UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(Mark
One)




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




For the
fiscal year ended: December 31, 2008





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




For the
transition period from ____________ to _____________





Commission
File No. 000-51792





OMNIALUO,
INC.


(Name of
Small Business Issuer in Its Charter)





Delaware
            
            88-1581779(State
      or Other Jurisdiction of Incorporation or Organization)
            
            (I.R.S.
      Employer Identification No.)Room
      101, Building E6, Huaqiaocheng East Industrial Park,
              Nanshan
      District,
              Shenzhen 518053, The People’s Republic
      of China
              (Address
      of Principal Executive Offices) (Zip Code)


(+86)
755-8245-1808


(Registrant’s
Telephone Number, Including Area Code)





Securities
registered pursuant to Section 12(b) of the Act:  Common Stock, $0.01
par value





Name of
each exchange on which registered: N/A




Securities
registered under Section 12(g) of the Exchange Act:Common stock, $0.01 par
value




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes o  No x





Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.o




Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yesx  Noo




Check if
disclosure of delinquent filers in response to Item 405 of Regulation S-K is not
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.x





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “accelerated filer, large accelerated filer and smaller reporting
company” in Rule 12b-2 of the Exchange Act (Check one):




Large Accelerated Filer  o    Accelerated
Filer  o    Non-Accelerated Filer  o   Smaller Reporting Company  x










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




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant (assuming for these purposes, but without
conceding, that all executive officers and directors and 10% stockholders are
“affiliates” of the Registrant) as of June 30, 2008 (based on the closing sale
price on such date of the Registrant’s common stock, on the Over-the-Counter
Bulletin Board as reported on Yahoo Finance) was $31,976,000.




The
number of shares outstanding of the issuer's common stock as of December 31,
2008 is 22,840,000.




Documents
incorporated by reference:NONE.











FORWARD-LOOKING
STATEMENTS




This
Annual Report on Form 10-K, including the following “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” contains
forward-looking statements that are based on the beliefs of our management, and
involve risks and uncertainties, as well as assumptions, that, if they ever
materialize or prove incorrect, could cause actual results to differ
materially from those expressed or implied by such forward-looking statements.
The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,”
“intend,” “aim,” “will” or similar expressions are intended to identify
forward-looking statements. All statements, other than statements of historical
fact, are statements that could be deemed forward-looking statements, including
statements regarding new and existing products, technologies and opportunities,
statements regarding market and industry segment growth and demand and
acceptance of new and existing products, any projections of sales, earnings,
revenue, margins or other financial items, any statements of the plans,
strategies and objectives of management for future operations, any
statements regarding future economic conditions or performance, uncertainties
related to conducting business in China, any statements of belief or intention,
any of the factors mentioned in the “Risk Factors” section of this Form 10-K,
and any statements of assumptions underlying any of the foregoing. All
forward-looking statements included in this report are based on information
available to us on the date of this report. We assume no obligation and do not
intend to update these forward-looking statements, except as required by
law.




USE
OF CERTAIN DEFINED TERMS




In this
report, unless indicated otherwise, references to:




“OmniaLuo”
      “the Company,” “we,” “us,” or “our” refer to the combined business of all
      the entities that form our consolidated business
    enterprise;




“China,”
      “Chinese” and “PRC” refer to the People’s Republic of
    China;




“BVI”
      refers to the British Virgin
Islands;




“SEC”
      refers to the United States Securities and Exchange
      Commission;




“Securities
      Act” refers to the Securities Act of 1933, as
  amended;




“Exchange
      Act” refers to the Securities Exchange Act of 1934, as
      amended;




“RMB”
      refers to Renminbi, the legal currency of China;
  and




“U.S.
      dollar,” “$”, “USD” and “US$” refer to the legal currency of the United
      States.




PART
I




ITEM
1. BUSINESS




Corporate
History





We were
originally incorporated in the State of Delaware on March 7, 2001 under the name
Wentworth II, Inc. We were formed as a vehicle to pursue a business combination,
which we effected through our recent reverse acquisition of Omnia BVI (“Omnia
BVI”), a company organized under the law of British Virgin Islands through a
reverse acquisition as described below.  We had no material operations
or revenue from operations prior to the reverse acquisition described below. Our
corporate name changed to OmniaLuo, Inc. in November 2007, subsequent to the
acquisition.





On
October 9, 2007, we entered into a share exchange agreement with Omnia BVI, the
shareholders of Omnia BVI and certain of our principal stockholders. Pursuant to
the share exchange agreement, we issued to the shareholders of Omnia BVI
16,800,000 shares of our common stock in exchange for all of the issued and
outstanding shares of Omnia BVI. As a result, Omnia BVI and its wholly-owned
subsidiary Shenzhen Oriental Fashion Co., Ltd., a company organized under the
laws of Shenzhen, China (“Oriental Fashion”) became our direct and indirect
wholly-owned subsidiaries, and the former shareholders of Omnia BVI became our
Company’s controlling stockholders. We amended our Certificate of Incorporation
in November 2007 to change our name from Wentworth II, Inc. to OmniaLuo,
Inc.




For
accounting purposes, the share exchange transaction was treated as a reverse
acquisition with Omnia BVI as the acquirer and the Company as the acquired
party. When we refer in this report to business and financial information for
periods prior to the consummation of the reverse acquisition, we are referring
to the business and financial information of Omnia BVI on a consolidated basis
unless the context suggests otherwise.







Concurrently
with the consummation of the reverse acquisition, we issued 4,920,000 shares of
the Company’s common stock and warrants to purchase an aggregate of 4,920,000
shares of the Company’s common stock for an aggregate purchase price of $6.15
million, to a total of 38 investors (of whom 29 were accredited investors and
nine were non-US residents who purchased shares and warrants in off-shore
transactions) in a private placement pursuant to Regulation D and a simultaneous
off-shore offering pursuant to Regulation S (collectively, the “2007 Private
Placement”). In connection with that private placement, we also issued warrants
to purchase 492,000 shares of the Company’s common stock to Keating Securities,
LLC (“Keating Securities”), as a financial advisory fee in partial consideration
of their services in connection with the private placement. Prior to
consummation of the reverse acquisition and 2007 Private Placement, we may be
deemed to have been an affiliate of Keating Securities by reason of the
ownership of shares of our common stock by principals and executives of Keating
Securities.





We
conduct all of our business operations through our indirectly wholly-owned
operating subsidiary Shenzhen Oriental Fashion Co., Ltd.





Description
of Business





Through
our operating subsidiary in China, Shenzhen Oriental Fashion Co., Ltd., we are
engaged in the business of  designing, marketing, distributing and
selling women’s clothing, with an emphasis on fashionable business casual wear.
All our apparel is marketed under the brand names of OMNIALO and OMNIALUO
(collectively referred to herein as the “OMNIALUO Brands” or “OMNIALUO brand
names”) through a network of more than 180 retail stores across the People’s
Republic of China (“China”). We offer a complete line of business casual women’s
wear, including bottoms, tops, and outerwear, as well as accessories, under the
OMNIALUO brand names.




Our
network of retail stores across China consisted of 84 stores as of December 31,
2006, and 184 stores as of December 31, 2007, including 26 Company-owned stores,
126 independent distributor stores, and 32 co-owned stores, located throughout
China. There were 208 stores as of December 31, 2008 including 27 Company-owned
stores, 31 co-owned stores and 150 independent stores. There are three different
types of retail stores that carry the OMNIALUO brands: (i) Company-owned stores,
which stores are owned exclusively by the Company and carry only the OMNIALUO
brands, (ii) independent distributor stores, which stores are owned exclusively
by third parties and carry the OMNIALUO brands exclusively, and (iii) co-owned
stores, which stores are owned jointly by the Company and a third party, and
carry the OMNIALUO brands exclusively. All three types of stores are located
throughout China. OMNIALO and OMNIALUO are both registered trademarks or are
subject to a pending application for registration.




Our
current target customers are “white-collar” and “pink-collar” urban females
between the ages of 25 to 35. In China, “white-collar” individuals are described
as working professionals with after-tax annual income ranging from $2,500 to
$7,500 and “pink- collar” individuals are female working professionals with
after-tax annual income ranging from $7,500 to $22,500.




Ms. Zheng
Luo, a prominent designer in China, is our chief executive officer, chief
designer and the originator of the OMNIALUO brands. Ms. Zheng Luo was also the
founder and principal shareholder of Omnia BVI prior to our reverse acquisition
with Omnia BVI described above. Ms. Zheng Luo is currently our largest
individual shareholder.  Ms. Luo has won numerous prestigious awards
and was recently named by Cosmopolitan Magazine the "2008 Chinese Fashion
Designer of the Year". Under the leadership of Cindy Luo OMNIALUO sets its goal
to become the Chinese brand equivalent of Ralph Lauren, Vera Wang and Anna Sui.
The OMNIALUO brands benefit significantly from Ms. Zheng Luo’s professional
reputation.




The
OMNIALUO brand of apparel has been awarded “China’s Best Women’s Wear Design” by
China Fashion Designers Association (“CFDA”) every year from
2002-2006.




Development
of the OMNIALUO Brands and Formation of Omnia BVI and Oriental
Fashion




In 1996,
Ms. Zheng Luo created the OMNIALO brand and founded Green’s Apparel Co., Ltd.
(“Green’s Apparel”) in Shenzhen, China, in which she owned a 95% equity
interest. Green’s Apparel manufactured women’s clothing.




In 1997,
the OMNIALO trademark was registered with the Chinese National Trademark Bureau
in both Chinese and English. The registrant and initial owner of such trademark
was Green’s Apparel.




In March
2003, Shenzhen Oumeng Industrial Co., Ltd. (“Oumeng”) was established. Ms. Zheng
Luo was the CEO and 50% equity owner of Oumeng. Also in March 2003, Oumeng
purchased inventory from Green’s Apparel, consisting of women’s apparel. Green’s
Apparel has not conducted any business after the transfer of inventory to Oumeng
in March 2003, and upon such transfer, Oumeng entered into all contracts with
Green’s Apparel’s existing suppliers, manufacturers and distributors, and
acquired the OMNIALO trademark in August 2003. In addition to marketing and
selling products under the OMNIALUO name, Oumeng also engaged in various other
businesses such as marketing and selling other apparel, electronics,
kitchenware and hardware. Oumeng also managed C-Luo Intuition, a luxury,
made-to-order evening dress brand, which brand was previously owned by Ms. Zheng
Luo prior to the sale of such brand to an independent third party. By the end of
August 2006, OMNIALUO brand apparel, under the management of Oumeng, was being
distributed through 100 retail stores in China.




Ms. Zheng
Luo personally applied for the registration of the trademark OMNIALUO in March
2005 and the relevant applications are under review by the Trademark Office of
State Administration for Industry and Commerce (“the Trademark Office”); the
registration is anticipated to be approved and effective by the end of
2009.







In early
2006, Ms. Zheng Luo determined that the growth and development of the OMNIALUO
brands and its associated women’s apparel products could best be achieved by the
formation of a new company which would focus on the design, marketing,
distribution and sale of women’s business casual wear, without the potential
distraction and costs of operating other businesses. Therefore, in August 2006,
Ms. Zheng Luo, together with several other individual shareholders, formed Omnia
BVI under the laws of the British Virgin Islands. Shortly thereafter, in
September 2006, Omnia BVI formed a wholly owned subsidiary, Shenzhen Oriental
Fashion Co., Ltd., under the laws of the PRC. All rights in the OMNIALO
trademark were transferred from Oumeng to Ms. Zheng Luo, and Ms. Zheng Luo
resigned from her CEO position at Oumeng to devote her effort to Oriental
Fashion and Omnia BVI on a full-time basis. Subsequently, in April 2007, Ms.
Zheng Luo and her sister Ms. Xiaoyin Luo transferred their ownership of Oumeng
to their mother, Ms. Yuhua Sun, and to Ms. Yujuan Sun, an unrelated
party.






In
October 2006: (i) Ms. Zheng Luo licensed the trademark OMNIALO to Oriental
Fashion at nominal cost and executed an agreement assigning the registered
OMNIALO trademark to Oriental Fashion, and Ms. Zheng Luo and Oriental Fashion
commenced procedures to have the OMNIALO trademark assignments accepted and
officially recorded in the Trademark Office; and (ii) Ms. Zheng Luo licensed the
trademark OMNIALUO to Oriental Fashion at nominal cost and executed an agreement
assigning the pending application to register the OMNIALUO trademark to Oriental
Fashion, and Ms. Zheng Luo and Oriental Fashion commenced procedures to have the
OMNIALUO trademark assignments accepted and officially recorded in the Chinese
National Trademark Bureau once registration of the OMNIALUO trademarks is
approved by the Trademark Office.




Principal
Products and Pricing Strategy




Principal
Products




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




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




OMNIALUO
brand apparel and our chief designer have consistently won top fashion design
awards in China since 2002 and was recognized by the Cosmopolitan Magazine as
the “China Designer of the Year” in 2008.




With
respect to accessories, we released our accessories products in the third
quarter of 2007 and plan to release expanded new accessories products in the
next several fiscal quarters. Accessories have been identified as an important
product line for us and we have dedicated research and development efforts to
the creation of accessories. We believe that customers in China are interested
in purchasing a complete outfit, which includes clothing, accessories, and
shoes. As such, the availability of accessories coordinated with the clothing
line can effectively increase a customer’s total spending.




In the
fourth quarter of 2007, we started designing and developing “Omnialuo
Collections” to target “golden collar” female professionals in China. The
garments will be priced from US$250 to US$400. We plan to produce only 100 to
200 pieces per style, so as to create a sense of exclusivity. We initially
introduced “Omnialuo Collections” to the market on a small scale in the fourth
quarter of 2007, though we expect to fully launch the product line in the third
quarter of 2008.




Pricing




Our
design, marketing, and sales divisions are responsible for pricing our products.
The design, marketing, and sales divisions make internal evaluations of apparel
based on predicted market acceptance and then price the items accordingly. The
final price also takes into consideration competitive apparel price
levels.




Current
Pricing Strategy




The
retail price range of our products is between $40 to $300 per item, with the
majority of items priced between $60 and $150. In China, this price range is
considered the middle to upper-middle price range. The CGIR (or China Garment
Industry Report) released by CFDA (or China Fashion Designer Association) in
2006 forecasts that this middle to upper-middle price range will be the fastest
growing segment in the next five years, with an annual growth rate more than
25%.




Our full
retail price of apparel is typically five to six times our actual production
cost. For example, if a shirt costs $15 in raw materials and manufacturing, full
retail price will be $83, or 5.5 times production cost. However, only “new
arrival” apparel sells at full retail price. The “new arrival” period usually
lasts for two months. After such time, various discounts and promotions reduce
the actual selling price to between 70% to 80% of the full retail price, which
is equivalent to 3 to 4 times production cost.







In China,
the average selling price for similar apparel after the new arrival period is
60% to 70% of the full retail price. Our average is better than this average, as
we do not discount our products as much as other manufacturers, in part to
support our image as a premium brand. Our independent distributors do have some
latitude to deviate from our discount policies, but our experience to date is
that we provide greater discounts than do our independent
distributors.




New
Pricing Strategy




Over the
course of the next three years, we will be implementing our new pricing strategy
to increase the full retail price to eight to ten times our production cost, and
increase our average selling price to six to eight times our production cost. We
do not expect the price increase to result in a net reduction in sales as we
believe that (i) the price increase is in line with industry trends, and (ii)
our enhanced advertising campaign will raise brand recognition, thereby
increasing sales. The current average gross profit margin across all ranges of
our products is 50% and we expect to improve this gross profit margin to 55%
within the next three years.




Customers




In China,
professional women are generally divided into three categories, “white-collar”,
“pink-collar” and “golden-collar” (when accounting for purchasing-power parity,
the lifestyle of a household with annual income of $12,500 in China is similar
to the lifestyle of a household earning $40,000 annually in the United States).
(Source: National Bureau of Statistics of China; McKinsey Global Institute
Analysis 2006. Both the individual income and household income referred to here
are on an after-tax basis.)




Our
current target customers are “white-collar” and “pink-collar” urban females
between the ages of 25 to 35. In China, “pink-collar” refers to women who
typically earn $7,500 to $22,500 annually. “White-collar” refers to women who
typically earn $2,500 to $ 7,500 annually.




Pink-collar
workers usually work in high-paying industries such as finance, consulting,
legal services, or assume senior positions in government agencies. Our business
casual collections as well as our fashionable business casual collection appeal
to pink-collar women.




White
collar workers usually work in junior or middle positions in an office
environment. This includes positions such as secretaries, administrators,
operators, IT staff, accounting staff and junior saleswomen. Usually, there is
no strict dress code for “white-collar” professionals in the office.
“White-collar” professionals can wear “relaxed” business style apparel instead
of business suits in their workplaces. In this sense, our fashionable business
casual can be worn by “white-collar” females both in and out of the work
environment.




“Golden-collar”
refers to the class of professionals with annual incomes over $22,500. They
typically hold executive positions in corporations or operate their own
businesses. “Golden-collar” females usually like to wear luxury brands. Our
brands will eventually target “golden-collar” females as well.




We plan
to expand our target demographic to 35 to 45 year-old females by offering
premium and mature styles of apparel. Our designs in the 2007 spring/summer wear
collection reflected these new styles. Tapping into the 35 to 45 year-old female
market is also intended to develop a large group of loyal customers as well as
increase revenues and profits. In China, the wealthiest consumers are the 25 to
45 year-old group, much younger than the highest earning group (45-54 years old)
in the United States (McKinsey & Company’s proprietary 2004
personal-financial-services surveys in China). A study by Women’s Wear Daily
(“In the Crosshairs”, an article written by Lisa Movius, published in Women’s
Wear Daily on March 22, 2005) indicated that urban females aged between 25 to 35
in China demonstrate the highest consumption needs in apparel, spending more
than 20% of their disposable income on clothing compared to the national average
of 8% to 10%. Our strategy of focusing on the 25 to 45 year-old urban
female segment is intended to capitalize on this consumption
pattern.




Distribution
Network and Methods




Retail
Stores




Our
products are sold in the following types of stores: (i) Retail stores, including
those which are Company-owned, and those which are Co-owned, and (ii)
independent distributor stores, as shown in the chart below. We also run
special, limited-time outlet sales in major malls to sell excess inventories at
the end of each season. We currently do not have franchisees or franchised
stores.







The table
below summarizes the characteristics of our major distribution
channels





Sales
      Channel
            
            Sub
      Channel
            
            Location
            
            Objective
            
            Characteristics
            
            *Store
      Level Net Profit MarginCompany-owned
            
            Flagship
      Stores
            
            Major
      shopping malls in Tier 1 cities
            
            Showcase
      brand and attract customers and distributors
            
            Capital
      outlay: High
              Inventory
      risk: High
              Operating
      expenses: medium
            
            Medium-lowStores
      (27)
            
            Standard
      Stores
            
            Key
      shopping malls in highly competitive Tier 1 & Tier 2
      cities
            
            Test
      market to gauge customer interest and increase sales
            
            Capital
      outlay: High
              Inventory
      risk: Medium
              Operating
      expenses: Medium
            
            MediumCo-owned
      Stores (31)
            
            Co-owned
      Stores
            
            Tier
      1 & Tier 2 cities
            
            Maximize
      sales and profit
            
            Capital
      outlay: Medium
              Inventory
      risk: High
              Operating
      expenses: Medium
            
            Medium-highIndependent
      Distributor Stores (150)
            
            Independent
      Distributor Stores
            
            Tier
      1, Tier 2 & Tier 3 cities
            
            Maximize
      sales and profit
            
            Capital
      outlay: Low
              Inventory
      risk: Low
              Operating
      expenses: Low
            
            High







*
In calculating the store level net profit margin, we take into consideration
related store expenses billed to us, including decoration, rent, payroll, mall
management fees, and utilities.




(i)
            Retail
      Stores





To
describe this type of stores in detail, we divide it into two kinds: (1).
Company-owned stores; (2). Co-owned stores. Company-owned stores are retail
stores owned 100% by us and which sell the OMNIALUO Brand exclusively. We manage
the daily operations of these stores, and pay all operating expenses, including
decoration, rent, payroll, and utilities. All Company stores are located either
within shopping malls or in independent stores located on the street. There are
two types of Company-owned stores, (1) flagship stores, and (2) standard
stores. Flagship stores are high-profile stores, located in key shopping malls
of first-tier cities, such as Shanghai, Beijing, and Shenzhen.  These
stores are extravagantly decorated, display a number of luxurious items and
offer the complete OMNIALUO Brand product line. The cost of opening and
operating flagship stores is high, thus making them the least profitable among
all store types. Standard stores are well decorated, however, they are less
extravagant than the flagship stores, and are operated in major shopping malls
of the first-tier and second-tier cities.  These stores are
fashionably decorated and offer the most complete product lines. These stores
serve to showcase and promote the OMNIALUO brands. In addition, the
Company-owned stores are used to monitor market trends and our products’
performance. Company-owned stores have the lowest profitability among all our
distribution channels. Nonetheless, we believe that shopping malls are the
best location for our stores as according to the CGIR, in 2005, shopping malls
and department stores represented more than 55% of apparel sales in urban cities
in China.





Co-owned
stores are owned jointly by us and a third party and sell the OMNIALUO Brand
exclusively. All co-owned stores are located in key shopping malls in first-tier
and second-tier cities. We are obligated to share revenues with the shopping
malls in which our stores are located. In some instances there are minimum
revenue payments to the landlord, or a threshold before revenue is split, or
both. On average, we must turn over 20% of the profits from each store to the
shopping mall in which such store is located. The co-ownership partner receives
30% of the revenue from co-owned stores, after deducting the 20% due to the
shopping mall. Operating expenses are split evenly between us and the
co-ownership partner, however, 70% of the up-front investment is made by us. We
retain full ownership of the inventory delivered to the
co-owned stores. Co-owned stores serve as good complements to
Company-owned stores and independent distributor stores with a relatively high
net profit margin of 40%-50%.





As of
December 31, 2008, we operated 58 retail stores, of which there were 27
Company-owned stores in key shopping malls in the first-tier and second-tier
cities (see below under“Location of Retail
Stores - Markets”) and 31 Co-owned stores in key shopping malls located
in first-tier and second-tier cities. The two types of stores collectively
accounted for 23.5% of our total sales in 2007 and approximately 44.4% of our
total sales in 2008.







(ii) Independent
Distributor Stores.




Independent
distributor stores are owned 100% by a third party and sell the OMNIALUO Brand
exclusively. Our products are sold to independent distributor stores at 35-40%
of the full retail price. We average approximately 50-55% net profit margin on
sales to the independent distributors. No items are sold on consignment. The
independent distributor stores make a 30% down payment upon ordering and pay the
balance before any shipment is sent. Hence, the independent distributor store
model generates a high profit margin for us, with no upfront investment, minimal
inventory risk and minimal cash flow shortage.




Independent
distributor stores are the most important distribution channel for our sales. As
of December 31, 2007 and December 31, 2008, we had 126 and 150 independent
distributor stores, respectively, across China. The independent distributor
stores represented 76.5% of our revenues in 2007, and represent 55.6% of our
revenues in 2008. Our future success is to a large extent dependent on
increasing the number of the independent distributor stores. As
of  December 31, 2008, the number of our independent distributor
stores reached 150, compared with 126 as of December 31, 2007.





During
2008, there was no customer who contributed 10% or more to the Company’s
consolidated revenue.  During 2007, there was one customer who
contributed 10% or more to the Company’s consolidated revenue: Hubei Province
Tian Men Fashion Factory, $980,025 (12.4%).




(iv) Outlets
& Special Sales Promotions




Periodically,
we run outlet sales in major malls to dispose of excess inventory at the end of
each season. We are also in discussions with a nationwide outlet store chain to
possibly move excess inventory through 20 of that chain’s stores in outlying
areas. We earn a small profit from the outlet channel.





Dedicated Support for
Independent Distributors and Co-ownership Partners




We
provide assistance to our independent distributors and co-ownership partners. By
helping the independent distributors and co-ownership partners operate
efficiently and profitably, and rewarding independent distributors and
co-ownership partners that meet or exceed sales targets, we are able to
encourage successful distributors and co-ownership partners to open more stores.
Many of our top ten distributors have multiple independent or co-ownership
stores.




We
provide assistance to our independent distributors and co-ownership partners in
the following areas of operations.




(i) Setting
up: retail site selection, construction, provision of our retail infrastructure,
image conformity and organization of the operational systems.




(ii) Training:
continuing support on visual display, customer service and store
administration.




(iv) Advertisement
and promotion: coordinating system-wide advertising and promotional activities
to increase independent distributors’ and co-partners’ sales and profits. Beyond
discounts, promotional activities consist of loyalty clubs and members’ only
events, store and Company anniversary promotions, limited editions, gift items
and sales promotions coordinated with other suppliers of
accessories.




(v) Inventory
liquidation: helping independent distributors to move excess inventory by
exchanging inventories among stores and selling through outlets.




(vii) Financial
analysis and support: Our finance department can analyze each store’s financial
situation and recommend specific performance adjustments. It also administers
incentive systems to reward successful independent distributors and maintain the
highest standards of quality control.




Growth Plan for Distribution
Channels




One of
our growth strategies is to open new stores. Since our formation in the third
quarter of 2006, we have continued to open new stores.  As of December
31, 2007, we had opened 184 stores. As of November 12, 2008, we had 245 stores
altogether. However, as a result of the global economic recession and the
presumed temporary but nonetheless marked decrease in Chinese consumer spending,
particularly in the fourth quarter 2008, we were forced to close certain stores
that did not make their pre-determined sales requirements. We believe that it
was necessary to remove non-performers from an otherwise strong network of
retail outlets. While formerly on pace to meets our goal of 250 stores by
year-end 2008, it became necessary in the fourth quarter to cease pursuit of
this goal and trim store count for the long-term good of the Company. As such,
we closed 37stores by December 31, 2008.





In
January, additional stores that did not meet performance requirements were
subsequently closed. As of January 31, 2009, we had 178 total stores, including
27 company-owned stores, 31 co-owned stores, and 120 independent distributor
stores. In February 2009, we closed another 13 stores that did not meet
performance requirements. As of February 28, 2009, we had 165 total stores,
including 27 company-owned stores, 31 co-owned stores and 107 independent
distributor stores. The total store count is still subject to change based on
prevailing market conditions. We have found that the Chinese consumer market
will stop deteriorating, and expect no more stores will be closed except those
that need to be replaced by new stores; we also plan to open new stores once the
consumer market improves. The store number goal for 2009 is 200.








We
believe our expansion plan for independent distributor stores and co-owned
stores is feasible as (i) we have structured our independent distributor stores
and co-owned stores to require low startup costs, and (ii) we launched
advertising campaigns and market promotions of OmniaLuo in October 2007 that
continued into 2008. The advertising campaign features Ms. Zheng Luo and the
OMNIALUO brands in major fashion magazines in China such as Vogue, Harper’s
Bazaar and Cosmopolitan. We believe that the increased publicity will enhance
our brand image and result in increased interest from independent distributors
and co-partners.




Franchising




We will
be eligible to enter into franchise arrangements one year after our application
for a retail license is approved. However, we have no existing plans to enter
into such arrangements.




Location
of Retail Stores - Markets




Market
Regions




There is
significant regional disparity in China with respect to per capita GDP. China is
divided into five regions, the Eastern, Southern, Western, Northern and Central
regions. Eastern and Southern China are the richest regions and represent 36% of
China’s population and 56% of China’s GDP.




