UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: June 30, 2020
☐	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.)

 

7F.-1, No. 162, Sec. 2, Zhongshan N. Rd., Zhongshan District

Taipei City 10452, Taiwan

(Address of principal executive offices, Zip Code)

 

+886-2-2586-8300

(Registrant’s telephone number, including area code)

 

_____________________________________________

(Former name or former address, if changed since last report)

 

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 ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒     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	☒
		Emerging growth company	☒

 

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 ☒

 

The number of shares of registrant’s common stock outstanding, as of August 19, 2020 is 74,122,997.

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements		F-1
	Consolidated Balance Sheets		F-2
	Consolidated Statements of Operations and Comprehensive Income (Loss)		F-3
	Consolidated Statements of Stockholders’ Equity		F-4
	Consolidated Statements of Cash Flows		F-5
	Notes to Consolidated Financial Statements		F-6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		17
Item 4.	Controls and Procedures		18
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		19
Item 1A.	Risk Factors		19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 3.	Defaults Upon Senior Securities		19
Item 4.	Mine Safety Disclosures		19
Item 5.	Other Information		19
Item 6.	Exhibits		20
SIGNATURES			21

 

2

Table of Contents

 

 FINANCIAL STATEMENT SCHEDULES

 

Financial Statements:
Consolidated Balance Sheets			F-2
Consolidated Statements of Operations and Comprehensive Income (Loss)			F-3
Consolidated Statements of Changes in Stockholders’ Equity			F-4
Consolidated Statements of Cash Flows			F-5
Notes to Consolidated Financial Statements			F-6

 

F-1

Table of Contents

  

EOS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		June 30,				December 31,
		2020				2019
		(Unaudited)
Assets
Current Assets
Cash and cash equivalents		$	91,852			$	295,594
Accounts receivable			1,840,975				2,177,124
Inventory, net			61,927				10,541
Advance to suppliers			282,450				317,280
Prepaid expenses and other current assets			9,054				19,149
Total current assets			2,286,258				2,819,688
Property and equipment, net			7,815				7,719
Operating lease right-of-use assets			23,809				34,979
Security deposits			1,038,210				127,534
Long-term investment			-				20,751
Total Assets		$	3,356,092			$	3,010,671
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable		$	-			$	2,045
Accrued expenses			101,952				74,281
Due to shareholders			105,172				96,114
Income tax payable			16,200				25,837
Operating lease liabilities – current			22,323				23,417
Total current liabilities			245,647				221,694
Operating lease liabilities – noncurrent			1,485				11,562
Total liabilities			247,132				233,256
Stockholders' Equity
Common stock, $0.001 par value; 75,000,000 shares authorized, 74,122,997 shares issued and outstanding as of June 30, 2020 and December 31, 2019			74,123				74,123
Additional paid-in capital			237,425				112,425
Retained earnings			2,735,709				2,577,898
Accumulated other comprehensive income			37,037				12,969
Total stockholders' equity			3,084,294				2,777,415
Noncontrolling Interest			24,666				-
Total Equity			3,108,960				2,777,415
Total Liabilities and Stockholders' Equity		$	3,356,092			$	3,010,671

 

 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 COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

