Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is currently quoted on the OTCQB under the symbol “EOSS.” There has not been any significant trading to date in the Company’s common stock. The table below presents the high and low bid for our common stock for each quarter for the years ended December 31, 2017 and 2016. These prices reflect inter-dealer prices, without retail markup, markdown, or commission, and may not represent actual transactions.
|
|
High
|
|
|
Low
|
|
Year ended December 31, 2017
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
4.30
|
|
|
$
|
4.30
|
|
2nd Quarter
|
|
$
|
1.80
|
|
|
$
|
1.80
|
|
3rd Quarter
|
|
$
|
1.70
|
|
|
$
|
1.53
|
|
4th Quarter
|
|
$
|
1.40
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
|
N/A
|
|
|
|
N/A
|
|
2nd Quarter
|
|
|
N/A
|
|
|
|
N/A
|
|
3rd Quarter
|
|
|
N/A
|
|
|
|
N/A
|
|
4th Quarter
|
|
$
|
0.01
|
|
|
$
|
0.01
|
|
There were approximately 150 holders of record of our common stock as of April 2, 2018.
Common Stock
As the date of this annual report, the outstanding number of shares of our common stock was 64,122,997. All our outstanding common shares are fully paid and non-assessable.
Our shareholders are entitled to one vote for each share of our common stock owned on any and all matter brought forth at a shareholders’ meeting. There are no cumulative voting rights, which mean that the shareholder or shareholders owning 50% of the issued and outstanding shares in our capital stock can elect the entire board of directors. Therefore, any shareholder or shareholders, cumulatively, with less than 50% cannot elect any director to the board of directors on their won. Pursuant to the provisions of Section 78.320 if the Nevada Revised Statues (the “NRS”) at least one percent of the outstanding shares of stock entitled to vote must be present, in person or by proxy, at any meeting in favor of the action exceeds the number of votes cast in opposition to the action, provided, however, that directors are elected by a plurality of the votes of the shares present at the meeting and entitled to vote. Certain fundamental corporate changes such as the liquidation of all our assets, mergers or amendments to our Articles of Incorporation require the approval of holders of a majority of the outstanding shares entitled to vote.
Holders of our common stock have no pre-emptive rights, no conversion rights and no subscription rights. There are no redemption or sinking fund provisions applicable to our common stock.
Preferred Stock
At present, we have no preferred stock authorized.
Rule 144 Share Restrictions
Under Rule 144, an individual who is not an affiliate of our Company and has not been an affiliate at any time during the 3 months preceding a contemplated sale and has been the beneficial owner of our shares for at least 6 months would be entitled to sell them without restriction. This is subject to the continued availability of current public information about us for the first year that can be eliminated after a one-year hold period.
Whereas an individual who is deemed to be our affiliate and has beneficially owned our common shares for at least 6 months can sell his or her shares in a given 3 month period as follows:
|
1.
|
One percent of the number of shares of our common stock then outstanding, or
|
|
|
|
|
2.
|
The average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
|
As of the date of this Form 10-K, we are a shell company. Rule 144 is not available for securities initially issued by a shell company, whether reporting or non-reporting, or a company that was at any time previously a shell company, unless that company:
|
·
|
has ceased to be a shell company;
|
|
|
|
|
·
|
is subject to the Securities Exchange Act of 1934 (the “Exchange Act”) reporting obligations;
|
|
|
|
|
·
|
has filed all required Exchange Act reports during the preceding 12 months; and
|
|
|
|
|
·
|
at least one year has elapsed from the time that company filed with the SEC current Form 10 type information specifying its status as an entity that is not a shell company.
|
As a result, any person initially issued shares of our common stock, excluding those shares registered in our effective registration statement, may not be entitled to sell such shares until the above conditions have been satisfied. Upon satisfaction of these conditions, such sales by our affiliates would be limited by manner of sale provisions and notice requirements and the availability of current public information, about us as set forth above.