In the
Eastern and Southern regions, the population had an average per capita GDP of
$2,400, above the national average of $1,000 in 2005 (National Bureau of
Statistics of China, 2006). In the Northern region, the per capita GDP averaged
$2,100, in the Central region, the per capita GDP averaged $1,100 and in the
Western region the per capita GDP averaged $680.




Our
OMNIALUO Brand apparel has been well-received in the Southern region, and also
has a certain level of market penetration in the Eastern and Central regions. We
are currently making efforts to strengthen our foothold in existing markets,
increase our sales in the Eastern and Southern regions, and develop a market in
the Northern region.




Cities in China
where Retail
Stores are Located




Our
products are marketed and sold in cities in China that have the highest levels
of average disposable income. For marketing purposes, we classify cities into
five groups as follows:




(i)
            First-tier
      cities are cosmopolitan cities located in the center of each of the five
      geographic regions. Shanghai and Hangzhou (Eastern China), Shenzhen and
      Guangzhou (Southern China), Xi’an, Chengdu, and Chongqing (Western China),
      Beijing and Shenyang (Northern China), and Wuhan and Changsha (Central
      China) are first-tier cities.




(ii)
            Second-tier
      cities are typically provincial capitals excluding the cities in tier one.
      In China, there are approximately 25 second-tier
  cities.




(iii)
            Third-tier
      cities are major towns outside the provincial capitals. In China, there
      are over 265 third-tier cities, of which 50 have populations of over 1
      million.(iv)
            Fourth-tier
      cities are small cities distributed in hundreds of small
      counties.(v)
            Fifth-tier
      cities are small cities in rural and remote areas.


The
cities in the first three tiers account for less than 40% of the population in
China but more than 70% of the national disposable income.




Our
products are currently sold in first-, second- and third-tier cities. The tables
below provide geographical distribution of our sales channels as of December 31,
2008.




Company-Owned
      Stores and Co-Owned StoresRegion
            
            Main
      City
            
            Number
      of StoresEastern
      China
            
            Shanghai
            
            8Other
            
            6Southern
      China
            
            Shenzhen
            
            16Guangzhou
            
            2Other
            
            4Fujian
            
            3Western
      China
            
            Kunming
            
            4Central
      China
            
            Wuhan
            
            8Northern
      China
            
            Shenyang,
      Harbin, Beijing, Jinzhou, ShanDong
            
            7Total
            
            
            
            58









Independent
      Distributor StoresRegion
            
            Total
      Number of Stores
            
            Number
      of DistributorsEastern
      China
            
            66
            
            49Southern
      China
            
            51
            
            29Central
      China
            
            37
            
            29Western
      China
            
            21
            
            17Northern
      China
            
            33
            
            26Total
            
            208
            
            150





Product
Design, Research and Development




Designers




One of
our main strengths is our artistic design team, led by renowned chief designer
Ms. Zheng Luo. Our design team consists of 14 designers, many of whom have been
working with Ms. Zheng Luo for several years. Ms. Zheng Luo’s ability to retain
her design team provides for consistent designs and greater brand
loyalty.




Our chief
designer, founder and chief executive officer, Ms. Zheng Luo, is a prominent
designer in China’s fashion industry. Ms. Zheng Luo and the OMNIALUO brands have
been featured frequently in various popular fashion magazines such asHarper’s Bazaar ,L’Official ,Marie Claire
,Vogue
,Jessica  andCosmopolitan .
Ms. Zheng Luo has also been interviewed by many leading domestic and
international media, including China Central Television (“CCTV”), the largest TV
network in China, Hong Kong Phoenix TV, French Fashion TV, Italian Orbit TV,
Vogue UK and Washington Daily. In 2003, Ms. Luo was invited to present her
design and hold a fashion show for Fashion China Seminar in the Museum of
Louvre.  In September 2008, Ms Luo, as the only designer invited from
China, held a fashion show at the New York Fashion Week.  Recently,
Ms. Luo was acknowledged by the Cosmopolitan Magazine as the “China Designer of
the Year” for 2008.




Ms. Zheng
Luo’s designs have been worn by several Chinese media celebrities. In 2006, the
well-known Chinese movie star Ms. Ziyi Zhang, who starred in films such as Memoirs of a Geisha, House of Flying Daggers, and
Hero, wore one of her
evening dresses while attending a celebrity charity banquet. Ms. Luo’s fashion
show held in Beijing in November 2006 was attended by, among other notable
attendees, Ms. Bingbing Fan, who ranked as the 7th most
famous person in China according to Forbes. Ms Bingbing Fan wore
Ms. Zheng Luo’s design to that Beijing show.




We
conduct an active training program for our designers. Each of our designers
attends, on average, more than 10 training sessions ever year and visits the
Hong Kong SAR and other major cities in China regularly to see the latest
fashion trends and understand local tastes. Training sessions take various
forms. For example, in August 2006, all designers attended the Fashion Master
Salon in the Hong Kong SAR hosted by Mr. Weiming Ma, the Vice Chair of the Hong
Kong SAR Fashion Design Association. Also in 2006, Mr. Dazhi Deng, a well-known
Hong Kong SAR fashion designer and Mr. Yutao Wang, a well-known Chinese
designer, visited us and held a seminar for our designers. In November 2006, all
our designers attended China Fashion Week in Beijing, the largest event of its
kind in the Chinese fashion community.









The table
below lists some of the awards Ms. Zheng Luo, her team members and the OMNIALUO
brand have received.




Awards
      to Ms. Zheng Luo2008
            
            Best
      Woman Fashion Designer of the Year, awarded by Cosmopolitan
      Magazine2007
            
            One
      of the Top 10 Outstanding Designers, awarded by CFDA2006
            
            Golden
      Peak Award in Beijing’s Fashion Show, awarded byChina Fashion Designers
      Association (CFDA, the highest authority in China’s fashion
      industry)
              
              Golden
      Peak is viewed as the most prestigious award in the Chinese fashion
      industry. Each year this award is given by the CFDA to one single designer
      in recognition of his/her overall outstanding achievements in the fashion
      design industry. Only “The Best Women’s Wear Designer” recipients in the
      preceding years are qualified to be nominated for the Golden Peak
      Award.2005
            
            Lycra
      in Style Designer Award, awarded byHarper’s
  Bazaar2005
            
            The
      Best Women’s Wear Designer, awarded by CFDA
              
              This
      award, granted by CFDA, is regarded as second only to the Golden Peak
      Award. Ms. Zheng Luo winning the “Best Women’s Wear Designer” award in
      China is comparable to Calvin Klein’s chief designer, Francisco Costa’s
      winning the Women’s Wear Designer of the Year in 2006 in the United
      States.2005
            
            One
      of the Top 10 Young Designers in China, awarded by CFDA2004
            
            The
      Best Women’ Wear Designer, awarded by CFDA2004
            
            The
      Outstanding Designer in Asia, trophy awarded by Moet &
      Chandon2003
            
            The
      NAUTICA Originality Foundation Platinum Prize, awarded by
      Nautica
              
              Ms.
      Zheng Luo, selected from among more than 1,000 other Chinese designers,
      won the Nautica prize, a prize awarded to the most talented Chinese
      designer in 2003.2003
            
            Invited
      to the Fashion China Seminar held in Paris’ Louvre Museum.
              
              Ms.
      Zheng Luo, together with five other talented Chinese designers, was
      invited to present a China-focused fashion show at the Louvre
      Museum.2002
            
            One
      of the Top Ten Fashion Designers in CHINA, awarded by
  CFDA2002
            
            #1
      among Top Ten Designers, awarded by CFDAAwards
      to the OMNIALUO Brand2006
            
            China
      Best Women’s Wear Design, awarded by CFDA2005
            
            China
      Best Women’s Wear Design, awarded by CFDA2004
            
            China
      Best Women’s Wear Design, awarded by CFDA2003
            
            China
      Best Women’s Wear Design, awarded by CFDA2002
            
            China
      Best Women’s Wear Design, awarded by CFDAAwards
      to Other Company Design Professionals2006
            
            Ms.
      Yi Zhou was awarded one of the top ten designers in Guangdong Province by
      CFDA









Product Design
Process




New
collections in the Chinese fashion industry are usually introduced twice each
year, one collection for Spring/Summer and one collection for
Fall/Winter.




In order
to stay on top of the latest fashion trends, starting in late 2006 we began
introducing new collections at trade shows or fashion shows four times a year.
Specifically, we now introduce our (i) spring collection in November, (ii)
summer collection in March, (iii) fall collection in May, and (iv) winter
collection in August.




We
typically receive, on average, 80% of our orders during these trade events. This
percentage is expected to be lower going forward due to our enhanced marketing
efforts; as with strengthened marketing efforts more orders are expected to be
obtained from other distributors who do not participate in the trade events. We
completed the implementation of a new information management system for product
order placements, to enhance our overall business process management, in
Company-owned and co-owned stores in 2007. We have also selected 20 independent
distributors for implementation of the system.




Our
design team currently develops more than 1,600 new products per year, but only
releases about 550 new products after careful selection of what to release to
the market. As we currently have more designers than in 2006, we have focused on
improving the design and quality of the garments we produce.




The
design process for each season requires approximately fifty to sixty days from
conceptualization to finalization, and can be roughly divided into three stages,
planning, design and sample making. The design process of one season will start
while that of the preceding season is still in progress.




(i)
            Planning.
      In the planning stage, Ms. Zheng Luo and her design team try to predict
      the upcoming seasons’ fashion trends for Chinese women’s apparel. The goal
      is to integrate the latest North American fashion trends with the Chinese
      woman’s aesthetic sense. The design teams then develop four themes per
      collection. After deciding on the main themes, the design team decides how
      many product lines to introduce under each theme. The planning stage lasts
      approximately 20 days.




(ii)
            Design.
      In the design stage, our designers collect original fabrics and
      accessories. The designers then prepare drawings for the individual items
      in each product line. The design process takes approximately 30 to 40
      days.




(iii)
            Sample
      Making. Sample making is the last stage of the design
      process where pattern making, cutting, sewing, fitting and revision take
      place and usually lasts for approximately 2
  days.




Procurement,
Suppliers, Manufacturing, and Quality Control




Procurement




We have a
purchasing department currently comprised of five employees. This department is
engaged in all procurement activities, such as specification and sample testing,
production capability verification, order placement, contract management, and
price and quantity negotiations. Final pricing for all orders are approved
by both our chief executive officer Ms. Zheng Luo and our vice
president.




We do not
use independent agents in our procurement activities. We believe that our
in-house personnel are better equipped to focus on our interests, to respond to
our needs and, are more likely to build long-term relationships with key
vendors. We believe that these relationships will improve our access over the
long-term to raw materials at favorable prices.




The
entire process from searching for suppliers to reaching a procurement agreement
usually takes one week. In most cases, it takes 20 to 30 days to receive the
purchased raw materials. In case inventory is lower than required, we remedy
shortfalls by purchasing from the same suppliers to ensure the consistency of
quality. Manufacturers’ delivery dates are generally specified by contract to
ensure that products will be available in our warehouses when we need them. We
believe we have good relationships with our suppliers and there will be
adequate sources to enable us to produce sufficient supply of apparel in a
timely manner. Once we purchase the material, those materials are delivered to
independent manufacturers for further processing and/or decoration.







Suppliers




The raw
materials required by us can be divided into two categories: (i) tatting and
knitwear, and (ii) woolen and leather-made garments. For tatting and knitwear
made garments, we purchase raw materials which are delivered to independent
manufacturers for further processing. For woolen and leather-made garments, we
purchase ready-to-wear clothes which require further design work and are also
delivered to independent manufactures for further processing and
decoration.




We
currently purchase a variety of materials from more than fifty vendors. We
believe that there is a sufficient number of suppliers for such materials in the
market. Except as described below, no one supplier accounted for more than 5% of
our total raw material and finished goods purchases in each of 2008 or
2007.




Outsourced
Manufacturing




We do not
operate any manufacturing facilities, and we do not currently have any plans to
do so. Our apparel is produced by independent manufacturers that are selected,
monitored and coordinated by our quality control department to assure conformity
to our quality standards. We believe that the use of independent manufacturers
increases our production flexibility, enables us to focus on higher margin
business, and, at the same time substantially reduces capital expenditures and
avoids the costs of maintaining a large production workforce. We maintain
ownership of the raw materials and finished goods while such items are at our
independent manufacturers.




We
believe that our long-term, reliable and cooperative relationships with many of
our manufacturers provide a competitive advantage over many of our competitors.
Our merchandise is produced by approximately 15 independent manufacturers
located in Guangdong Province, China with close proximity to our headquarters in
Shenzhen, China.




Yin
Hu, one of our contract manufacturers, currently produces approximately 40%
of our annual manufactured garments in terms of dollar amount. The remaining 60%
of the Company’s products are produced by the other fourteen independent
manufacturers.




Although
there are no long-term agreements between us and any of our contractors or
suppliers, we believe our relationships with our suppliers and contract
manufacturers are excellent. In addition, we receive preferential treatment from
Yin Hu as the products manufactured by Yin Hu for us usually account for
over 90% of Yin Hu's production capacity. Further, Yin Hu was 80% owned by Ms.
Zheng Luo, our founder and chief executive officer, until January 2007, at which
time she transferred her entire interest in Yin Hu to unrelated third
parties.




Quality
Control




We
monitor the quality of fabrics ordered and inspect samples of each product
before production begins. We also perform random quality control checks during
and after production before the garments leave our manufacturers. Our quality
control personnel visit all independent manufacturers’ facilities at least three
times a week. Final inspections occur when the garments are received in our
warehouse. After that, we distribute finished garments to retail stores
nation-wide. We employ two full-time quality control personnel, as well as an
additional three inspectors at our warehouse. Our quality control program is
designed to ensure that our products meet our high quality standards and that we
deliver high quality products to retail stores. As we further expand our stores
and increase our sales, we plan to hire more quality control
personnel.




Information
Management Systems




Since
January 2007, we have been implementing a new information management system.
This system is intended to enable us to procure raw materials on an economic
purchase order basis, keep track of raw materials stock on a real time basis and
monitor the production process. This system is intended to improve production
efficiency and reduce purchasing and storage costs. We have applied the
distribution function of the new system to our Company-owned stores and some of
our co-owned stores. By implementing the distribution function, we are able to
check our apparel stock in different categories, different sizes and colors on a
real-time basis. For example, if one Company-owned store is in need of certain
inventory, we are able to immediately communicate to the other Company-owned
store with excess inventory in that category and ensure a prompt
redistribution of inventory among both stores within one or two days. This new
distribution function is expected to reduce lost sales arising from inventory
shortages in particular stores and better allocate resources among different
stores across different regions. Currently, we are satisfied with the
implementation results of the new distribution function in the Company-owned
stores and our co-owned stores. We have started to extend the application of the
new system to selected independent distributor stores. As of December 31,
2008, 75 independent distributors are qualified to have access to the new
system, the coverage is half of our total independent distributors stores at the
end of 2008.





Inventory




We
generally receive the bulk of our orders from retail stores in trade or fashion
shows and usually fulfill these orders within three months. The orders are
non-cancelable, requiring in the case of orders from independent distributors a
30% down payment upon the order placement, with full payment due before delivery
of the goods. Once orders are placed, retail stores are allowed to exchange 10%
of the merchandise ordered for the first time but no exchanges are allowed in
subsequent orders for the same products.







Backlog




On
December 31, 2008, our backlog of unfilled firm orders for delivery was
approximately $4.0 million, compared with a backlog of unfilled firm orders for
delivery of approximately $1.5 million as of December 31, 2007, approximately
$1.0 million as of December 31, 2006. We believe that our backlog at any
specific point in time is not necessarily indicative of sales and business
results in the near future.





Employees




All of
our employees are employees of our wholly owned PRC operating subsidiary,
Oriental Fashion. As of December 31, 2008, we had approximately 200 full-time
employees. We consider our employee relationships to be satisfactory. We plan to
increase the number and level of our skilled executive management
executives.




Intellectual
Property




The
Company has two trademarks, Omnialo and OmniaLuo.




Omnialo. Oriental Fashion has
acquired rights of use to the Chinese and English OMNIALO trademarks, which were
assigned to it for nominal cost by Ms. Zheng Luo, until October 6, 2017. The
transfer of ownership of the trademarks has been approved by the Trademark
Office of State Administration for Industry and Commerce (the “Trademark
Office”). Ms. Zheng Luo has licensed use of these trademarks to Oriental
Fashion. These trademarks originally expired in September 2007 (for the Chinese
trademark) and October 2007 (for the English trademark), and applications to
extend their registration until 2013 were filed and were approved in September
2007, resulting in new expiration dates of September 2017 (for the Chinese
trademark) and October 2017 (for the English trademark). Both Oumeng and Ms.
Zheng Luo have entered into agreements with Oriental Fashion agreeing not to use
the OMNIALO trademarks in the future.




Omnialuo. Oriental Fashion
has licensed, at nominal cost, rights of use to the Chinese and English OMNIALUO
trademarks, the registration of which Ms. Zheng Luo had initially applied for in
March 2005. These applications were approved by the trademark office on January
19, 2009. Ms. Zheng Luo transferred the Chinese and English OMNIALUO trademarks
to Oriental Fashion at nominal cost subsequent to registration of the OMNIALUO
trademarks by the Trademark Office. Both Oumeng and Ms. Zheng Luo have entered
into agreements with Oriental Fashion agreeing not to use the OMNIALUO
trademarks in the future.




Competition




The
women’s apparel market is highly fragmented in China. It is estimated by the
China Garment Industry Report that in 2005, the top ten women’s wear brands,
including international brands and domestic ones, totaled only 13.36% of the
total market. The market is extremely sensitive to fashion swings and
diversified consumer preferences.




Honoring
commitments made the World Trade Organization agreements, on December 11, 2004,
the Chinese government lifted all restrictions imposed on foreign enterprises
regarding their entry into China. Foreign retailers are allowed to establish
wholly owned foreign enterprises in China with no restrictions on registered
capital. Further, foreign retailers are allowed to open stores in any geographic
areas in China. Therefore, in addition to domestic competition, the Company is
subject to increasing competition from international brands.




Among our
competitors are well established domestic brands such as Girdear and JNBY, and
well established international brands such as Esprit, Etam, Ochirly and, more
recently, Zara, H&M, Gap and others, most of which have the same demographic
focus as us. Many of our domestic competitors, and most or all of our
international competitors, are significantly larger and have substantially
greater distribution and marketing capabilities, capital resources and brand
recognition. We believe we can effectively compete with other brands based on
our attention to Chinese customers’ aesthetic tastes, reflected through our
design and use of materials, and the role in and commitment to the Company of
our chief designer, founder and principal stockholder, Ms. Zheng
Luo.




Growth
Strategy




We plan
to grow our sales and net profit margin based on the following
strategies:




Selectively Expand Distribution
Channels.


One of
our growth strategies is to open new stores. Since our formation in the third
quarter of 2006, we have continued to open new stores.  As of December
31, 2007, we had opened 184 stores. As of November 12, 2008, we had 245 stores
altogether. However, as a result of the global economic recession and the
presumed temporary but nonetheless marked decrease in Chinese consumer spending,
particularly in the fourth quarter 2008, we were forced to close certain
stores that did not make their pre-determined sales requirements. We believe
that it was necessary to remove non-performers from an otherwise strong network
of retail outlets. While formerly on pace to meets our goal of 250 stores by
year-end 2008, it became necessary in the fourth quarter to cease pursuit of
this goal and trim store count for the long-term good of the Company. As such,
we closed 37stores by December 31, 2008.





In
January, additional stores that did not meet performance requirements were
subsequently closed. As of January 31, 2009, we had 178 total stores, including
27 company-owned stores, 31 co-owned stores, and 120 independent distributor
stores. In February 2009, we closed another 13 stores that did not meet
performance requirements. As of February 28, 2009, we had 165 total stores,
including 27 company-owned stores, 31 co-owned stores and 107 independent
distributor stores. The total store count is still subject to change based on
prevailing market conditions. We have found that the Chinese consumer market
will stop deteriorating, and expect no more stores will be closed except those
that need to be replaced by new stores; we also plan to open new stores once the
consumer market improves. The store number goal for 2009 is
200.









Develop New Merchandise
Categories. Accessories have been identified as an important future
product line for the OMNIALUO Brand. The new expanded accessories product line
was released in Q3 2007. In addition, in the first quarter of 2009, we applied
to the Trademark Office for a new trademark, OM WEEKEND.  The products
with this trademark will target female professionals in China who are 18-30
years old. We intend for OM WEEKEND and OMNIALUO to develop into a more perfect
brand system, which we will then take “up market”.




Expand our Market Vertically and
Horizontally. We aim to continue to target the 25 to 35 year old female
demographic and vertically extend into the 35 to 45 age group by offering
premium and mature styled apparel. The 35 to 45 year old female age group
generally has higher brand loyalty and purchasing power, and penetrating this
age group is intended to develop a large group of loyal customers and increase
our profits. We will also seek to expand our market horizontally by increasing
our visibility in northern China by offering apparel tailored to the local
consumers’ dressing tastes. This is being implemented by our designers who have
an understanding of local northern China preferences. These designs were
included in our spring/summer 2009 product line that was released in December
2008.




Regulatory
Matters




Franchise Regulation. We will
be eligible to enter into franchise arrangements one year after our application
for a retail license is approved. However, we have no existing plans to enter
into such arrangements. Should we enter into such arrangements, we would be
required to comply with certain legal requirements, including owning at least
two Company-owned or co-owned stores in China for more than one year, having the
ability to provide long-term training services to the franchisee, having a goods
supply system that is stable and that can guarantee quality, and having a good
reputation in business operations, and we would be required to submit an
application to the relevant Chinese authorities.  Should we chose to
enter into franchise arrangements, we believe there would be little difficulty
in meeting these requirements.




Elimination of Restrictions on
International Competitors in China. Honoring commitments in WTO
agreements, on December 11, 2004, the Chinese government lifted all restrictions
imposed on foreign enterprises regarding their entry into the retail market in
China. Foreign retailers are allowed to establish a wholly owned foreign
enterprise in China with no restrictions on registered capital. Further, foreign
retailers are allowed to open any number of stores in any geographic areas in
China. This opens the door for substantial competition from a number of larger
international apparel retailing brands and companies. See “Competition”
above.




Industry
Overview




Economy in China. According
to the China Garment Industry Report, China has sustained 9%+ GDP growth for the
last 25 years and is likely to continue at 7% GDP growth in the next five years.
In 2005, China achieved a GDP of $2,314 billion and total consumption of $852
billion. The report further revealed that the Chinese people, in general, spend
8% to 10% of their disposable income on garments, and that the garment industry
in China saw overall sales of $87 billion. The report forecasted that the
garment industry in China will continue at more than a 20% annual growth rate
for the next 5 years.


Segments. The garment
industry in China can be divided into seven major categories, which are women’s
outerwear, men’s outerwear, kids’ outerwear, knitwear, underwear/nightwear,
accessories, and socks. Women’s outerwear is the biggest sector in the Chinese
garment industry and accounted for 36% of garment industry sales by dollar
amount in 2005.In
contrast, men’s outerwear only represented 22% of industry sales in the same
period. Underwear/nightwear is also a significant sector in garment industry in
China.




The below
diagram illustrates the percentage of sales for each garment category in 2005 in
China. Overall garment industry sales in China in 2005 were $87 billion (Source:
Chinese Garment Industry Report, 2005-2006).
















Concentration. Rates of
concentration differ from one garment sector to another. Men’s wear in China was
the most concentrated sector, with the top 10 sellers (both international brands
and Chinese domestic ones) occupying 50% of collective sales in men’s wear.
Kids’ wear follows as the second most concentrated sector, with the top 10
sellers representing 35% of overall sales of kids’ wear. Women’s wear is
the most fragmented sector, with then top ten sellers only accounting for 13.36%
of sales. The garment industry is not experiencing a major consolidation.
Instead, it is undergoing a reshuffling with quality brands, existing or new,
taking market share from low quality and non-branded products.




Distribution Channels. In
China, urban dwellers do most of their shopping in shopping malls or department
stores because they feel brands displayed in big stores are more trustworthy
with high quality guarantees. CGIR indicated that, in 2005, 55% of garment
purchases were made in shopping malls or department stores, 23% in specialty
stores such as franchised stores, 13% in grocery stores, 6% in outlets and the
remaining 3% in other channels.




The
diagram below illustrated the percentage of Garment Sales in China by
Distribution Channels in 2005. Overall garment industry sales in 2005 in China
were $87 billion. (Source: Chinese Garment Industry Report,
2005-2006.)









Structural Changes. The
Chinese apparel industry has experienced three stages. Before 1990, apparel was
purchased primarily for functional purpose and people were very price conscious
when making purchase decisions. From 1990 to 1999, people were shifting their
attention from being mainly price conscious to being more quality aware; they
liked to purchase clothes which were comfortable and durable. Since 1999, people
are increasingly brand aware and more inclined to purchase quality brand
apparel. This is especially true for young and middle aged urban females who
like to wear personalized and distinctive brands to appear unique.







Market
Analysis




Market Segments. The Chinese
women’s apparel market can be segmented into different categories by price, age,
and style as indicated in the following tables.




Segments by Garment
Price





Price
      Category
            
            Full
      Retail Price Range
            
            Customer’s
      Social Status
            
            Customers’
      Annual Income
            
            Family’s
      Social Class
            
            Family’s
      Annual Household IncomeLow
      price
            
            $
            <
      37
            
            Blue-Collar
            
            $
            <
      1,500
            
            Poor
            
            $
            <
      $3,125Lower-middle
      price
            
            $
            37-$75
            
            Blue-White
      Collar
            
            $
            1,500-$2,500
            
            Lower-Middle
      Class
            
            $
            3,125-$5,000Middle
      price
            
            $
            75-$125
            
            White-collar
            
            $
            2,500
      - $7,500
            
            Upper-middle
      Class
            
            $
            5,000-$12,500Upper-middle
      price
            
            $
            125-$188
            
            Pink-collar
            
            $
            7,500-$22,500
            
            Mass
      Affluent
            
            $
            12,500-$25,000High
      price
            
            $
            188-$375
            
            Golden-collar
      I
            
            $
            22,500-$30,000
            
            Global
      Affluent
            
            $
            25,000-$50,000Luxury
      price
            
            $
            > 375
            
            Golden-collar
      II
            
            $
            >30,000
            
            Wealthy
            
            $
            >
      50,000




Note:
all income figures are after tax.




In 2005,
the upper-middle class and mass affluent class accounted for 9.4% and 0.5% of
the total urban population respectively. However, they represent 24.2% and 2.4%
of total urban disposable income. With the growing economy in China, the Chinese
urban population is undergoing structural changes. The McKinsey report projected
that by 2015, the percentage of upper-middle class could grow to 21.2% from
12.6% in 2005 and the mass affluent class could grow to 5.6% from 0.5% in 2005.
The report also projected that the two groups collectively would occupy 44.3% of
urban disposable income, compared to 26% in 2005.




