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:
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1.
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Our ability to attract and retain management and key employees;
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2.
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Our ability to generate customer demand for our products;
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|
3.
|
The intensity of competition; and
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4.
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General economic conditions.
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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 formed EOS INC. TAIWAN BRANCH, a Taiwanese corporation (“EITB”) and the Company owns 100% of EITB.
During the year ended December 31, 2017, the Company paid the expenses of EITB in the amount of approximately $6,290. Additionally, the Company will continue to pay the expenses of EITB.
The principal executive office of EITB is located at 372, Linsen N. Road, Suite 519, 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 approximately $370 per month.
Yu-Cheng Yang, a shareholder of the Company, is the sole director of EITB.
Yu-Hsiang Chia is the branch manager of EITB. Mr. Chia 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. Emperor Star is in the business of marketing and distributing various consumer 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 to acquire all issued and outstanding shares of Emperor Star in consideration of $30,562 in cash. As a result of the transaction, Emperor Star became the Company’s wholly owned subsidiary. Upon consummation of the transaction, 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.
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.
General Business Overview
We market and distribute skin care products manufactured by A.C. (USA), Inc. (“A.C.”), which is headquartered in the City of Industry, California and has offices in Taiwan. We market and distribute A.C. skin care products to resellers who will recognize the needs of their targeted customers in various regions in Asia, such as People’s Republic of China (“PRC”), Singapore and Malaysia. We acquire the products from A.C.’s Taiwan warehouses. Our strategy is to target spas, department stores and specialty stores that sell similar skin products. As of the date of this annual report, we have sold the A.C. Products to local distributors and specialty stores.
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.
We believe the Company, together with its subsidiaries, distributes highly innovative personal care products and ecologically friendly cleaning products in Taiwan and plans to expand its 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 stopped the line of ecologically friendly cleaning products in 2018.
In April 2018, we, through our Emperor Star, started purchasing a type of water purifying machines from Cosminergy Hitech Development Co., Ltd. (“Cosminergy”) and reselling the water purifying machines in certain Asian areas and countries. The sales generated from selling the water purifying machines for the year ended December 31, 2018 were $556,600, accounting for approximately 31.30% of the total revenue of the said period.
In addition, we provided inventory, membership and business management software that designed by CKS Information Co., Ltd. to our customers in the fiscal year of 2018.
Distribution Agreement
On May 1, 2015, we entered into a written Distribution Agreement with A.C. pursuant to which we have an exclusive right to market and distribute in Taiwan certain skin care products manufactured by A.C. for a period of 5 years (the “Distribution Agreement”). Pursuant to the provisions of the Distribution Agreement, we will market and promote the A.C. Products as defined therein in Taiwan. Accordingly, we are the exclusive distributor for those A.C. Products in Taiwan.
On April 30, 2018, we, through our Emperor Star, entered into a distribution agreement (the “Cosminergy Distribution Agreement”) with Cosminergy Hitech Development Co., Ltd. (Cosminergy”) pursuant to which we started purchasing a type of water purifying machines from Cosminergy and reselling the water purifying machines in certain Asian areas and countries. The term of the said distribution agreement shall expire on April 30, 2019.
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 and British Virgin Islands, 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 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 income nor retained earnings.
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 $2,510 and $1,143 for the years ended December 31, 2018 and 2017, 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
During the fiscal year 2018, the Company has adopted Accounting Standards Codification (“ASC”), Topic 606 (ASC 606), Revenue from Contracts with Customers, using the modified retrospective method to all contracts that were not completed as of January 1, 2018. The Company recognized the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning of 2018. The results for the Company’s reporting periods beginning on and after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. Based on the Company’s review of existing sales contracts as of January 1, 2018, the Company concluded that the adoption of the new guidance did not have a significant change on the Company’s revenue during all periods presented.
Pursuant to ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines is within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration the Company is entitled to in exchange for the goods or services the Company transfers to the customers. At inception of the contract, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Merchandise Sales: The Company recognizes sales revenues from merchandise sales when customers obtain control of the Company’s products, which typically occurs upon delivery to customer. Merchandise sales revenues are recorded at the sales price, or “transaction price”.
Trade discount and allowances: The Company generally does not provide invoice discounts on product sales to its customers for prompt payment.
Product returns
:
The Company generally does not provide customers with the right to return a product for a full or partial refund, a credit, or an exchange for another product.
To date, product allowance and returns have been minimal and, based on its experience, the Company believes that returns of its products will continue to be minimal.
The following tables provide details of revenue by major products and by geography.