		For the Six Months Ended June 30,								For the Three Months Ended June 30,
		2020				2019				2020				2019
Net sales		$	826,733			$	238,172			$	94,007			$	38,060
Cost of sales			107,014				44,821				14,191				6,766
Gross profit			719,719				193,351				79,816				31,294
Selling, general and administrative expenses			533,148				373,930				231,069				187,379
Income (loss) from operations			186,571				(180,579	)			(151,253	)			(156,085	)
Other income (expense)
Interest income			148				48				147				48
Other income			10				-				5				-
Gain (loss) on foreign currency exchange			(16,900	)			12,525				(35,140	)			5,003
Gain (loss) on investment in equity securities			(20,750	)			(2,426	)			(17,911	)			(2,426	)
Total other income (loss)			(37,492	)			10,147				(52,899	)			2,625
Income (loss) before income tax provision			149,079				(170,432	)			(204,152	)			(153,460	)
Income tax provision			-				-				-				-
Net income (loss)			149,079				(170,432	)			(204,152	)			(153,460	)
Net loss attributable to noncontrolling interests			(8,732	)			-				(8,732	)			-
Net income (loss) attributable to EOS and subsidiaries			157,811				(170,432	)			(195,420	)			(153,460	)
Foreign currency translation adjustment, net of tax			24,068				(8,943	)			43,399				(1,853	)
Comprehensive income (loss)		$	181,879			$	(179,375	)		$	(152,021	)		$	(155,313	)
Net income (loss) per share:
Basic and diluted		$	0.00			$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average number of common shares:
Basic and diluted			74,122,997				66,222,445				74,122,997				68,298,821

 

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

 

F-3

Table of Contents

 

EOS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(UNAUDITED)

 

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Retained				Comprehensive				Noncontrolling
		Shares				Amount				Capital				Earnings				Income (Loss)				Interest				Total
Balance at December 31, 2019			74,122,997			$	74,123			$	112,425			$	2,577,898			$	12,969			$	-			$	2,777,415
Stock-based compensation			-				-				62,500				-				-				-				62,500
Foreign currency translation adjustment			-				-				-				-				(19,331	)			-				(19,331	)
Net income			-				-				-				353,231				-				-				353,231
Balance at March 31, 2020			74,122,997				74,123				174,925				2,931,129				(6,362	)			-				3,173,815
Stock-based compensation			-				-				62,500				-				-				-				62,500
Contributions from noncontrolling interests			-				-				-				-				-				33,398				33,398
Foreign currency translation adjustment			-				-				-				-				43,399				-				43,399
Net loss			--				-				-				(195,420	)			-				(8,732	)			(204,152	)
Balance at June 30, 2020			74,122,997			$	74,123			$	237,425			$	2,735,709			$	37,037			$	24,666			$	3,108,960

 

																		Accumulated
										Additional								Other
		Common Stock								Paid-in				Retained				Comprehensive				Noncontrolling
		Shares				Amount				Capital				Earnings				Income (Loss)				Interest				Total
Balance at December 31, 2018			64,122,297			$	64,123			$	90,000			$	1,496,131			$	(11,465	)		$	-			$	1,638,789
Foreign currency translation adjustment			-				-				-				-				(7,090	)			-				(7,090	)
Net loss			-				-				-				(16,972	)			-				-				(16,972	)
Balance at March 31, 2019			64,122,997				64,123				90,000				1,479,159				(18,555	)			-				1,614,727
Common shares issued in exchange for investment in equity securities			10,000,000				10,000				22,425				-				-				-				32,425
Foreign currency translation adjustment			-				-				-				-				(1,853	)			-				(1,853	)
Net loss			-				-				-				(153,460	)			-				-				(153,460	)
Balance at June 30, 2019			74,122,997			$	74,123			$	112,425			$	1,325,699			$	(20,408	)		$	-			$	1,491,839

 

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

 

F-4

Table of Contents

 