Segments by Consumer Age
Group





Age
      Group
            
            Age
      Range
            
            %
      of Total Female
            
            Group
      Size (‘000)<15
            
            Kids
            
            
            18
            %
            111,42215-19
            
            Teenagers
            
            
            9
            %
            52,67619-25
            
            Youth
            
            
            7
            %
            40,44025-35
            
            Young
      Adults
            
            
            17
            %
            103,90335-45
            
            Middle-age
      Adults
            
            
            18
            %
            111,122>45
            
            Seniors
            
            
            32
            %
            196,333




Source:
National Bureau of Statistics of China, 2005




The 25 to
45 year-old female group is the most heavily populated group in China. By the
end of 2004, this group had a population of 215 million, accounting for 35% of
the total Chinese female population, which is the wealthiest group in China. The
McKinsey report revealed that in China, the wealthiest consumers are in the 25
to 45 year-old group, much younger than the highest earners in the United States
who are in the 45 to 54 year-old group. Furthermore, 25 to 35 year-old females
have the strongest purchasing desire for apparel. It is reported that 25 to 35
year-old females spend more than 20% of their disposable income on clothing,
while average Chinese spend 8% to 10% (“In the Crosshairs”, an article
written by Lisa Movius, published in Women’s Wear Daily on March 22,
2005).







Market Size. In China,
women’s outerwear accounts for around 36% of total apparel consumption. In
shopping malls and department stores, women’s wear occupies 2 to 4 floors, while
men’s wear can hardly fill one floor. In 2005, the women’s apparel market in
China was $25 billion. In 2005, branded women’s apparel accounted for 12% of all
women apparel sales, or $3 billion in dollar terms, which is the market we are
addressing. The size of the market in 2005 is described in the following
chart.









Source:
Chinese Garment Industry Report 2005-2006











Market Growth. China’s GDP
growth is expected to be 7% in the next five years as China is emerging as a
major economic power. The increasing urbanization rate and a substantial (6.1%)
annual increase in per capita consumption is expected to fuel the growth in
apparel market. The CGIR forecasts that the apparel industry will continue at a
20% growth rate for the next 5 years and the women’s apparel market is
expected to outpace the overall apparel industry with a growth rate of 27% and
28% for 2009 and 2010, respectively. As consumption in the Chinese apparel
industry is undertaking structural changes from quality focus to quality brand
focus, the fastest growth segment will likely to take place in branded products
like the OMNIALUO brands. The report anticipated a growth rate of  28%
and 29% for 2009 and 2010, respectively for quality branded wear. The following
chart summarizes different growth patterns.







Source:
Chinese Garment Industry report 2005-2006




Target Population and Their Income
Growth. The Company targets white-collar and pink-collar females in China
in the upper-middle class and mass affluent class. As the economic growth
continues, growth in both of these classes and their disposable income is
expected.







Source:
National Bureau of Statistics of China; McKinsey Global Institute
analysis













Source:
National Bureau of Statistics of China; McKinsey Global Institute
analysis




The
official estimate of the size of the Chinese domestic women’s wear market in
2006 was $25 billion and it is expected to sustain a growth rate of over 20% per
annum for the next five years.




RISK
FACTORS




Investing
in our securities involves a material degree of risk. Before making an
investment decision, you should carefully consider the risk factors set forth in
this Annual Report, as well as other information we include in this Annual
Report. Although every effort has been made to anticipate possible risks,
unforeseen conditions and unexpected events may arise, and this list may not be
all-inclusive.




Risks Related to Our
Business




The
recent global financial crisis could negatively affect our business, results of
operations, and financial condition.





The
recent credit crisis and turmoil in the global financial system may have an
adverse impact on our business and our financial condition, and we may face
challenges if conditions in the financial markets do not improve.  Our
ability to access the capital markets may be restricted at a time when we would
like, or need, to raise capital, which could have an impact on our flexibility
to react to changing economic and business conditions.  In addition,
these economic conditions also impact levels of commercial and
consumer spending, which have recently deteriorated significantly and may remain
depressed for the foreseeable future.  It is uncertain how long the
global crisis in the financial services and credit markets will continue and how
much of an impact it will have on the global economy in general or the Chinese
economy in particular.  If demand for our products and services
fluctuates as a result of economic conditions or otherwise, our revenue and
gross margin could be harmed.





Our
business is highly sensitive to economic conditions and consumer spending and an
economic downturn could have a material adverse impact on us.




The
retail and apparel industries historically have been subject to substantial
cyclical variation. A recession in the general economy or a decline in consumer
spending in the apparel industry could have a material adverse effect on our
financial performance. Purchases of apparel and related merchandise tend to
decline during recessionary periods and may decline at other times. There can be
no assurance that a prolonged economic downturn would not have a material
adverse impact on us or that our customers could continue to make purchases
during a recession.








We
are highly dependent on our chief executive officer, founder and principal
stockholder and other key personnel and if we lose other key management or other
personnel, our business will suffer.




Our
future success will depend in part on the continued service of certain key
management and other personnel, particularly Ms. Zheng Luo, our president and
chief executive officer and chief designer, who is closely associated with our
brand names. Although Ms. Zheng Luo is our principal shareholder, and has
entered into non-competition agreements with us and our Chinese operating
subsidiary, none of these factors and arrangements ensure the continued
availability of Ms. Zheng Luo’s services to us. We intend to obtain key-person
life insurance with respect to Ms. Zheng Luo in the near future, but such
insurance will only cover certain risks relating to our dependency on Ms. Zheng
Luo, and the amount of such insurance may not be adequate to compensate for any
loss of Ms. Zheng Luo’s services.







In
addition, success will also depend on our ability to attract and retain
qualified managers, design, sales and marketing personnel. Competition for these
employees is intense. There is no assurance that we can retain our existing key
personnel or attract and retain sufficient numbers of qualified employees in the
future. The loss of key employees or the inability to hire or retain qualified
personnel in the future would have a material adverse effect on the development
of our business and our ability to develop, market and sell our
products.




If
we are unable to anticipate fashion trends in a timely manner and respond to
such trends, our reputation could be harmed and profitability could
decrease.




The
women’s apparel industry has many characteristics including changing consumer
preferences and shifting fashion trends. We believe that our success depends in
substantial part on our ability to anticipate emerging fashion trends and design
and customize our products to meet new trends and changing consumer demands in a
timely manner. There can be no assurance that we will continue to be successful
in this regard. Our failure to anticipate and respond to these changes could
result in lower sales, excess inventories and lower margins, which would have a
material adverse effect on our operations, business and financial
condition.




Our
business is likely to be seasonal and if we fall significantly short of our
anticipated earnings in one or more quarters, it will significantly decrease the
working capital available to us in the following quarters, which may adversely
affect our purchasing abilities.




Our
business is likely to be seasonal, with the highest proportion of sales and
operating income likely being generated in the fourth quarter of each year,
lesser proportions in the second and third quarter of each year, and the lowest
proportion of sales and operating income being generated in the first quarter of
each year. Our working capital requirements are likely to fluctuate during the
year, increasing substantially during one or more quarters as a result of
higher planned seasonal inventory levels and higher receivables. If we fall
significantly short of our anticipated earnings in one or more quarters, it will
significantly decrease the working capital available to us in the following
quarters. Due to limitations on borrowing levels, a decrease in working capital
may adversely affect our purchasing abilities which would have a material
adverse effect on our revenues.




Product
branding is important to us and if our brands are misappropriated our reputation
could be harmed, which could result in lower sales having a negative impact on
our financial results.




We rely
upon a combination of trademark, licensing and contractual covenants to
establish and protect the brand names of our products. We have registered two of
our trademarks and applied for registration of a third trademark in the
Trademark Office of China. In our market segments, our reputation is closely
related to our brand names. Monitoring unauthorized use of our brand names is
difficult, and we cannot be certain that the steps we have taken will prevent
their unauthorized use, particularly in foreign countries. Our brand names may
be misappropriated or utilized without our consent and such actions may have a
material adverse effect on our reputation and on the results of our
operations.




The legal
regime in China for the protection of intellectual property rights is still at
its early stage of development. Intellectual property protection became an
effort in China in 1979 when China began the registration of trademarks
nationwide, and also adopted the Criminal Law on the protection of trademarks.
Since then, China has adopted its Patent Law, Trademark Law and Copyright Law
and promulgated related regulations such as Regulation on Computer Software
Protection, Regulation on the Protection of Layout Designs of Integrated
Circuits and Regulation on Internet Domain Names. China has also acceded to
various international treaties and conventions in this area, such as the Paris
Convention for the Protection of Industrial Property, Patent Cooperation Treaty,
Madrid Agreement and its Protocol Concerning the International Registration of
Marks. In addition, when China became a party to the World Trade Organization in
2001, China amended many of its laws and regulations to comply with the
Agreement on Trade-Related Aspects of Intellectual Property Rights. Despite many
laws and regulations promulgated and other efforts made by China over the years
with a view to tightening up its regulation and protection of intellectual
property rights, private parties may not enjoy intellectual property rights in
China to the same extent as they would in many Western countries, including the
United States, and enforcement of such laws and regulations in China have not
achieved the levels reached in those countries. Both the administrative agencies
and the court system in China are not well-equipped to deal with violations or
handle the nuances and complexities between compliant innovation and
non-compliant infringement.




Many
of our competitors have substantially greater capabilities and resources and may
be able to market products more effectively, which would limit our ability to
generate revenue and cash flow.




Competition
in the women’s apparel industry is intense and we face increasing domestic and
international competition from several companies. Many of our competitors are
significantly larger and have substantially greater distribution and marketing
capabilities, capital resources and brand recognition. There is no assurance
that we will be able to compete successfully against present or future
competitors. Such failure to compete would have a material adverse effect on our
business and results of operations.




We
are uncertain as to our ability to effectively implement and manage our growth
strategy.




As part
of our growth strategy, we seek to expand our distribution network and introduce
new product lines like Omnia Collections and accessories. The success of our
growth strategy will depend on brand management, competitive conditions, our
ability to manage increased sales and distribution and, in the future, franchise
store expansion, the availability of desirable locations and the negotiation of
terms with distributor and franchise stores. There is no assurance that we will
be able to obtain terms as favorable to us as those under which we now operate
or that such terms will not adversely affect our ability to manage inventory
risk. There is also no assurance that our growth strategy will be successful or
that our sales or net income will increase as a result of the implementation of
such strategy.









Our
management and internal systems might be inadequate to handle our potential
growth.




Successful
implementation of our business strategy will require us to develop our
operations and effectively manage growth. Any growth will place a significant
strain on our systems and management, financial, product design, marketing,
distribution and other resources, which would cause us to face operational
difficulties. To manage future growth, our management must build operational and
financial systems and expand, train, retain and manage our employee base. For
instance, we will need to enhance our information systems and operations and
attract and retain qualified personnel. Our management may not be able to manage
our growth effectively if our systems, procedures, controls and resources are
inadequate to support operations. In such case, our expansion would be halted or
delayed and we may lose our opportunity to gain significant market share or the
timing advantage with which we would otherwise gain significant market share.
Any inability to manage growth effectively may harm our ability to implement and
execute out current or any subsequent business plans.




If
we are unable to effectively implement our new information management system and
data networks, our ability to mange our inventory would be
disrupted.




We are
implementing a new information management system and data networks. The system
has been fully operational in Company-owned stores and co-owned stores since the
end of 2007, and we have selected 75 independent distributor stores for
implementation of the system by December 31, 2008. Delays or other
difficulties in implementing this system could disrupt our ability to manage our
inventory effectively. In addition, we plan to establish five regional centers
to better monitor each region’s market dynamics, facilitate traffic flows,
ensure rapid response and provide partner support and supervision. There is no
assurance that this expansion will be completed on time or that it will be
successful. Any failure to manage growth effectively could have a material
adverse effect on our results of operations and financial
condition.




We
depend on others to manufacture our products and any disruption in manufacturing
could have a material adverse effect on our business.




Our
products are manufactured by approximately 15 independent manufacturers. We do
not operate any production facilities. One manufacturer engaged by us, Yin Hu
Company (“Yin Hu”), formerly a related party to us but unaffiliated with us
since early 2007, accounted for approximately 46% (by dollar volume) of our
total production for 2007 product sales. The inability of a manufacturer to ship
orders of our products in a timely manner or to meet our quality standards
could cause us to miss our customers’ delivery requirements for those items. As
a result, cancellation of orders, refusal to accept deliveries or a reduction in
purchase prices could have a material adverse effect on us.




We enter
into purchase order commitments each season specifying a time frame for
delivery, method of payment, design and quality specifications and other
standard industry provisions. We do not have long-term contracts with any
manufacturer. In addition, we compete with other companies for the production
capacity of independent manufacturers and import quota capacity. Some of these
competing companies have substantially greater brand recognition, financials,
and other resources than we do and thus may have an advantage in the
competition for production and import quota capacities. Although Yin Hu has
recently committed 90% of its capacities to the production of OMNIALUO brand
products, none of our manufacturers produces our products
exclusively.




We
require our independent manufacturers to operate in compliance with applicable
laws and regulations. While we do not control our manufacturers or their labor
practices, our internal and vendor operating guidelines promote compliance with
laws and our sourcing personnel periodically visits and monitors the operations
of our independent manufacturers. The violation of labor or other laws by one of
our independent manufacturers, or the divergence of an independent
manufacturer’s labor practices from those generally accepted as ethical, could
result in adverse publicity for us and could have a material adverse effect on
us.




We
may be unable to effectively manage our inventory.




We place
orders for our products with our manufacturers prior to the time we have
received all of our customers’ orders and maintain an inventory of certain
products that we anticipate will be in greater demand. There is no assurance,
however, that we will be able to sell the products we have ordered from
manufacturers or our existing inventory at a profit or at all. Inventory levels
in excess of customer demand may result in inventory write-downs and the sale of
excess inventory at discounted prices, which would have a material adverse
effect on us and our results of operations.




We
depend to some extent on a high volume of mall traffic and the availability of
suitable lease space.




Many of
our stores are located in shopping malls. Sales at these stores are derived, in
part, from the volume of traffic in those malls. Our stores benefit from the
ability of the mall’s “anchor” tenants, generally large department stores, and
other area attractions to generate consumer traffic in the vicinity of our
stores and the continuing popularity of malls as shopping destinations. Sales
volume and mall traffic may be adversely affected by economic downturns in
a particular area, competition from non-mall retailers and other malls where we
do not have stores and the closing of anchor department stores. In addition, a
decline in the desirability of the shopping environment in a particular mall, or
a decline in the popularity of mall shopping among our target consumers, would
adversely affect our business.







Part of
our future growth is significantly dependent on our ability to operate stores in
desirable locations with capital investment and lease costs that allow us to
earn a reasonable return. We cannot be sure as to when or whether such desirable
locations will become available at reasonable costs.




We
cannot be certain that we will be able to execute our plan to open additional
stores or that such store openings will be successful.




Successful
implementation of our company’s growth strategy depends on a number of factors
including, but not limited to, obtaining desirable store locations, negotiating
acceptable leases, completing projects on budget, supplying proper levels of
merchandise and the hiring and training of store managers and sales associates.
The new stores may place increased demands on our company’s operational,
managerial and administrative resources, which could cause our company to
operate less effectively. Furthermore, there is a possibility that new stores
that are opened in existing markets may have an adverse effect on future sales
of previously existing stores in such markets. In addition, our failure to
predict accurately the demographic or retail environment at any future store
location could have a material adverse effect on our business, financial
condition and results of operations.




Our
expansion into new markets could adversely affect our financial condition and
results of operations.




Some of
our new stores will be opened in areas of China in which we currently have few
or no stores. The expansion into new markets may present competitive,
merchandising and administrative challenges that are different from those
currently encountered in our existing markets. Any of these challenges could
adversely affect our business, financial condition and results of operations. To
the extent our new store openings are in existing markets, we may experience
reduced net sales volumes in existing stores in those markets.




We
depend upon the success of our advertising and marketing programs.




Our
business depends on high customer traffic in our stores and effective marketing.
We have many initiatives in this area, and we frequently change our advertising
and marketing programs. There can be no assurance as to our continued ability to
effectively execute our advertising and marketing programs, and any failure to
do so could have a material adverse effect on our business and results of
operations.




We
may face labor shortages or increased labor costs which could adversely affect
our growth and operating results.




Labor is
a significant component in the cost of operating our stores. If we face labor
shortages or increased labor costs because of increased competition for
employees, higher employee turnover rates, increases in wages or increases in
other employee benefits costs, our operating expenses could increase and our
growth could be adversely affected. Our success depends in part upon our ability
to attract, motivate and retain a sufficient number of qualified
employees.




We
rely on third parties to distribute our merchandise. If these third parties do
not adequately perform this function, our business would be
disrupted.




The
efficient operation of our business depends on our ability to ship merchandise
through third-party carriers directly to our stores. Due to our reliance on
these parties for our shipments, interruptions in the ability of our vendors to
ship our merchandise or the ability of carriers to fulfill the distribution of
merchandise to our stores could adversely affect our business, financial
condition and results of operations. An increase in fuel prices may also
increase our shipping costs, which could adversely affect our business,
financial condition and results of operations.




Risks
Related to Doing Business in China




Changes
in China’s political or economic situation could harm us and our operational
results.




We
conduct substantially all of operations and generate all our revenues in China.
Accordingly, our business, financial condition, results of operations and
prospects are affected significantly by economic, political and legal
developments in China. Economic reforms adopted by the Chinese government have
had a positive effect on the economic development of the country, but the
government could change these economic reforms or any of the legal systems at
any time. This could either benefit or damage our operations and profitability.
Some of the things that could have this effect are:




Level
      of government involvement in the
economy;









Control
      of foreign exchange;





Methods
      of allocating resources;





Changes
      in the development, or rate of development, of the market-oriented sector
      of the economy;





Changes
      in the rapid growth rate of the overall economy;





Balance
      of payments position;





International
      trade restrictions; and





International
      conflict.




The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in many ways. As
a result of these differences, we may not develop in the same way or at the same
rate as might be expected if the Chinese economy were similar to those of the
OECD member countries.




Our
business is largely subject to the uncertain legal environment in China and our
investors’ legal protection could be limited.




The
Chinese legal system is a civil law system based on written statutes. Unlike
common law systems, it is a system in which precedents set in earlier legal
cases are not generally used. The overall effect of legislation enacted over the
past 20 years has been to enhance the protections afforded to foreign invested
enterprises in China. However, these laws, regulations and legal requirements
are relatively recent and are evolving rapidly, and their interpretation and
enforcement involve uncertainties. These uncertainties could limit the legal
protections available to foreign investors, such as the right of foreign
invested enterprises (of which we are one) to hold licenses and permits such as
requisite business licenses. In addition, all of our executive officers and all
of our directors are residents of China and not of the U.S., and substantially
all the assets of these persons are located outside the U.S. As a result, it
could be difficult for investors to effect service of process in the U.S., or to
enforce a judgment obtained in the U.S. against us or any of these
persons.




The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities.




China
only recently has permitted provincial and local economic autonomy and private
economic activities. The Chinese government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and state ownership. Our ability to operate in China may be
harmed by changes in its laws and regulations, including those relating to
taxation, import and export tariffs, environmental regulations, land use rights,
property and other matters. We believe that our operations in China are in
material compliance with all applicable legal and regulatory requirements.
However, the central or local governments of these jurisdictions may impose new,
stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations.




Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned
economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or
particular regions thereof, and could require us to divest ourselves of any
interest we then hold in Chinese properties or joint ventures.




Future
inflation in China may inhibit our ability to conduct business profitably in
China.




In recent
years, the Chinese economy has experienced periods of rapid expansion and high
rates of inflation. During the past ten years, the rate of inflation in China
has been as high as 20.7% and as low as -2.2%. These factors have led to the
adoption by the Chinese government, from time to time, of various corrective
measures designed to restrict the availability of credit or regulate growth and
contain inflation. High inflation may in the future cause the Chinese government
to impose controls on credit and/or prices, or to take other action, which could
inhibit economic activity in China, and thereby harm the market for our
products.







Any
recurrence of severe acute respiratory syndrome, or SARS, or another widespread
public health problem, could harm our operations.




A renewed
outbreak of SARS or another widespread public health problem in China, where our
operations are conducted, could have a negative effect on our operations. Our
operations may be impacted by a number of health-related factors, including the
following:




quarantines
      or closures of some of our offices which would severely disrupt our
      operations,





the
      sickness or death of our key officers and employees,
  and





a
      general slowdown in the Chinese
economy.




Any of
the foregoing events or other unforeseen consequences of public health problems
could damage our operations.




Restrictions
on currency exchange may limit our ability to receive and use our revenues
effectively.




The
majority of our revenues are and will be settled in RMB and U.S. Dollars, and
any future restrictions on currency exchanges may limit our ability to use
revenue generated in RMB to fund any future business activities outside China or
to make dividend or other payments in U.S. dollars. Although the Chinese
government introduced regulations in 1996 to allow greater convertibility of the
RMB for current account transactions, significant restrictions still remain,
including primarily the restriction that foreign-invested enterprises may only
buy, sell or remit foreign currencies after providing valid commercial
documents, at those banks in China authorized to conduct foreign exchange
business. In addition, conversion of RMB for capital account items, including
direct investment and loans, is subject to governmental approval in China, and
companies are required to open and maintain separate foreign exchange accounts
for capital account items. We cannot be certain that the Chinese regulatory
authorities will not impose more stringent restrictions on the
convertibility of the RMB.




Failure
to comply with PRC regulations relating to the establishment of offshore special
purpose companies by PRC residents may subject our PRC resident stockholders to
personal liability, limit our ability to acquire PRC companies or to inject
capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
distribute profits to us or otherwise materially adversely affect
us.




In
October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued
the Notice on Relevant Issues in the Foreign Exchange Control over Financing and
Return Investment Through Special Purpose Companies by Residents Inside China,
generally referred to as Circular 75, which required PRC residents to register
with the competent local SAFE branch before establishing or acquiring control
over an offshore special purpose company, or SPV, for the purpose of engaging in
an equity financing outside China on the strength of domestic PRC assets
originally held by those residents. Amendments to registrations made under
Circular 75 are required in connection with any increase or decrease of capital,
transfer of shares, mergers and acquisitions, equity investment or creation of
any security interest in any assets located in China to guarantee offshore
obligations. In the case of an SPV which was established, and which acquired a
related domestic company or assets, before the implementation date of Circular
75, a retroactive SAFE registration was required to have been completed before
March 31, 2006. Failure to comply with the requirements of Circular 75, as
applied by SAFE, may result in fines and other penalties under PRC laws for
evasion of applicable foreign exchange restrictions. Any such failure could also
result in the SPV’s affiliates being impeded or prevented from distributing
their profits and the proceeds from any reduction in capital, share transfer or
liquidation to the SPV, or from engaging in other transfers of funds into or out
of China.





We
believe our stockholders who are PRC residents as defined in Circular 75 have
registered with the relevant branch of SAFE, as currently required, in
connection with their equity interests in us and our acquisitions of equity
interests in our PRC subsidiary. However, we cannot provide any assurances that
their existing registrations have fully complied with, and they have made all
necessary amendments to their registration to fully comply with, all applicable
registrations or approvals required by Circular 75. Moreover, because of
uncertainty over how Circular 75 will be interpreted and implemented, and how or
whether SAFE will apply it to us, we cannot predict how it will affect our
business operations or future strategies. For example, our present and
prospective PRC subsidiaries’ ability to conduct foreign exchange activities,
such as the remittance of dividends and foreign currency-denominated borrowings,
may be subject to compliance with Circular 75 by our PRC resident beneficial
holders. In addition, such PRC residents may not always be able to complete the
necessary registration procedures required by Circular 75. We also have little
control over either our present or prospective direct or indirect stockholders
or the outcome of such registration procedures. A failure by our PRC resident
beneficial holders or future PRC resident stockholders to comply with Circular
75, if SAFE requires it, could subject these PRC resident beneficial holders to
fines or legal sanctions, restrict our overseas or cross-border investment
activities, limit our subsidiaries’ ability to make distributions or pay
dividends or affect our ownership structure, which could adversely affect our
business and prospects.




If
the China Securities Regulatory Commission, or CSRC, or another PRC regulatory
agency, determines that CSRC approval was required in connection with our recent
private placement, we may become subject to penalties.




On August
8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the
Regulation on Mergers and Acquisitions of Domestic Companies by Foreign
Investors, which became effective on September 8, 2006. This new regulation,
among other things, has certain provisions that require SPVs formed for the
purpose of acquiring PRC domestic companies and controlled by PRC individuals,
to obtain the approval of the CSRC prior to publicly listing their securities on
an overseas stock market. In our case, the









formation
in September 2006 by Omnia BVI of Oriental Fashion, and Oriental Fashion's
subsequent, limited acquisition of discrete assets from Oumeng, should not be
seen as an acquisition of a PRC domestic company as contemplated by the new
regulation and we therefore have not applied to the CSRC for approval under this
regulation. Nonetheless, if the CSRC or another PRC regulatory agency
subsequently determines that the CSRC’s approval was required for our recent
private placement or quotation on OTCBB, we may face sanctions by the CSRC or
another PRC regulatory agency. If this happens, these regulatory agencies may
impose fines and penalties on our operations in the PRC, limit our operating
privileges in the PRC, delay or restrict the repatriation of the proceeds from
that private placement into the PRC, restrict or prohibit payment or remittance
of dividends to us or take other actions that could have a material adverse
effect on our business, financial condition, results of operations, reputation
and prospects, as well as the trading price of our shares.




Recent
Chinese merger and acquisition regulations may limit our ability as to acquire
assets and equity interests of Chinese companies, which could hinder our ability
to expand in China and adversely affect our long-term
profitability.




The new
regulations which became effective on September 8, 2006 cover all acquisitions
of assets and equity interests of Chinese companies by foreign investors,
including overseas companies under the de facto control of Chinese persons or
entities. Depending on the structure of the transaction, these regulations will
require the target Chinese companies to make a series of applications to the
aforementioned agencies, some of which must be made within strict time limits
and depend on approvals from one or the other of the aforementioned agencies. If
obtained, approvals will have expiration dates by which a transaction must be
completed. It is expected that compliance with the regulations will be more time
consuming than in the past, will be more costly and will permit the government
much more extensive scrutiny and control over the terms of the transaction.
Therefore acquisitions in China may not be able to be completed because the
terms of the transaction may not satisfy aspects of the approval process and may
not be completed, even if approved, if they are not consummated within the time
permitted by the approvals granted. This may restrict our ability to implement
any acquisition we may decide to pursue and adversely affect our business and
prospects.




New
corporate income tax law could adversely affect our business and our net
income.




On March
16, 2007, the National People's Congress passed a new corporate income tax law,
which became effective on January 1, 2008. This new corporate income tax unifies
the corporate income tax rate, cost deductions and tax incentive policies for
both domestic and foreign-invested enterprises in China. According to the new
corporate income tax law, the applicable corporate income tax rate of Oriental
Fashion and any future other Chinese subsidiaries will incrementally increase to
25% over a five-year period. According to the Circular on the Implementation of
Preferential Policies concerning the EIT Transition issued by the State Council
on December 26, 2007, the enterprise income tax rate for companies established
in Shenzhen shall be 18% in 2008, 20% in 2009, 22% in 2010, 24% in 2011 and
25% from 2012 onwards. By virtue of the New CIT Law, Oriental Fashion was
subject to EIT rate of 18% during 2008, with full tax
exemption.  During 2007, Oriental Fashion was subject to EIT at 27% of
which 24% was for national tax and 3% was for local tax of the assessable
profit. Pursuant to the relevant PRC tax laws and regulations, Oriental Fashion
enjoyed a preferential income tax rate of 15% since it operated in the Shenzhen
Special Economic Zone of the PRC.