Revenue by Major Products
For the year ended December 31, 2018:
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|
|
|
Nutrition supplement
|
|
$
|
503,049
|
|
Skin care product
|
|
|
630,796
|
|
Water purifier machine
|
|
|
556,600
|
|
Software
|
|
|
86,320
|
|
Other
s
|
|
|
1,180
|
|
Total
|
|
$
|
1,777,945
|
|
Revenue by Geography
For the year ended December 31, 2018:
|
|
|
|
Asia Pacific
|
|
$
|
1,777,945
|
|
Total
|
|
$
|
1,777,945
|
|
Advertising Costs
Advertising costs are expensed at the time such advertising commences. Advertising expenses were $13,299 and $50 for the years ended December 31, 2018 and 2017, respectively.
Post-retirement and Post-employment Benefits
The Company’s subsidiaries in Taiwan adopted the government mandated defined contribution plan pursuant to the Taiwan Labor Pension Act (the “Act”). 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 $7,958 and $1,629 for the years ended December 31, 2018 and 2017, 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:
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·
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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.
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|
|
|
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·
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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.
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|
|
|
|
·
|
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.
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The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable, advance to suppliers, prepaid expenses, accounts payable, accrued expenses, and due to shareholders, approximate fair value because of to their relatively short maturities.
Net Income Per Share
Basic income 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 income by the weighted average number of shares of common stock, common stock equivalents, and potentially dilutive securities outstanding during each period. For the years ended December 31, 2018 and 2017, 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
Cash and cash equivalents
: The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents. 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.
Customers
: The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral.
For the year ended December 31, 2018, two customers accounted for more than 10% of the Company’s total revenues, representing approximately 69% and 16% of its total revenues, and 69% and 13% of accounts receivable in aggregate at December 31, 2018
Customer
|
|
Net sales for the year ended
December 31, 2018
|
|
|
Accounts receivable balance
as of December 31, 2018
|
|
A
|
|
$
|
1,235,203
|
|
|
$
|
1,263,833
|
|
B
|
|
|
279,405
|
|
|
|
237,980
|
|
For the year ended December 31, 2017, four customers accounted for more than 10% of the Company’s total revenues, represented approximately 39%, 25%, 24% and 12% of its total revenues, and 71%, 0%, 27% and 0% of accounts receivable in aggregate at December 31, 2017, respectively.
Customer
|
|
Net sales for the year ended
December 31, 2017
|
|
|
Accounts receivable balance
as of December 31, 2017
|
|
A
|
|
$
|
582,973
|
*
|
|
$
|
561,978
|
|
C
|
|
$
|
371,043
|
*
|
|
$
|
-
|
|
D
|
|
$
|
365,815
|
*
|
|
$
|
224,203
|
|
E
|
|
$
|
186,266
|
*
|
|
$
|
-
|
|
Suppliers
: The Company’s inventory is purchased from various suppliers. For the year ended December 31, 2018, three suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 41%, 23%, and 16% of total net purchase, and 0% of accounts payable in aggregate at December 31, 2018, respectively:
Supplier
|
|
Net purchase for the year
ended December 31, 2018
|
|
|
Accounts payable balance
as of December 31, 2018
|
|
A
|
|
$
|
50,529
|
|
|
$
|
-
|
|
B
|
|
$
|
28,371
|
|
|
$
|
-
|
|
C
|
|
$
|
19,620
|
|
|
$
|
-
|
|
For the year ended December, 2017, three suppliers 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
ended December 31, 2017
|
|
|
Accounts payable balance
as of December 31, 2017
|
|
B
|
|
$
|
123,878
|
|
|
$
|
-
|
|
D
|
|
$
|
92,046
|
|
|
$
|
34,221
|
|
E
|
|
$
|
45,941
|
|
|
$
|
-
|
|
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 accumulated other comprehensive income (loss) as a component of stockholders’ equity (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 Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (ASC 842), which was amended by ASU 2018-11, Leases (ASC 842): Targeted Improvements. The new guidance requires lessee recognition on the balance sheet of a right-of-use (ROU) asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term generally on a straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statement of cash flows. The standard is effective for public companies for fiscal years beginning after December 15, 2018 and early adoption is permitted. The standard requires a transition adoption election using either 1) a modified retrospective approach with periods prior to the adoption date being recast or 2) a prospective adoption approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods not recast. The Company anticipates adopting this standard with an effective date of January 1, 2019 using the prospective adoption approach. The Company has evaluated the changes from this standard to its future financial reporting and disclosures, and has designed and implemented related processes and controls to address these changes. The Company believes the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on its balance sheet for its office operating lease; and (2) providing significant new disclosures about its leasing activities related to the amount, timing and uncertainty of cash flows arising from leases. The Company is continuing its assessment, which may identify additional impacts this guidance will have on its financial statements and disclosures.