Dividends
The holders of our common stock are entitled to receive dividends on a pro rata based on the number of shares held, when and if declared by our Board of Directors, from funds legally available for that purpose. Section 78.288 of Chapter 78 of the NRS prohibits us from declaring dividends where, after giving effect to the distribution of the dividend we would not be able to pay our debts as they become due in the normal course of business; or except as may be allowed by our Articles of Incorporation, our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders who may have preferential rights and whose preferential rights are superior to those receiving the distribution. We do not, however, intend to pay any dividends in the foreseeable future and currently intend to retain all future earnings to finance our business.
Our shareholders are not entitled to preference as to dividends or interest; pre-emptive rights to purchase new issues of shares; preference upon liquidation; or any other special rights or preferences.
There are no restrictions on dividends under any loan or other financing arrangements.
We paid no dividends on our common stock in 2017. We do not have a policy of paying regular dividends and do not expect to pay any dividends on our common stock in the foreseeable future. We currently intend to retain any future earnings for our business. The payment of any future dividends on our common stock will be determined by our Board of Directors and will depend on business conditions, our financial earnings and other factors.
Outstanding Stock Options, Purchase Warrants and Convertible Securities
We have no outstanding stock options, purchase warrants or convertible securities.
Equity Compensation Plans, Bonus Plans
We have no such plans. None have been approved. We have no Compensation Committee.
Pension Benefits
We do not have any defined benefit pension plans.
Nonqualified Deferred Compensation
We do not maintain any nonqualified deferred compensation plans.
Debt Securities
We have no debt securities outstanding.
Repurchase Programs
There is currently no share repurchase program pending.
Recent Transactions Involving Unregistered Securities
None.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
Some of the statements contained in this Form 10-K that are not historical facts are “forward-looking statements” which can be identified by the use of terminology such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Form 10-K, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties, and other factors affecting our operations, market growth, services, products, and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:
|
1.
|
Our ability to attract and retain management and key employees;
|
|
2.
|
Our ability to generate customer demand for our products;
|
|
3.
|
The intensity of competition; and
|
|
4.
|
General economic conditions.
|
All written and oral forward-looking statements made in connection with this Form 10-K that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
Overview
Description of Business
General Information
EOS Inc. (“we,” “us,” “our,” or the “Company”) was incorporated in the State of Nevada on April 3, 2015.
On or about November 18, 2016, the Company caused to be formed EOS INC. TAIWAN BRANCH, a Taiwanese corporation (“EITB”). To date, EITB has no shareholders.
During the year ended December 31, 2017, the Company paid the expenses of EITB, and the amount of those expenses is $6,290. Additionally, the Company will continue to pay the expenses of EITB.
The principal executive office of EITB is located at Room 519, 5F, No. 372, Linsen N. Road, Zhongshan District, Taipei City, 104, Taiwan (Republic of China). The Company reimburses EITB for the rent for that office, the average amount of which is $370 per month.
Yu-Cheng Yang, the Company’s sole director, is the sole director of EITB.
Yu-Hsiang Chia is the branch manager of EITB. Mr. Chia, also, holds 2,700,000 shares of the Company’s common stock.
Emperor Star International Trade Co., Ltd., (“Emperor Star”), was incorporated on November 16, 2015 under the laws of Taiwan. The Company is in the business of marketing and distribution of various products, including detergents, nutrition supplements, and skin care products.
On May 3, 2017, the Company entered into and closed a Share Purchase and Sale Agreement (the “Purchase Agreement”) with Emperor Star and the shareholder of Emperor Star to acquire all issued and outstanding shares of Emperor Star in consideration of $30,562 in cash. As a result of the Purchase, Emperor Star becomes the Company’s wholly owned subsidiary. Upon consummation of the Purchase, the Company has assumed the business of Emperor Star and ceased to be a shell company.
Yu-Hsiang Chia currently serves as the officer and director of Emperor Star. Mr. Chia, also, holds 2,700,000 shares of the Company’s common stock.
We have never been a party to any bankruptcy, receivership or similar proceeding, nor have we undergone any material reclassification, merger, consolidation, purchase or sale of a significant amount of assets not in the ordinary course of business.
