Other Fees. Other than fees for due diligence services performed by Marcum in connection with the Reverse Merger, Odimo did not incur any additional fees under this category.
Board Pre-Approval Policies And Procedures
We do not have an Audit Committee. The Board of Directors’ policy is to pre-approve all audit, audit-related and permissible non-audit services provided by the independent registered public accountants in order to assure that the provision of such services does not impair the auditor’s independence. These services may include audit services, audit-related services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Management is required to periodically report to the Board regarding the extent of services provided by the independent registered public accountants in accordance with this pre-approval, and the fees for the services performed to date. During fiscal year 2011, all services were pre-approved by the Board in accordance with this policy.
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report.
1. The following financial statements of Odimo Incorporated and Report of PMB Helin Donavan, LLP independent registered public accounting firm, are included in this report:
2. Financial statement schedule: None.
3. List of exhibits required by Item 601 of Regulation S-K. See part (b) below.
(b) Exhibits. The following exhibits are filed as a part of this report:
(1) Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ODIMO INCORPORATED
Dated: March 26, 2012
By:
/s/ Amerisa Kornblum
Name:
Amerisa Kornblum
Title:
Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of the
Board of Directors and Shareholders
of Odimo Incorporated:
We have audited the accompanying balance sheets of Odimo Incorporated (the “Company”) as of December 31, 2011 and 2010, and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. Management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Odimo Incorporated as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the accompanying financial statements, the Company has incurred recurring operating losses and has a negative working capital at December 31, 2011. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans as to this matter are described in Note 2. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ PMB Helin Donovan, LLP
Seattle, WA
March 26, 2012
ODIMO, INCORPORATED
BALANCE SHEETS
(in thousands, except par value)
See notes to audited condensed financial statements.
ODIMO, INCORPORATED
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
See notes to audited condensed financial statements.
ODIMO, INCORPORATED
STATEMENTS OF CASH FLOWS
(in thousands)
See notes to audited condensed financial statements.
ODIMO, INCORPORATED
STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(in thousands, except per share data)
ODIMO INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company is a non-operating public shell company. The Company is seeking suitable candidates for a business combination with a private company. The Company previously was an online retailer of watches, luxury goods, diamonds and jewelry through three websites, www.diamond.com, www.ashford.com and www.worldofwatches.com. The Company’s operating results disclosed in this Annual Report on Form 10 K are not meaningful to its future results.
Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
General and Administrative Expenses - General and administrative expenses include professional fees, insurance, rent, and other general corporate expenses.
Income Taxes - The Company accounts for income taxes in accordance with the provisions of ASU 740 which requires an asset and liability approach. Under this method, a deferred tax asset or liability is recognized with respect to all temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities and with respect to the benefit from utilizing tax loss carryforwards. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefit, or that future deductibility is prohibited or uncertain.
Income (Loss) Per Share - Basic loss per share is computed based on the average number of common shares outstanding and diluted earnings per share is computed based on the average number of common and potential common shares outstanding under the treasury stock method. The calculation of diluted loss per share was the same as the basic loss per share for each period presented since the inclusion of potential common stock in the computation would be antidilutive.
Recent Accounting Standards Adopted in 2011
In January 2010, the FASB issued the FASB Accounting Standards Update No. 2010-06 “Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about Fair Value Measurements”, which provides amendments to Subtopic 820-10 that requires new disclosures as follows:
1. Transfers in and out of Levels 1 and 2. A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers.
2. Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number).
This Update provides amendments to Subtopic 820-10 that clarifies existing disclosures as follows:
1. Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity needs to use judgment in determining the appropriate classes of assets and liabilities.
2. Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. Those disclosures are required for fair value measurements that fall in either Level 2 or Level 3.
ODIMO INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
This Update also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets (Subtopic 715-20). The conforming amendments to Subtopic 715-20 change the terminology from major categories of assets to classes of assets and provide a cross reference to the guidance in Subtopic 820-10 on how to determine appropriate classes to present fair value disclosures. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASU 2010-06 did not have a material impact on our disclosure about fair value measurements.