EOS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		For the Six Months Ended June 30,
		2020				2019
Cash Flows from Operating Activities
Net income (loss)		$	149,079			$	(170,432	)
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation			1,138				902
Loss on investment in equity securities			20,750				2,426
Loss (gain) on foreign currency exchange			16,900				(12,525	)
Stock-based compensation			125,000				-
Changes in assets and liabilities:
Decrease (increase) in accounts receivable			327,793				332,296
Decrease (increase) in inventory			(50,143	)			1,073
Decrease (increase) in advance to suppliers			39,695				(51,192	)
Decrease (increase) in security deposits and other assets			(879,458	)			(507	)
Increase (decrease) in accounts payable			(2,038	)			(45,683	)
Increase (decrease) in accrued expenses			25,990				(9,043	)
Increase (decrease) in income tax payable			(9,893	)			(8,149	)
Increase (decrease) in due to shareholders			8,197				(69,312	)
Net cash used in operating activities			(226,990	)			(30,146	)
Cash flows from Investing activities
Purchase of equipment			(1,095	)			(935	)
Net cash used in investing activities			(1,095	)			(935	)
Cash flows from Financing activities
Proceeds from investments by noncontrolling interests in subsidiary			33,300				-
Net cash used in investing activities			33,300				-
Effect of exchange rate changes on cash and cash equivalents			(8,957	)			2,573
Net decrease in cash and cash equivalents			(203,742	)			(28,508	)
Cash and Cash Equivalents
Beginning			295,594				36,130
Ending		$	91,852			$	7,662
Supplemental Disclosure of Cash Flows
Cash paid during the periods for:
Interest		$	-			$	-
Income taxes		$	9,893			$	-
Non-cash financing and investing activities
Common shares issued in exchange for investment in equity securities		$	-			$	32,425

 

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

 

F-5

Table of Contents

 

EOS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDAED FINANCIAL STATEMENTS
(UNAUDITED)

 

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 (“U.S. 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, 2019.

 

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 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 Agreement, 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.

 

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.

 

F-6

Table of Contents

 

On March 1, 2019, EOS(BVI) set up a wholly-owned subsidiary, Shanghai Maosong Co., Ltd (“Maosong”), under the laws of People’s Republic of China. Maosong is in the business of marketing and distribution of various products, including nutrition supplements, skin care products, and water purifiers in China. As of the date of this report, Maosong has a registered capital of USD $100,000, but no capital has actually been paid into Maosong.

 

Principles of Consolidation    

 

The accompanying consolidated financial statements, including the accounts of EOS Inc. and its wholly owned subsidiaries in Taiwan, British Virgin Islands, and People’s Republic of China, 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 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 consolidated 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 and the subsidiary in People’s Republic of China is the Chinese Yuan, or Renminbi; however, the accompanying consolidated financial statements have been translated and presented in United States Dollars ($). In the accompanying consolidated financial statements and notes, “$”, “US$” and “U.S. dollars” mean United States dollars, “NT$” and “NT dollars” mean New Taiwan dollars, and “RMB” means Chinese Yuan, or Renminbi. 

 

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.

 

F-7

Table of Contents

 

Inventory

 

Inventory is stated at the lower of cost and net realizable value. Net realizable value (NRV) is defined as estimated selling prices less costs of completion, disposal, and transportation.  Inventory consists mainly of finished goods held for resale. Cost is determined on a weighted average cost method. The Company periodically reviews the age and turnover of its inventory to determine whether any inventory has become obsolete or has declined in value, and incurs a charge to operations for known and anticipated inventory obsolescence. 

 

Property and Equipment

 

Property and equipment is carried at cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Expenditures that improve the functionality of the related asset or extend the useful life are capitalized. When property and equipment is retired or otherwise disposed of, the related gain or loss is included in operating income. Leasehold improvements are depreciated on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Depreciation is calculated on the straight-line method, including property and equipment under capital leases, generally is five years. Depreciation expense is $1,138 and $902 for the six months ended June 30, 2020 and 2019, 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 as of June 30, 2020 and December 31, 2019.

 

Long-term Equity Investment

 

The Company acquires equity investment to promote business and strategic objectives. The Company accounts for non-marketable equity and other equity investments for which the Company does not have control over the investees as:

 

·	Equity method investments when the Company has the ability to exercise significant influence, but not control, over the investee. Its proportionate share of the income or loss is recognized monthly and is recorded in gain (loss) on equity investments.
·	Non-marketable cost method investments when the equity method does not apply.