In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 118 (as further clarified by FASB ASU 2018-05, Income Taxes (Topic 740): “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”) to provide guidance for companies that may not have completed their accounting for the income tax effects of the Tax Cut and Jobs Act (“Tax Act”) in the period of enactment, which is the period that includes December 22, 2017. SAB No. 118 provides for a provisional one year measurement period for entities to finalize their accounting for certain income tax effects related to the Tax Act. SAB No. 118 provides guidance where: (i) the accounting for the income tax effect of the Tax Act is complete and reported in the Tax Act’s enactment period, (ii) the accounting for the income tax effect of the Tax Act is incomplete and reported as provisional amounts based on reasonable estimates (to the extent determinable) subject to adjustments during a limited measurement period until complete, and (iii) accounting for the income tax effect of the Tax Act is not reasonably estimable (no related provisional amounts are reported in the enactment period) and entities would continue to apply accounting based on tax law provisions in effect prior to the Tax Act enactment until provisional amounts are reasonably estimable. SAB No. 118 requires disclosure of the reasons for incomplete accounting additional information or analysis needed, among other relevant information. The Company is continuing to gather additional information to determine the final impact.
In February 2018, the FASB issued ASU No, 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain disclosures about stranded tax effects. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is currently evaluating the impact of adopting this new guidance on its financial position, results of operations, statement of comprehensive income, and cash flows.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (“Topic 820”): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company is currently evaluating the effect, if any, that the ASU will have on its financial statements.
Results of Operations
The following presents the consolidated results of the Company for the years ended December 31, 201
8
and December 31, 201
7
.
Net Revenue
:
Net revenue was $1,777,945 for the year ended December 31, 2018, representing an increase of $268,065, or 17.75%, as compared to $1,509,880 for the year ended December 31, 2017. The increase was primarily due to the increase in sales of skin care products and water purifiers.
Cost of Sales
:
Cost of sales was $216,505 for the year ended December 31, 2018, representing a decrease of $61,202, or 22.03%, as compared to $277,707 for the year ended December 31, 2017. The decrease was mainly because the unit cost of water purifier products was lower than the skin care products and nutrition supplement products.
Gross Profit
:
Gross Profit was $1,561,440 for the year ended December 31, 2018, compared to $1,232,173 for the year ended December 31, 2017. Gross profit as a percentage of net sales was approximately 87.94% for the year ended December 31, 2018, compared to approximately 81.61% in the same period in 2017. The change in gross profit margin was because more skin care products and water purifiers with higher yield margin were sold during the year ended December 31, 2018.
Selling, General and Administrative Expenses
:
Selling, general and administrative expenses have increased to $547,680 for the year ended December 31, 2018, representing an increase of $196,640 or 56.02%, as compared to $351,040 for the year ended December 31, 2017. The increase in general and administrative expenses was primarily attributable to the increase in accounting, legal and professional fees of $80,000 and payroll expenses of $106,137.
Income (Loss) from Operations:
Income (loss) from operations was $1,013,760 for the year ended December 31, 2018 compared to $881,133 for the year ended December 31, 2017, representing an increase of $132,627 or15.02%. The increase was mainly due to the increase in sales of higher yield margin skin care products and water purifiers, partially offset by the increase in selling, general and administrative expenses.
Other Income (expenses):
Other income (expenses) was $33,360 for the year ended December 31, 2018, as compared to $49,547 for the year ended December 31, 2017, reflecting a decrease of $16,187 or (32.67)%. The decrease was primarily attributable to the decrease in other income for service fees due from related parties, partially offset by the gain on foreign currency exchange.
Net Income (Loss):
As a result of the above factors, we had net income of $1,029,325 for the year ended December 31, 2018 as compared to $890,972 for the year ended December 31, 2017, representing an increase of $138,353 or 15.53%.
Liquidity and Capital Resources
Cash and cash equivalents were $36,130 at December 31, 2018 and $24,610 at December 31, 2017. Our total current assets were $1,927,538 at December 31, 2018, as compared to $833,633 at December 31, 2017. Our total current liabilities were 299,092 at December 31, 2018, as compared to $215,528 at December 31, 2017.
We had working capital of $1,628,446 at December 31, 2018, compared to working capital of $618,105 at December 31, 2017. The increase in working capital was primarily attributable to the increase in account receivables, partially offset by the increase in due to shareholders.
Net cash provided by operating activities was $13,505 during the year ended December 31, 2018, as compared to $15,788during the year ended December 31, 2017. The decrease in net cash flow provided by operating activities was primary attributable to the increase in accounts receivable, partially offset by the increase in net income and due to shareholders.
Net cash used in investing activities was $2,869 during the year ended December 31, 2018, as compared to $35,664 for the year ended December 31, 2017. The decrease in net cash used in investing activities mainly 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.
We did not have net cash flow provided by financing activities in the year ended December 31, 2018 and 2017.
Net change in cash and cash equivalents was an increase of $11,520 for the year ended December 31, 2018, as compared to a decrease of $17,476 for the year ended December 31, 2017.