We plan to market and distribute in Taiwan skin care products manufactured by A.C. (USA), Inc., which is located in the City of Industry, California (“A.C.”). We intend to market and distribute those skin care products to resellers who will recognize the needs of their targeted customers and who identify with those customers. Our strategy will be to target spas, department stores and specialty stores that sell similar skin products.
The skin care products that we will distribute are designed to address various skin care needs. Those products include moisturizers, serums, cleansers, toners, body care, exfoliators, acne and oil correctors, facial masks, cleansing devices and sun care products. A number of those products are developed for use on particular areas of the body, such as the face or hands or around the eyes.
Effective May 3, 2017, we entered into a definitive agreement under which EOS acquired all issued and outstanding shares of Emperor Star International Trade Co., Ltd. (“Emperor Star”), a Taiwanese corporation. The acquisition was carried out in accordance with a Share Purchase and Sale Agreement dated May 3, 2017 (the “Purchase Agreement”) among our company and Mr. Yang Yu Cheng in consideration of USD$30,562 in cash. Upon consummation of the Purchase, the Company has assumed the business of Emperor Star and ceased to be a shell company.
Emperor Star was incorporated in Taiwan in November 2015. The company distributes highly innovative personal care products and ecologically friendly cleaning products in Taiwan with plans to expand distribution to China, Malaysia, and Thailand. Emperor Star’s product line includes anti-aging products that address the key signs of aging to reinvigorate and provide youthful energy and nutrition supplements. The company also distributes a line of ecologically friendly cleaning products that gently wash fruits and vegetables, laundry, dishes, and more.
Critical Accounting Policies and Estimates
Principles of Consolidation
The accompanying unaudited consolidated financial statements, including the accounts of EOS Inc. and its wholly owned subsidiaries in Taiwan, have been prepared in conformity with accounting principles generally accepted in the United States of America. Since the Company and Emperor Star are entities under Mr. Yu Cheng Yang’s common control prior to the acquisition of Emperor Star, the transaction is accounted for as a restructuring transaction. All the assets and liabilities of Emperor Star were transferred to the Company at their respective carrying amounts on the date of transaction. The Company has recast prior period financial statements to reflect the conveyance of Emperor Star’s common shares as if the restructuring transaction had occurred as of the earliest date of the financial statements. All material intercompany accounts, transactions, and profits have been eliminated in consolidation. The nature of and effects on earnings per share (EPS) of nonrecurring intra-entity transactions involving long-term assets and liabilities is not required to be eliminated and EPS amounts have been recast to include the earnings (or losses) of the transferred net assets.
The functional currency of the subsidiaries in Taiwan is the New Taiwan dollars, however the accompanying unaudited consolidated financial statements have been translated and presented in United States Dollars ($). In the accompanying unaudited consolidated financial statements and notes, “$”, “US$” and “U.S. dollars” mean United States dollars, and “NT$” and “NT dollars” mean New Taiwan dollars.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Classification
Certain classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net loss nor accumulated deficit.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid instruments with original maturities of three months or less.
Accounts Receivable
Accounts receivable are stated at carrying value less estimates made for doubtful receivables. An allowance for impairment of trade receivables is established if the collection of a receivable becomes doubtful. Such receivable becomes doubtful when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. An impairment loss is recognized in the statement of income, as are subsequent recoveries of previous impairments.
Inventory
Inventory is stated at the lower of cost and net realizable value. Net realizable value (NRV) is defined as estimated selling prices less costs of completion, disposal, and transportation. Inventory consists mainly of finished goods held for resale. Cost is determined on a weighted average cost method. The Company periodically reviews the age and turnover of its inventory to determine whether any inventory has become obsolete or has declined in value, and incurs a charge to operations for known and anticipated inventory obsolescence.
Property and Equipment
Property and equipment is carried at cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Expenditures that improve the functionality of the related asset or extend the useful life are capitalized. When property and equipment is retired or otherwise disposed of, the related gain or loss is included in operating income. Leasehold improvements are depreciated on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Depreciation is calculated on the straight-line method, including property and equipment under capital leases, generally is five years. Depreciation expense is $1,143 and $410 for the years ended December 31, 2017 and 2016, respectively.