In April 2010, the FASB issued ASU No. 2010-13, “Compensation - Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades” (“ASU 2010-13”). This update provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The adoption of ASU 2010-13 did not have a material impact on our disclosure.
In August 2010, the FASB issued ASU 2010-21, “Accounting for Technical Amendments to Various SEC Rules and Schedules: Amendments to SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies” (“ASU 2010-21”), was issued to conform the SEC’s reporting requirements to the terminology and provisions in ASC 805, Business Combinations, and in ASC 810-10, Consolidation. ASU No. 2010-21 was issued to reflect SEC Release No. 33-9026, “Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies,” which was effective April 23, 2009. The ASU also proposes additions or modifications to the XBRL taxonomy as a result of the amendments in the update. The adoption of ASU 2010-21 did not have a material impact on the Company.
In August 2010, the FASB issued ASU 2010-22, “Accounting for Various Topics: Technical Corrections to SEC Paragraphs” (“ASU 2010-22”), which amends various SEC paragraphs based on external comments received and the issuance of SEC Staff Accounting Bulletin (SAB) No. 112, which amends or rescinds portions of certain SAB topics. The topics affected include reporting of inventories in condensed financial statements for Form 10-Q, debt issue costs in conjunction with a business combination, sales of stock by subsidiary, gain recognition on sales of business, business combinations prior to an initial public offering, loss contingent and liability assumed in business combination, divestitures, and oil and gas exchange offers. The adoption of ASU 2010-22 did not have a material impact on the Company.
In December 2010, the FASB issued the FASB Accounting Standards Update No. 2010-28 “Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (“ASU 2010-28”).Under ASU 2010-28, if the carrying amount of a reporting unit is zero or negative, an entity must assess whether it is more likely than not that goodwill impairment exists. To make that determination, an entity should consider whether there are adverse qualitative factors that could impact the amount of goodwill, including those listed in ASC 350-20-35-30. As a result of the new guidance, an entity can no longer assert that a reporting unit is not required to perform the second step of the goodwill impairment test because the carrying amount of the reporting unit is zero or negative, despite the existence of qualitative factors that indicate goodwill is more likely than not impaired. ASU 2010-28 is effective for public entities for fiscal years, and for interim periods within those years, beginning after December 15, 2010, with early adoption prohibited.
In December 2010, the FASB issued the FASB Accounting Standards Update No. 2010-29 “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”). ASU 2010-29 specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this Update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amended guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The adoption of ASU 2010-29 did not have a material impact on the Company’s financial statements.
ODIMO INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
Recent Accounting Standards not yet Adopted
In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The ASU clarifies which loan modifications constitute troubled debt restructurings. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring (“TDR”), both for purposes of recording an impairment loss and for disclosure of a TDR. In evaluating whether a restructuring constitutes a TDR, a creditor must separately conclude that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. The amendments to ASU Topic 310, Receivables, clarify the guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. ASU No. 2011-02 is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption.
In May 2011, the Financial Accounting Standards Board (FASB) issued ASU No. 2011-04 Fair Value Measurement (Topic 820) which amended standards to achieve a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards. For assets and liabilities categorized as Level 3 and recognized at fair value, these amended standards require disclosure of quantitative information about unobservable inputs, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements. In addition, these amended standards require that we disclose the level in the fair value hierarchy for financial instruments disclosed at fair value but not recorded at fair value. The amendments in this ASU are effective during interim and annual periods beginning after December 15, 2011. The adoption of this ASU is not expected to have a material impact on the consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” Under the amendments in this ASU, an entity has two options for presenting its total comprehensive income: to present total comprehensive income and its components along with the components of net income in a single continuous statement, or in two separate but consecutive statements. The amendments in this ASU are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The adoption of ASU No. 2011-05 will not have any material impact on the Company’s consolidated financial position and results of operations.