 

F-8

Table of Contents

 

Significant judgment is required to identify whether an impairment exists in the valuation of the Company’s non-marketable equity investments, and therefore the Company considers this a critical accounting estimate. Its yearly analysis considers both qualitative and quantitative factors that may have a significant impact on the investee's fair value. Qualitative analysis of its investments involves understanding the financial performance and near-term prospects of the investee, changes in general market conditions in the investee’s industry or geographic area, and the management and governance structure of the investee. Quantitative assessments of the fair value of its investments are developed using the market and income approaches. The market approach includes the use of comparable financial metrics of private and public companies and recent financing rounds. The income approach includes the use of a discounted cash flow model, which requires significant estimates regarding the investees' revenue, costs, and discount rates. The Company’s assessment of these factors in determining whether an impairment exists could change in the future due to new developments or changes in applied assumptions.

 

Other-Than-Temporary Impairment

 

The Company’s long-term equity investments are subject to a periodic impairment review. Impairments affect earnings as follows:

 

·	Marketable equity securities include the consideration of general market conditions, the duration and extent to which the fair value is below cost, and the Company’s ability and intent to hold the investment for a sufficient period of time to allow for recovery of value in the foreseeable future. The Company also considers specific adverse conditions related to the financial health of, and the business outlook for, the investee, which may include industry and sector performance, changes in technology, operational and financing cash flow factors, and changes in the investee’s credit rating. The Company records other-than-temporary impairments on marketable equity securities and marketable equity method investments in gain (loss) on equity investments.
·	Non-marketable equity investments based on the Company’s assessment of the severity and duration of the impairment, and qualitative and quantitative analysis of the operating performance of the investee; adverse changes in market conditions and the regulatory or economic environment; changes in operating structure or management of the investee; additional funding requirements; and the investee’s ability to remain in business. A series of operating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred that is other than temporary and that shall be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of the equity method. A loss in value of an investment that is other than a temporary decline shall be recognized. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. The Company records other-than-temporary impairments for non-marketable cost method investments and equity method investments in gain (loss) on equity investments.

 

Revenue Recognition

 

During the fiscal year 2018, the Company has adopted FASB 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.

 

F-9

Table of Contents

 

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”.

 

Software sales: The Company does not develop the software products on its own. When the Company receives a purchase order from the customer, the Company would engage with the third-party software company to customize and develop the software products. The Company recognizes software revenues upon completion of the installation and testing, and transfer the control of the software products to the customer. Software revenues are recorded at the fixed sales price, or “transaction price”, pursuant to the sales contracts. The Company may also charge the customer maintenance service fees on a straight-line basis over the service period pursuant to the sales contract. The Company concluded that the performance obligation for the maintenance service is distinct. Therefore, such maintenance service revenue can be separated from other elements in the arrangement.

 

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.

 

F-10

Table of Contents

 

Revenue by Major Products

 

For the six months ended June 30, 2020:
Water purifier machine		$	648,702
Automobile carbon reduction machine			129,985
Nutrition supplement			34,598
Software			13,448
Total		$	826,733

 

 Revenue by Geography

 

For the six months ended June 30, 2020:
Asia Pacific		$	826,733
Total		$	826,733

 

Leases -— The Company adopted FASB Accounting Standards Codification, Topic 842, Leases ("ASC 842") using the modified retrospective approach, electing the practical expedient that allows the Company not to restate its comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption. For the comparative periods prior to adoption, the Company presented the disclosures which were required under ASC 840.

 

The Company applied the following practical expedients in the transition to the new standard and allowed under ASC 842:

 

Practical Expedient	Description
Reassessment of expired or existing contracts	The Company elected not to reassess, at the application date, whether any expired or existing contracts contained leases, the lease classification for any expired or existing leases, and the accounting for initial direct costs for any existing leases.
Use of hindsight	The Company elected to use hindsight in determining the lease term (that is, when considering options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of right-to-use assets.
Reassessment of existing or expired land easements	The Company elected not to evaluate existing or expired land easements that were not previously accounted for as leases under ASC 840, as allowed under the transition practical expedient. Going forward, new or modified land easements will be evaluated under ASU No. 2016-02.
Separation of lease and non-lease components	Lease agreements that contain both lease and non-lease components are generally accounted for separately.
Short-term lease recognition exemption	The Company also elected the short-term lease recognition exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months.