The
discontinuation of any special or preferential tax treatment or other incentives
could adversely affect our business and our net income.




The
value of our securities will be affected by the foreign exchange rate between
U.S. dollars and RMB.




The value
of our common stock will be affected by the foreign exchange rate between U.S.
dollars and RMB, and between those currencies and other currencies in which our
sales may be denominated. For example, to the extent that we need to convert
U.S. dollars into RMB for our operational needs and should the RMB
appreciate against the U.S. dollar at that time, our financial position, the
business of the company, and the price of our common stock may be harmed.
Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of
declaring dividends on our common stock or for other business purposes and the
U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of our
earnings from our subsidiaries in China would be reduced.




Risks Related to Our
Common
Stock




The
current market price of the common stock may not be indicative of future market
prices.




We
anticipate that the market price of our shares will fluctuate significantly in
response to numerous factors, many of which are beyond our control, including,
without limitation:




the
      announcement of new products or product enhancements by our
      competitors;





quarterly
      variations in our and our competitors’ results of
    operations;









changes
      in financial estimates or recommendations by securities
      analysts;





speculation
      about our business in the press or investment community;





expiration
      of lock-up agreements;





general
      market conditions and other factors, including factors wholly unrelated to
      our own operations or performance.




There
is not now and there may never be an active liquid market for our common
stock.




We are
providing no assurances of any kind or nature whatsoever that an active liquid
market for our common stock will ever develop, on the OTCBB or elsewhere.
Investors should understand that there may be no alternative exit strategy for
them to recover or liquidate their investments in our common stock. Accordingly,
investors must be prepared to bear the entire economic risk of an investment in
the common stock for an indefinite period of time. If our revenues do not grow
or grow more slowly than we anticipate, if operating or capital expenditures
exceed our expectations and cannot be adjusted accordingly, or if some other
event adversely affects us, the market price of our common stock will
decline.




We
are subject to the reporting requirements of the United States securities laws,
which will require expenditure of capital and other resources.




We are a
public reporting company subject to the information and reporting requirements
of the Securities Exchange Act of 1934 and other federal securities laws,
including, without limitation, compliance with the Sarbanes-Oxley Act
(“Sarbanes”). The costs of preparing and filing annual and quarterly reports,
proxy statements and other information with the SEC and furnishing audited
reports to stockholders will cause our expenses to be substantially higher than
they would otherwise be if we were privately-held. It will be difficult, costly,
and time-consuming for us to develop and implement internal controls and
reporting procedures required by Sarbanes, and we will require additional staff
and third-party assistance to develop and implement appropriate internal
controls and procedures. If we fail to or are unable to comply
with Sarbanes, we will not be able to obtain independent accountant
certifications that the Sarbanes requires publicly-traded companies to
obtain.




Investor
confidence and market price of our shares may be adversely impacted if we or our
independent registered public accountants are unable to attest to the operating
effectiveness of our internal controls as of December 31, 2007, as required by
Section 404 of the U.S. Sarbanes-Oxley Act of 2002.




The SEC,
as directed by Section 404 of Sarbanes, adopted rules requiring public
companies, including us, to include a report of management of their internal
control structure and procedures for financial reporting in their annual reports
on Form 10-K that contains an assessment by management of the effectiveness of
their internal controls over financial reporting. We are subject to this
requirement commencing with our fiscal year ended December 31, 2008 and a report
of our management is included in this Annual Report on Form 10-K. In addition,
independent registered public accountants of these public companies must attest
to and report on the operating effectiveness of their internal
controls. However, this annual report does not include an attestation
report because under current law, we will not be subject to these requirements
until our annual report for the fiscal year ending December 31, 2009. Our
management may conclude that our internal controls over financial reporting are
not effective. Moreover, even if our management concludes otherwise, if our
independent registered public accountants are not satisfied with our internal
control structure and procedures, the level at which our internal controls are
documented, designed, operated or reviewed, or if the independent registered
public accountants interpret the requirements, rules or regulations differently
from us, they may decline to attest to our management’s assessment or may issue
a report that is qualified. Any of these possible outcomes could result in an
adverse reaction in the financial marketplace due to a loss of investor
confidence in the reliability of our financial statements, which could
negatively impact the market price of our shares.




We
may not be able to attract the attention of major brokerage firms or securities
analysts.




Security
analysts and major brokerage houses may not provide coverage of us, given that
our OTC Bulletin Board status provides little or no incentive to recommend the
purchase of our common stock. We may also not be able to attract any brokerage
houses to conduct secondary offerings with respect to our
securities.




We
are making no representations and are providing no assurances that our common
stock will become listed on NASDAQ, the American Stock Exchange or any other
securities exchange.




We
anticipate that we may seek to list our common stock on NASDAQ or the American
Stock Exchange. We are making no representations nor providing any assurances
that we will be able to meet the initial listing standards of either of those or
any other stock exchange. Therefore, investors may find it difficult to
dispose of shares or to obtain accurate quotations as to the market value of the
common stock. In addition, we will be subject to an SEC rule (Rule 15c2-11) that
imposes various requirements on broker-dealers who sell securities governed by
the rule to persons other than established customers and accredited investors.
The requirement that broker-dealers comply with this rule will deter
broker-dealers from recommending or selling our Company’s common stock, thus
further adversely affecting the liquidity and share price of the common stock,
as well as our ability to raise additional capital.










We
have never paid dividends and have no plans to pay dividends at any time in the
near or distant future.




We have
never paid dividends on our capital stock, and we do not anticipate paying any
dividends for the foreseeable or distant future. Our present business plan does
not include, for the foreseeable future and beyond, any payments of dividends to
stockholders. Stockholders’ sole strategy for any return on their
investments must therefore be the potential for the increase in the value of
their stock and the possibility of liquidating their stock positions at a
gain.




You
may experience immediate and substantial dilution if we obtain additional
financing.




If we
obtain additional financing, that financing may have a dilutive effect on the
holders of our securities.




The
Company adopted in the first quarter of 2008 an employee equity incentive plan
under which the Company’s officers, directors, consultants, and employees will
be eligible to receive, in relevant part, either securities or stock options
exercisable for the Company’s securities at exercise prices that must generally
be no less than the then prevailing fair market value of the Company’s common
stock on the date of grant. The Company has reserved five million (5,000,000)
shares of common stock for issuance under this plan.  Any issuance
under this equity incentive plan will have dilutive effect on the holders of our
securities.




We
will need to raise additional capital in order to achieve our long-term goals,
but as yet have not identified any sources for such capital.




We have
not yet identified sources for additional financing, and we may be unable to
raise sufficient funds on terms that are acceptable to us, or at all. If those
funds are not raised, the development of our products would be delayed, and the
scope of our operations would be substantially curtailed or completely
eliminated.




The
existence of the Warrants may adversely affect the market price of our shares,
and any future Warrant exercises may result in further dilution.




We
currently have issued outstanding warrants to purchase up to 5,704,752 shares of
our common stock, of which (i) warrants for up to 5,412,000 shares may be
exercised at $1.5625 per share at any time or from time to time until October 9,
2012, including warrants for 492,000 shares which may be exercised on a cashless
exercise basis, and (ii) warrants for up to 292,752 shares may be exercised at
$1.25 per share at any time or from time to time for a two-year period
commencing December 17, 2007. The total number of shares issuable upon exercise
of warrants is relatively high compared to the number of shares of our common
stock issued and outstanding. Therefore, the existence of these warrants, and
the continuing likelihood that they may exercised and the shares acquired upon
exercise sold from time to time in the public trading market for our common
stock, may have an adverse effect on the market price of our common
stock.




Any
of the above-identified risks, even if borne out only partially and not fully,
will adversely affect our business, our financial condition and our operating
results. If any of the events we have identified occur, in whole or in part, the
value of our common stock will likely decline, and an investor will lose all or
part of the funds paid to acquire our common stock with no opportunity to regain
any portion of those funds in return.




ITEM
2. DESCRIPTION OF PROPERTY




Properties
and Leases




As of
December 31, 2008, we have the following leased properties:




(1) we
operate our executive offices and showrooms in a leased location at No. E6 101#
Industrial District, Huaqiao City, Nanshan District, Shenzhen, China, with
approximately 11,132 square feet of space, under a lease expiring in 2011. The
expected payments under the lease are $7,893 per month from January 1, 2007 to
September 15, 2008, $8,287 per month from September 16, 2008 to September 15,
2009, $8,701 per month from September 16, 2009 to September 15, 2010, and $9,137
per month from September 16, 2010 to September 15, 2011.





(2) we
operate another office and showroom in another leased location at No.6 6101#,
1718 Tianshan Road, Shishang Yuan, Shanghai, China, with approximately 2,960
square feet of space, under a lease expiring on October 31, 2013. The payments
under the lease are $30,377 per annum from 2005 to 2008. From 2009 to 2013, the
payment for each following year will increase by 5% based on the rent for the
immediately preceding year.







(3) We
operate our warehouse in a leased location at No. 525 301 &305# Bagualing
Industrial District, Bagua Er Road, Futian District, Shenzhen, China, with
approximately 8,589 square feet of space, under a lease expiring on May 31,
2009. The payments under the lease are $4,446 per month.




(4) We
rent an area in the Helen Shopping Mall located on the 2nd floor
of sister building of No. 3 and No. 4 of Baolicheng Garden, Nanhai Avenue,
Nanshan District, Shenzhen, China, with approximately 1,722 square feet of
space, under a lease expiring on July 14, 2011. The payments under the lease are
$4,958 per month. From 2007 to 2011, and from 2009 to 2011, respectively, the
payment for each following year will increase by 5% based on the rent for the
immediately preceding year.




(5) We
rent a store in the Baoli Cultural Square located on the 26th Floor,
Baoli Building, Nanshan District, Shenzhen, China, with approximately 2,031
square feet of space, under a lease expiring on December 30, 2010. The payments
under the lease are $5,031 until the expiration of the lease.




Total
rental expenses under operating leases of office and showroom space were
$227,6027 for the period ended December 31, 2007, and $462,658for the period
ended December 31, 2008.




We also
operate 27 Company-owned stores and (jointly with third parties) 31 co-owned
stores in leased locations in various geographic areas in China.




We
believe that our existing facilities are adequate for our current needs and that
additional space will be available as needed.




We
maintain reasonable and customary property and disaster insurance coverage for
our properties.




ITEM
3. LEGAL PROCEEDINGS




From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties and an adverse result in these or other matters may arise
from time to time that may harm our business. We are currently not aware of any
such legal proceedings or claims that we believe will have a material adverse
affect on our business, financial condition or operating results.




ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None.










PART
II




ITEM
      5.
            MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
      ISSUER PURCHASES OF EQUITY
SECURITIES.




Market
Information




Our
common stock is quoted under the symbol “OLOU.OB” on the Electronic Bulletin
Board maintained by the National Association of Securities Dealers, Inc., but
has not been traded in the Over-The- Counter market except on a limited and
sporadic basis. The CUSIP number is 68215N 107.




The
following table sets forth, for the periods indicated, the high and low closing
prices of our common stock. These prices reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions. Prior to January  2008, our stock was not trade, quoted
or listed. The following table reflects this absence of trading and the prices
on recorded on low trading volumes.








Quarter
      Ended
            
            High *
            
            
            Low *03/31/2007
            
            $
            (1
            )
            
            
            (1
            )06/30/2007
            
            $
            (1
            )
            
            
            (1
            )09/30/2007
            
            $
            (1
            )
            
            
            (1
            )12/31/2007
            
            $
            (1
            )
            
            
            (1
            )03/31/2008
            
            $
            2.15
            
            
            $
            1.1006/30/2008
            
            $
            1.53
            
            
            $
            1.1009/30/2008
            
            $
            1.40
            
            
            $
            0.8512/31/2008
            
            $
            1.25
            
            
            $
            0.36




(1)
            Stock
      not traded.*
            The
      above table sets forth the range of high and low closing prices per share
      of our common stock as reported bywww.quotemedia.com for the
      period indicated.




Approximate
Number of Holders of Our Common Stock




On
December 31, 2008, there were approximately 99 stockholders of record of our
common stock. The number of record holders does not include persons who held our
common stock in nominee or “street name” accounts through brokers.




Dividends




The
holders of shares of our common stock are entitled to dividends out of funds
legally available when and as declared by our board of directors. We have never
declared or paid cash dividends. Our board of directors does not anticipate
declaring a dividend in the foreseeable future. Should we decide in the future
to pay dividends, as a holding company, our ability to do so and meet other
obligations depends upon the receipt of dividends or other payments from our
operating subsidiaries and other holdings and investments. In addition, our
operating subsidiary, Oriental Fashion, from time to time may be subject to
restrictions on its ability to make distributions to us, including as a result
of restrictive covenants in loan agreements, restrictions on the conversion of
local currency into U.S. dollars or other hard currency and other regulatory
restrictions. In the event of our liquidation, dissolution or winding up,
holders of our common stock are entitled to receive, ratably, the
net assets available to stockholders after payment of all
creditors.




Securities
Authorized for Issuance under Equity Compensation Plans




The
Company adopted in the first quarter of 2008 an employee equity incentive plan
under which the Company’s officers, directors, consultants, and employees will
be eligible to receive, in relevant part, either securities or stock options
exercisable for the Company’s securities at exercise prices that must generally
be no less than the then prevailing fair market value of the Company’s
common stock on the date of grant. The Company has reserved five million
(5,000,000) shares of common stock for issuance under this plan.




Recent
Sales of Unregistered Securities




No
securities were sold by the registrant during the year ended December 31, 2008
that were not registered under the Securities Act, except as set forth
below.










On May
31, 2006, we issued 450,000 shares of common stock to five individuals as
compensation for services to us. This issuance was valued at $0.05 per
share. We issued these shares of our common stock under the exemption from
registration provided by Section 4(2) of the Securities Act and Regulation D
promulgated thereunder.




On
December 1, 2006, we commenced a private placement of shares of our common
stock, on a best efforts basis with the assistance of a placement agent. On
January 29, 2007, we sold an aggregate of 400,000 shares of common stock to
accredited investors at $0.50 per share, for total gross proceeds of
$200,000. We incurred $17,050 in expenses associated with this offering. We sold
these shares of our common stock under the exemption from registration provided
by Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.




On
September 28, 2007, we issued 180,000 shares of our common stock to certain
individuals affiliated with Keating Investments, LLC or Keating Asia, Inc. for
their services rendered in connection with the private placement described in
the next paragraph. The securities were sold in reliance upon the exemption from
registration under Rule 506 of Regulation D.




On
October 9, 2007, we entered into a share exchange agreement with Omnia BVI, the
shareholders of Omnia BVI and certain of our principal stockholders. Pursuant to
the share exchange agreement, we agreed, among other things, to issue to the
shareholders of Omnia BVI 16,800,000 shares of our common stock in exchange for
all of the issued and outstanding shares of Omnia BVI, which became our
wholly-owned subsidiary.




On
October 9, 2007, we completed the reverse acquisition transaction with Omnia BVI
by issuing to the shareholders of Omnia BVI 16,800,000 shares of our common
stock in exchange for all of the issued and outstanding shares of Omnia BVI. As
a result, Omnia BVI became our wholly-owned subsidiary and the former
shareholders of Omnia BVI became our Company’s controlling stockholders. We
amended our Certificate of Incorporation in November 2007 to change our name
from Wentworth II, Inc. to OmniaLuo, Inc.




For
accounting purposes, the share exchange transaction was treated as a reverse
acquisition with Omnia BVI as the acquirer and the Company as the acquired
party. When we refer in this report to business and financial information for
periods prior to the consummation of the reverse acquisition, we are referring
to the business and financial information of Omnia BVI on a consolidated basis
unless the context suggests otherwise.





On
October 9, 2007, concurrently with the consummation of the reverse acquisition,
we sold a total of 4,920,000 shares of common stock and warrants to purchase an
aggregate of 4,920,000 shares of the Company’s common stock for an aggregate
purchase price of $6.15 million, to a total of 38 investors (of whom 29 were
accredited investors and nine were non-US residents who purchased shares
and warrants in off-shore transactions) in a private placement pursuant to
Regulation D and a simultaneous off-shore offering pursuant to Regulation S. The
shares were sold to individuals and institutional investors. The securities were
sold in reliance upon the exemption from registration under Rule 506 of
Regulation D or pursuant to Regulation S promulgated under the Securities Act of
1933, as amended.





Purchases
of Our Equity Securities




No
repurchases of our common stock were made during fiscal year 2008.












ITEM
      7.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION




MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION





The
following selected consolidated statement of income data for the years ended
December 31, 2007 and 2008, and the consolidated balance sheet data as of
December 31, 2007 and 2008 are derived from the audited consolidated financial
statements of the Company included in this Annual Report. The data set
forth below should be read in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our consolidated
financial statements and related notes appearing elsewhere in this report. Our
historical results are not necessarily indicative of our results for any future
periods.




(All
amounts, other than per share data, in U.S. dollars)




Statement
      of IncomeYear
      Ended
              December
      2008
            
            
            Year
      Ended
              December
      2007Revenue
            
            $
            11,902,404
            
            
            $
            7,875,757Gross
      Profit
            
            
            7,064,118
            
            
            
            4,251,271Operating
      expenses
            
            
            5,646,050
            
            
            
            3,033,036Total
      segment profit (1)
            
            
            2,553,925
            
            
            
            2,176,827Income
      from operations (2)
            
            
            1,418,068
            
            
            
            1,218,235Income
      taxes
            
            
            —
            
            
            
            —Net
      (loss) income (3)
            
            
            1,038,676
            
            
            
            (1,095,484
            )Basic
      and Diluted Earnings (Loss) Per Share (3)
            
            $
            0.05
            
            
            $
            (0.05
            )




(1)
            For
      year 2007, this number is before deducting $970,320 of expenses of the
      October 2007 reverse acquisition, the October 2007 PIPE and the related
      SEC resale registration (the “RTO Expenses”), included in general and
      administrative expenses.  The RTO expenses consist of shell company
      related expenses, including certain fees paid to the placement agent
      and investor relations agency ($218,113), auditing fees ($67,293), legal
      fees ($301,403), entertainment expenses related to the reverse acquisition
      and the October 2007 PIPE ($5,123), travel expenses ($63,380), consultancy
      fees, which include fees paid for RTO and PIPE related market
      research and consulting services ($233,763), exchange loss relating to the
      payment of RTO expenses ($19,242) and other expenses
      ($62,003).
              
              For
      year 2008, this number is before deducting $698,257of general and
      administrative expenses, $414,199 of make good provision expense. See
      Note 15 to the Consolidated Financial Statements included in this
      Report.(2)
            After
      deducting the RTO expenses.









(3)
            For
      year 2007, in addition to being net of the RTO Expenses of $970,320,
      figures also reflect a $2,299,893 non-cash expense representing the market
      value as of December 31, 2007 of escrowed shares released from escrow to
      the Company’s principal stockholder and chief executive officer (the
      “Escrow Release Expense”), which shares are being released as the
      contractual net income threshold for 2007 (calculated before RTO Expenses
      and any Escrow Release Expense) has been achieved. Net income for 2007
      would have been $2,174,729, but for the RTO Expenses and the Escrow
      Release Expense.
              
              For
      year 2008, $414,199 non-cash expense represents the market value as of
      December 31, 2008 of escrowed shares released from escrow to the Company’s
      principal stockholder and chief executive officer (the “Escrow Release
      Expense”). See Note 15 to the Consolidated Financial Statements included
      in this Report.(4)
            Adjusted
      to reflect the recapitalization of the Company following the consummation
      of the share exchange with Omnia
BVI.




BALANCE SHEET
DATA




At
              December
      31,
              2008
            
            
            At
              December
      31,
              2007Working
      capital
            
            $
            9,221,406
            
            
            $
            7,591,030Current
      assets
            
            
            14,199,593
            
            
            
            9,255,241Total
      assets
            
            
            15,283,882
            
            
            
            9,979,922Current
      liabilities
            
            
            4,978,187
            
            
            
            1,664,211Total
      liabilities
            
            
            4,978,187
            
            
            
            1,664,211Stockholders’
      equity
            
            
            10,305,695
            
            
            
            8,315,711











The
following discussion of our financial condition and results of operations should
be read in conjunction with our consolidated financial statements and the notes
to those statements included elsewhere in this Annual Report. In addition to the
historical consolidated financial information, the following discussion and
analysis contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under “Risk Factors” and elsewhere in this Annual
Report.




Overview




OmniaLuo,
Inc., the name of which was changed from Wentworth II, Inc. on November 16,
2007, is a holding company that conducts all of its business operations through
its direct wholly-owned subsidiary, Omnia BVI, established in August 2006, and
Omnia BVI’s Chinese subsidiary, Oriental Fashion, established in September 2006.
Oriental Fashion designs, develops, markets and distributes women’s apparel
under the brand names of OMNIALO and OMNIALUO through its network of retail
stores across the People’s Republic of China (“PRC” or “China”), which consisted
of 84 stores as of December 31, 2006, 103 stores as of March 31, 2007, 135
stores as of June 30, 2007, 154 stores as of September 30, 2007, 184 stores
as of December 31, 2007, and 208 stores as of December 31, 2008, in 29 provinces
throughout China. Until our acquisition of Omnia BVI on October 9, 2007, our
operations were very limited.




Our
Background and History




Our
corporate name changed to OmniaLuo, Inc. in November 2007. We were originally
incorporated in the State of Delaware on March 7, 2001 under the name Wentworth
II, Inc. We were formed as a vehicle to pursue a business combination. For
information regarding Wentworth II, Inc.’s corporate financing transactions
prior to our recent reverse acquisition with Omnia BVI, see Part II of our
registration statement on Form SB-2 filed with the Securities and Exchange
Commission on December 17, 2007.




Background
and History of Omnia BVI and Oriental Fashion




Development
of the OMNIALUO Brands




In 1996,
Ms. Zheng Luo, our chief executive officer and chief designer, the founder and
principal shareholder of Omnia BVI prior to our reverse acquisition with Omnia
BVI, and currently our largest individual shareholder, created the OMNIALO brand
and founded Green’s Apparel Co., Ltd. (“Green’s Apparel”) in Shenzhen, China, in
which she owned a 95% equity interest. Green’s Apparel manufactured women’s
clothing.




In 1997
the trademark OMNIALO trademark was registered with the Chinese National
Trademark Bureau in both Chinese and English. The registrant and initial owner
of such trademark was Green’s Apparel.




In March
2003, Shenzhen Oumeng Industrial Co., Ltd. (“Oumeng”) was established. Ms. Zheng
Luo was the CEO and 50% equity and controlling owner of Oumeng. Also in March
2003, Oumeng purchased inventory from Green’s Apparel, consisting of women’s
apparel. Green’s Apparel has not conducted any business after the transfer of
inventory to Oumeng in March 2003, and upon such transfer, Oumeng entered into
all contracts with Green’s Apparel’s existing suppliers, manufacturers and
distributors, and acquired the OMNIALO trademark in August 2003. In addition to
marketing and selling products under the OMNIALUO name, Oumeng also engaged in
various other businesses such as other apparel, electronics, kitchenware and
other hardware. Oumeng also managed C-Luo Intuition, a luxury made-to-order
evening dress brand, which brand was previous owned by Ms. Zheng Luo prior to
the sale of such brand to an independent third party. By the end of August 2006,
OMNIALUO brand apparel, under the management of Oumeng, was being distributed
through 100 retail stores in China.




Ms. Zheng
Luo personally applied for the registration of the trademark OMNIALUO in March
2005 pending the approval of the Trademark Office.




Formation
of Omnia BVI and Oriental Fashion




In early
2006 Ms. Zheng Luo determined that the growth and development of the OMNIALUO
brands and its associated women’s apparel products could best be achieved by the
formation of a new company which would focus on the design, marketing,
distribution and sale of women’s business casual wear, without the potential
distraction and costs of operating other businesses. Therefore: (i) in August
2006, Ms. Zheng Luo, together with several other individual shareholders, formed
Omnia BVI; and (ii) in September 2006, Oriental Fashion was incorporated in
Shenzhen, China, with ownership held 100% by Omnia BVI, all rights in the
OMNIALO trademark were transferred from Oumeng to Ms. Zheng Luo, and Ms. Zheng
Luo resigned from her CEO position at Oumeng to devote her full-time effort to
Oriental Fashion and Omnia BVI. In April 2007 Ms. Zheng Luo and her sister Ms.
Xiaoyin Luo transferred their ownership of Oumeng to their mother, Ms. Yuhua
Sun, and to Ms. Yujuan Sun, an unrelated party.




In
October 2006: (i) Ms. Zheng Luo licensed the trademark OMNIALO to Oriental
Fashion at nominal cost and executed an agreement assigning the registered
OMNIALO trademark to Oriental Fashion, and Ms. Zheng Luo and Oriental Fashion
commenced procedures to have the OMNIALO trademark assignments accepted and
officially recorded in the Trademark Office; and (ii) Ms. Zheng Luo licensed the
trademark OMNIALUO to Oriental Fashion at nominal cost and executed an agreement
assigning the registered pending application to register the OMNIALO trademark
to Oriental Fashion; Ms. Zheng Luo and Oriental Fashion commenced
procedures to have the OMNIALUO trademark assignments accepted and officially
recorded in the Chinese National Trademark Bureau once registration of the
OMNIALUO trademarks is approved by the Trademark Office. (update to
reflect registration)







Financing
of Omnia BVI




Pursuant
to preferred stock purchase and shareholders agreements dated as of December 17,
2006 and December 20, 2006, Omnia BVI had issued an aggregate of 2,147
convertible preferred shares (the “BVI Preferred Shares”) and detachable
warrants to purchase up to $365,940 in 1,074 ordinary shares, based on the
offering price in the next financing of Omnia BVI (the “BVI Warrants”), to a
private venture capital investment fund (the “Lead Investor”) and several
individual investors for a total cash investment of $729,980.




Each BVI
Preferred Share was convertible into Omnia BVI’s ordinary shares at any time,
initially on a one-for-one basis, subject to “full-ratchet” adjustment for
certain issuances of shares less than the applicable conversion price, and to
adjustment for share splits, share dividends, subdivisions, or combinations. The
conversion price of BVI Preferred Shares held by the Lead Investor was also
subject to (i) weighted average adjustment for issuances reflecting a
pre-financing Omnia BVI valuation of less than $28 million and to (ii)
adjustment to yield an internal rate of return of 51% if the Qualified Listing
and Qualified Offering (each as defined below) occurred more than 12 months
after a “First Round Financing” and the then prevailing conversion price would
not otherwise provide such internal rate of return.




Each BVI
Preferred Share was to be automatically converted upon the later to occur of a
“Qualified Listing” and “Qualified Offering.” A “Qualified Listing” was defined
to mean (a) a firmly committed underwritten public offering of Omnia BVI’s
shares registered under the U.S. Securities Act, or (b) a firm commitment of a
registered market-maker who shall undertake responsibilities for the
quotation of Omnia BVI’s shares on the OTC Bulletin Board in the U.S.
and/or other comparable over-the-counter market overseas, in both cases,
representing at least 10% of Omnia BVI (post-offering) at an implied
pre-offering valuation of at least $28,000,000. A “Qualified Offering” was
defined as a public or private offering of Omnia BVI raising at least $3,000,000
following the First Round Financing. “First Round Financing” meant the
completion of issuance of up to 4,413 BVI Preferred Shares pursuant to the
agreements signed with investors not later than six weeks after the date of the
December 2006 agreements based on a pre-money valuation of $17 million. The
issuance of the BVI Preferred Shares constituted a First Round Financing., and
the 2007 Private Placement constituted a Qualified Offering.