In September 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-08 Intangibles - Goodwill and Other (Topic 350) Testing Goodwill for Impairment. The ASU simplifies how entities, both public and nonpublic, test goodwill for impairment. The revised standard allows an entity to first assess qualitatively whether it is necessary to perform step one of the two-step annual goodwill impairment test. An entity is required to perform step one only if the entity concludes that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, a likelihood of more than 50 percent. An entity can choose to perform the qualitative assessment on none, some, or all of its reporting units. Moreover, an entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one of the impairment test, and then perform the qualitative assessment in any subsequent period. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company does not believe this guidance will have any impact on its consolidated financial position, results of operations, or cash flows.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
ODIMO INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
2. GOING CONCERN CONSIDERATIONS
The Company is a non-operating public shell company and is seeking suitable candidates for a business combination with a private company. The Company may seek to raise additional capital through the issuance of equity or debt, including loans from related parties, to acquire sufficient liquidity to satisfy its future liabilities. Such additional capital may not be available timely or on terms acceptable to the Company, if at all. The Company’s plans to repay its liabilities as they become due may be impacted adversely by its inability to have sufficient liquid assets to satisfy its liabilities.
The Company’s independent registered public accounting firm’s report on its financial statements for the fiscal year ended December 31, 2011 includes an explanatory paragraph regarding the Company’s ability to continue as a going concern. As shown in its historical financial statements, the Company has incurred significant recurring net losses for the past several years and as of December 31, 2011, its financial statements reflected negative working capital and a stockholders’ equity deficiency. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Further, the registered public accounting firm’s report states that the financial statements do not include any adjustments that might result from the outcome of this uncertainty.
3. REVERSE MERGER
On October 29, 2010, the Company entered into a Share Exchange Agreement with Standard Crushed Stone Industry Limited, a Cayman Islands company (SCSI”) and its sole shareholder Republic Rock United Industry Limited, a BVI company (“Republic Rock ”). On November 11, 2010, the Company closed the transactions under the Share Exchange Agreement and acquired from Republic Rock all of the outstanding shares of SCSI in exchange for the issuance of 235,281,759 shares of Odimo Common Stock (the “Reverse Merger”). SCSI, through its affiliated entities located and operating in the Shiyan Region of the People’s Republic of China, is engaged in the manufacture and distribution of cement and cement products.
On February 4, 2011 the parties rescinded the Share Exchange Agreement and voided ab initio, the Reverse Merger (the “Rescission”). In January 2011, the Company was advised by local governmental authorities in the Hubei Province of the People’s Republic of China (“PRC”) that its application made under the Circular on Issues Relevant to Foreign Exchange Control with Respect to the Round-trip Investment of Funds Raised by Domestic Residents Through Offshore Special Purpose Vehicles (“Circular 75”) issued in October 2005 by the PRC State Administration of Foreign Exchange (“SAFE”) had not been approved (the “Non-Approval”). As a result of the Non-Approval, Odimo is precluded from engaging in equity financing outside of China for Hubei Jinlong Cement Company (“Hubei Jinlong”), the PRC Company whose business operations had become controlled by Odimo pursuant to the Reverse Merger and accordingly Hubei Jinlong would not be able to carry out its business plan. The parties to the Share Exchange Agreement determined that it was fair to and in the best interests of their respective corporations and shareholders to rescind the Share Exchange Agreement and unwind the Reverse Merger and the other transactions contemplated thereby as if they never occurred, upon the terms and subject to the conditions set forth in the Rescission Agreement.
Pursuant to the Rescission, the Company returned to Republic Rock all shares of Standard Crushed it acquired under the Share Exchange Agreement and all 235,281,759 shares of common stock of Odimo issued in connection with the Reverse Merger was returned to the Company.
As a result of the Rescission, Odimo resumed its status as a shell company and will seek to effect a merger, acquisition or other business combination with an operating company, including an operating company based in China, by using a combination of capital stock, cash on hand, or other funding sources, if available, Alan Lipton is the sole member of our Board of Directors and Amerisa Kornblum is our President and Chief Financial Officer. The Reverse Merger, as well as any action taken by the Company subsequent to the Reverse Merger, is null and void as if it never occurred. Standard Crushed is not now and as a result of the Rescission has never been a subsidiary of the Company and the parties are returned to their respective positions immediately prior to the Share Exchange Agreement and Reverse Merger.