 

The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. The Company’s future minimum based payments used to determine the Company’s lease liabilities mainly include minimum based rent payments. As most of Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

 

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The adoption of ASC 842 had no substantial impact on the Company’s consolidated balance sheets. The most significant impact was the recognition of the operating lease right-of-use assets and the liability for operating leases.  Accordingly, adoption of this standard resulted in the recognition of operating lease right-of-use assets of $8,235 and operating lease liabilities of $8,235 on the consolidated balance sheet as of January 1, 2019. The adoption of ASC 842 did not result in a cumulative-effect adjustment to the opening balance of retained earnings.

 

In addition, the adoption of the standard did not have a material impact on the Company's results of operations or cash flows. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in Selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur.

 

Advertising Costs

 

Advertising costs are expensed at the time such advertising commences. Advertising expenses were $17,645 and $22,321 for the six months ended June 30, 2020 and 2019, 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 $2,584 and $4,000 for the six months ended June 30, 2020 and 2019, 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.

 

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The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable, inventory, 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 six months ended June 30, 2020 and 2019, the Company does not have any outstanding common stock equivalents; therefore, a separate computation of diluted income 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 in Taiwan, but these investments may be in excess of the insurance limits of Taiwan Central Deposit Insurance Corporation (the “TCDIC”). 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. As of June 30, 2020, the Company had approximately $3,638 in excess of TCDIC insured limits. The Company has not experienced any losses in such accounts.

 

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Customers: The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral.

 

For the six months ended June 30, 2020, one customer accounted for more than 10% of the Company’s total revenues, representing approximately 85% of its total revenues, and 98% of accounts receivable in aggregate at June 30, 2020.

 

Customer		Net sales for the six months ended June 30, 2020				Accounts receivable balance as of June 30, 2020
A		$	704,397			$	1,801,027

.

For the six months ended June 30, 2019, one customer accounted for more than 10% of the Company’s total revenues, represented approximately 76% of its total revenues and 76% of accounts receivable in aggregate at June 30, 2019, respectively.

 

Customer		Net sales for the six months ended June 30, 2019				Accounts receivable balance as of June 30, 2019
A		$	180,367	*		$	1,143,557

 

*Related party transactions (see Note 5).

 

Suppliers: The Company purchases its inventories from various suppliers.

 

For the six months ended June 30, 2020, three suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 39%, 31%, and 22% of total net purchase, and 0% of accounts payable in aggregate at June 30, 2020, respectively:

 

Supplier		Net purchase for the six months ended June 30, 2020				Accounts payable balance as of June 30, 2020
A		$	60,547			$	-
B		$	49,300			$	-
C		$	34,000			$	-

 

For the six months ended June 30, 2019, two suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 87% and 10% of total net purchase, and 0% and 100% of accounts payable in aggregate at June 30, 2019, respectively:

 

Supplier		Net purchase for the six months ended June 30, 2019				Accounts payable balance as of   June 30, 2019
A		$	34,561			$	-
D		$	3,821			$	715

 

Foreign-currency Transactions

 

Foreign-currency transactions are recorded in New Taiwan dollars (“NTD”) and Renminbi (“RMB”) 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 and Renminbi, 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 stockholders’ equity.

 

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Translation Adjustment

 

The accounts of the Company’s subsidiaries were maintained, and their financial statements were expressed in New Taiwan Dollar (“NTD”) and Renminbi (“RMB”). Such financial statements were translated into U.S. Dollars (“$” or “USD”) in accordance ASC 830, "Foreign Currency Matters", with the NTD and RMB as the functional currency. According to the Statement, all assets and liabilities are translated at the current exchange rate, common stock and additional paid-in capital 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.

