UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K/A





Amendment
No. 1





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





Commission
File Number 000-52040









OMNIALUO,
INC.


(Name
of Small Business Issuer in Its Charter)







State
      of Delaware
            88-1581799(State
      of Incorporation)
            (IRS
      Employer I.D. Number)





Room
101, Building E6


Huaqiaocheng
East Industrial Park


Nashan
District


Shenzhen
518053


The
People’s Republic of China




(Address
of principal executive offices)




(+86)
755 - 8245 - 1808





(Registrant’s
telephone number, including area code)







Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes  ̈Nox





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes  ̈Nox





Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.


Yesx  No ̈ ̈





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




Large accelerated filer ̈ ̈
            Accelerated filer ̈ ̈
            Non-accelerated filer ̈ ̈
            Smaller reporting companyx





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


Yes  ̈Nox





The
aggregate market value of the voting and non-voting common equity of the
registrant held by non-affiliates (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, 2009 (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 2,012,486.28








EXPLANATORY
NOTE




OmniaLuo,
Inc. (the “Company”) filed an Annually Report for the fiscal year ended December
31, 2008 on Form 10-K with the Securities and Exchange Commission on March 31,
2009 (the "Original Filing"). This Amendment to the Original Filing on Form
10-K/A is being filed solely to amend certain disclosure regarding our total
segment profit contained in Item 7 – Management’s Discussion and Analysis of
Financial Condition and Results of Operations, and Item 9A(T).Controls and
Procedures.










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 IncomeYearEnded
                  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).




Oriental
Fashion is the Company’s only operating subsidiary and is engaged in woman
apparel design, manufacturing and distribution in China. The total profit for
reportable segment in the fiscal year ended December 31, 2008 was $2,553,925,
which was derived from the operations of Oriental Fashion. This figure can be
reconciled to the income before income taxes by (i) adding other unallocated
income of $21, and (ii) deducting the listing-related and other
corporate expenses borne by the Company and Omnia Luo Group Limited of
$1,101,071 (these expenses were included in general and administrative expenses)
and make good provisions of $414,199.





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)
            A  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.




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.








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.




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.




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
9A(T). Disclosure 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 bedisclosed 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 in providing reasonable assurance of achieving their objectives
for the year ended December 31, 2008.




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; and





Provide
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 was 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.





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




Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.





OMNIALUO,
      INC.Dated:
      February 11,
      2010
                  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.




Signature
                                  
                                  Title/s/
      Zheng Luo
                                  
                                  Chief
      Executive Officer and
                                  
                                  February
      11,
      2010Zheng
      Luo
                                  
                                  Chairwoman
      (Principal Executive Officer)/s/
      *
                                  
                                  Chief
      Financial Officer (Principal
                                  
                                  February
      11,
      2010David
      Wang
                                  
                                  Financial
      and Accounting Officer)/s/
      *
                                  
                                  Director
                                  
                                  February
      11,
      2010Wenbin
      Fang/s/
      *
                                  
                                  Director
                                  
                                  February
      11,
      2010Qing
      Huang/s/
      *
                                  
                                  Director
                                  
                                  February
      11,
      2010Fei
      Luo/s/
      *
                                  
                                  Director
                                  
                                  February
      11,
      2010Xiaoyin
      Luo/s/
      *
                                  
                                  Director
                                  
                                  February
      11,
      2010Charles
      C. Mo/s/
      *
                                  
                                  Director
                                  
                                  February
      11,
      2010Tianhong
      Yu





*By:
              /s/
      Zheng LuoZheng
      LuoAttorney-in-Fact









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




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)





Allowance
of doubtful 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:
 
 YearendedDecember31,2008
                            
                            
                            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
  AsofDecember31,2008
                    
                    
                    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:
 
 YearendedDecember31,2008
                    
                    
                    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
  AsofDecember31,2008
                    
                    
                    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
  AsofDecember31,2008
                    
                    
                    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
lease arrangements





The
Company leases office premises and showrooms under various non-cancelable
operating lease agreements that expire at various dates through years 2009
to 2013.  The minimum future commitments payable under these
agreements as of 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