UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2018
¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

FOR THE TRANSITION PERIOD FROM __________ TO __________

 

COMMISSION FILE NUMBER 000-55661

 

EOS Inc.

(Exact name of registrant as specified in its charter)

 

Nevada		30-0873246
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

Room 519, 5F., No. 372, Linsen N. Road,

Zhongshan District,

Taipei City 104, Taiwan (R.O.C.)

(Address of principal executive offices, Zip Code)

 

+8862-2568-3278

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

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

 

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
(Do not check if smaller reporting company)		Emerging growth company	x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

The number of shares of registrant’s common stock outstanding, as of August 8, 2018, is 64,122,997.

 

TABLE OF CONTENTS

 

			Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements			F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation			3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			5
Item 4.	Controls and Procedures			5
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings			6
Item 1A.	Risk Factors			6
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			6
Item 3.	Defaults Upon Senior Securities			6
Item 4.	Mine Safety Disclosures			6
Item 5.	Other Information			6
Item 6.	Exhibits			6
SIGNATURES				7

 

2

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

FINANCIAL STATEMENT SCHEDULES

 

Financial Statements:
Consolidated Balance Sheets			F-2
Consolidated Statements of Operations and Other Comprehensive Income (Loss)			F-3
Consolidated Statements of Cash Flows			F-4
Notes to Consolidated Financial Statements			F-5

 

F-1

  

EOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
		June 30,				December 31,
		2018				2017
		(Unaudited)
Assets
Current Assets
Cash and cash equivalents		$	54,313			$	24,610
Accounts receivable			27,767				-
Accounts receivable – related parties			977,297				786,181
Inventory			-				88
Advance to suppliers			23,016				4,150
Prepaid expenses			6,689				18,604
Total current assets			1,089,082				833,633
Property and Equipment, net			7,754				7,536
Security deposit			7,638				7,842
Total Assets		$	1,104,474			$	849,011
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable		$	13,706			$	37,248
Due to shareholders			228,584				97,573
Accrued expenses			82,405				44,677
Income tax payable			51,128				36,030
Total current liabilities			375,823				215,528
Total liabilities			375,823				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			582,981				466,806
Accumulated other comprehensive income (loss)			(8,453	)			12,554
Total stockholders' equity			728,651				633,483
Total Liabilities and Stockholders' Equity		$	1,104,474			$	849,011

 

 The accompanying notes are an integral part of these consolidated financial statements.

 

F-2

Table of Contents

  

EOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
		FOR THE SIX MONTHS ENDED JUNE 30,								FOR THE THREE MONTHS ENDED JUNE 30,
		2018				2017				2018				2017
Net Sales
Net Sales		$	28,107			$	15,768			$	28,107			$	3,567
Net Sales – related parties:			397,065				268,138				295,528				255,666
Total			425,172				283,906				323,635				259,233
Cost of sales			51,400				65,897				34,163				60,387
Gross profit			373,772				218,009				289,472				198,846
Selling, general and administrative expenses			263,296				171,819				132,744				110,353
Income from operations			110,476				46,190				156,728				88,493
Other income (expense)
Interest income			39				14				39				14
Other income			2,032				-				2,032				-
Other income – related parties			-				58,122				-				58,122
Gain (loss) on foreign currency exchange			28,923				1,017				44,529				(1,154	)
Total other income (expense)			30,994				59,153				46,600				56,982
Income before provision for income taxes			141,470				105,343				203,328				145,475
Provision for income taxes			25,295				-				25,295				-
Net Income		$	116,175			$	105,343			$	178,033			$	145,475
Weighted average number of common shares:
Basic and diluted			64,122,997				64,122,997				64,122,997				64,122,997
Net loss per share:
Basic and diluted		$	0.00			$	0.00			$	0.00			$	0.00
Other Comprehensive Income:
Net income		$	116,175			$	105,343			$	178,033			$	145,475
Foreign currency translation adjustment, net of tax			(21,007	)			(6,193	)			(32,668	)			(625	)
Comprehensive Income		$	95,168			$	99,150			$	145,365			$	144,850

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3

Table of Contents

 

EOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		Six Months Ended June 30,
		2018				2017
Cash Flows from Operating Activities
Net income		$	116,175				105,343
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation			1,383				397
Gain on foreign currency exchange			(28,923	)			(1,017	)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable			(217,633	)			(117,689	)
Decrease (increase) in inventory			88				2,046
Decrease (increase) in advance to suppliers			(19,549	)			(35,298	)
Decrease (increase) in prepaid expense and other assets			11,778				(1,094	)
Increase (decrease) in accounts payable			(23,260	)			1,772
Increase (decrease) in accrued expenses			38,346				(2,097	)
Increase (decrease) in income tax payable			16,520				-
Increase (decrease) in advance from customers			-				(37,111	)
Increase (decrease) in due to shareholders			137,547				93,532
Net cash provided by operating activities			32,472				8,784
Cash flows from investing activities
Purchase of equipment			(1,809	)			(5,106	)
Acquisition of subsidiary equity interest			-				(30,562	)
Net cash used in investing activities			(1,809	)			(35,668	)
Effect of exchange rate changes on cash and cash equivalents			(960	)			(106	)
Net increase (decrease) in cash and cash equivalents			29,703				(26,990	)
Cash and Cash Equivalents
Beginning			24,610				42,086
Ending		$	54,313			$	15,096
Supplemental Disclosure of Cash Flows
Cash paid during the year for:
Interest		$	-			$	-
Income taxes		$	-			$	-

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4

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EOS, INC. AND SUBSIDIARIES

NOTES TO UNAUIDTED CONSOLIDAED FINANCIAL STATEMENTS JUNE 30, 2018

 

Note 1. NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial reporting and in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited consolidated financial statements contained in this report reflect all adjustments that are normal and recurring in nature and considered necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The year-end balance sheet data were derived from audited consolidated financial statements, but does not include all disclosures required by GAAP. The results of operations for the interim period are not necessarily indicative of the results expected for the full year. These unaudited consolidated financial statements, footnote disclosures, and other information should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

 

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. The Company 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.

 

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.

 

F-5

Table of Contents

 

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.

 

F-6

Table of Contents

 

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 $1,383 and $397 for the six months ended June 30, 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

 

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 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 $1,958 and $50 for the six months ended June 30, 2018 and 2017, 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 $3,965 and $2,106 for the six months ended June 30, 2018 and 2017, respectively. Other than the above, the Company does not provide any other post-retirement or post-employment benefits.

 

F-7

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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 due to their relatively short maturities.

 

F-8

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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 June 30, 2018 and December 31, 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

 

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 six months ended June 30, 2018, one customer accounted for more than 10% of the Company’s total revenues, representing approximately 93% of its total revenues, and 83% of accounts receivable in aggregate at June 30, 2018

 

Customer		Net sales for the six months end June 30, 2018				A/R balance as of June 30, 2018
A		$	394,016	*		$	831,810

 

For the six months ended June 30, 2017, one customer accounted for more than 10% of the Company’s total revenues, represented approximately 94% of its total revenues, and 48% of accounts receivable in aggregate at June 30, 2017, respectively.

 

Customer		Net sales for the six months end June 30, 2017				A/R balance as of June 30, 2017
B		$	268,138	*		$	57,115

___________ 

*Related party transactions (See Note 2).

 

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Suppliers: The Company’s inventory is purchased from various suppliers. For the six months ended June 30, 2018, three suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 46%, 20%, and 19% of total net purchase, and 57%, 0%, and 0% of accounts payable in aggregate at June 30, 2018, respectively:

 

Supplier		Net purchase for the six months ended June 30, 2018				Accounts payable balance as of June 30, 2018
A		$	23,799			$	7,821
B		$	10,158			$	-
C		$	9,548			$	-

 

For the six months ended June 30, 2017, two suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 59%, and 33% of total net purchase, and 1% and 0% of accounts payable in aggregate at June 30, 2017, respectively:

 

Supplier		Net purchase for the six months ended June 30, 2017				Accounts payable balance as of June 30, 2017
D		$	37,768			$	131
E		$	21,294			$	-

 

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 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).

 

F-10

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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.

 

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.

 

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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.