 

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 December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.

 

Note 2. LEASE

 

The Company has no finance leases. The Company’s leases primarily include office facility and copy machine under the operating lease arrangements. The Company’s operating leases have remaining lease terms up to 3 years as of June 30, 2020.

 

Balance sheet information related to the Company’s leases is presented below:

 

		June 30, 2020
Operating Leases:
Operating lease – right of use (“ROU”) assets		$	23,809
Operating lease liability, current portion			22,323
Operating lease liability, noncurrent portion			1,485
Total operating lease liabilities		$	23,808

 

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The following provides details of the Company's lease expenses:

 

		Six Months Ended
		June 30, 2020
Operating lease expenses		$	12,098

 

Other information related to leases is presented below:

 

		Six Months Ended
		June 30, 2020
Cash paid for amounts included in measurement of liabilities:
Operating cash flows from operating leases		$	12,098
Weighted average remaining lease term:
Operating leases		1.15 years
Weighted average discount rate:
Operating leases			4	%

 

The minimum future annual payments under non-cancellable leases at rates now in force, are as follows:

 

		Operating leases
2020 (excluding the six months ended June 30, 2020)		$	12,373
2021			10,822
2022			877
2023			219
Total future minimum lease payments, undiscounted			24,291
Less: Imputed interest			(483	)
Present value of future minimum lease payments		$	23,808

 

Note 3. LONG-TERM INVESTMENT

 

On January 15, 2019, the Company, A-Best Wire Harness & Components Co., Ltd. (“A-Best” or the “Investee”), a company formed under the laws of Taiwan, and Mr. Ing-Ming Lai, a Taiwanese individual and the majority shareholder of A-Best, entered into an investment cooperation agreement (the “Investment Cooperation Agreement”), pursuant to which the Company issued 10 million shares of its common stock to Mr. Ing-Ming Lai to purchase twenty percent (20%) of the issued and outstanding equity in A-Best. On May 24, 2019, the Company consummated the shareholder registration of A-Best with the Investment Commission of Ministry of Economic Affairs of Taiwan and issued 10 million shares of its common stock to Mr. Ing-Ming Lai to acquire 20% of the issued and outstanding equity in A-Best.

 

On March 2, 2020, the Company, A-Best, and Ing-Ming Lai, (collectively, the “Parties”) entered into a strategic alliance agreement (the “Strategic Alliance Agreement”), pursuant to which the Parties redefined their cooperation with respect to the sales and distribution of A-Best’s micro-ceramic speakers. In accordance with the Strategic Alliance Agreement, A-Best, Mr. Ing-Ming Lai and the Company terminated the Investment Cooperation Agreement dated January 15, 2019 entered by and among the Parties and as a result the Company agreed to return 20% of the equity interest in A-Best to Mr. Ing-Ming Lai, which was valued at approximately $33,411 by the Parties.

 

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Furthermore, subject to the terms and conditions of the Strategic Alliance Agreement, A-Best has granted the Company the exclusive sale and distribution right of A-Best’s micro-ceramic speakers in the world for one (1) year (the “Term”), which may be renewed with mutual consent of the Parties two months prior to the expiration of the Term, while A-Best retains its own right to sell and distribute the micro-ceramic speakers on its own. In consideration for the exclusive distribution right of A-Best’s speakers under the Strategic Alliance Agreement, the Company agreed to have A-Best keep the Company’s 10,000,000 shares of common stock issued under the Investment Cooperation Agreement and the Company may keep the revenue and profits generated from the sale of A-Best speakers until the total revenue from such speakers reaches $15 million U.S. dollars.