The BVI
Preferred Shares had certain preferential rights upon liquidation of Omnia BVI
and certain preferential rights to dividends. The BVI Preferred Shares held by
the Lead Investor also had certain redemption rights.




Each of
the BVI Warrants issued in connection with the issuance of BVI Preferred Shares
was exercisable, at any time, commencing with the later to occur of a Qualified
Listing and Qualified Offering, for a two-year period, in cash for the purchase
of Omnia BVI’s ordinary shares, at a per share exercise price equal to the per
share price paid pursuant to the next equity financing round of Omnia BVI
following completion of the First Round Financing. The exercise price of the BVI
Warrants was subject to adjustment for share subdivisions, share combinations or
mergers or consolidations.




Omnia BVI
reimbursed the Lead Investor for certain expenses incurred by them, in addition
to its own costs in connection with this placement.




By
agreements dated as of October 9, 2007 (a) among Omnia BVI, the Lead Investor,
Ms. Zheng Luo and another of our shareholders, and (b) among Omnia BVI, Ms.
Zheng Luo and each of the other holders of BVI Preferred Shares and Warrants,
effective upon the closing of the reverse acquisition:




(i)
            each
      BVI Preferred Share was converted into a specified number of ordinary
      shares of Omnia BVI, with each such ordinary share of Omnia BVI then being
      exchanged for 319.8294 shares of our common stock;
  and




(ii)
            each
      BVI Warrant was exchanged for warrants to purchase our common stock,
      exercisable at any time during, for a two-year period, commencing on
      December 17, 2007, at a per share price of
  $1.25;




(iii)
            the
      former holders of BVI Preferred Shares and BVI Warrants were granted
      certain rights to liquidated damages payments from Omnia BVI, if Omnia BVI
      (or, following the reverse acquisition, we) failed to have a registration
      statement covering the resale of their shares of our common stock
      effective within 180 days of the closing of the reverse acquisition, or if
      Omnia BVI (or, following the reverse acquisition, we) failed to meet our
      reporting obligations under the federal securities laws and as a
      consequence thereof the holders were unable to utilize SEC Rule 144 for
      resales of their shares;









(iv)
            the
      reverse acquisition of the Company with Omnia BVI and the 2007 Private
      Placement were collectively deemed to constitute both a Qualified Offering
      and a Qualified Listing, notwithstanding the absence of a public market
      price quotation for our common stock;
and




(v)
            the
      Lead Investor, in consideration of its relinquishing certain rights, (a)
      retains certain put rights with respect to its shares as against Ms. Zheng
      Luo (but not as against us) if we do not obtain an OTCBB quotation or the
      Lead Investor’s shares are not registered for resale or otherwise eligible
      to be publicly resold by July 1, 2008 (update based on post-July 1
      activity), (b) received an additional 149,884 shares of our common stock
      from Ms. Zheng Luo and one or more other former Omnia BVI shareholders as
      part of the reverse acquisition, and (c) may be entitled to additional
      shares of our common stock if the make good or anti-dilution provisions
      applicable to investors in the 2007 Private Placement result in additional
      shares being transferred or issued to those
  investors.




The
exercise price of the warrants issued in exchange for the BVI Warrants is
subject to adjustment for share subdivisions, share combinations or mergers or
consolidations.




Reverse
Acquisition with Omnia BVI and Related Equity Financing




On
October 9, 2007, we entered into a share exchange agreement with Omnia BVI, the
shareholders of Omnia BVI and certain of our principal shareholders. Pursuant to
the share exchange agreement, we agreed, among other things, to issue to the
shareholders of Omnia BVI 16,800,000 shares of our common stock in exchange for
all of the issued and outstanding shares of Omnia BVI, which became our
wholly-owned subsidiary.




On
October 9, 2007, we completed the reverse acquisition transaction with Omnia BVI
by issuing to the shareholders of Omnia BVI 16,800,000 shares of our common
stock in exchange for all of the issued and outstanding shares of Omnia BVI. As
a result, Omnia BVI became our wholly-owned subsidiary and the former
shareholders of Omnia BVI became our Company’s controlling stockholders. We
amended our Certificate of Incorporation in November 2007 to change our name
from Wentworth II, Inc. to OmniaLuo, Inc.




For
accounting purposes, the share exchange transaction was treated as a reverse
acquisition with Omnia BVI as the acquirer and the Company as the acquired
party. When we refer in this report to business and financial information for
periods prior to the consummation of the reverse acquisition, we are referring
to the business and financial information of Omnia BVI on a consolidated basis
unless the context suggests otherwise.




Concurrently
with the consummation of the reverse acquisition, we issued 4,920,000 shares of
the Company’s common stock and warrants to purchase an aggregate of 4,920,000
shares of the Company’s common stock for an aggregate purchase price of $6.15
million, to a total of 38 investors (of whom 29 were accredited investors and
nine were non-US residents who purchased shares and warrants in off-shore
transactions) in a private placement pursuant to Regulation D and a simultaneous
off-shore offering pursuant to Regulation S (collectively, the “2007 Private
Placement”). In connection with that private placement, we also issued warrants
to purchase 492,000 shares of the Company’s common stock to Keating Securities,
LLC (“Keating Securities”), as a financial advisory fee in partial consideration
of their services in connection with the private placement. Prior to
consummation of the reverse acquisition and 2007 Private Placement, we may be
deemed to have been an affiliate of Keating Securities by reason of the
ownership of shares of our common stock by principals and executives of Keating
Securities.




Store
opening strategy and its result in 2008





One of
our growth strategies is expanding store numbers whilst enlarging sales revenue.
Since our formation in the third quarter of 2006, we have continued to open new
stores.  By December 31, 2007, we had opened 184 stores. As of October
31, 2008, we had 245 stores altogether. However, as a result of the global
economic recession and the decrease in Chinese consumer spending, particularly
in the fourth quarter 2008, we were forced to close certain stores that did not
make their pre-determined sales requirements. We believe that it was necessary
to remove non-performers from an otherwise strong network of retail outlets.
While formerly on pace to meets our goal of 250 stores by year-end 2008, it
became necessary in the fourth quarter to cease pursuit of this goal and trim
store count for the long-term good of the Company. As such, we closed 37stores
in November and December, and by December 31, 2008, there were 208 stores
remaining.





In
January 2009, additional stores that did not meet performance requirements were
subsequently closed. As of January 31, 2009, we had 178 total stores, including
27 company-owned stores, 31 co-owned stores, and 120 independent distributor
stores. In February 2009, we closed another 13 stores that did not meet
performance requirements. As of February 28, 2009, we had 165 total stores,
including 27 company-owned stores, 31 co-owned stores and 107 independent
distributor stores. The total store count is still subject to change based on
prevailing market conditions. We also plan to open new stores as the consumer
market improves.








Factors
Relevant to Evaluating Our Business and Financial Performance




We
design, develop, and market a diversified selection of women’s wear with focus
on fashionable business casual style. We target moderate to premium priced
categories of the women’s wear market. In evaluating our performance, management
reviews certain key performance indicators, including:




Gross margin - Gross margin
measures our ability to control direct costs associated with the manufacturing
and selling of our products. Gross margin is the difference between the net
sales and cost of sales, which is comprised of direct inventory costs for
merchandise sold, including all costs to transport merchandise from third-party
suppliers to our distribution center.




Operating income - Operating
income is a measure of our earning power from ongoing operations and is measured
as our earnings before interest and income taxes.





Results
of Operations for the Years Ended December 31, 2007 and 2008




Since our
formation in the third quarter of 2006, we have focused on implementing our
strategy of building a design and marketing workforce and an independent
distributor and retail store sales network to design, develop, market and
distribute “fashionable business casual wear,” our main product line. By the end
of December 2008, we had hired and established a design team of 15 designers. By
December 31, 2008 we operated or had distribution relationships with 208 stores,
comprising 27 Company-owned stores, 31 co-owned stores, and 150 independent
distributor stores, compared with 184 such stores as of December 31,
2007.





Due to
the global financial crisis, the Chinese consumer market was strongly affected
by the globally economic recession, as was the ability to acquire additional
financing which had made the company unable to add more working capital. Our
company’s products are impacted by consumer purchases, and their unwillingness
to buy strongly affected our sales in the fourth quarter, so that we didn’t
accomplish our sales revenue and net income plans set at the beginning of
2008.





Sales





Sales
revenue for the year ended December 31, 2008 was $11,902,404, compared with
$7,875,757 for the same-year period in 2007, representing 51.13% growth. Cost of
revenues for the year ended December 31, 2008 was $4,838,286, compared with
$3,624,486 for the same-year period in 2007, representing 33.49%
growth.  The higher growth in sales revenues as compared to cost of
sales was due to the increase in our retail sales at higher profit
margin. We usually sell our products at about 70% of full retail prices at
these retail stores, whereas we sell to independent distributor stores are at
35-40% of full retail prices.





Revenue
from sales to distributors for the year ended December 31, 2008 was $6,616,183
(or 55.59% of total sales revenue), an increase of $590,191 (or 9.79%) compared
with $6,025,992 for the year ended December 31, 2007. Revenue from retail sales
for the year ended December 31, 2008, including sales from Company-owned and
co-owned stores, was $5,286,221 (or 44.41% of total sales revenue), an increase
of $3,436,456 (or 185.78%) compared with $1,849,765 for the year ended December
31, 2007.





In order
to fulfill our net income target of $4.3 million under the make good escrow
provisions, we expanded our production and increased our inventory throughout
2008. However, due to the global economic recession, we were not able to sell
this large amount of inventory as planned. We relied heavily on our retail
stores to aggressively promote our sales and reduce inventory, which
generated revenues of $5,286,221 for the year ended December 31, 2008, an
increase of 185.78% as compared with $1,849,765 for the year ended December 31,
2007.   We had less control over our distributors in selling our
inventories.





As of
December 31, 2008, inventories was $6,460,621, an increase of $3,857,968 (or
148.23%), compared with $2,602,653 as of December 31, 2007.  As of
December 31, 2008, finished goods consisted of 97.94% of our inventories
reaching $6,327,247.  Historically, the fourth quarter was the busiest
season of each year generating the highest proportion of sales and operating
income, and the first quarter was the slowest season of each year generating the
lowest proportion of sales and operating income. For the same reason as we
mentioned above, in order to accomplish the 2008 sales revenue target, we
produced large amount of products and expected to sell them in the fourth
quarter of 2008.  However, the impact of global economic recession reached
our target market in China in the second half year of 2008, especially in the
fourth quarter which resulted in slow sales and the closing of 37 non-performing
stores during the second half of 2008.   Our focus for 2009 is to
cut costs and inventory and otherwise generally improve our operation and
financial performance.





Overall
gross profit for the year ended December 31, 2008 was $7,064,118, compared with
$4,251,271 for fiscal year 2007, which is a 66.16% increase.  The
gross profit margin for 2008 was 59.35%, compared with a gross profit margin of
53.98% for fiscal year 2007. In 2008, the gross profit margin on sales to
distributors was 57.36%, while the gross profit margin on retail sales
(including Company-owned and co-owned stores) was 61.84%.




General
and administrative expenses, which include rental expenses for our headquarters,
salary expenses for management and headquarters staff, and travel and
entertainment expenses, were $ 2,819,942 for the year ended December 31, 2008.
This is 23.69% of sales revenues, which reflects a 0.74% decline from the prior
year.







Selling
and marketing expenses, which include all costs associated with sales, marketing
and distribution functions, were $2,614,193 (21.96% of sales revenues) for
the year ended December 31, 2008. This was an increase of $1,634,734 (or
166.90%) compared with $979,459 for the year ended December 31, 2007. The
dramatic increase in selling and marketing expenses was mainly due to our
aggressive efforts in promoting our sales through retail sales in order to cut
down our high inventory level resulted from our production increase to meet our
previously determined 2008 revenue target.




Overall
segment profit for the year ended December 31, 2008 was $2,553,925, which
represented an overall segment profit margin of 21.46%. Segment profit margins
on sales to distributors were 35.42%, while segment profit margins on retail
sales (including Company-owned and co-owned stores) were
3.99%.





Income
from operations for the year ended December 31, 2008 was $1,418,068 (11.91% of
total sales revenues), and after $ 414,199 in non-cash expenses (representing
the market value as of December 31, 2008 of escrowed shares released from escrow
to the Company’s principal stockholder and chief executive officer reflecting
achievement of contractual net income thresholds) (“Escrow Release Expense”),
interest income, other income and finance costs, the net income for the year
ended December 31, 2008 was $1,038,676.





Liquidity
and Capital Resources




As of
December 31, 2008, the Company’s net cash position was $ 1,253,997, compared
with $ 3,083,715 as of December 31, 2007, a decrease of
$1,829,718.  This was attributed to the inventory increase in 2008
compared with 2007 in order to full fill our 2008 revenue target.





In order
to fulfill our net income target of $4.3 million under the make good escrow
provisions, we expanded our production and increased our inventory throughout
2008. However, due to the global economic recession, we were not able to sell
this large amount of inventory as planned. We relied heavily on our retail
stores to aggressively promote our sales and reduce inventory, which generated
revenues of $5,286,221 for the year ended December 31, 2008, an increase of
185.78% as compared with $1,849,765 for the year ended December 31,
2007.   We had less control over our distributors in selling our
inventories.





As of
December 31, 2008, inventories was $6,460,621, an increase of $3,857,968 (or
148.23%), compared with $2,602,653 as of December 31, 2007.  As of
December 31, 2008, finished goods consisted of 97.94% of our inventories
reaching $6,327,247.  Historically, the fourth quarter was the busiest
season of each year generating the highest proportion of sales and operating
income, and the first quarter was the slowest season of each year generating the
lowest proportion of sales and operating income. For the same reason as we
mentioned above, in order to accomplish the 2008 sales revenue target, we
produced large amount of products and expected to sell them in the fourth
quarter of 2008.  However, the impact of global economic recession
reached our target market in China in the second half year of 2008, especially
in the fourth quarter which resulted in slow sales and the closing of [37]
non-performing stores during the second half of 2008.   Our focus
for 2009 is to cut costs and inventory in order to improve our level of cash
generated from operations.




As of
December 31, 2008, trade receivables was $2,199,756, which was an increase of
$526,112 compared with trade receivables of $1,573,644 as of December 31,
2007.




As of
December 31, 2008, other receivables and deposits was $4,285,219, which was an
increase of $2,289,990 compared $1,995,229 as of December 31, 2007. The main
reason for these changes was that we paid deposits to the suppliers further in
advance in 2008 compared with 2007, so that we could advance production to
earlier in the year than previously in order to launch ours products earlier
than our competitors.




Net cash
used in operating activities for the year ended December 31, 2008 was
$1,846,672. Net cash used in operating activities for 2007 was
$2,522,574.




The
Company’s investing activities to date have consisted mainly of the purchase of
property and equipment. For the year ended December 31, 2008, the net use of
cash in investing activities was $516,147. For the year ended December 31, 2007,
the net cash used in investing activities was $ 770,370.




Based on
our current operating plan and our available cash and cash equivalents, we
expect that we will need to obtain additional financing in the future through
the sale of equity securities, private placements, and loans to fund our cash
needs and continue our presently planned operations. Additional financing,
whether through public or private equity or debt financing, arrangements with
stockholders or other sources to fund operations, may not be available, or if
available, may be on terms unacceptable to us.




Our
material capital expenditure requirements for 2009 are approximately $2.0
million, which will be used for store expansions. In addition, we expect that an
additional $3.0 million of working capital will be needed to maintain our
business operations in the next twelve months.




We
believe that our currently available working capital should be adequate to
sustain our operations at our current levels through at least the next twelve
months. However, depending upon our future needs and changes and trends in the
capital markets affecting our shares and the Company, we may
seek additional equity or debt financing in the private or public markets.
Additional financing, whether through public or private equity or debt
financing, arrangements with stockholders or other sources to fund operations,
may not be available, or if available, may be on terms unacceptable to
us.







Obligations
Under Material Contracts




The
following table summarizes our outstanding contractual obligations as of
December 31, 200(9) need to update:




Total
            
            
            Less
      than 1 year
            
            
            1-3
      years
            
            
            3-5
      yearsLong-term
      debt obligations
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —Capital
      lease obligations
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Operating
      lease obligations
            
            $
            1,011,423
            
            
            $
            397,567
            
            
            $
            536,670
            
            
            $
            77,186Purchase
      obligations
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Other
      long term obligations
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —





Critical
Accounting Policies




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires our management to make
assumptions, estimates and judgments that affect the amounts reported in the
financial statements, including the notes thereto, and related disclosures of
commitments and contingencies, if any. We consider our critical accounting
policies to be those that require the more significant judgments and estimates
in the preparation of financial statements, including the
following:




Use of estimates. In
preparing financial statements in conformity with accounting principles
generally accepted in U.S.GAAP, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the dates of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
periods. These accounts and estimates include, but are not limited to, the
valuation of accounts receivable, inventories, deferred income taxes, provision
for warranty and the estimation on useful lives of property, plant and
equipment. Management makes these estimates using the best information
available at the time the estimates are made; however, actual results could
differ materially from those estimates.




Concentrations of credit
risk. Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents and trade receivables. As of December 31, 2008,the Company’s
cash and cash equivalents were held by major financial institutions located in
the PRC, Hong Kong and the United States, which management believes are of high
credit quality. With respect to trade receivables, the Company extends credit
based on an evaluation of the customer’s financial condition. The Company
generally does not require collateral for trade receivables and maintains an
allowance for doubtful accounts of trade receivables.




Allowance of doubtful
accounts. The Company establishes an allowance for doubtful accounts
based on management’s assessment of the collectibility of trade receivables. A
considerable amount of judgment is required in assessing the amount of the
allowance and the Company considers the historical level of credit losses and
applies percentages to aged receivable categories. The Company makes judgments
about the creditworthiness of each customer based on ongoing credit evaluations,
and monitors current economic trends that might impact the level of credit
losses in the future. If the financial condition of the customers deteriorates,
resulting in their inability to make payments, a larger allowance may be
required. Based on the above assessment, during the reporting periods, the
management establishes the general provisioning policy to make allowances
equivalent to the aging of trade receivables as set forth in the financial
statements. Bad debts are written off when identified.




Inventories. Inventories are
stated at the lower of cost or market. Cost is determined on a FIFO basis and
includes all expenditures incurred in bringing the goods to the point of sale
and putting them in a saleable condition.




Revenuerecognition. Revenue is
recognized when it is probable that the economic benefits will flow to the
Company and when the revenue can be measured reliably, on the following
basis:




(i)
            revenue
      from sales of the Company’s products is recognized when the significant
      risks and rewards of ownership have been transferred to the buyer at the
      time of delivery and the sales price is fixed or determinable and
      collection is reasonably assured;
and




(ii)
            interest
      income is recognized on an accrual
basis.







Property and Equipment. Property
and equipment are stated at cost less accumulated depreciation. Cost represents
the purchase price of the asset and other costs incurred to bring the asset into
its exiting use. Depreciation is provided on a straight-line basis over the
assets’ estimated useful lives. The principal depreciation rates are as
follows:




Annual
      RateLeasehold
      improvement
            
            
            20
            %Office
      equipment and computers
            
            
            20
            %Machinery
            
            
            20
            %Motor
      vehicles
            
            
            20
            %




Maintenance
or repairs are charged to expense as incurred. Upon sale or disposition, the
applicable amounts of asset cost and accumulated depreciation are removed from
the accounts and the net amount less proceeds from disposal is charged or
credited to income.




IncomeTaxes. The Company uses the
asset and liability method of accounting for income taxes pursuant to SFAS No.
109 “Accounting for Income Taxes”. Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statements carrying amounts of existing assets and liabilities and loss carry
forwards and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.




Comprehensive income. The
Company has adopted SFAS 130, “Reporting Comprehensive Income”, which
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances. Components of comprehensive income include
net  income (loss)and foreign currency translation
adjustments.




Foreign currency translation.
The functional currency of the Company and its subsidiaries includes USD and
RMB. The Company and its subsidiaries maintain their respective financial
statements in the functional currency. Monetary assets and liabilities
denominated in currencies other than the functional currency are translated into
the functional currency at rates of exchange prevailing at the balance sheet
date. Transactions denominated in currencies other than the functional currency
are translated into the functional currency at the exchanges rates prevailing at
the dates of the transaction. Exchange gains or losses arising from foreign
currency transactions are included in the determination of net income(loss) for
the respective periods.




For
financial reporting purposes, the financial statements of the subsidiaries which
are prepared using RMB have been translated into United States dollars. Assets
and liabilities are translated at the exchange rates at the balance sheet dates
and revenue and expenses are translated at the average exchange rates and
shareholders’ equity is translated at historical exchange rates. Any resulting
translation adjustments are not included in determining net income(loss), but
are included in foreign exchange adjustment to other comprehensive income, a
component of shareholders’ equity. The exchange rates was RMB1 for
$0.1467as of December 31, 2008, and RMB1 for $0.1371 as of December 31, 2007.
The average exchange rates for the period ended December 31, 2008 were RMB1 for
$0.1442 and for the period ended December 31, 2007 were RMB1 for $0.1317. There
is no significant fluctuation in exchange rate for the conversion of RMB and HKD
to United State dollars after the balance sheet date.




Seasonality




Our
business is likely to be seasonal, with the highest proportion of sales and
operating income likely being generated in the fourth quarter of each year,
lesser proportions in the second and third quarter of each year, and the lowest
proportion of sales and operating income being generated in the first quarter of
each year. Our working capital requirements are likely to fluctuate during the
year, increasing substantially during one or more quarters as a result of higher
planned seasonal inventory levels and higher receivables. If we fall
significantly short of our anticipated earnings in one or more quarters, it will
significantly decrease the working capital available to us in the following
quarters. Due to limitations on borrowing levels, a decrease in working capital
may adversely affect our purchasing abilities which would have a material
adverse effect on our revenues.




Off-Balance
Sheet Arrangements




We do not
have any off-balance sheet arrangements.




ITEM
      8.
              FINANCIAL
      STATEMENTS




See the
index to our financial statements and our financial statements following the
Signature Page at the end of this Annual Report on Form 10-K.




ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE




None.










ITEM
      9A (T). CONTROLS AND PROCEDURES




Disclosure
      Controls and Procedures




Our
management, with the participation of our chief executive officer and chief
financial officer, Ms. Zheng Luo and Mr. David Wang, respectively, evaluated the
effectiveness of our disclosure controls and procedures. The term “disclosure
controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, means controls and other procedures of a company that are designed
to ensure that information required to be disclosed by a company in the reports,
such as this report, that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on that
evaluation, our management concluded that as of December 31, 2008, and as of the
date that the evaluation of the effectiveness of our disclosure controls and
procedures was completed, our disclosure controls and procedures were effective
to satisfy the objectives for which they are intended.




Internal
      Controls Over Financial Reporting




Management’s
Annual Report on Internal Control over Financial Reporting.




Section
404 of the Sarbanes-Oxley Act of 2002 requires that management document and test
the Company’s internal control over financial reporting and include in this
Annual Report on Form 10-K a report on management’s assessment of the
effectiveness of our internal control over financial reporting.




The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.
The Securities and Exchange Act of 1934 defines internal control over financial
reporting as a process designed by, or under the supervision of, the Company’s
principal executive and principal financial officers and effected by the
Company’s board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America and
includes those policies and procedures that:




Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with accounting
      principles generally accepted in the United States of America, and that
      receipts and expenditures of the Company are being made only in accordance
      with authorizations of management and directors of the Company;
      andProvide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the Company’s assets that
      could have a material effect on the financial statements.





All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. 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.





Under the
supervision and with the participation of our management, including Ms. Zheng
Luo and Mr. David Wang, our chief executive officer and chief financial officer,
we conducted an evaluation of the effectiveness of our internal control over
financial reporting based upon the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on that evaluation, our management concluded that our
internal control over financial reporting is effective, as of December 31,
2008.









Report
of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting





This
annual report 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.




Changes
in Internal Controls over Financial Reporting.




During
the fiscal year ended December 31, 2008, there were no changes in our internal
control over financial reporting identified in connection with the evaluation
performed during the fiscal year covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.




ITEM
9B. OTHER INFORMATION.




None.




PART
III




ITEM
      9.
            DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
      COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
  ACT




Directors
and Executive Officers




Set forth
below is information regarding our current directors and current executive
officers. Except as set forth below, there are no family relationships between
any of our directors or executive officers. Executive officers are elected
annually by our Board of Directors. Each executive offer holds his office until
he resigns or is removed by the Board or his successor is elected and qualified.
Directors are elected each year by our stockholders at the annual meeting. Each
director holds his office until his successor is elected and qualified or until
resignation or removal.




Name
            
            Age
            
            TitleZheng
      Luo
            
            38
            
            Chairwoman
      and Chief Executive OfficerDavid
      Wang
            
            42
            
            Acting
      Chief Financial OfficerXiaoyin
      Luo
            
            44
            
            DirectorQing
      Huang
            
            43
            
            DirectorFei
      Luo
            
            42
            
            DirectorTianhong
      Yu
            
            42
            
            DirectorCharles
      C. Mo
            
            57
            
            DirectorWenbin
      Fang
            
            41
            
            Director




Ms.
Zheng Luo, Chairwoman and CEO




Ms. Zheng
Luo is our founder, Chairwoman and chief executive officer, and is chief
executive officer and chief designer of Oriental Fashion. Before founding
Oriental Fashion, Ms. Zheng Luo was chairwoman and chief executive officer of
Oumeng (2003 - 2007) and chairwoman and chief executive officer of Green’s
Apparel (1996 - 2003). Ms. Zheng Luo has been active in the fashion design and
retail business for more than 10 years. She created the OMNIALUO brand in
1996. Ms. Zheng Luo is a renowned designer in the fashion industry who has won
various prestigious honors nationally and internationally and received broad
media coverage in China, Hong Kong, Paris and Italy. Ms. Zheng Luo earned a
Bachelor of Arts degree in International Finance from Shenzhen University in
1991.




Mr.
David Wang, Chief Financial Officer




Mr. David
Wang has more than 15 years experience in accounting, finance and investment
banking. From December 2007 to November 2008, Mr. Wang was Vice President of
Maxyee Group, an international company focused on real estate and
pharmaceuticals. From August 2006 to November 2007, Mr. Wang was Chief Financial
Officer of Sunway Global, Inc. ("Sunway"), a company engaged in the business of
designing, manufacturing and selling logistic transport systems and medicine
dispensing systems and equipment. Prior to joining Sunway, Mr. Wang served as an
accountant for Sinopec and prior to that worked as an investment banker for
various investment banking firms. Mr. Wang received a Masters Degree and PhD
degree in the field of Finance from Xiamen University in Fujian Province,
China.








Ms.
Xiaoyin Luo, Director




Ms. Luo
Xiaoyin Luo was appointed as a director in January 2008. Ms. Luo serves as
Director & General Manager of Hutchison Harbour Ring China, a subsidiary of
Hutchison Whampoa Limited (HWL). Ms. Xiaoyin Luo has more than 14 years of
service to HWL. Her main responsibilities are commercial property investment,
development, operation, and management. Some of her projects include The Center,
Westgate Mall, Harbour Ring Plaza and Huangpu Center in Shanghai, Metropolitan
Plaza in Chongqing, and Pacific Plaza in Qingdao. Since Hutchison Harbor is the
exclusive licensing agent of Warner Brothers Consumer Product Division (WBCP) in
China, Ms. Xiaoyin Luo is in charge of the product license and retail license
business development for Warner Bros. Studio Store Shanghai Flagship operation
management, retail network and distribution channel construction, and
sub-licensee development. Ms. Xiaoyin Luo holds a Bachelor of Economics degree
from Shenzhen University and holds an EMBA from China Europe International
Business School.