 

Note 2. RELATED PARTY TRANSACTIONS

 

Related party - Sales

 

(1)	The Company had sales to EOS Trading Co., Ltd., (“EOS Trading”), a Hong Kong company owned by the officer, director, and shareholder of the Company in an aggregate amount of $0 and $268,138 for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018 and December 31, 2017, accounts receivable balance was $0.
(2)	The Company had sales to EOS Venture International Pte Ltd., (“EOS Venture”), a Singapore company. 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 $3,049 and $15,768 for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018 and December 31, 2017, accounts receivable balance was $145,488 and $224,203, respectively.
(3)	The Company had sales to Fortune King (HK) Trading Limited, (“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 $394,016 and $0 for the six months ended June 30, 2018 and 2017, respectively. As of June 30, 2018 and December 31, 2017, accounts receivable balance was $831,810 and $561,978, respectively.

  

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Due to shareholders

The Company has advanced funds from one of its directors and shareholder for working capital purposes. As of June 30, 2018 and December 31, 2017, there were $228,584 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 June 30, 2018, the Company had net operating loss carry forwards of $507,767 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 June 30, 2018 and December 31, 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 June 30, 2018 and December 31, 2017 resulted in a net effect of $0 discrete tax expenses (benefit) which lowered the effective tax rate by 14% for the six months ended June 30, 2018. 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.

 

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 (R.O.C.) 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 June 30, 2018. The Company is continuing to gather additional information to determine the final impact.

 

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Provision for income tax consists of the following:

 

		For the Six Months Ended June 30,
		2018				2017
Current income tax
U.S.		$	-			$	-
Taiwan			25,295				-
Sub total			25,295				-
Deferred income tax
U.S.
Deferred tax assets for NOL carryforwards			(25,320	)			(21,263	)
Valuation allowance			25,320				21,263
Net changes in deferred income tax (benefit)			-				-
Total provision income tax		$	25,295			$	-

 

The following is a reconciliation of the statutory tax rate to the effective tax rate:

 

		For the Six Months Ended June 30,
		2018				2017
U.S. statutory income tax rate			21	%			34	%
Taiwan unified income tax rate			20	%			17	%
Changes in valuation allowance			(23	)%			(51	)%
Other			-	%			-	%
Effective combined income tax rate			18	%			-	%

 

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Significant components of the Company’s deferred taxes as of June 30, 2018 and December 31 2017 were as follows:

 

		June 30,				December 31,
		2018				2017
Deferred tax assets:		(Unaudited)
Net operating loss carryforwards		$	106,631			$	81,311
Less: Valuation allowance			(106,631	)			(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 June 30,		Amount
2019			16,544
2020			416
Total			16,960

 

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 June 30, 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.”

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

 

Cautionary Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q, including this discussion and analysis by management, contains or incorporates forward-looking statements. All statements other than statements of historical fact made in report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

 

The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

 

Three months ended June 30, 2018 compared to the three months ended June 30, 2017

 

Net sales

 

Net sales was $323,635 for the three months ended June 30, 2018, representing an increase of $64,402, or 24.84%, as compared to $259,233 for the three months ended June 30, 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 $34,163 for the three months ended June 30, 2018, representing a decrease of $26,224, or (43.43)%, as compared to $60,387 for the three months ended June 30, 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 $289,472 for the three months ended June 30, 2018, compared to $198,846 for the same period in 2017. Gross profit as a percentage of net sales was approximately 89.44% in the second quarter of 2018, compared to approximately 76.71% in the same period in 2017. The change in gross profit margin was due to more skin care products and water purifiers with higher yield margin sold during the three months ended June 30, 2018.

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses consist primarily of office rent, salary and related costs for personnel and facilities, and professional service fees. Selling, general and administrative expenses were $132,744 for the three months ended June 30, 2018, an increase of $22,391, or 20.29%, as compared to $110,353 for the three months ended June 30, 2017. The increase in selling, general and administrative expenses was primarily due to the increased accounting, legal and professional fees.

 

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Income from Operations:

 

Income from operations was $156,728 for the three months ended June 30, 2018 compared to $88,493 for the three months ended June 30, 2017, representing an increase of $68,235, or 77.11%. Such increase was primarily attributable to the increase in sales of higher yield margin skin care products and water purifiers during the three months ended June 30, 2018

 

Other income (expense)

 

Other income was $46,600 for the three months ended June 30, 2018, a decrease of $10,382, or (18.22)%, from $56,982 for the three months ended June 30, 2017. The decrease was mainly attributable to the decrease in other income from related parties, partially offset by the increase in gain on foreign currency exchange. 