Capital Expenditures
Total capital expenditures during the year ended December 31, 2018 and the year ended December 31, 2017 were $2,869 and $5,102, 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 did not have any off-balance sheet arrangements as of December 31, 2018.
Item 8. Financial Statements and Supplementary Data.
FINANCIAL STATEMENT SCHEDULES
|
A
udit
• T
ax
• C
onsulting
• F
inancial
A
dvisory
Registered with Public Company Accounting Oversight Board (PCAOB)
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
EOS Inc. and its subsidiaries
Opinion on the Financial Statements
We have audited the accompanying balance sheets of EOS Inc. and its subsidiaries ( “the Company”) as of December 31, 2018 and 2017, the related statements of operations and comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for the years ended December 31, 2018 and 2017, in conformity with the U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KCCW Accountancy Corp
.
We have served as the Company’s auditor since 2015.
Diamond Bar, California
March 20, 2019
|
KCCW Accountancy Corp.
3333 South Brea Canyon Rd. Suite 206, Diamond Bar, CA 91765, USA
Tel: +1 909 348 7228 • Fax: +1 909 895 4155 • info@kccwcpa.com
|
EOS, INC. AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Assets
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
36,130
|
|
|
$
|
24,610
|
|
Accounts receivable
|
|
|
464,937
|
|
|
|
-
|
|
Accounts receivable – related parties
|
|
|
1,365,321
|
|
|
|
786,181
|
|
Inventory
|
|
|
7,211
|
|
|
|
88
|
|
Advance to suppliers
|
|
|
25,879
|
|
|
|
4,150
|
|
Prepaid expenses
|
|
|
28,060
|
|
|
|
18,604
|
|
Total current assets
|
|
|
1,927,538
|
|
|
|
833,633
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
7,650
|
|
|
|
7,536
|
|
Security deposit
|
|
|
2,693
|
|
|
|
7,842
|
|
Total Assets
|
|
$
|
1,937,881
|
|
|
$
|
849,011
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
46,400
|
|
|
$
|
37,248
|
|
Accrued expenses
|
|
|
66,466
|
|
|
|
44,677
|
|
Due to shareholders
|
|
|
147,281
|
|
|
|
97,573
|
|
Income tax payable
|
|
|
38,945
|
|
|
|
36,030
|
|
Total current liabilities
|
|
|
299,092
|
|
|
|
215,528
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
299,092
|
|
|
|
215,528
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 75,000,000 shares authorized, 64,122,997 shares issued and outstanding
|
|
|
64,123
|
|
|
|
64,123
|
|
Additional paid-in capital
|
|
|
90,000
|
|
|
|
90,000
|
|
Retained earnings
|
|
|
1,496,131
|
|
|
|
466,806
|
|
Accumulated other comprehensive income (loss)
|
|
|
(11,465
|
)
|
|
|
12,554
|
|
Total stockholders’ equity
|
|
|
1,638,789
|
|
|
|
633,483
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
1,937,881
|
|
|
$
|
849,011
|
|
The accompanying notes are an integral part of these consolidated financial statements.
EOS, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net Sales
|
|
|
|
|
|
|
Net sales
|
|
$
|
536,616
|
|
|
$
|
3,783
|
|
Net sales – related parties
|
|
|
1,241,329
|
|
|
|
1,506,097
|
|
Total
|
|
|
1,777,945
|
|
|
|
1,509,880
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
216,505
|
|
|
|
277,707
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,561,440
|
|
|
|
1,232,173
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
547,680
|
|
|
|
351,040
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,013,760
|
|
|
|
881,133
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
81
|
|
|
|
41
|
|
Other income
|
|
|
1,991
|
|
|
|
24
|
|
Other income – related parties
|
|
|
-
|
|
|
|
60,138
|
|
Gain (loss) on foreign currency exchange
|
|
|
31,288
|
|
|
|
(10,656
|
)
|
Total other income
|
|
|
33,360
|
|
|
|
49,547
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision
|
|
|
1,047,120
|
|
|
|
930,680
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
17,795
|
|
|
|
39,708
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
1,029,325
|
|
|
$
|
890,972
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,029,325
|
|
|
$
|
890,972
|
|
Foreign currency translation adjustment, net of tax
|
|
|
(24,019
|
)
|
|
|
12,014
|
|
Comprehensive Income
|
|
$
|
1,005,306
|
|
|
$
|
902,986
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
64,122,997
|
|
|
|
64,122,997
|
|
The accompanying notes are an integral part of these consolidated financial statements.