Impairment of Long-Lived Assets
The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve breakeven operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. Management has determined that no impairments of long lived assets currently exist.
Revenue Recognition
Revenues are recognized when products are shipped to customers, both title and the risks of ownership are transferred, and the collectability of accounts receivable can be reasonably assured. The Company’s standard shipping term is Free on Board (FOB) - shipping point. Usually no sales returns, discounts or other allowances are provided to customers. Shipping and handling charges to customers are included in net sales. Shipping and handling charges incurred by the Company are included in selling, general and administrative expenses.
Advertising Costs
Advertising costs are expensed at the time such advertising commences. Advertising expenses were $50 and $32,038 for the years ended December 31, 2017 and 2016, respectively.
Post-retirement and post-employment benefits
The Company’s subsidiaries adopted the government mandated defined contribution plan pursuant to the Labor Pension Act (the “Act”) in Taiwan. Such labor regulations require that the rate of contribution made by an employer to the Labor Pension Fund per month shall not be less than 6% of the worker’s monthly salaries. Pursuant to the Act, the Company makes monthly contribution equal to 6% of employees’ salaries to the employees’ pension fund. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $1,629 and $1,863 for the years ended December 31, 2017 and 2016, respectively. Other than the above, the Company does not provide any other post-retirement or post-employment benefits.
Fair Value Measurements
FASB ASC 820, “Fair Value Measurements” defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It requires that an entity measure its financial instruments to base fair value on exit price, maximize the use of observable units and minimize the use of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability of the inputs as follows:
|
·
|
Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted prices in active markets that are readily and regularly available.
|
|
·
|
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
·
|
Level 3 – Valuations based on inputs that are unobservable and not corroborated by market data. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies, or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability.
|
The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, inventory, advance to suppliers, prepaid expenses, accounts payable, accrued expenses, and due to shareholders, approximate fair value due to their relatively short maturities.
Net Income (Loss) per Share
Basic income (loss) per share is computed by dividing net income by weighted average number of shares of common stock outstanding during each period. Diluted income per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents, and potentially dilutive securities outstanding during each period. At December 31, 2017 and 2016, the Company does not have any outstanding common stock equivalents; therefore, a separate computation of diluted loss per share is not presented.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.
Concentration of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and restricted cash. The Company places its cash and temporary cash investments in high quality credit institutions, but these investments may be in excess of Taiwan Central Deposit Insurance Corporation’s insurance limits. The Company does not enter into financial instruments for hedging, trading or speculative purposes. Concentration of credit risk with respect to trade and notes receivables is limited due to the wide variety of customers and markets in which the Company transacts business, as well as their dispersion across many geographical areas. The Company performs ongoing credit evaluations of its customers and generally does not require collateral, but does require advance deposits on certain transactions.
Customers
: The Company performs ongoing credit evaluations of its customers’ financial condition and generally, requires no collateral. For the year ended December 31, 2017, four customers accounted for more than 10% of the Company’s total revenues, represented approximately 99.8% of its total revenues, and 100% of accounts receivable in aggregate at December 31, 2017.
Customer
|
|
Net Sales for
the year
2017
|
|
|
A/R balance as of December 31,
2017
|
|
A
|
|
$
|
582,973
|
*
|
|
$
|
561,978
|
|
B
|
|
$
|
371,043
|
*
|
|
$
|
-
|
|
C
|
|
$
|
365,815
|
*
|
|
$
|
224,203
|
|
D
|
|
$
|
186,266
|
*
|
|
$
|
-
|
|
____________
*Related party transactions (See Note 2).
For the year ended December 31, 2016, only one customer accounted for more than 10% of the Company’s total revenues, represented 100% of its total revenues, and 0% of accounts receivable in aggregate at December 31, 2016.
Customer
|
|
Net Sales for
the year
2016
|
|
|
A/R balance as of
December 31,
2016
|
|
A
|
|
$
|
281,111
|
*
|
|
$
|
-
|
|
____________
*Related party transactions (See Note 2).