In connection with the closing of the Reverse Merger, the Company expended approximately $28,000 to cover transfer agent, printing and accounting fees and costs. Odimo used another $50,000 to cover legal fees of Hubei Jinlong, resulting in the Company having approximately $3,000 of cash on hand as of February 4, 2011. The Company may seek to raise additional capital through the
ODIMO INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
issuance of equity or debt, including loans from related parties, to acquire sufficient liquidity to satisfy our future liabilities. Such additional capital may not be available timely or on terms acceptable to it, if at all. The Company’s plans to repay its liabilities as they become due may be impacted adversely by its inability to have sufficient liquid assets to satisfy its liabilities.
4. INCOME TAXES
As of December 31, 2011, the Company had available approximately $78 million of net operating loss carry forwards to reduce future Federal income taxes. No deferred tax asset has been recorded for these net operating loss carry forwards as of December 31, 2011 and 2010, due to the uncertainty surrounding their realizations as a result of the Company’s recurring losses.
These net operating loss carry forwards would have limited value to the Company in the event of a material change in control or ownership and all such losses are subject to the Internal Revenue Service Code which limit their applicability in the event ownership and control changes.
Components of net deferred tax assets, including a valuation allowance, are as follows at December 31:
The valuation allowance for deferred tax assets decreased by $40 during 2011. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would be realized as of December 31, 2011 and 2010.
Reconciliation between the expected tax benefit and reported tax expense for the years ended December 31:
5. RELATED PARTY TRANSACTIONS
Note Payable to Related Party - In May 2011 and February 2012, we borrowed the sum of $20,000 and $10,000 from Elao, LLC. The Lily Maya Lipton Family Trust is the sole member of Elao, LLC and Alan Lipton is the sole trustee of the Lily Trust and his daughter Lily Maya Lipton is the sole lifetime beneficiary. In December 2011 and February 2012, we borrowed the sum of $10,000 and $5,000 from our shareholder, Strategic Turnaround Equity Partners, LP (Cayman)(“STEP”). We are obligated to repay to Elao, LLC the $20,000 and to STEP the $10,000, together with accrued interest at 5% per annum, on the earlier to occur of (i) May 1, 2014; or (ii) the date we consummate a reverse merger transaction. We are obligated to repay to Elao, LLC the $10,000 and to STEP the $5,000, together with accrued interest at 5% per annum, on the earlier to occur of (i) May 1, 2015; or (ii) the date we consummate a reverse merger transaction or (iii) the date we recover sufficient funds, if any, from an action we may pursue against Hubei Jinlong Cement Co. and/or their affiliates. The Company used the proceeds of the loans from its shareholders for payment of its existing liabilities.
ODIMO INCORPORATED AND SUBSIDIARIES
Notes to Financial Statements
Services Contributed by Stockholders - During the years ended December 31, 2011 and 2010, certain stockholders rendered professional services to the Company. A charge in lieu of compensation for the estimated fair value of the services rendered by the officer and the related party ($56,000) has been charged to expense together with a credit to additional paid in capital in the accompanying financial statements for each of the years ended December 31, 2011 and 2010.
6. GAIN ON CANCELLATION OF LIABILITY
During the three months ended March 31, 2011, the Company recorded income of $230,000 resulting from the write off of $230,000 of accounts payable. The Company determined to write off these accounts payable because it determined that the time allowed a creditor to collect upon these accounts payable (ie: the statute of limitations) had expired. This amount is included in other income in the Company’s statement of operations.
7. SUBSEQUENT EVENTS
In February 2012, we borrowed the sum $10,000 from Elao, LLC. The Lily Maya Lipton Family Trust is the sole member of Elao, LLC and Alan Lipton is the sole trustee of the Lily Trust and his daughter Lily Maya Lipton is the sole lifetime beneficiary. Additionally, in February 2012, we borrowed the sum of $5,000 from our shareholder, Strategic Turnaround Equity Partners, LP (Cayman).