EOS, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Earnings
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Income (Loss)
|
|
|
Total
|
|
Balance at December 31, 2016
|
|
|
64,122,997
|
|
|
$
|
64,123
|
|
|
$
|
90,000
|
|
|
$
|
(424,166
|
)
|
|
$
|
540
|
|
|
$
|
(269,503
|
)
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,014
|
|
|
|
12,014
|
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
890,972
|
|
|
|
-
|
|
|
|
890,972
|
|
Balance at December 31, 2017
|
|
|
64,122,997
|
|
|
$
|
64,123
|
|
|
$
|
90,000
|
|
|
$
|
466,806
|
|
|
$
|
12,554
|
|
|
$
|
633,483
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,019
|
)
|
|
|
(24,019
|
)
|
Net Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,029,325
|
|
|
|
-
|
|
|
|
1,029,325
|
|
Balance at December 31, 2018
|
|
|
64,122,997
|
|
|
$
|
64,123
|
|
|
$
|
90,000
|
|
|
$
|
1,496,131
|
|
|
$
|
(11,465
|
)
|
|
$
|
1,638,789
|
|
EOS, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net income
|
|
$
|
1,029,325
|
|
|
$
|
890,972
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,510
|
|
|
|
1,143
|
|
Loss (gain) on foreign currency exchange
|
|
|
(31,288
|
)
|
|
|
10,656
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
|
|
(1,042,657
|
)
|
|
|
(777,143
|
)
|
Decrease (increase) in inventory
|
|
|
(7,240
|
)
|
|
|
1,959
|
|
Decrease (increase) in advance to suppliers
|
|
|
(22,210
|
)
|
|
|
(4,046
|
)
|
Decrease (increase) in prepaid expense and other assets
|
|
|
(5,226
|
)
|
|
|
(16,346
|
)
|
Increase (decrease) in accounts payable
|
|
|
9,757
|
|
|
|
33,354
|
|
Increase (decrease) in accrued expenses
|
|
|
23,147
|
|
|
|
19,125
|
|
Increase (decrease) in income tax payable
|
|
|
4,122
|
|
|
|
35,127
|
|
Increase (decrease) in advance from customers
|
|
|
-
|
|
|
|
(37,085
|
)
|
Increase (decrease) in due to shareholders
|
|
|
53,265
|
|
|
|
(141,928
|
)
|
Net cash provided by operating activities
|
|
|
13,505
|
|
|
|
15,788
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(2,869
|
)
|
|
|
(5,102
|
)
|
Acquisition of subsidiary equity interest
|
|
|
-
|
|
|
|
(30,562
|
)
|
Net cash used in investing activities
|
|
|
(2,869
|
)
|
|
|
(35,664
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
884
|
|
|
|
2,400
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
11,520
|
|
|
|
(17,476
|
)
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
24,610
|
|
|
|
42,086
|
|
Ending
|
|
$
|
36,130
|
|
|
$
|
24,610
|
|
Supplemental Disclosure of Cash Flows
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes
|
|
$
|
13,673
|
|
|
$
|
1,528
|
|
The accompanying notes are an integral part of these consolidated financial statements.
EOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDAED FINANCIAL STATEMENTS
DECEMBER 31, 2018
Note 1. NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
Organization
EOS Inc. was incorporated on April 3, 2015 in the State of Nevada. The Company’s business plan is to market and distribute skin care products, including masks and serums.
On November 18, 2016, the Company has set up a wholly-owned subsidiary in Taiwan to assist the Company to promote the business in Taiwan.
Emperor Star International Trade Co., Ltd., (“Emperor Star”), was incorporated on November 16, 2015 under the laws of Taiwan. Emperor Star is in the business of marketing and distribution of various products, including nutrition supplements, skin care products, and water purifiers.
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 $30,562 in cash. As a result of the Purchase, Emperor Star becomes the Company’s wholly owned subsidiary. Upon consummation of the Purchase, the Company has assumed the business of Emperor Star and ceased to be a shell company.
On September 20, 2018, the Company set up another wholly-owned subsidiary, EOS International Inc. (“EOS(BVI)”), under the laws of British Virgin Islands. EOS(BVI) is in the business of marketing and distribution of various products, including nutrition supplements, skin care products, and water purifiers.
Principles of Consolidation
The accompanying unaudited consolidated financial statements, including the accounts of EOS Inc. and its wholly owned subsidiaries in Taiwan and British Virgin Islands, have been prepared in conformity with accounting principles generally accepted in the United States of America. Since the Company and Emperor Star are entities under common control prior to the acquisition of Emperor Star, the transaction is accounted for as a restructuring transaction. All the assets and liabilities of Emperor Star were transferred to the Company at their respective carrying amounts on the date of transaction. The Company has recast prior period financial statements to reflect the conveyance of Emperor Star’s common shares as if the restructuring transaction had occurred as of the earliest date of the financial statements. All material intercompany accounts, transactions, and profits have been eliminated in consolidation. The nature of and effects on earnings per share (EPS) of nonrecurring intra-entity transactions involving long-term assets and liabilities is not required to be eliminated and EPS amounts have been recast to include the earnings (or losses) of the transferred net assets.