Suppliers:
The Company’s inventory is purchased from various suppliers. For the year ended December 31, 2017, three suppliers who accounted for more than 10% of the Company’s total net purchase, representing approximately 45%, 33%, and 17% of total net purchase, and 0% , 92%, and 0% of accounts payable in aggregate at December 31, 2017, respectively:
Supplier
|
|
Net Purchase for
the year
2017
|
|
|
Accounts payable balance as of
December 31,
2017
|
|
A
|
|
$
|
123,878
|
|
|
$
|
-
|
|
B
|
|
$
|
92,046
|
|
|
$
|
34,221
|
|
C
|
|
$
|
45,941
|
|
|
$
|
-
|
|
For the year ended December 31, 2016, five suppliers who accounted for more than 10% of the Company’s total net purchase, representing approximately 18%, 18%, 16%, 15%, and 15% of total net purchase, and 0% of accounts payable in aggregate at December 31, 2016, respectively:
Supplier
|
|
Purchase for
the year
2016
|
|
|
Accounts payable balance as of
December 31,
2016
|
|
A
|
|
$
|
15,081
|
|
|
$
|
-
|
|
B
|
|
$
|
14,938
|
|
|
$
|
-
|
|
C
|
|
$
|
13,498
|
|
|
$
|
-
|
|
D
|
|
$
|
12,722
|
|
|
$
|
-
|
|
E
|
|
$
|
12,456
|
|
|
$
|
-
|
|
Foreign-currency Transactions
Foreign-currency transactions are recorded in New Taiwan dollars (“NTD”) at the rates of exchange in effect when the transactions occur. Gains or losses resulting from the application of different foreign exchange rates when cash in foreign currency is converted into New Taiwan dollars, or when foreign-currency receivables or payables are settled, are credited or charged to income in the year of conversion or settlement. On the balance sheet dates, the balances of foreign-currency assets and liabilities are restated at the prevailing exchange rates and the resulting differences are charged to current income except for those foreign currencies denominated investments in shares of stock where such differences are accounted for as translation adjustments under Equity.
Translation Adjustment
The accounts of the Company’s subsidiaries were maintained, and their financial statements were expressed, in New Taiwan Dollar (“NTD”). Such financial statements were translated into U.S. Dollars (“$” or “USD”) in accordance ASC 830, “Foreign Currency Matters”, with the NTD as the functional currency. According to the Statement, all assets and liabilities are translated at the current exchange rate, Equity’s deficit are translated at the historical rates and income statement items are translated at an average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income as a component of Equity’s deficit.
Comprehensive Income (loss)
Comprehensive income (loss) includes accumulated foreign currency translation gains and losses. The Company has reported the components of comprehensive income (loss) on its consolidated statements of operations and other comprehensive income (loss).
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases.” The core principle of the ASU is that a lessee should recognize the assets and liabilities that arise from its leases other than those that meet the definition of a short-term lease. The ASU requires extensive qualitative and quantitative disclosures, including with respect to significant judgments made by management. Subsequently, the FASB issued ASU No. 2017-13, in September 2017 and ASU No. 2018-01, in January 2018, which amends and clarifies ASU 2016-02. The ASU will be effective for the Company beginning January 1, 2019, including interim periods in the fiscal year 2019. Early adoption is permitted. The Company is in the process of determining the method of adoption and assessing the impact of this ASU on its consolidated results of operations, cash flows, financial position and disclosures.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) . In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing . In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients and ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting . In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842). These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. ASU 2016-10 clarifies the following two aspects of ASU 2014-09: identifying performance obligations and licensing implementation guidance. ASU 2016-11 rescinds several SEC Staff Announcements that are codified in Topic 605, including, among other items, guidance relating to accounting for consideration given by a vendor to a customer, as well as accounting for shipping and handling fees and freight services. ASU 2016-12 provides clarification to Topic 606 on how to assess collectability, present sales tax, treat noncash consideration, and account for completed and modified contracts at the time of transition. ASU 2016-12 clarifies that an entity retrospectively applying the guidance in Topic 606 is not required to disclose the effect of the accounting change in the period of adoption. Additionally, ASU 2016-20 clarifies certain narrow aspects within Topic 606 including its scope, contract cost accounting, and disclosures. The new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. The effective date and transition requirements for these amendments are the same as the effective date and transition requirements of ASU 2014-09, which is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2017. The Company is currently evaluating the overall impact that ASU 2014-09 and its related amendments will have on the Company’s financial statements.