 

Net Income

 

As a result of the above factors, our net income was $178,033 for the three months ended June 30, 2018, as compared to $145,475 for the three months ended June 30, 2017, representing an increase of $32,558, or 22.38%.

 

Six months ended June 30, 2018 compared to the six months ended June 30, 2017

 

Net sales

 

Net sales was $425,172 for the six months ended June 30, 2018, representing an increase of $141,266, or 49.76%, from $283,906 for the six months ended June 30, 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 $51,400 for the six months ended June 30, 2018, representing a decrease of $14,497, or (22)%, as compared to $65,897 for the six months ended June 30, 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 $373,772 for the six months ended June 30, 2018, compared to $218,009 for the same period in 2017. Gross profit as a percentage of net sales was approximately 87.91% in the second quarter of 2018, compared to approximately 76.79% in the same period in 2017. The change in gross profit margin was due to more skin care products and water purifiers with higher yield margin sold during the six months ended June 30, 2018.

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses consist primarily of office rent, compensation and related costs for personnel and facilities as well as professional service fees. Selling, general and administrative expenses were $263,296 for the six months ended June 30, 2018, an increase of $91,477 or 53.24%, as compared to $171,819 for the six months ended June 30, 2017. The increase in general and administrative expenses was primarily attributable to the increase in accounting, legal and professional fees of $58,030 and the increase in payroll expenses of $26,495.

 

Income from operations

 

Income from operations was $110,476 for the six months ended June 30, 2018, an increase of $64,286 or 139.18%, as compared to $46,190 for the six months ended June 30, 2017. 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

 

Other income was $30,994 for the six months ended June 30, 2018, a decrease of $28,159, or (47.60)%, from $59,153 for the six months ended June 30, 2017. The decrease was mainly attributable to the decrease in other income from related parties, partially offset by the increase in gain on foreign currency exchange. 

 

As a result of the above factors, our net income was $116,175 for the six months ended June 30, 2018, as compared to that of $105,343 for the six months ended June 30, 2017, representing an increase of $10,832, or 10.28%.

 

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Liquidity and Capital Resources

 

Cash and cash equivalents were $54,313 at June 30, 2018 and $24,610 at December 31, 2017. Our total current assets were $1,089,082 at June 30, 2018, as compared to $833,633 at December 31, 2017. Our total current liabilities were $375,823 at June 30, 2018, as compared to $215,528 at December 31, 2017.

 

We had working capital of $713,259 at June 30, 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 receivable from related parties and advance to suppliers, partially offset by the increase in due to shareholders and accrued liabilities.

 

Net cash provided by operating activities was $32,472 during the six months ended June 30, 2018, as compared to net cash provided by operating activities of $8,784 for the six months ended June 30, 2017. The increase in net cash provided by operating activities was primary attributable to the increase in net income, accrued expenses, and due to shareholders, partially offset by the increase in gain on foreign currency exchange and accounts receivable.

 

Net cash used in investing activities was $1,809 during the six months ended June 30, 2018, as compared to $35,668 for the six months ended June 30, 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 six months ended June 30, 2017.

 

Net change in cash and cash equivalents was an increase of $29,703 for the six months ended June 30, 2018. Net change in cash and cash equivalents was a decrease of $26,990 for the six months ended June 30, 2017.

 

Inflation

 

Our opinion is that inflation has not had a material effect on our operations and is not expected to have any 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.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

As a smaller reporting company, we are not required to provide this information.

 

Item 4. Controls and Procedures.

 

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (1) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure; and (2) recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission.

 

There was no change to our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

 

Item 1A. Risk Factors.

 

As a smaller reporting company, we are not required to provide this information.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

Exhibit No.		Description
31		Certification by Principal Executive Officer and Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.***
32		Certification by Principal Executive Officer and Principal Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.***
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	EOS Inc.
Date: August 13, 2018	By:	/s/ He-Siang Yang
		He-Siang Yang
		Principal Executive Officer, Principal Financial Officer, President and Chairman of the Board

 

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