The functional currency of the subsidiaries in Taiwan is the New Taiwan dollars, however the accompanying unaudited consolidated financial statements have been translated and presented in United States Dollars ($). 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 income nor retained earnings.
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 $2,510 and $1,143 for the years ended December 31, 2018 and 2017, 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
During the fiscal year 2018, the Company has adopted Accounting Standards Codification (“ASC”), Topic 606 (ASC 606), Revenue from Contracts with Customers, using the modified retrospective method to all contracts that were not completed as of January 1, 2018. The Company recognized the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning of 2018. The results for the Company’s reporting periods beginning on and after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. Based on the Company’s review of existing sales contracts as of January 1, 2018, the Company concluded that the adoption of the new guidance did not have a significant change on the Company’s revenue during all periods presented.
Pursuant to ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines is within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration the Company is entitled to in exchange for the goods or services the Company transfers to the customers. At inception of the contract, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
Merchandise Sales: The Company recognizes sales revenues from merchandise sales when customers obtain control of the Company’s products, which typically occurs upon delivery to customer. Merchandise sales revenues are recorded at the sales price, or “transaction price”.
Trade discount and allowances: The Company generally does not provide invoice discounts on product sales to its customers for prompt payment.
Product returns
:
The Company generally does not provide customers with the right to return a product for a full or partial refund, a credit, or an exchange for another product.
To date, product allowance and returns have been minimal and, based on its experience, the Company believes that returns of its products will continue to be minimal.
The following tables provide details of revenue by major products and by geography.
Revenue by Major Products
For the year ended December 31, 2018:
|
|
|
|
Nutrition supplement
|
|
$
|
503,049
|
|
Skin care product
|
|
|
630,796
|
|
Water purifier
machine
|
|
|
556,600
|
|
Software
|
|
|
86,320
|
|
Other
s
|
|
|
1,180
|
|
Total
|
|
$
|
1,777,945
|
|
Revenue by Geography
For the year ended December 31, 2018:
|
|
|
|
Asia Pacific
|
|
$
|
1,777,945
|
|
Total
|
|
$
|
1,777,945
|
|
Advertising Costs
Advertising costs are expensed at the time such advertising commences. Advertising expenses were $13,299 and $50 for the years ended December 31, 2018 and 2017, respectively.
Post-retirement and Post-employment Benefits
The Company’s subsidiaries in Taiwan adopted the government mandated defined contribution plan pursuant to the Taiwan Labor Pension Act (the “Act”). 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 $7,958 and $1,629 for the years ended December 31, 2018 and 2017, 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, accounts receivable, advance to suppliers, prepaid expenses, accounts payable, accrued expenses, and due to shareholders, approximate fair value because of to their relatively short maturities.
Net Income Per Share
Basic income 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 income by the weighted average number of shares of common stock, common stock equivalents, and potentially dilutive securities outstanding during each period. For the years ended December 31, 2018 and 2017, 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
Cash and cash equivalents
: The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents. 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.
Customers
: The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral.
For the year ended December 31, 2018, two customers accounted for more than 10% of the Company’s total revenues, representing approximately 69% and 16% of its total revenues, and 69% and 13% of accounts receivable in aggregate at December 31, 2018
Customer
|
|
Net sales for the year ended
December 31, 2018
|
|
|
Accounts receivable balance
as of December 31, 2018
|
|
A
|
|
$
|
1,235,203
|
*
|
|
$
|
1,263,833
|
|
B
|
|
|
279,405
|
|
|
|
237,980
|
|
For the year ended December 31, 2017, four customers accounted for more than 10% of the Company’s total revenues, represented approximately 39%, 25%, 24% and 12% of its total revenues, and 71%, 0%, 27% and 0% of accounts receivable in aggregate at December 31, 2017, respectively.
Customer
|
|
Net sales for the year ended
December 31, 2017
|
|
|
Accounts receivable balance
as of December 31, 2017
|
|
A
|
|
$
|
582,973
|
*
|
|
$
|
561,978
|
|
C
|
|
$
|
371,043
|
*
|
|
$
|
-
|
|
D
|
|
$
|
365,815
|
*
|
|
$
|
224,203
|
|
E
|
|
$
|
186,266
|
*
|
|
$
|
-
|
|
*Related party transactions (See Note 2).