On December 22, 2017, the SEC issued Staff Accounting Bulletin (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the Tax Act. While the Company is able to make reasonable estimates of the impact of the reduction in corporate rate and the deemed repatriation transition tax, the final impact of the Tax Act may differ from these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by the I.R.S., and actions we may take. The Company is continuing to gather additional information to determine the final impact.
Results of Operations
The following presents the consolidated results of the Company for the years ended December 31, 2017 and December 31, 2016.
Net Revenue
:
Net revenue was $1,509,880 for the year ended December 31, 2017, representing an increase of $1,228,769, or 437.11%, as compared to $281,111 for the year ended December 31, 2016. The increase was primarily due to the increase in sales of nutrition supplements and skin care products.
Cost of Sales
:
Cost of sales was $277,707 for the year ended December 31, 2017, representing an increase of $146,475, or 111.61%, as compared to $131,232 for the year ended December 31, 2016. The increase was mainly due to the increase in sales.
Gross Profit
:
Gross Profit was $1,232,173 for the year ended December 31, 2017, compared to $149,879 for the year ended December 31, 2016. Gross profit as a percentage of net sales was approximately 81.60% for the year ended December 31, 2017, compared to approximately 53.31% in the same period in 2016. The change in gross profit margin was due to more skin care products with higher yield margin sold during the year ended December 31, 2017.
Selling, General and Administrative Expenses
:
Selling, general and administrative expenses has decreased to $351,040 for the year ended December 31, 2017, representing a 12.51% decrease, compared to $401,273 for the year ended December 31, 2016. The decrease in selling, general and administrative expenses was mainly attributable to the decrease in payroll expenses and advertising expenses.
Income (Loss) from Operations:
Income (loss) from operations was $881,133 for the year ended December 31, 2017 compared to $(251,394) for the year ended December 31, 2016. Such increase was primarily due to the increase in sales of higher yield margin skin care products and the decrease in selling and general and administrative expenses.
Other Income (expenses):
Other income (expenses) was $49,547 for the year ended December 31, 2017, a 913.71% increase, as compared to $(6,089) for the year ended December 31, 2016. The increase was primarily attributable to the increase in other income for service fees due from related parties of $60,138, partially offset by the increase in loss on foreign currency exchange.
Net Income (Loss):
As a result of the above factors, we had net income of $890,972 for the year ended December 31, 2017 as compared to $(257,483) for the year ended December 31, 2016, representing an increase of $1,148,455 or 446.03%.
Liquidity and Capital Resources
Our principal sources of liquidity are cash and cash equivalents. Our cash and cash equivalent at December 31, 2017 and December 31, 2016 were $24,610 and $42,086, respectively.
Net cash flow from operating activities in the year ended December 31, 2017 and in the year ended December 31, 2016 was $15,788 and $(112,652), respectively. Net cash flow provided by operating activities in the year ended December 31, 2017 was mainly due to our net income of $890,972 and the increase in accounts payable and income tax payable, partially offset by the increase in accounts receivable, prepaid expenses and the decrease in advance from customers and due to related parties.
Net cash used in investing activities was $35,664 during the year ended December 31, 2017, as compared to $3,607 for the year ended December 31, 2016. The increase in net cash used in investing activities primarily because we acquired all issued and outstanding shares of one of our subsidiaries in Taiwan in consideration of $30,562 in cash during the year ended December 31, 2017.
Net cash flow provided by financing activities in the year ended December 31, 2017 and in the year ended December 31, 2016 was $0 and $100,000, respectively. The cash flow provided by financing activity was from the cash proceeds from the sale of our common stock.
Capital Expenditures
Total capital expenditures during the year ended December 31, 2017, and the year ended December 31, 2016 were $5,102 and $3,607, respectively.
Inflation
Our opinion is that inflation has not had, and is not expected to have, a material effect on our operations.
Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of December 31, 2017.