Mr.
Qing Huang, Director




Mr. Qing
Huang was appointed as a director in January 2008. Mr. Huang is engaged in
private equity financing activities in China as an investor and advisor. He is
currently a general partner of Mingly China Growth Fund, L.P. a private equity
fund focused on investing in growth companies in China. Mr. Huang has
participated in a large number of international financing transactions by
Chinese and non-Chinese companies, including private placement and public
offerings of corporate equity and debt. Mr. Huang worked as a lawyer and adviser
in the United States, Hong Kong and Shanghai and was associated with
international law firms Shearman & Sterling and Linklaters in Hong Kong and
Brown & Wood LLP in New York. Mr. Huang graduated from Columbia University
School of Law with a J.D. degree, from University of Chicago with a Master’s
degree in political science and from Beijing University with a Bachelors’ degree
in English and American literatures. He is a member of the New York State Bar
Association.




Mr.
Fei Luo, Director




Mr. Fei
Luo was appointed as a director in January 2008. He has served as a director of
IER Venture Capital Co., Ltd., a venture capital firm in China, since 2000. He
founded Beida Zongheng Financial Consulting Co., Ltd. in 1999 and serves as the
president and chairman of the board of Beida Zongheng. From 1997 to 1999, he
served as the managing director of Shenzhen Yanning Development Co., Ltd., in
charge of investment. From 1993 to 1996, he served as the vice chairman of
Shenzhen Anxing Financial Consulting Co., Ltd and vice chairman of Shenzhen
Anxing investing Co., Ltd. Mr. Fei Luo received his Master degree in Economics
from Peking University in 1999 and his BA in Economics from Peking University in
1988.




Mr.
Tianhong Yu, Director




Mr.
Tianhong Yu was appointed as a director in January 2008. Mr. Yu has served as a
vice president and managing director of Huayi Brothers & Taihe Film
Investment Co., Ltd., a leading motion picture and television production and
distribution company in China, since 2005. From 2003 to 2005, he had
planned and supervised a number of movie and TV series. Prior to that, he was
the senior manager of TOM Online Inc., a leading wireless internet company in
China. Mr. Yu also founded Beijing Modern Art Center and CHINALAW DATABASE, the
first law database in China. Mr. Yu received his Bachelor’s Degree in Economic
Law from Peking University in 1988.




Mr.
Charles Mo, Director




Mr.
Charles Mo was appointed as a director in January 2008. Mr. Mo is a Certified
Public Accountant with twenty seven years of experience in public and corporate
accounting and finance. Mr. Mo has held his CPA license since 1980. Mr. Mo has
served in his current position as the General Manager of Charles Mo & Co.
since June of 2005, focusing on general management duties. From October 1999 to
May 2005, Mr. Mo served as chief operating officer and chief financial officer
of Coca-Cola Shanghai. His duties included finance, logistics, production, and
general management. From December 1998 to September 1999, Mr. Mo served as
Finance Director of Fisher Rosemount Shanghai. From August 1996 to September
1999, he also served as chief financial officer of Nike China, and his
responsibilities included overseeing finance, human resources, and logistics.
From January 1995 to August 1996, Mr. Mo served as controller for Polaroid
China. From August 1982 to December 1994, Mr. Mo served as finance and audit
manager for Wang Laboratories. From 1978 to 1982, Mr. Mo served as an accountant
and auditor for Ernst & Young and Thomas Allen, CPA. Mr. Mo received a
Bachelor of Arts degree with a Business Administration major in 1974 from HK
Baptist College. Mr. Mo received an MBA in accounting in 1976 from California
State University-Fullerton. Mr. Mo has been the Vice Chairman of AMCHAM Shanghai
since 2006, and was re-elected in November 2007. Mr. Mo has served on the Board
of Governors of AMCHAM Shanghai since 2005 and will continue to do so during
2008. Mr. Mo was the Treasurer for AMCHAM Shanghai in 2005. He is a director of
Benda Pharmaceutical, Inc. (OTC BB: BPMA).




Mr.
Wenbin Fang, Director




Mr.
Wenbin Fang was appointed as a director in January 2008. Mr. Fang has served as
general manager in Shen Zhen Meng Sa Di Ka Trading Company since 2003. From 2000
to 2002, Mr. Fang worked for ARTLEVA, an Italian company, where he was focused
on exportation of household goods and clothing products from China (including
Taiwan) to Italy, France and Germany. From 1998 to 2000, he worked for MAX,
where he was focused on exportation of household goods and clothing products
from China (including Hong Kong) to Italy and France. From 1993 to 1997, he
served as business manager for East Asia (including China) of R.P.R. Clothing
Machine Manufactory, an Italian Company. He earned his bachelor’s degree in
Industrial Design in Shangdong Design and Art College. He then spent a year
(1992-1993) in the Department of Industrial Design of Italy’s National Design
and Acting College.









Family
Relationships




Ms.
Xiaoyin Luo is the elder sister of Ms. Zheng Luo and the sister-in-law of Mr.
Wenbin Fang. Mr. Wenbin Fang is the husband of Ms. Zheng Luo. There are no other
family relationships between any of our directors and executives.




Board
Composition and Committees




The board
of directors is currently composed of seven members. All Board action requires
the approval of a majority of the directors in attendance at a meeting at which
a quorum is present.




Each of
Qing Huang, Fei Luo, Charles C. Mo and Tianhong Yu (collectively, the
“Independent Directors”) were elected to serve on the Board of Directors as an
“independent director” as defined by Rule 4200(a)(15) of the Marketplace Rules
of The Nasdaq Stock Market, Inc. (the “Nasdaq Marketplace Rules”), and the Board
of Directors has confirmed the “independent director” status under the Nasdaq
Marketplace Rules of each of the Independent Directors.




On
January 28, 2008, the full Board of Directors, including the Independent
Directors:




(1)
            approved
      the establishment of the Audit Committee, Compensation Committee, and
      Governance and Nominating Committee of the Board of Directors;
      and(2)
            appointed
      three of the Independent Directors to each of the Audit Committee,
      Compensation Committee, and Governance and Nominating Committee and
      appointed Mr. Mo as the Chair of the Audit Committee, Mr. Huang as the
      Chair of the Compensation Committee and Mr. Yu as the Chair of the
      Governance and Nominating
Committee.




Our Audit
Committee is primarily responsible for reviewing the services performed by our
independent auditors and evaluating our accounting policies and our system of
internal controls. The Nominating Committee is primarily responsible for
nominating directors and setting policies and procedures for the nomination of
directors. The Nominating Committee will also be responsible for overseeing
the creation and implementation of our corporate governance policies and
procedures. The Compensation Committee is primarily responsible for reviewing
and approving our salary and benefit policies (including stock options),
including compensation of executive officers.




Director
Compensation




We have
not paid our directors fees in the past for attending scheduled and special
meetings of our board of directors.




On
January 28,2008,
the full Board approved a form of Non-Officer Director’s Contract, which
includes indemnification provisions, for each of the Independent Directors,
Wenbin Fang and Xiaoyin Luo. Under the terms of the Non-Officer Director’s
Contracts, the Company agreed to pay the Independent Directorsan annual fee of $12,000
each,as
compensation for the services to be provided by them as directors and as
chairpersons of various board committees, as applicable. We also reimburse each
director for reasonable travel expenses related to such director’s attendance at
board of directors and committee meetings.





Under the
terms of the Non-Officer Director’s Contracts, the Company agreed to indemnify
the Independent Directors, Wenbin Fang and Xiaoyin Luo, against expenses,
judgments, fines, penalties or other amounts actually and reasonably incurred by
the directors in connection with any proceeding if such director acted in good
faith and in the best interests of the Company. This brief description of the
terms of the Non-Officer Director’s Contracts is qualified by reference to the
provisions of the form of agreement incorporated by reference as an exhibit to
Annual Report. We believe the terms of these agreements are reasonable and
customary and comparable to those entered into by other publicly-traded
companies in the United States.




Involvement
in Certain Legal Proceedings




To the
best of our knowledge, none of our directors or executive officers has been
convicted in a criminal proceeding, excluding traffic violations or similar
misdemeanors, or has been a party to any judicial or administrative proceeding
during the past five years that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws, except for matters that were dismissed without
sanction or settlement. Except as set forth in our discussion below in “Certain
Relationships and Related Transactions,” none of our directors, director
nominees or executive officers has been involved in any transactions with us or
any of our directors, executive officers, affiliates or associates which are
required to be disclosed pursuant to the rules and regulations of the
SEC.







Section
16(a) Beneficial Ownership Reporting Compliance




Section
16(a) of the Exchange Act requires the Company's directors and executive
officers, and persons who own more than 10% of a registered class of our equity
securities, to file with the Commission initial reports of ownership and reports
of changes in ownership of common stock and our other equity securities. These
insiders are required by Commission regulations to furnish us with copies of all
Section 16(a) forms they file, including Forms 3, 4 and 5.
  Commission
rules require disclosure in the Company’s Annual Report on Form 10-K of the
failure of an executive officer, director or 10% beneficial owner to file such
forms on a timely basis. Based upon a review of the filings made on their behalf
during 2008, as well as an examination of the Commission's EDGAR system Form 3,
4, and 5 filings and the Company's records, the following table sets forth
exceptions to timely filings:
  Name
              Reporting
      EventDavid
      Wang
              Form
      3 to be filed as of October 30, 2008 reporting appointment as acting Chief
      Financial Officer. (1)Xiaomei
      Liu
              Form
      5 to be filed for fiscal year 2008.
(2)
  (1)David Wang was appointed
as our Acting Chief Financial Officer on October 30, 2008.
 (2)Xiaomei Liu resigned as
our Chief Financial Officer effective as of October 30, 2008, hence no longer
subject to Section 16.




Code
of Ethics




On
January 28, 2008, our board of directors adopted a code of ethics that applies
to all of our directors, officers and employees, including our principal
executive officer, principal financial officer and principal accounting officer.
The code of ethics addresses, among other things, honesty and ethical conduct,
conflicts of interest, compliance with laws, regulations and policies, including
disclosure requirements under the federal securities laws, confidentiality,
trading on inside information, and reporting of violations of the code. A copy
of the code of ethics has been filed as Exhibit 14.1 to our current report on
Form 8-K filed on February 1, 2008.




Audit
Committee and Audit Committee Financial Expert




The Board
of Directors has determined that Mr. Mo, an “independent director” as defined by
Rule 4200(a)(15) of the Nasdaq Marketplace Rules, possesses accounting or
related financial management experience that qualifies him as financially
sophisticated within the meaning of Rule 4350(d)(2)(A) of the Nasdaq Marketplace
Rules and that he is an “audit committee financial expert” as defined by the
rules and regulations of the Securities and Exchange Commission. Mr. Mo is
the Chairman of our Audit Committee.





ITEM
11. EXECUTIVE COMPENSATION




Summary
Compensation Table –  2007 and 2008




The
following table sets forth information concerning all compensation awarded to,
earned by or paid to each person serving as a principal executive officer for
services rendered in all capacities during fiscal years 2007, and 2008. No other
executive officers received compensation in excess of $100,000 in either fiscal
year.







Name
      and principal position
            Year
            Salary
      ($)(*)
            Bonus
      ($)
            Stock
      Awards ($)
            Option
      Awards ($)
            Nonequity
      incentive plan compensation ($)
            Nonqualified
      deferred compensation earnings ($)
            All
      other compensation ($)Zheng
      Luo,
              CEO
      and President
            2007
            75,000
            
            
            
            
            1,6002008
            75,000David
      Wang,
              CFO
            2007
            02008
            26,000**Michelle
      Xiaomei Liu
              (former
      CFO)***
            2008
            58,441
            0
            0
            0
            0
            0
            0





*
Calculated on the basis that $1 = RMB 7.7


** Mr.
David Wang joined the Company in September 2008 and was appointed CFO in
November 2008.


*** Ms.
Michelle Xiaomei Liu resigned from her position as the CFO of the Company in
October 2008.





Employment
Agreements




Each of
the executive officers and other individuals named above has entered into a
standard PRC form of employment contract with our operating subsidiary, Oriental
Fashion except for Mr. David Wang, who is to enter a contract with the parent
company of OmniaLuo,Inc.




The terms
of Ms. Luo’s contract provide for a two year employment term, from January 1,
2007 through December 31, 2008, with an annual salary of $75,000 and monthly
deferred compensation payments totaling $4,800 annually.




Director
Compensation




Historically,
we have not compensated our directors for their services as directors and we did
not compensate our directors during 2006 or 2007.







On
January 28,2008,
the full Board approved a form of Non-Officer Director’s Contract, which
includes indemnification provisions, for each of the Independent Directors,
Wenbin Fang and Xiaoyin Luo. Under the terms of the Non-Officer Director’s
Contracts, the Company agreed to pay the Independent Directorsan annual fee of $12,000
each,as
compensation for the services to be provided by them as directors and as
chairpersons of various board committees, as applicable. We also reimburse each
director for reasonable travel expenses related to such director’s attendance at
board of directors and committee meetings.




Outstanding
Equity Awards at Fiscal Year End




None of
our executive officers received any equity awards, including, options,
restricted stock or other equity incentives, during the fiscal year ended
December 31, 2008.




ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.




The
following table sets forth information regarding beneficial ownership of our
common stock as of March 25, 2009 (i) by each person who is known by us to
beneficially own more than 5% of our common stock or who may otherwise be deemed
to be “control persons” and affiliates of us; (ii) by each of our current
officers and current and proposed directors; and (iii) by all of our current
officers and current and proposed directors as a group. Unless otherwise
specified, the address of each of the persons set forth below is in care of
the Company, Room 101, Building E6, Huaqiaocheng, East Industrial Park, Nanshan
District, Shenzhen, 518053, The People’s Republic of China.




Name
      and Address of Beneficial Owner
            
            Director
      or Officer
            
            Amount
      and Nature of
              Beneficial
      Ownership (1)
            
            Percentage
              (2)Zheng
      Luo (3) (4)
            
            
            Director
      and Officer
            
            
            7,525,420
            (5)(6)
            
            32.95
            %Xiaoyin
      Luo (3)(4)
            
            
            Director
            
            
            5,411,514
            
            
            23.69
            %Wenbin
      Fang (3)(4)
            
            
            Director
            
            
            1,141,791
            (5)
            
            5.00
            %Qing
      Huang (4)
            
            
            Director
            
            
            -0-
            
            
            -0-Fei
      Lou (4)
            
            
            Director
            
            
            -0-
            
            
            -0-Tianhong
      Yu (4)
            
            
            Director
            
            
            -0-
            
            
            -0-Charles
      Mo (4)
            
            
            Director
            
            
            -0-
            
            
            -0-David
      Wang (4)
            
            
            Officer
            
            
            -0-
            
            
            -0-JAIC-CROSBY
      Greater China
              Investment
      Fund Limited (8)
              P.O.
      Box 2081GT, Century
              Yard,
      Cricket Square, Hutchins
              Drive,
      George Town, Grand
              Cayman,
      Cayman Islands
            
            
            
            
            
            942,208
            (6)(7)
            
            4.09
            %All
      current and proposed directors and current officers as a group (eight in
      the group)
            
            
            
            
            
            14,078,725
      shares
            
            
            61.64
            %





*
      Less than 1%.1Beneficial
      ownership is determined in accordance with the rules of the SEC and
      generally includes voting or investment power with respect to securities.
      Each of the beneficial owners listed above has direct ownership of and
      sole voting power and investment power with respect to the shares of our
      common stock.




2A
      total of 22,840,000 shares of our common stock are considered to be
      outstanding pursuant to SEC Rule 13d-3(d)(1). For each Beneficial Owner
      above, any options exercisable within 60 days have been included in the
      denominator.









3Ms.
      Xiaoyin Luo is the elder sister of Ms. Zheng Luo and sister-in-law of Mr.
      Wenbin Fang. Mr. Wenbin Fang is the husband of Ms.. Zheng Luo. Each
      disclaims beneficial ownership of the shares held by the
      other.4
      The address for each of the individuals shown is c/o Oriental
      Fashion.5
      Share amounts shown do not include shares held by the individual’s spouse,
      as to which the individual disclaims beneficial
  ownership.6
      Reflects the transfer by Ms. Zheng Luo, as part of the reverse
      acquisition, of 140,891 shares of common stock to JAIC-CROSBY Greater
      China Investment Fund Limited.7
      Includes warrants to purchase 200,000 shares of our common stock, which
      may by their terms become exercisable within 60 days of the date of this
      report.8
      JAIC-CROSBY Greater China Investment Fund Limited was a “control person”
      and affiliate of Omnia prior to the reverse acquisition and 2007 Private
      Placement by reason of the existence and its exercise of its contractual
      rights under its preferred investment documentation, and may now be deemed
      to be a “control person” and affiliate of the
  Company.




Make-Good
Provision




In
connection with the 2007 Private Placement, Zheng (Cindy) Luo (the principal
stockholder and chief executive officer of the Company), and another stockholder
agreed to place 41.11% of the shares of Common Stock they collectively own
(including 40% of the shares owned by Ms. Luo) in escrow (the
“Escrow Shares”). The Escrow Shares represented approximately 19.79% of the
Company’s total post-reverse acquisition and pre-2007 Private Placement issued
and outstanding shares. If the Company failed to report net income of at least
$2.0 million under U.S. GAAP (before adjustments for non-cash and cash charges
related to the reverse acquisition and 2007 Private Placement, including any
liquidated damages payments under the registration rights agreement with the
2007 Private Placement investors (the “Registration Rights Agreement”) and any
expense relating to any issuance of shares by us prior to the reverse
acquisition and 2007 Private Placement, and for any charges related to the
release of the Escrow Shares, and before accounting for the impact on net income
of any equity incentive options or shares granted) for the fiscal year 2007, the
escrow agent was to transfer to the investors in the 2007 Private Placement the
number of Escrow Shares based on the following formula: (($2.0 million - 2007
adjusted reported net income)/$2.0 million) multiplied by the Escrow Shares,
subject to a maximum number of 50% of the Escrow Shares.





As the
Company’s reported net income under U.S. GAAP (before adjustments for non-cash
and cash charges, which include the RTO expenses described
below, related to the reverse acquisition and 2007 Private Placement,
including any liquidated damages payments under the registration rights
agreement with the 2007 Private Placement investors (the “Registration Rights
Agreement”) and any expense relating to any issuance of shares by us prior to
the reverse acquisition and 2007 Private Placement, and for any charges related
to the release of the Escrow Shares, and before accounting for the impact on net
income of any equity incentive options or shares granted) for the fiscal
year 2007 exceeded $2.0 million, 50% of the Escrow Shares are being returned by
the escrow agent to Ms. Luo and the other stockholder. The “RTO Expenses,”
which are general and administrative expenses for accounting purposes, totaled
$970,320 and were incurred in conjunction with the October 2007 reverse
acquisition, the October 2007 PIPE and the related SEC resale registration (the
“RTO Expenses”). The RTO expenses consist of shell company related expenses,
including certain fees paid to the placement agent and investor relations agency
($218,113), auditing fees ($67,293), legal fees ($301,403), entertainment
expenses related to the reverse acquisition and the October 2007 PIPE ($5,123),
travel expenses ($63,380), consultancy fees, which include fees paid for
RTO and PIPE related market research and consulting services ($233,763),
exchange loss relating to the payment of RTO expenses ($19,242) and other
expenses ($62,003).




If the
Company fails to report net income of at least $4.3 million under U.S. GAAP
(before adjustments for non-cash and cash charges related to the reverse
acquisition and 2007 Private Placement, including any liquidated damages
payments under the Registration Rights Agreement and any expense relating to any
issuance of shares by us prior to the reverse acquisition and 2007 Private
Placement, and for any charges related to the release of Escrow Shares, and
before accounting for the impact on net income of any equity incentive options
or shares granted) for the fiscal year 2008, the escrow agent shall transfer to
the investors in the 2007 Private Placement the lesser of: (1) the number of
Escrow Shares based on the following formula: ($4.3 million - 2008 adjusted
reported net income/$4.3 million) multiplied by the Escrow Shares; or (2) the
number of Escrow Shares still in escrow.





The
Company’s common stock began trading on the Over-the-Counter Bulletin Board on
January 10, 2008.  The per share closing price of the Company’s common
stock on January 10, 2008 of $1.5 was used to calculate the compensation
expense.  The total expense recognized for fiscal year 2007 was
$2,299,893.








During
the year ended December 31, 2008, the Company’s net income (before unallocated
expenses relating to the reverse acquisition, the 2007 Private Placement and
related SEC resale registration totaling $698,257), was $2,151,132, before the
make good provision of $414,199. Accordingly, the Company failed to report the
net income threshold for the fiscal year 2008 and the Escrow Shares relating to
the 2008 performance threshold will be released to the investors, Ms. Luo and
another stockholder pursuant to the agreed terms and formula.





767,035
and 119,999 shares of the Escrow Shares will be released back to Ms. Luo and the
other stockholder. The release of shares from escrow to Ms. Luo constitutes a
compensatory plan. The per share closing price of the Company’s common stock on
December 31, 2008 of $0.54 was used to calculate the compensation expenses. The
total expenses recognized for the fiscal year 2008 is $414,199.





The
release of shares from escrow to the other stockholder does not constitute a
compensatory plan as this stockholder did not hold and currently does not hold
any position in the Company and has no relationship to the Company other than as
a stockholder. The release of shares held in escrow to the investors constitutes
a donation from Ms. Luo and the other stockholder to the
Company.





Changes
in Control




We do not
currently have any arrangements which if consummated may result in a change of
control of our Company.




Securities
Authorized for Issuance under Equity Compensation Plans




Set forth
below is information with respect to our compensation plans as of December 31,
2008 under which our equity securities are authorized for issuance, aggregated
as follows:





Plan
      Category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            Weighted-average
      exercise price of outstanding options, warrants and rights
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))(a)
            (b)
            (c)Equity
      compensation plan approved by security holders (1)
            N/A
            N/A
            N/AEquity
      compensation plan not approved by equity compensation
    holders
            0
            0
            5,000,000Total





(1)
            The
      Company adopted in the first quarter of 2008 an employee equity incentive
      plan under which the Company’s officers, directors, consultants, and
      employees will be eligible to receive, in relevant part, either securities
      or stock options exercisable for the Company’s securities at exercise
      prices that must generally be no less than the then prevailing fair market
      value of the Company’s common stock on the date of grant. The Company has
      reserved five million (5,000,000) shares of common stock or issuance
      under this plan.




ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE




Transactions
with Related Persons




The
following includes a summary of transactions since the beginning of the 2007
fiscal year, or any currently proposed transaction, in which we were, or are, to
be a participant and the amount involved exceeded or exceeds $120,000, and in
which any related person had or will have a direct or indirect material interest
(other than compensation described under “Executive Compensation”). We believe
the terms obtained, or consideration that we paid or received, as applicable, in
connection with the transactions described below were comparable to terms
available or the amounts that would be paid or received, as applicable, in
arm’s-length transactions.




On
October 9, 2007, we completed a reverse acquisition transaction with Omnia BVI
in which we issued to the shareholders of Omnia BVI 16,800,000 shares of our
common stock in exchange for all of the issued and outstanding shares of Omnia
BVI. As a result, Omnia BVI became our wholly-owned subsidiary and the former
shareholders of Omnia BVI became our controlling shareholders.




The
Company’s operating subsidiary, Oriental Fashion, purchased finished goods for
$821,196 from Oumeng during 2006. A substantial percentage of these purchases
resulted from Oumeng acting as temporary procurement agents and contracting
parties with third-party manufacturers and suppliers during the period before
Oriental Fashion received its business license. Certain of the Company’s
principal shareholders were also principal shareholders of Oumeng throughout
2006 and early 2007 and a director of Oriental Fashion, who is also the spouse
of a principal Company’s shareholder and director of Oriental Fashion,
managed part of the business of Oumeng during the same period. Therefore, Oumeng
is deemed to have been under common control with the Company during the time
these purchases occurred.







The
Company’s operating subsidiary, Oriental Fashion, entered into an agreement in
2006 for the purchase of finished goods for $1,337,875 from Yin Hu, an affiliate
of the Company at that time, for delivery originally during the quarter ended
March 31, 2007. A portion of the payments due and of the deliveries to be made
were deferred into the second quarter of 2007, and the remaining undelivered
goods were delivered in August 2007.(See below uodated info in 2008) A principal
shareholder of the Company was also a principal shareholder of Oriental Fashion
throughout 2006 and part of the first quarter of 2007.Within the period
aforementioned, Yin Hu was deemed to have been under common control with the
Company during the time these purchases occurred. In January 17, 2007, the
principal shareholder aforementioned of Yinhu, at which time she transferred her
entire interest in Yin Hu to unrelated third parties. This transfer procedure
was witnessed by Shenzhen Notary Office in January 2007, therefore, Yinhu is
non-affiliate of Oriental Fashion since then.





The
Company believes the terms obtained and consideration paid in connection with
the transactions described above were no less favorable than those that would
have been obtained by the Company’s subsidiary in arm’s-length transactions with
an unrelated party.




Under Ms.
Zheng Luo’s employment contract with our operating subsidiary, Oriental Fashion,
she may not compete with Oriental Fashion while employed and, if she terminates
employment, Oriental Fashion may thereafter restrict her from competing with its
business for up to three years, provided it pays her a total of RMB 1,800,000 in
consideration of her performance of the three-year non-compete
provision.




In
connection with the 2007 Private Placement, we (a) paid commissions and a
non-accountable expense allowance totaling $568,875, and (b) issued warrants to
purchase 492,000 shares of the Company’s common stock, to Keating Securities, as
a financial advisory fee in partial consideration of their services in
connection with the 2007 Private Placement, pursuant to a previously reported
placement agreement entered into with Keating Securities on September 14, 2007.
Prior to consummation of the reverse acquisition and 2007 Private Placement, we
may be deemed to have been an affiliate of Keating Securities by reason of the
ownership of shares of our common stock by principals and executives of Keating
Securities.




The
Company believes the terms obtained and consideration paid in connection with
the transactions described above were no less favorable than those that would
have been obtained by the Company (or its operating subsidiary in the case of
those transactions with Oriental Fashion) in arm’s-length transactions with an
unrelated party.




In
connection with the reverse acquisition, JAIC-CROSBY Greater China Investment
Fund Limited (the “Lead Investor”), which was a “control person” and affiliate
of Omnia BVI prior to the reverse acquisition and 2007 Private Placement by
reason of the existence and its use of its contractual rights under its
preferred investment documentation, and which may now be deemed to be a
“control person” and affiliate of the Company, in consideration of its
relinquishing certain rights, (a) retains certain put rights with respect to its
shares as against Ms. Zheng Luo (but not as against us) if we do not obtain an
OTCBB quotation or the Lead Investor’s shares are not registered for resale or
otherwise eligible to be publicly resold by July 1, 2008, (b) received an
additional 149,884 shares of our common stock from Ms. Zheng Luo and another
former Omnia BVI shareholder as part of the reverse acquisition, and (c) may be
entitled to additional shares of our common stock if the make good or
anti-dilution provisions applicable to investors in the 2007 Private Placement
result in additional shares being transferred or issued to those
investors.