Suppliers
: The Company’s inventory is purchased from various suppliers. For the year ended December 31, 2018, three suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 41%, 23%, and 16% of total net purchase, and 0% of accounts payable in aggregate at December 31, 2018, respectively:
Supplier
|
|
Net purchase for the year
ended December 31, 2018
|
|
|
Accounts payable balance
as of December 31, 2018
|
|
A
|
|
$
|
50,529
|
|
|
$
|
-
|
|
B
|
|
$
|
28,371
|
|
|
$
|
-
|
|
C
|
|
$
|
19,620
|
|
|
$
|
-
|
|
For the year ended December, 2017, three suppliers 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
ended December 31, 2017
|
|
|
Accounts payable balance
as of December 31, 2017
|
|
B
|
|
$
|
123,878
|
|
|
$
|
-
|
|
D
|
|
$
|
92,046
|
|
|
$
|
34,221
|
|
E
|
|
$
|
45,941
|
|
|
$
|
-
|
|
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 accumulated other comprehensive income (loss) as a component of stockholders’ equity (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 Financial Accounting Standards Board (the “FASB”) issued ASU 2016-02, Leases (ASC 842), which was amended by ASU 2018-11, Leases (ASC 842): Targeted Improvements. The new guidance requires lessee recognition on the balance sheet of a right-of-use (ROU) asset and a lease liability, initially measured at the present value of the lease payments. It further requires recognition in the income statement of a single lease cost, calculated so that the cost of the lease is allocated over the lease term generally on a straight-line basis. Finally, it requires classification of all cash payments within operating activities in the statement of cash flows. The standard is effective for public companies for fiscal years beginning after December 15, 2018 and early adoption is permitted. The standard requires a transition adoption election using either 1) a modified retrospective approach with periods prior to the adoption date being recast or 2) a prospective adoption approach with a cumulative-effect adjustment recognized to the opening balance of retained earnings on the adoption date with prior periods not recast. The Company anticipates adopting this standard with an effective date of January 1, 2019 using the prospective adoption approach. The Company has evaluated the changes from this standard to its future financial reporting and disclosures, and has designed and implemented related processes and controls to address these changes. The Company believes the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on its balance sheet for its office operating lease; and (2) providing significant new disclosures about its leasing activities related to the amount, timing and uncertainty of cash flows arising from leases. The Company is continuing its assessment, which may identify additional impacts this guidance will have on its financial statements and disclosures.
In December 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin (“SAB”) No. 118 (as further clarified by FASB ASU 2018-05, Income Taxes (Topic 740): “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”) to provide guidance for companies that may not have completed their accounting for the income tax effects of the Tax Cut and Jobs Act (“Tax Act”) in the period of enactment, which is the period that includes December 22, 2017. SAB No. 118 provides for a provisional one year measurement period for entities to finalize their accounting for certain income tax effects related to the Tax Act. SAB No. 118 provides guidance where: (i) the accounting for the income tax effect of the Tax Act is complete and reported in the Tax Act’s enactment period, (ii) the accounting for the income tax effect of the Tax Act is incomplete and reported as provisional amounts based on reasonable estimates (to the extent determinable) subject to adjustments during a limited measurement period until complete, and (iii) accounting for the income tax effect of the Tax Act is not reasonably estimable (no related provisional amounts are reported in the enactment period) and entities would continue to apply accounting based on tax law provisions in effect prior to the Tax Act enactment until provisional amounts are reasonably estimable. SAB No. 118 requires disclosure of the reasons for incomplete accounting additional information or analysis needed, among other relevant information. The Company is continuing to gather additional information to determine the final impact.
In February 2018, the FASB issued ASU No, 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”. The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update also require certain disclosures about stranded tax effects. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is currently evaluating the impact of adopting this new guidance on its financial position, results of operations, statement of comprehensive income, and cash flows.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (“Topic 820”): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company is currently evaluating the effect, if any, that the ASU will have on its financial statements.
Note 2. RELATED PARTY TRANSACTIONS
Related party - Sales
(1)
|
The Company had sales to EOS Trading Co., Ltd., (the “EOS Trading”), a Hong Kong company owned by the officer, director, and shareholder of the Company, in an aggregate amount of $0 and $371,043 for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018 and 2017, accounts receivable balance was $0.
|
|
|
(2)
|
The Company had sales to EOS Venture International Pte Ltd., (the “EOS Venture”), a Singapore company. The EOS Trading provides financial aids to EOS Venture. In addition, Mr. He-Siang Yang, the officer, director, and shareholder of the Company, is the key person who can significantly affect the economic performance of EOS Venture. The sales amounted to $4,010 and $365,815 for years ended December 31, 2018 and 2017, respectively. As of December 31, 2018 and 2017, accounts receivable balance was $101,488 and $224,203, respectively.
|
|
|
(3)
|
The Company had sales to Fortune King (HK) Trading Limited, (the “Fortune King”), a Hong Kong company. The founder and officer of Fortune King is also one of the shareholders of EOS Inc. The sales amounted to $1,235,203 and $582,973 for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018 and 2017, accounts receivable balance was $1,263,833 and $561,978, respectively.
|
|
|
(4)
|
The Company had sales to Able Vision Ltd., (“ABLE Vision”), a Seychelles corporation owned by one of shareholders of the Company, in an aggregate amount of $0 and $186,266 for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018 and 2017, accounts receivable balance was $0.
|
Due to shareholders
The Company has advanced funds from one of its directors and shareholder for working capital purposes. As of December 31, 2018 and 2017, there were $147,281 and $97,573 advances outstanding, respectively. The Company has agreed that the outstanding balances bear 0% interest rate and are due upon demand after 30 days written notice by the officer and shareholder.