Except as
set forth in our discussion above, none of our directors, director nominees or
executive officers has been involved in any transactions with us or any of our
directors, executive officers, affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the SEC.




Director
Independence




Each of
Qing Huang, Fei Luo, Charles C. Mo and Tianhong Yu (collectively, the
“Independent Directors”) were elected to serve on the Board of Directors as an
“independent director” as defined by Rule 4200(a)(15) of the Marketplace Rules
of The Nasdaq Stock Market, Inc. (the “Nasdaq Marketplace Rules”), and the Board
of Directors has confirmed the “independent director” status under the
Nasdaq Marketplace Rules of each of the Independent Directors.





ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES




Audit
Fees




The
aggregate fees billed for professional services rendered by the principal
accountant for the audit of our annual financial statements and review of the
financial statements included in our Form 10-QSB or services that are normally
provided by the accountant in connection with statutory and regulatory filings
or engagements for the fiscal years ended December 31, 2007 and 2008 were
$78,000 and $79,000 respectively.







Audit-Related
Fees




The
aggregate fees billed in each of the fiscal years ended December 31, 2008 and
2007 for assurance and related services by the principal accountant that are
reasonably related to the performance of the audit or review of the registrant’s
financial statements and are not reported under the paragraph captioned “Audit
Fees” above are $0 and $20,000, respectively. The services provided by our
accountants within this category consisted of advice relating to the Form SB-2
filed by the Company on November 7, 2007.




Tax
Fees




The
aggregate fees billed in each of the fiscal years ended December 31, 2008 and
2007 for professional services rendered by the principal accountant for tax
compliance, tax advice, and tax planning were $0 and $0,
respectively.




All
Other Fees




The
aggregate fees billed in each of the fiscal years ended December 31, 2008 and
2007 for products and services provided by the principal accountant, other than
the services reported above under other captions of this Item 14 are $0 and $0,
respectively.




Pre-Approval
Policies and Procedures




Under the
Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by our
auditors must be approved in advance by our Board to assure that such services
do not impair the auditors’ independence from us. In accordance with its
policies and procedures, our Board pre-approved the audit and non-audit service
performed by our auditor for our consolidated financial statements as of and for
the year ended December 31, 2008.








PART
IV




ITEM
15. EXHIBITS, FINANCIAL STATE SCHEDULES




The
following exhibits are filed as part of this report or incorporated by
reference:




Exhibit
              No.
            
            Description2.1
            
            Share
      Exchange Agreement, dated October 9, 2007, among the registrant, certain
      stockholders of the registrant signatory thereto, Omnia Luo Group Limited,
      and the shareholders of Omnia Luo Group Limited (filed as an exhibit to
      the Current Report of Wentworth II, Inc. on Form 8-K, as filed with the
      SEC on October 15, 2007, and incorporated herein by
      reference).*3.1
            
            Certificate
      of Incorporation of Wentworth II, Inc. as filed with the Secretary of
      State of Delaware (filed as an exhibit to the registration statement of
      Wentworth II, Inc. on Form SB-2, as filed with the SEC on December 12,
      2001, and incorporated herein by reference).*3.2
            
            Bylaws
      of Wentworth II, Inc. (filed as an exhibit to the registration statement
      of Wentworth II, Inc. on Form SB-2, as filed with the SEC on December 12,
      2001, and incorporated herein by reference).*4.1
            
            Form
      of Warrant to Purchase Common Stock issued by the registrant to certain
      investors, dated October 9, 2007 (filed as an exhibit to the Current
      Report of Wentworth II, Inc. on Form 8-K, as filed with the SEC on October
      15, 2007, and incorporated herein by reference).*4.2
            
            Form
      of Warrant to Purchase Common Stock issued by the registrant to certain of
      the former shareholders of Omnia Luo Group Limited in exchange for their
      warrants to purchase ordinary shares of Omnia Luo Group Limited, dated
      October 9, 2007 (filed as an exhibit to the Current Report of Wentworth
      II, Inc. on Form 8-K, as filed with the SEC on October 15, 2007, and
      incorporated herein by reference).*4.3
            
            Form
      of Common Stock Placement Agent Warrant issued by the registrant to
      Keating Securities, LLC, dated October 9, 2007 (filed as an exhibit to the
      Current Report of Wentworth II, Inc. on Form 8-K, as filed with the SEC on
      October 15, 2007, and incorporated herein by
  reference).*











4.4
            
            Form
      of Registration Rights Agreement by and among the registrant , investors
      and other stockholders signatory thereto, dated October 9, 2007 (filed as
      an exhibit to the Current Report of Wentworth II, Inc. on Form 8-K, as
      filed with the SEC on October 15, 2007, and incorporated herein by
      reference).*4.5
            
            Form
      of Lock-up Agreement among the registrant and certain stockholders, dated
      October 9, 2007 (filed as an exhibit to the Current Report of Wentworth
      II, Inc. on Form 8-K, as filed with the SEC on October 15, 2007, and
      incorporated herein by reference).*10.1
            
            Form
      of Securities Purchase Agreement by and among the registrant, and certain
      investors, dated October 9, 2007 (filed as an exhibit to the Current
      Report of Wentworth II, Inc. on Form 8-K, as filed with the SEC on October
      15, 2007, and incorporated herein by
  reference).*




10.2
            
            Form
      of Make Good Escrow Agreement by and among the registrant, Zheng Luo, Kong
      Amy Wai Man Ng, Keating Securities, LLC, as agent and Corporate Stock
      Transfer, Inc., as escrow agent, dated October 9, 2007 (filed as an
      exhibit to the Current Report of Wentworth II, Inc. on Form 8-K, as filed
      with the SEC on October 15, 2007, and incorporated herein by
      reference).*10.3
            
            First
      Amendment Agreement by and among the registrant, Omnia Luo Group Limited,
      Zheng Luo and JAIC-CROSBY Greater China Investment Fund Limited, dated as
      of October 4, 2007 (filed as an exhibit to the Current Report of Wentworth
      II, Inc. on Form 8-K, as filed with the SEC on October 15, 2007, and
      incorporated herein by reference).*10.4
            
            First
      Amendment Agreement by and among the registrant, Omnia Luo Group Limited,
      Zheng Luo and certain holders of Omnia Luo Group Limited preferred shares,
      dated as of October 4, 2007 (filed as an exhibit to the Current Report of
      Wentworth II, Inc. on Form 8-K, as filed with the SEC on October 15, 2007,
      and incorporated herein by reference).*10.5
            
            Agreement
      with Principal Shareholder, Chief Executive Officer and Director by and
      between the registrant and Zheng Luo, dated October 9, 2007 (filed as an
      exhibit to the Current Report of Wentworth II, Inc. on Form 8-K, as filed
      with the SEC on October 15, 2007, and incorporated herein by
      reference).*10.6
            
            Assignment
      and Assumption Agreement by and between Omnia Luo Group Limited and the
      registrant, dated October 9, 2007 (filed as an exhibit to the Current
      Report of Wentworth II, Inc. on Form 8-K, as filed with the SEC on October
      15, 2007, and incorporated herein by reference).*14.1
            
            Business
      Ethics Policy and Code of Conduct (Incorporated by reference to Exhibit
      14.1 to the registrant’s Current Report on Form 8-K filed on February 1,
      2008).*21
            
            Subsidiaries
      of the registrant (Incorporated by reference to Exhibit 21 to the
      registrant’s Current Report on Form 8-K filed on October 15,
      2007).*31.1
            
            Certification
      of Principal Executive Officer filed pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.**31.2
            
            Certification
      of Principal Financial Officer filed pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.**32.1
            
            Certification
      of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.**32.2
            
            Certification
      of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.**




*
Incorporated by reference.





** Filed
herewith.





SIGNATURES




In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


OMNIALUO,
      INC.Dated:
      March 31,
      2009
            By:
            /s/
      Zheng LuoZheng
      Luo, CEO and President




In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




Each
person whose signature appears below hereby authorizes Zheng Luo or Xiaoyin Luo
as attorneys-in-fact to sign on his or her behalf, individually, and in each
capacity stated below, and to file all amendments and/or supplements to this
annual report on Form 10-K.




Signature
            
            Title/s/
      Zheng Luo
            
            Chief
      Executive Officer and
            
            March
      31,
      2009Zheng
      Luo
            
            Chairwoman
      (Principal Executive Officer)/s/
      David Wang
            
            Chief
      Financial Officer (Principal
            
            March
      31,
      2009David
      Wang
            
            Financial
      and Accounting Officer)/s/
      Wenbin Fang
            
            Director
            
            March
      31,
      2009Wenbin
      Fang/s/
      Qing Huang
            
            Director
            
            March
      31,
      2009Qing
      Huang/s/
      Fei Luo
            
            Director
            
            March
      31,
      2009Fei
      Luo/s/
      Xiaoyin Luo
            
            Director
            
            March
      31,
      2009Xiaoyin
      Luo/s/
      Charles C. Mo
            
            Director
            
            March
      31,2009Charles
      C. Mo/s/
      Tianhong Yu
            
            Director
            
            March
      31,2009Tianhong
      Yu










OmniaLuo,
Inc.





Consolidated
Financial Statements


For the
year ended December 31, 2008


(Stated
in US dollars)










OmniaLuo,
Inc.


Consolidated
Financial Statements


For
the year ended December 31, 2008


Index
to Consolidated Financial Statements

















PagesReport
      of Independent Registered Public Accounting Firm
            
            1Consolidated
      Statements of Operations and Comprehensive Income (Loss)
            
            2Consolidated
      Balance Sheets
            
            3Consolidated
      Statements of Stockholders’ Equity
            
            4Consolidated
      Statements of Cash Flows
            
            5Notes
      to Consolidated Financial Statements
            
            6 -
      22












Report
of Independent Registered Public Accounting Firm





To the
Directors and Stockholders of


OmniaLuo,
Inc.








We have
audited the accompanying consolidated balance sheets of OmniaLuo, Inc. (the
“Company”) and its subsidiaries as of December 31, 2008 and 2007, and the
related consolidated statements of operations and comprehensive income (loss),
stockholders’ equity and cash flows for each of the two years in the period
ended December 31, 2008.  These financial statements are the
responsibility of the Company’s management.  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 audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
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 consolidated financial position of the Company and its
subsidiaries as of December 31, 2008 and 2007, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 2008 in conformity with accounting principles generally
accepted in the United States of America.























/s/
PKF


Certified
Public Accountants


Hong
Kong, China


March 31,
2009






1


OmniaLuo,
Inc.


Consolidated
Statements of Operations and Comprehensive Income (Loss)


(Stated
in US Dollars)











Year
      ended December 31,2008
            
            
            2007Revenues
      - Note 3
            
            
            $11,902,404
            
            
            
            $7,875,757Cost
      of revenues
            
            
            (4,838,286
            )
            
            
            (3,624,486
            )Gross
      profit
            
            
            7,064,118
            
            
            
            4,251,271ExpensesGeneral and administrative
      expenses
            
            
            2,819,942
            
            
            
            1,923,899Depreciation
            
            
            211,915
            
            
            
            129,678Selling and marketing
      expenses
            
            
            2,614,193
            
            
            
            979,4595,646,050
            
            
            
            3,033,036Income
      from operations
            
            
            1,418,068
            
            
            
            1,218,235Interest
      income
            
            
            12,278
            
            
            
            5,647Other
      income
            
            
            63,350
            
            
            
            19,329Finance
      costs - Note 4
            
            
            (40,821
            )
            
            
            (38,802
            )Make
      good provision - Note 15
            
            
            (414,199
            )
            
            
            (2,299,893
            )Income
      (loss) before income taxes
            
            
            1,038,676
            
            
            
            (1,095,484
            )Income
      taxes - Note 5
            
            
            -
            
            
            
            -Net
      income (loss)
            
            
            $1,038,676
            
            
            
            $(1,095,484
            )Other
      comprehensive incomeForeign currency translation
      adjustments
            
            
            537,109
            
            
            
            286,560Comprehensive
      income (loss)
            
            
            $1,575,785
            
            
            
            $(808,924
            )Earnings
      (loss) per ordinary share - Note 6-     Basic
            
            
            $0.05
            
            
            
            $(0.05
            )-     Diluted
            
            
            $0.05
            
            
            
            $(0.05
            )Weighted
      average number of shares outstanding-     Basic
            
            
            22,840,000
            
            
            
            21,993,753-     Diluted
            
            
            22,841,215
            
            
            
            21,993,753











See the
accompanying notes to consolidated financial statements.





2


OmniaLuo,
Inc.


Consolidated
Balance Sheets


(Stated
in US Dollars)











As
      of December 31,2008
            
            
            2007ASSETSCurrent assetsCash and cash
      equivalents
            
            
            $1,253,997
            
            
            
            $3,083,715Trade receivables, net - Note
      7
            
            
            2,199,756
            
            
            
            1,573,644Inventories, net - Note
      8
            
            
            6,460,621
            
            
            
            2,602,653Other receivables and deposits
      - Note 9
            
            
            4,285,219
            
            
            
            1,995,229Total current
      assets
            
            
            14,199,593
            
            
            
            9,255,241Property and equipment, net -
      Note 10
            
            
            1,084,289
            
            
            
            724,681TOTAL
      ASSETS
            
            
            $15,283,882
            
            
            
            $9,979,922LIABILITIES
      AND STOCKHOLDERS’ EQUITYLIABILITIESCurrent
    liabilitiesSecured bank loan - Note
      12
            
            
            $440,100
            
            
            
            $-Trade payables
            
            
            734,077
            
            
            
            281,027Loans from stockholders - Note
      13
            
            
            8,052
            
            
            
            14,294Other payables, deposits
      received and accrued expenses- Note
      14
            
            
            3,795,958
            
            
            
            1,368,890Total current
      liabilities
            
            
            4,978,187
            
            
            
            1,664,211TOTAL
      LIABILITIES
            
            
            4,978,187
            
            
            
            1,664,211COMMITMENTS
      AND CONTINGENCIES - Note 16STOCKHOLDERS’
      EQUITYCommon stock: par value $0.01
      per shareAuthorized 40,000,000 shares;
      issued and outstanding22,840,000
      shares
            
            
            228,400
            
            
            
            228,400Preferred stock: par value
      $0.01 per shareAuthorized 10,000,000 shares;
      none issued and outstanding
            
            
            -
            
            
            
            -Additional paid-in
      capital
            
            
            8,893,589
            
            
            
            8,479,390Statutory reserve - Note
      17
            
            
            512,709
            
            
            
            261,948Accumulated other comprehensive
      income
            
            
            833,831
            
            
            
            296,722Accumulated
    deficit
            
            
            (162,834
            )
            
            
            (950,749
            )TOTAL STOCKHOLDERS’
      EQUITY
            
            
            10,305,695
            
            
            
            8,315,711TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            
            $15,283,882
            
            
            
            $9,979,922








See the
accompanying notes to consolidated financial statements.







3


OmniaLuo,
Inc.


Consolidated
Statements of Stockholders’ Equity


(Stated
in US Dollars)








Accumulated
            
            
            RetainedAdditional
            
            
            
            
            
            other
            
            
            earningsCommon
      stock
            
            
            paid-in
            
            
            Statutory
            
            
            comprehensive
            
            
            (accumulatedNo.
      of shares
            
            
            Amount
            
            
            capital
            
            
            reserve
            
            
            income
            
            
            deficit)
            
            
            TotalBalance,
      January 1, 2007
            
            
            16,800,000
            
            
            
            $168,000
            
            
            
            $(118,000
            )
            
            
            $44,265
            
            
            
            $10,162
            
            
            
            $362,418
            
            
            
            $466,845Issuance
      of non-redeemable BVI Preferred Shares
            
            
            -
            
            
            
            -
            
            
            
            229,840
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            229,840Conversion
      of redeemable BVI Preferred Shares
            
            
            -
            
            
            
            -
            
            
            
            500,140
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            500,140Recapitalization
            
            
            1,120,000
            
            
            
            11,200
            
            
            
            26,582
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            37,782Common
      stock and warrants issued for the 2007Private
      Placement, net of expenses
            
            
            4,920,000
            
            
            
            49,200
            
            
            
            5,540,935
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            5,590,135Make
      good escrow arrangement
            
            
            -
            
            
            
            -
            
            
            
            2,299,893
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,299,893Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,095,484
            )
            
            
            (1,095,484
            )Foreign
      currency translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            286,560
            
            
            
            -
            
            
            
            286,560Appropriation
      to reserve
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            217,683
            
            
            
            -
            
            
            
            (217,683
            )
            
            
            -Balance,
      December 31, 2007
            
            
            22,840,000
            
            
            
            228,400
            
            
            
            8,479,390
            
            
            
            261,948
            
            
            
            296,722
            
            
            
            (950,749
            )
            
            
            8,315,711Make
      good escrow arrangement
            
            
            -
            
            
            
            -
            
            
            
            414,199
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            414,199Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,038,676
            
            
            
            1,038,676Foreign
      currency translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            537,109
            
            
            
            -
            
            
            
            537,109Appropriation
      to reserve
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            250,761
            
            
            
            -
            
            
            
            (250,761
            )
            
            
            -Balance,
      December 31, 2008
            
            
            22,840,000
            
            
            
            $228,400
            
            
            
            $8,893,589
            
            
            
            $512,709
            
            
            
            $833,831
            
            
            
            $(162,834
            )
            
            
            $10,305,695








See the
accompanying notes to consolidated financial statements.







4


OmniaLuo,
Inc.


Consolidated
Statements of Cash Flows


(Stated
in US Dollars)








Year
      ended December 31,2008
            
            
            2007Cash
      flows from operating activitiesNet income
    (loss)
            
            
            $1,038,676
            
            
            
            $(1,095,484
            )Adjustment to reconcile net
      income (loss) to net cash usedin operating
      activities:Depreciation
            
            
            211,915
            
            
            
            129,678Allowance for
      doubtful accounts
            
            
            3,696
            
            
            
            8,313(Recovery of)
      allowance for obsolete inventories
            
            
            (65,456
            )
            
            
            77,676Gain on disposal of
      property and equipment
            
            
            736
            
            
            
            -Make good
      provision
            
            
            414,199
            
            
            
            2,299,893Changes in operating assets and
      liabilities:Trade
      receivables
            
            
            (510,651
            )
            
            
            (1,442,936
            )Inventories
            
            
            (3,546,376
            )
            
            
            (2,542,493
            )Other receivables and
      deposits
            
            
            (2,112,904
            )
            
            
            (940,297
            )Trade
      payables
            
            
            425,839
            
            
            
            269,668Other payables,
      deposits received and accrued expenses
            
            
            2,293,654
            
            
            
            787,347Income tax
      payable
            
            
            -
            
            
            
            (73,939
            )Net
      cash flows used in operating activities
            
            
            (1,846,672
            )
            
            
            (2,522,574
            )Cash
      flows from investing activitiesAcquisition of property and
      equipment
            
            
            (520,466
            )
            
            
            (809,442
            )Proceeds from disposal of
      property and equipment
            
            
            4,319
            
            
            
            -Cash acquired from the
      RTO
            
            
            -
            
            
            
            39,072Net
      cash flows used in investing activities
            
            
            (516,147
            )
            
            
            (770,370
            )Cash
      flows from financing activitiesProceeds from issuance of BVI
      Preferred Shares, net of expenses
            
            
            -
            
            
            
            729,980Proceeds from issuance of
      common stock, net of expenses
            
            
            -
            
            
            
            5,590,135Proceeds from bank
      loans
            
            
            432,450
            
            
            
            -Repayment of loans from
      stockholders
            
            
            (6,242
            )
            
            
            (89,726
            )Net
      cash flows provided by financing activities
            
            
            426,208
            
            
            
            6,230,389Effect
      of foreign currency translation on cash and cash
    equivalents
            
            
            106,893
            
            
            
            62,814Net
      (decrease) increase in cash and cash equivalents
            
            
            (1,829,718
            )
            
            
            3,000,259Cash
      and cash equivalents - beginning of year
            
            
            3,083,715
            
            
            
            83,456Cash
      and cash equivalents - end of year
            
            
            $1,253,997
            
            
            
            $3,083,715Supplemental
      disclosure for cash flow informationInterest
      paid
            
            
            $-
            
            
            
            $2,532Income
      taxes paid
            
            
            $-
            
            
            
            $73,939








See the
accompanying notes to consolidated financial statements.







5


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








1.           Corporate
information





(a)
            OmniaLuo,
      Inc. (the “Company”) was incorporated in the State of Delaware
      on March 7, 2001 under the name of Wentworth II, Inc. for the purpose
      of pursuing a business combination.  On November 16, 2007, the
      Company changed its name to OmniaLuo,
Inc.





The
Company’s common stock began trading on the Over-the-Counter Bulletin Board
under the ticker symbol “OLOU” on January 10, 2008.





(b)
            On
      October 9, 2007, the Company entered into a share exchange agreement with
      Omnia Luo Group Limited (“Omnia BVI”), the shareholders of Omnia BVI and
      certain of the then Company’s principal stockholders.  Pursuant
      to the share exchange agreement, the Company agreed to issue to the
      shareholders of Omnia BVI 16,800,000 shares of the Company’s common stock
      in exchange for all of the then issued and outstanding shares of Omnia
      BVI.





The
aforesaid share exchange transaction was completed on October 9, 2007 and
thereafter Omnia BVI became a wholly-owned subsidiary of the Company and the
former shareholders of Omnia BVI became the majority stockholders of the
Company.  This transaction constituted a reverse takeover transaction
(the “RTO”).





Concurrently
with the consummation of the RTO, the Company issued 4,920,000 shares of its
common stock and five-year warrants to purchase an aggregate of 4,920,000 shares
of the Company’s common stock at $1.5625 per share for an aggregate purchase
price of $6.15 million, to a total of 38 investors in a private placement (the
“2007 Private Placement”).  In connection with this private placement,
the Company issued five-year warrants to purchase 492,000 shares of the
Company’s common stock at $1.5625 per share to Keating Securities, LLC (“Keating
Securities”), as a financial advisory fee in partial consideration of their
services in connection with the private placement.  Prior to the
consummation of the RTO and the 2007 Private Placement, the Company was deemed
to have been an affiliate of Keating Securities by reason of the ownership of
shares of the Company’s common stock by principals and executives of Keating
Securities.  The warrants issued to the investors and Keating
Securities have been classified in equity and were outstanding as of December
31, 2008 and 2007.





Omnia BVI
is a business company organized under the laws of the British Virgin Islands
(the “BVI”) on August 11, 2006.  It has conducted no business and is a
holding company whose only asset is a 100% equity interest in Shenzhen Oriental
Fashion Co., Ltd. (“Oriental Fashion”). Oriental Fashion was established on
September 19, 2006 in the People’s Republic of China (the “PRC”).










6


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








1.           Corporate
information (Cont’d)





(c)
            Pursuant
      to preferred stock purchase and shareholders agreements dated as of
      December 15, 2006 and December 20, 2006, Omnia BVI had issued an aggregate
      of 2,147 convertible preferred shares (the “BVI Preferred Shares”) and
      detachable warrants to purchase up to $365,940 in its ordinary shares,
      based on the offering price in the next financing of Omnia BVI (the “BVI
      Warrants”), to a private venture capital investment fund (the “Lead
      Investor”) and several individual investors for a total cash investment of
      $729,980.





By
      agreements dated as of October 9, 2007: (i) among Omnia BVI, the Lead
      Investor, Ms. Zheng Luo (the principal stockholder and chief executive
      officer of the Company) and another of the Company’s stockholders, and
      (ii) among Omnia BVI, Ms. Zheng Luo and each of the other holders of BVI
      Preferred Shares and Warrants, effective upon the closing of the RTO, each
      BVI Preferred Shares was converted into a specified number of ordinary
      shares of Omnia BVI, with each such ordinary share of Omnia BVI then being
      exchanged for 319.8294 shares of the Company’s common stock and each BVI
      Warrant was exchanged for warrants to purchase the Company’s common stock,
      exercisable at any time during a two-year period commencing on December
      17, 2007, at a per share price of
$1.25.





292,752
warrants were issued in exchange for the BVI Warrants.  Their exercise
price is subject to adjustment for share subdivisions, share combinations,
mergers or consolidation.  These warrants have been classified in
equity and were outstanding as of December 31, 2008 and 2007.





The
      Company’s common stock issuable under the aforementioned agreements were
      included in the 16,800,000 shares of the Company’s common stock issued in
      relation to the RTO as detailed in note 1(b) to the consolidated financial
      statements.








2.           Description
of business





Following
the RTO, the Company commenced to be engaged in the design, marketing,
distribution and sales of women’s apparel under the brand names of
“OMNIALUO” and “OMNIALO” (collectively referred to herein as the “OMNIALUO
Brands”) through a network of over 200 retail stores across the PRC as of
December 31, 2008.  The Company offers a complete line of business
casual women’s wear, including bottoms, tops and outerwear, as well as
accessories.





There are
currently three different types of retail stores that carry the OMNIALUO Brands:
(i) Company-owned stores, which stores are owned exclusively by the Company and
carry only the OMNIALUO Brands, (ii) co-owned stores, which stores are owned
jointly by the Company and a third party, and carry the OMNIALUO Brands
exclusively, and (iii) independent distributor stores, which stores are owned
exclusively by third parties and carry the OMNIALUO Brands
exclusively.







7


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








3.           Summary
of significant accounting policies





Basis of
presentation





The
accompanying consolidated financial statements of the Company have been prepared
in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”).





Principles of
consolidation





The
consolidated financial statements include the accounts of the Company and its
subsidiaries.  All significant inter-company accounts and transactions
have been eliminated in consolidation.





Use of
estimates





In
preparing financial statements in conformity with U.S. GAAP, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting periods.  These accounts and estimates
include, but are not limited to, the valuation of trade and other receivables,
inventories and deferred income taxes, provision for warranty and the estimation
on useful lives of property, plant and equipment.  Management makes
these estimates using the best information available at the time the estimates
are made; however, actual results could differ materially from these
estimates.





Concentrations of credit
risk





Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist principally of cash and cash equivalents and trade
receivables.  As of December 31, 2008, the Company’s cash and
cash equivalents were held by major financial institutions located in the PRC,
Hong Kong and the United States, which management believes are of high credit
quality.  With respect to trade receivables, the Company extends
credit based on an evaluation of the customer’s financial
condition.  The Company generally does not require collateral for
trade receivables and maintains an allowance of doubtful accounts of trade
receivables.





During
2008, there was no customer who contributed 10% or more to the Company’s
consolidated revenue.  During 2007, there was one customer who
contributed 10% or more to the Company’s consolidated revenue: Hubei Province
Tian Men Fashion Factory, $980,025 (12.4%).





Cash and cash
equivalents





Cash and
cash equivalents include all cash, deposits in banks and other highly liquid
investments with initial maturities of three months or less.  As of
December 31, 2008, 57% of the cash and cash equivalents were denominated in
Renminbi (“RMB”), which were not freely convertible into foreign currencies and
the remittance of these funds out of the PRC was subject to exchange control
restrictions imposed by the PRC government.  The remaining balances of
cash and cash equivalents denominated in United States dollars and Hong Kong
dollars were 17% and 26% respectively.