Note 3. INCOME TAXES
United States
EOS, Inc. is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company has no taxable income for the period. As of December 31, 2018, the Company had net operating loss carry forwards of $531,218 that may be available to reduce future years’ taxable income through 2038. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements as their realization is determined not likely to occur and, accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards. No tax benefit has been realized since a 100 % valuation allowance has offset deferred tax asset resulting from the net operating losses.
On December 22, 2017 H.R. 1
,
originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal Tax Rate”) from 35% to 21% effective January 1, 2018
.
The 21% Federal Tax Rate will apply to earnings reported for the full 2018 fiscal year. In addition, the Company must re-measure its net deferred tax assets and liabilities using the Federal Tax Rate that will apply when these amounts are expected to reverse. As of December 31, 2018 and 2017, the Company can determine a reasonable estimate for certain effects of tax reform and is recording that estimate as a provisional amount. The provisional remeasurement of the deferred tax assets and allowance valuation of deferred tax assets at December 31, 2018 and 2017 resulted in a net effect of $0 discrete tax expenses (benefit). The provisional remeasurement amount is anticipated to change as data becomes available allowing more accurate scheduling of the deferred tax assets and liabilities primarily related to net operating loss carryover.
British Virgin Islands
EOS International Inc. is incorporated in British Virgin Islands and are not required to pay income tax.
Taiwan
The subsidiary of EOS Inc. and Emperor Star are incorporated in Taiwan. According to the amendments to the “Taiwan Income Tax Act” enacted by the office of the President of Taiwan on February 7, 2018, an increase in the statutory income tax rate from 17% to 20% and decrease in the undistributed earning tax from 10% to 5% are effective from January 1, 2018. This increase in the statutory income tax rate will affect the amounts of the current and deferred taxes recognized as of December 31, 2018. The Company is continuing to gather additional information to determine the final impact.
Provision for income tax consists of the following:
|
|
For the Years Ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Current income tax
|
|
|
|
|
|
|
U.S.
|
|
$
|
-
|
|
|
$
|
-
|
|
Taiwan
|
|
|
17,795
|
|
|
|
39,708
|
|
Sub total
|
|
|
17,795
|
|
|
|
39,708
|
|
Deferred income tax
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
|
|
|
Deferred tax assets for NOL carryforwards
|
|
|
(30,245
|
)
|
|
|
(17,096
|
)
|
Valuation allowance
|
|
|
30,245
|
|
|
|
17,096
|
|
Net changes in deferred income tax (benefit)
|
|
|
-
|
|
|
|
-
|
|
Total provision income tax
|
|
$
|
17,795
|
|
|
$
|
39,708
|
|
The following is a reconciliation of the statutory tax rate to the effective tax rate:
|
|
For the Years Ended
December31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
U.S. statutory income tax rate
|
|
|
21
|
%
|
|
|
34
|
%
|
Taiwan unified income tax rate
|
|
|
20
|
%
|
|
|
17
|
%
|
Provisional remeasurement of deferred taxes (U.S.)
|
|
|
-
|
|
|
|
(13
|
)%
|
Changes in valuation allowance
|
|
|
(21
|
)%
|
|
|
(21
|
)%
|
Other
|
|
|
(18
|
)%
|
|
|
(13
|
)%
|
Effective combined income tax rate
|
|
|
2
|
%
|
|
|
4
|
%
|
Significant components of the Company’s deferred taxes as of December 31, 2018 and 2017 were as follows:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
111,556
|
|
|
$
|
81,311
|
|
Less: Valuation allowance
|
|
|
(111,556
|
)
|
|
|
(81,311
|
)
|
Deferred tax assets, net
|
|
$
|
-
|
|
|
$
|
-
|
|
Note 4. COMMITMENT
Operating lease commitments consist of leases for office space and copy machines under various operating lease agreements which expire in December 2019. Operating lease agreements generally contain renewal options that may be exercised at the Company’s discretion after the completion of the terms.
Future minimum lease payments under the operating leases are summarized as follows:
As of December 31,
|
|
|
Amount
|
|
2019
|
|
|
$
|
8,515
|
|
Total
|
|
|
$
|
8,515
|
|
Note 5. SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date which the financial statements are available to be issued. All subsequent events requiring recognition as of December 31, 2018 have been incorporated into these consolidated financial statements and there are no subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”
******