8


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








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





Allowanceofdoubtful
accounts





The
Company establishes an allowance of doubtful accounts based on management’s
assessment of the collectibility of trade receivables.  A considerable
amount of judgment is required in assessing the amount of the allowance and the
Company considers the historical level of credit losses and applies percentages
to aged receivables categories.  The Company makes judgments about the
creditworthiness of each customer based on ongoing credit evaluations, and
monitors current economic trends that might impact the level of credit losses in
the future.  If the financial condition of the customers is to
deteriorate, resulting in their inability to make payments, a larger allowance
may be required.





Based on
the above assessment, during the reporting periods, the management establishes
the general provisioning policy to make allowance equivalent to the aging of
trade receivables as follows:





%
      of generalTrade
      receivables due:
            
            provisionWithin
      one year
            
            
            0.3After
      one year but within two years
            
            
            20After
      two years but within three years
            
            
            50Over
      three years
            
            
            100





Bad debts
are written off when identified.  The Company extends unsecured credit
to customers ranging from 30 to 45 days in the normal course of
business.  The Company does not accrue interest on trade
receivables.





Based
upon the aforementioned criteria, the management has determined that allowance
of doubtful accounts amounting to $13,023 and $8,656 was required as of
December 31, 2008 and 2007 respectively.





Inventories





Inventories
are stated at the lower of cost or market.  Cost is determined on a
FIFO basis and includes all expenditures incurred in bringing the goods to the
point of sale and putting them in a saleable condition.





The
Company estimates net realizable value of inventories based on intended use,
current market value and inventory ageing analysis.  The Company
writes down the inventories for estimated obsolescence or unmarketable
inventories equivalent to the difference between the cost of inventories and the
estimated market value based upon assumptions about future demand and market
conditions.





(Recovery
of) provision for obsolete inventories of $(65,456) and $77,676 were (credited)
charged to statements of operations during the years ended December 31, 2008 and
2007 respectively.










9


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








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





Property and
equipment





Property
and equipment are stated at cost less accumulated depreciation.  Cost
represents the purchase price of the asset and other costs incurred to bring the
asset into its existing use.





Depreciation
is provided on a straight-line basis over the assets’ estimated useful
lives.  The principal depreciation rates are as follows:





Annual
      rateOffice
      equipment and computers
            
            
            20
            %Machinery
            
            
            20
            %Leasehold
      improvements
            
            
            20
            %Motor
      vehicles
            
            
            20
            %





Maintenance
or repairs are charged to expense as incurred.  Upon sale or
disposition, the applicable amounts of asset cost and accumulated depreciation
are removed from the accounts and the net amount less proceeds from disposal is
charged or credited to income.





Impairment of long-lived
assets





Long-lived
assets are tested for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be
recoverable.  The Company recognizes impairment of long-lived assets
in the event that the net book values of such assets exceed the future
undiscounted cash flows attributable to such assets.  During the
reporting periods, the Company did not identify any indicators that would
require testing for impairment.





Revenue
recognition





Revenue
is recognized when it is probable that the economic benefits will flow to the
Company and when the revenue can be measured reliably, on the following
basis :





(i)
            revenue
      from sales of the Company’s products is recognized when the significant
      risks and rewards of ownership have been transferred to the buyer at the
      time of delivery and the sales price is fixed or determinable and
      collection is reasonably assured;
and





(ii)           interest
income is recognized on an accrual basis.





Advertising and
transportation expenses





Advertising
and transportation expenses are charged to expense as incurred.





Advertising
expenses amounting to $186,377 and $17,448 for the years ended December 31, 2008
and 2007 respectively were included in selling and marketing
expenses.





Transportation
expenses amounting to $31,051 and $26,999 for the years ended December 31,
2008 and 2007 respectively were included in selling and marketing
expenses.








10


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








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





Warranty





The
Company maintains a policy of providing after sales services for all products by
way of a warranty program.  The Company did not maintain a warranty
reserve as there was no record for any goods returned from customers during the
reporting periods.  However, the Company will periodically assess the
estimation of its warranty liability and recognize the reserve when necessary
based on the actual experience.





Stock-based
compensation





The
Company adopted SFAS No. 123R “Share-Based Payment” to recognize the
stock-based compensation.  Under SFAS 123R, equity instruments issued
to service providers for their services are measured at the grant-date fair
value and recognized in the statement of operations over the vesting
period.





Income
taxes





The
Company uses the asset and liability method of accounting for income taxes
pursuant to SFAS No. 109 “Accounting for Income Taxes”.  Under the
asset and liability method of SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences
between the financial statements carrying amounts of existing assets and
liabilities and loss carry forwards and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.





Off-balance sheet
arrangements





The
Company does not have any off-balance sheet arrangements.





Comprehensive
income





The
Company has adopted SFAS No. 130, “Reporting Comprehensive Income”, which
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances.  Components of comprehensive
income include net income/loss and foreign currency translation
adjustments.





Foreign currency
translation





The
functional currency of the Company and its subsidiaries includes United States
dollars (“US$”) and Renminbi (“RMB”).  The Company and its
subsidiaries maintain their respective financial statements in the functional
currency.  Monetary assets and liabilities denominated in currencies
other than the functional currency are translated into the functional currency
at rates of exchange prevailing at the balance sheet
date.  Transactions denominated in currencies other than the
functional currency are translated into the functional currency at the exchanges
rates prevailing at the dates of the transaction.  Exchange gains or losses
arising from foreign currency transactions are included in the determination of
net income/loss for the respective periods.







11


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








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





Foreign currency
translation (cont’d)





For
financial reporting purposes, the financial statements of the subsidiaries which
are prepared using RMB have been translated into US$.  Assets and
liabilities are translated at the exchange rates at the balance sheet date and
revenue and expenses are translated at the average exchange rates and
stockholders’ equity is translated at historical exchange
rates.  Any translation adjustments resulting are not included in
determining net income/loss but are included in foreign currency translation
adjustments to accumulated other comprehensive income, a component of
stockholders’ equity.  The exchange rates in effect as of
December 31, 2008 and 2007 were RMB1 for $0.1467 and $0.1371 respectively.
The average exchange rates for the years ended December 31, 2008 and 2007 were
RMB1 for $0.1442 and $0.1317 respectively. There was no significant
fluctuation in the exchange rates for conversion of RMB to US$ after the balance
sheet date.





Fair value of financial
instruments





In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements”.  SFAS 157 defines fair value, establishes a framework
for measuring fair value in GAAP, and expands disclosures about fair value
measurements.  SFAS 157 does not require any new fair value
measurements; however, the standard will impact how other fair value based GAAP
is applied.  Subsequently, the FASB issued FSP FAS 157-2 which delayed
the effective date of SFAS 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually) to fiscal years
beginning after November 15, 2008. The Company adopted SFAS 157 on January 1,
2008. The adoption of SFAS 157 did not impact the Company’s financial position,
results of operations or cash flows.





The
Company considers the carrying values reported in the consolidated balance sheet
for current assets and current liabilities qualifying as financial instruments
approximate their fair values due to the short-term maturity of such
instruments.





It is the
management’s opinion that the Company is not exposed to significant interest,
price, foreign currency or credit risks arising from these financial
instruments.





Basic and diluted earnings
per share





The
Company reports basic earnings per share in accordance with SFAS No. 128,
“Earnings Per Share”.  Basic earnings per share is computed using the
weighted average number of shares outstanding during the periods
presented.  The weighted average number of shares of the Company
represents the average number of common stock outstanding during the reporting
periods.





Diluted
earnings per share are computed using the sum of weighted average number of
shares outstanding and dilutive potential shares outstanding during the
periods presented.  During the year ended December 31, 2008, dilutive
potential shares included warrants issued to investors.







12


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








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





Recently issued accounting
pronouncements





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - Including an Amendment of FASB
Statement No. 115” (“SFAS 159”).  SFAS 159 permits entities to
choose to measure many financial instruments and certain other items
at fair value.  Entities that elect the fair value option will
report unrealized gains and losses in earnings at each subsequent reporting
date.  The fair value option may be elected on an
instrument-by-instrument basis, with few exceptions.  SFAS 159 also
establishes presentation and disclosure requirements to facilitate comparisons
between companies that choose different measurement attributes for similar
assets and liabilities.  The requirements of SFAS 159 are effective
for the Company’s fiscal year beginning January 1, 2008.  The
Company did not elect the fair value option described in SFAS 159 for financial
instruments and certain other items.





In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations”.
SFAS 141 (Revised) establishes principles and requirements for how the acquirer
of a business recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree.  The statement also provides guidance for
recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination.  The guidance will become effective for the fiscal year
beginning after December 15, 2008.  The management is in the process
of evaluating the impact that SFAS 141 (Revised) will have on the Company’s
financial statements upon adoption.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements - an Amendment of ARB No. 51”.
 SFAS 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary.  The guidance will become effective for the fiscal year
beginning after December 15, 2008.  The management is in the process
of evaluating the impact that SFAS 160 will have on the Company’s financial
statements upon adoption.





In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities - an Amendment to FASB Statement 133”.  SFAS
161 provides new disclosure requirements for an entity’s derivative and hedging
activities.  SFAS 161 is effective for financial statements issued for
fiscal years beginning after November 15, 2008.  The management is in
the process of evaluating the impact that SFAS 161 will have on the Company’s
financial statements upon adoption.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”.  This statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with U.S. GAAP.  SFAS 162 is effective on
November 15, 2008.  The adoption of the statement did not result in a
change in the Company’s current practices.










13


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








4.           Finance
costs


Year
      ended December 31,2008
            
            
            2007Interest
      expenses
            
            
            $-
            
            
            
            $2,532Bank
      charges and net exchange loss
            
            
            40,821
            
            
            
            36,270$40,821
            
            
            
            $38,802








5.           Income
taxes





United
States





The
Company is subject to the United States of America Tax law at tax rate of
34%.  It has no assessable profit for both years ended December 31,
2008 and 2007.  The Company has not provided deferred taxes on
undistributed earnings of its non-U.S. subsidiaries as of December 31, 2008 and
2007, as it was the Company’s current policy to reinvest these earnings in
non-U.S. operations.





BVI





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





PRC





Oriental
Fashion is subject to the PRC Enterprise Income Tax (“EIT”).





As
Oriental Fashion was a wholly-foreign owned enterprise engaged in manufacture
industry which was duly approved by the PRC tax authority, it was entitled to
two years’ exemption, from the first profit making calendar year of operations
after offset of accumulated taxable losses, followed by 50% tax reduction for
the immediate next three calendar years.  This tax holiday commenced
in the fiscal financial year 2007.





On March
16, 2007, the National People’s Congress of the PRC determined to adopt the New
corporate income tax law (the “ New CIT Law”).  The New CIT Law
unifies the application scope, tax rates, tax deduction and preferential policy
for both domestic enterprises (“DE”) and foreign investment enterprises
(“FIE”).  The applicable tax rate of DE and FIE will be 25% after
their preferential tax holidays and the transition period have
ended.  During the transition period, tax rates for the subject
entities are 18%, 20%, 22% and 24% for the calendar years 2008, 2009, 2010 and
2011, respectively, before the application of applicable tax holidays or other
tax preferences.





By virtue
of the New CIT Law, Oriental Fashion was subject to EIT rate of 18% during 2008,
with full tax exemption.  During 2007, Oriental Fashion was subject to
EIT at 27% of which 24% was for national tax and 3% was for local tax of the
assessable profit. Pursuant to the relevant PRC tax laws and regulations,
Oriental Fashion enjoyed a preferential income tax rate of 15% since it operated
in the Shenzhen Special Economic Zone of the PRC.










14


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








5.           Income
taxes (Cont’d)





The
effective income tax differs from the PRC EIT tax rate of 18% and 15% for the
years ended December 31, 2008 and 2007 respectively, as follows:





Year
      ended December 31,2008
            
            
            2007Provision
      for income taxes at 18% (2007 : 15%)
            
            
            $186,962
            
            
            
            $(164,323
            )Non-deductible
      items for tax
            
            
            264,408
            
            
            
            532,021Tax
      holiday
            
            
            (451,370
            )
            
            
            (367,698
            )$-
            
            
            
            $-





During
the years ended December 31, 2008 and 2007, the amount of benefit from tax
holiday was $451,370 and $367,698 respectively and the effect on earnings per
share was both $0.02 respectively.





In July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes”.  This interpretation requires recognition and
measurement of uncertain income tax positions using a “more-likely-than-not”
approach.  The Company adopted FIN 48 on January 1,
2007.  The management evaluated the Company’s tax positions and
considered that no additional provision for uncertainty in income taxes was
necessary as of December 31, 2008.








6.           Earnings
(loss) per share - basic and diluted





The
following table sets forth the computation of basic and diluted earnings (loss)
per share (“EPS”) for the years presented:





Year
      ended December 31,2008
            
            
            2007Numerator:Net income
    (loss)
            
            
            $1,038,676
            
            
            
            $(1,095,484
            )Denominator:Weighted average number of
      shares used tocompute basic
    EPS
            
            
            22,840,000
            
            
            
            21,993,753Dilutive potential shares from
      assumed exerciseof warrants
            
            
            1,215
            
            
            
            -Weighted average number of
      shares used tocompute diluted
    EPS
            
            
            22,841,215
            
            
            
            21,993,753Earnings
      (loss) per share - Basic
            
            
            $0.05
            
            
            
            $(0.05
            )Earnings
      (loss) per share - Diluted
            
            
            $0.05
            
            
            
            $(0.05
            )





All share
and per share data have been adjusted to reflect the recapitalization of the
Company in the RTO.







15


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








7.           Trade
receivables


As
      of December 31,2008
            
            
            2007Trade
      receivables
            
            
            $2,212,779
            
            
            
            $1,582,300Allowance of
      doubtful accounts
            
            
            (13,023
            )
            
            
            (8,656
            )$2,199,756
            
            
            
            $1,573,644





An
analysis of the allowance of doubtful accounts for the years ended December
31, 2008 and 2007 are as follows:





Year
      ended December 31,2008
            
            
            2007Balance
      at beginning of year
            
            
            $8,656
            
            
            
            $-Addition
      of bad debt expense, net
            
            
            3,696
            
            
            
            8,313Translation
      adjustments
            
            
            671
            
            
            
            343Balance
      at end of year
            
            
            $13,023
            
            
            
            $8,656








8.           Inventories


As
      of December 31,2008
            
            
            2007Raw
      materials
            
            
            $153,303
            
            
            
            $55,320Work
      in progress
            
            
            -
            
            
            
            29,955Finished
      goods
            
            
            6,327,247
            
            
            
            2,598,2576,480,550
            
            
            
            2,683,532Allowance
      for obsolete inventories
            
            
            (19,929
            )
            
            
            (80,879
            )$6,460,621
            
            
            
            $2,602,653








9.           Other
receivables and deposits


As
      of December 31,2008
            
            
            2007Other
      receivables
            
            
            $74,154
            
            
            
            $-Rental,
      utilities and other deposits
            
            
            227,060
            
            
            
            100,460Trade
      deposits to suppliers
            
            
            3,984,005
            
            
            
            1,894,769$4,285,219
            
            
            
            $1,995,229










16


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








10.           Property
and equipment, net


As
      of December 31,2008
            
            
            2007Office
      equipment and computers
            
            
            $869,424
            
            
            
            $375,048Machinery
            
            
            15,466
            
            
            
            14,454Leasehold
      improvements
            
            
            542,469
            
            
            
            455,052Motor
      vehicles
            
            
            18,558
            
            
            
            17,3431,445,917
            
            
            
            861,897Accumulated
      depreciation
            
            
            (361,628
            )
            
            
            (137,216
            )Property
      and equipment, net
            
            
            $1,084,289
            
            
            
            $724,681





Depreciation
for the years ended December 31, 2008 and 2007 was $211,915 and $129,678
respectively.





During
the year ended December 31, 2008, property and equipment with aggregate carrying
amount of $3,583 were disposed of at considerations of $4,319, resulting in a
gain of $736.  There was no disposal during the year ended December
31, 2007.








11.           Trademarks





Oriental
Fashion, currently owns four trademarks, namely “Omnialuo”, “Omnialo”, “歐柏蘭羅” and “歐柏蘭奴” which were
registered in the PRC. These trademarks were transferred to the subsidiary from
a major stockholder of the Company for nil consideration during
2006.








12.           Secured
bank loan





The bank
loan is denominated in RMB and repayable within one year.  It carries
interest at 7.623% per annum.





The bank
loan is (i) guaranteed by Ms. Zheng Luo, who did not receive any compensation
for acting as guarantor; and (ii) secured by a guarantee put up by a
guaranty company, which received $8,649 from the Company for issuing the
guarantee .








13.           Loans
from stockholders





Certain
stockholders extended loans to the Company in 2006, which were interest-free,
unsecured and repayable on demand.  The Company repaid $6,242 to
the stockholders in 2008.











17


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








14.
            Other
      payables, deposits received and accrued
expenses





As
      of December 31,2008
            
            
            2007Other
      payables and accruals
            
            
            $247,754
            
            
            
            $135,558Amounts
      due to partners of co-owned stores
            
            
            324,347
            
            
            
            -Receipt
      in advance from customers
            
            
            1,754,379
            
            
            
            594,678Deposits
      received
            
            
            783,220
            
            
            
            432,931Value-added
      taxes payable
            
            
            686,258
            
            
            
            205,723$3,795,958
            
            
            
            $1,368,890








15.           Make
good escrow agreement





In
connection with the 2007 Private Placement, Ms. Zheng Luo and another
stockholder agreed to place 3,546,268 shares of the Company’s common stock they
collectively own in escrow (the “Escrow Shares”).  If the Company
fails to report net income of at least $2.0 million under U.S. GAAP (before
adjustments for non-cash and cash charges related to the RTO and the 2007
Private Placement, including any liquidated damages payments under the
registration rights agreement with the 2007 Private Placement investors (the
“Registration Rights Agreement”) and any expense relating to any issuance of
shares by the Company prior to the RTO and the 2007 Private Placement, and for
any charges related to the release of the Escrow Shares, and before accounting
for the impact on net income of any equity incentive options or shares granted)
for the fiscal year 2007, the escrow agent shall transfer to the investors in
the 2007 Private Placement the number of Escrow Shares based on the following
formula: (($2.0 million - 2007 Adjusted reported net income)/$2.0 million)
multiplied by the Escrow Shares, subject to a maximum number of 50% of the
Escrow Shares.





If the
Company fails to report net income of at least $4.3 million under U.S. GAAP
(before adjustments for non-cash and cash charges related to the RTO and
the 2007 Private Placement, including any liquidated damages payments under the
Registration Rights Agreement and any expense relating to any issuance of shares
by the Company prior to the RTO and the 2007 Private Placement, and for any
charges related to the release of Escrow Shares, and before accounting for the
impact on net income of any equity incentive options or shares granted) for the
fiscal year 2008, the escrow agent shall transfer to the investors in the 2007
Private Placement the lesser of: (i) the number of Escrow Shares based on the
following formula: (($4.3 million - 2008 Adjusted reported new income)/$4.3
million) multiplied by the Escrow Shares; or (ii) the number of Escrow Shares
still in escrow.





As
overall segment profit (before unallocated expenses relating to the reverse
acquisition, the 2007 Private Placement and related SEC resale registration
totaling $970,320, but less other unallocated general and administrative
expenses of $2,098 relating to corporate operations, not included in the segment
information) for the year ended December 31, 2007 was $2,176,827, the Company
achieved the net income threshold for the fiscal year 2007 and 50% of the Escrow
Shares were released back to Ms. Luo and the other stockholder.  Since
Ms. Luo is also the director and chief executive officer of the Company,
the release of shares from escrow to her constituted a compensatory plan and was
treated as an expense for the amount of the market value of the shares as of the
date the performance goals were met, i.e. December 31, 2007.








18


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








15.           Make
good escrow agreement (Cont’d)





The
Company’s common stock began trading on the Over-the-Counter Bulletin Board on
January 10, 2008.  The per share closing price of the Company’s common
stock on January 10, 2008 of  $1.5 was used to calculate the
compensation expense.  The total expense recognized for the fiscal
year 2007 was $2,299,893.





During
the year ended December 31, 2008, the Company’s net income (before unallocated
expenses relating to the reverse acquisition, the 2007 Private Placement and
related SEC resale registration totaling $698,257), was $2,151,132, before the
make good provision of $414,199.  Accordingly, the Company fails to
report the net income threshold for the fiscal year 2008 and the Escrow Shares
relating to the 2008 performance threshold will be released to the investors,
Ms. Luo and another stockholder pursuant to the agreed terms and
formula.





767,035
and 119,999 shares of the Escrow Shares will be released back to Ms. Luo and the
other stockholder.  The release of shares from escrow to Ms. Luo
constitutes a compensatory plan.  The per share closing price of the
Company’s common stock on December 31, 2008 of $0.54 was used to calculate the
compensation expenses.  The total expenses recognized for the fiscal
year 2008 is $414,199.





The
release of shares from escrow to the other stockholder does not constitute a
compensatory plan as this stockholder did not hold and currently does not hold
any position in the Company and has no relationship to the Company other than as
a stockholder.





The
release of shares held in escrow to the investors constitutes a donation from
Ms. Luo and the other stockholder to the Company.








16.           Commitments
and contingencies





Operating leasearrangements





The
Company leases office premises and showrooms under various non-cancelable
operating lease agreements that expire at various dates through years 2009
to 2013.  The minimum future commitments payable under these
agreements as of December 31, 2008 was $1,011,423.





Payable
      in:2009
            $397,5672010
            360,6602011
            176,0102012
            41,1662013
            36,020$1,011,423





Rental
expenses under operating leases were $462,658 and $227,602 for the years
ended December 31, 2008 and 2007 respectively.











19


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








17.           Statutory
reserve





The
statutory reserve comprises the statutory reserve of Oriental
Fashion.  In accordance with the relevant PRC regulations, Oriental
Fashion is required to appropriate 10% of its net income determined in
accordance with PRC GAAP each year, if any, to fund the statutory reserve until
the balance of the reserve reaches 50% of the registered capital.





The
statutory reserve is not distributable and can be used to make up cumulative
prior year losses.








18.           Defined
contribution plan





The
Company’s subsidiary has a defined contribution plan for all its qualified
employees in the PRC.  The Company’s subsidiary and its employees are
each required to make contributions to the plan at the rates specified in the
plan.  The only obligation of the Company’s subsidiary with respect to
retirement scheme is to make the required contributions under the
plan.  No forfeited contribution is available to reduce the
contribution payable in future years.  The defined contribution plan
contributions were charged to the consolidated statements of
operations.  The Company’s subsidiary contributed $25,644 and $15,197
for the years ended December 31, 2008 and 2007 respectively.








19.           Stock
option plan





On April
23, 2008, the board of directors adopted the 2008 Equity Incentive Plan (the
“Plan”).  The purposes of the Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees, directors and consultants, and to promote the
success of the Company’s business.  The maximum aggregate number of
shares that may be issued under the Plan is 5,000,000 shares.





No option
was granted during the year ended December 31, 2008.








20.           Related
party transactions





Apart
from the transactions and information as disclosed in notes 12 and 13 to the
consolidated financial statements, the Company had the following material
transactions with Yin Hu Company and Shenzhen Oumeng Industrial Co., Ltd.
(“Oumeng”) during the reporting periods:





Year
      ended December 31,2008
            
            
            2007Purchase
      of finished goods from Yin Hu Company
            
            
            $-
            
            
            
            $1,185,895Subcontracting
      charges paid to Yin Hu Company
            
            
            -
            
            
            
            389,234Purchase
      of finished goods from Oumeng
            
            
            $540,900
            
            
            
            $1,451,699











20


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








20.           Related
party transactions (Cont’d)





Certain
of the Company’s principal stockholders were also principal shareholders of
Oumeng during the reporting period and a director of Oriental Fashion, who is
also the spouse of a principal stockholder of the Company and director of
Oriental Fashion, managed part of the business of Oumeng during the reporting
periods.  A principal stockholder of the Company was also a principal
shareholder of Yin Hu Company during part of year 2007.  Therefore,
Oumeng and Yiu Hu Company are deemed to have been under common control with the
Company during the reporting periods and year 2007 respectively.





The
Company has advised that it believes the terms obtained and consideration paid
in connection with the transactions described above were no less favorable than
those that would have been obtained by the Company in arm’s-length transactions
with an unrelated party.








21.           Segment
information





The
Company uses the “management approach” in determining reportable operating
segments.  The management approach considers the internal organization
and reporting used by the Company’s chief operating decision maker for making
operating decisions and assessing performance as the source for determining the
Company’s reportable segments.  Management, including the chief
operating decision maker, reviews the operating results of retail sales
(including Company-owned and co-owned stores) and sales to distributors and
as such, the Company has determined that it has two operating segments as
defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and
Related Information”.





Retail
      sales
            
            
            Sales
      to distributors
            
            
            Total2008
            
            
            2007
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Revenue
      from external customers
            
            
            $5,286,221
            
            
            
            $1,849,765
            
            
            
            $6,616,183
            
            
            
            $6,025,992
            
            
            
            $11,902,404
            
            
            
            $7,875,757Gross
      profit
            
            
            3,269,155
            
            
            
            1,110,490
            
            
            
            3,794,963
            
            
            
            3,140,781
            
            
            
            7,064,118
            
            
            
            4,251,271Interest
      income
            
            
            5,444
            
            
            
            1,075
            
            
            
            6,813
            
            
            
            3,506
            
            
            
            12,257
            
            
            
            4,581Interest
      expenses
            
            
            -
            
            
            
            595
            
            
            
            -
            
            
            
            1,937
            
            
            
            -
            
            
            
            2,532Depreciation
            
            
            100,797
            
            
            
            36,109
            
            
            
            111,118
            
            
            
            93,569
            
            
            
            211,915
            
            
            
            129,678Segment
      profit
            
            
            210,750
            
            
            
            137,294
            
            
            
            2,343,175
            
            
            
            2,039,533
            
            
            
            2,553,925
            
            
            
            2,176,827Segment
      assets
            
            
            6,550,246
            
            
            
            3,195,679
            
            
            
            8,198,225
            
            
            
            5,663,133
            
            
            
            14,748,471
            
            
            
            8,858,812Expenditure
      for segment assets
            
            
            $231,155
            
            
            
            $168,369
            
            
            
            $289,311
            
            
            
            $641,073
            
            
            
            $520,466
            
            
            
            $809,442











21


OmniaLuo,
Inc.


Notes
to Consolidated Financial Statements


(Stated
in US Dollars)








21.           Segment
information (Cont’d)





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





Year
      ended December 31,2008
            
            
            2007Total
      consolidated revenues
            
            
            $11,902,404
            
            
            
            $7,875,757Total
      profit for reportable segments
            
            
            $2,553,925
            
            
            
            $2,176,827Unallocated
      amounts relating to operations:Other
      income
            
            
            21
            
            
            
            1,066General
      and administrative expenses
            
            
            (1,101,071
            )
            
            
            (973,484
            )Make
      good provision
            
            
            (414,199
            )
            
            
            (2,299,893
            )Income
      (loss) before income taxes
            
            
            $1,038,676
            
            
            
            $(1,095,484
            )





As
      of December 31,2008
            
            
            2007AssetsTotal assets for reportable
      segments
            
            
            $14,748,471
            
            
            
            $8,858,812Cash and cash
      equivalents
            
            
            535,411
            
            
            
            1,121,110$15,283,882
            
            
            
            $9,979,922





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








22