 

On April 22, 2020, the Company returned 20% equity interest in A-Best to Mr. Ing-Ming Lai pursuant to the Strategic Alliance Agreement. As of April 22, 2020, the Company holds 20% equity interest in A-Best and uses equity method to account for its equity investment as prescribed in ASC 323, Investments—Equity Method and Joint Ventures (“ASC 323”). Equity method adjustments include the Company’s proportionate share of investee’s income or loss and other adjustments required by the equity method. For the period from January 1, 2020, to April 22, 2020, the share of loss from investment accounted for using equity method was $2,848. As a result of the return of equity interest, the Company also recognized loss on investment in equity securities of $17,902 for the same period.

 

Summarized financial information for the Company's equity method investee, A-Best, is as follows:

 

Balance Sheets

 

		April 22,				December 31,
		2020				2019
Current assets		$	38,303			$	42,818
Noncurrent assets			779				857
Current liabilities			1,406,166				1,372,351
Shareholders’ deficit			(1,367,084	)			(1,328,676	)

 

Statement of Operation

		For the period from January 1, 2020 to April 22, 2020.
Net sales		$	854
Gross profit			498
Net loss			(14,240	)
Share of loss from investment accounted for using equity method			(2,848	)

 

On May 26, 2020, EOS Inc. increased its investment in Emperor Star by $134,004 (NTD$4,000,000). The Company also received the contributions to Emperor Star from non-controlling interests in the amount of $33,398 (NTD$1,000,000). As a result, the Company owns 83% equity interest of Emperor Star as of June 30, 2020, which is no longer a wholly-owned subsidiary.

 

Note 4. SECURITY DEPOSITS

 

On November 21, 2019, the Company and Shuang Hua International Culture Media Co, Ltd. (“Shuang Hua”), a corporation formed under laws of Taiwan, entered into an exclusive copyright and distribution agreement (the “Agreement”), pursuant to which, subject to the terms and condition therein, Shuang Hua granted the Company an exclusive right to produce, market, distribute and sell the bilingual films and electronic books of which the copyrights owned by Shuang Hua. In accordance with the Agreement and consideration for the exclusive copyright and distribution right to the bilingual films and electronic publications, the Company shall pay 3% of the projected sales in the next three years as security deposits, in the aggregate amount of $2,894,000, before December 31, 2021.

 

As of June 30, 2020 and December 31, 2019, the Company has paid $1,030,000 and $120,000 to Shuang Hua, respectively, and recorded as security deposits.

 

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Note 5. RELATED PARTY TRANSACTIONS

 

Related party – Sales

 

The Company had sales to Fortune King (HK) Trading Limited, (“Fortune King”), a Hong Kong company. As of June 30, 2019, Fortune King had been a related party of the Company because the founder and officer of Fortune King was a shareholder of the Company. On or about June 30, 2019, the founder and officer of Fortune King transferred her equity interest in the Company and therefore Fortune King is no longer a related party to the Company. 

 

Sales to Fortune King amounted to $704,397 and $180,367 for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020 and December 31, 2019, accounts receivable from Fortune King was $1,801,027 and $2,151,192, respectively.

 

Due to shareholders

 

The Company has advanced funds from its directors and shareholders for working capital purposes. As of June 30, 2020 and December 31, 2019 there were $105,172 and $96,114 advance outstanding, respectively. The Company has agreed that the outstanding balances bear 0% interest rate and are due upon demand after thirty days of written notice by the director and shareholder.

 

Note 6. STOCKHOLDERS’ EQUITY

 

On June 1, 2020, the Company and Fortune King entered into a sales collaboration agreement (the “Sales Collaboration Agreement”), pursuant to which, subject to the terms and condition therein, Fortune King agreed to provide promotional and marketing service of the Company’s products within six years from January 2020, to December 2025. Fortune King is obligated to perform such service regardless of whether the Company sells products to Fortune King during the designated period. In accordance with the Sales Collaboration Agreement and in consideration for the service provided by Fortune King, the Company shall issue 3,000,000 shares of common stock to Fortune King for the promotional and marketing service of $1,500,000.

 

The Company recognized marketing expense of $125,000 for the six months ended June 30, 2020. As of June 30, 2020, none of these shares have been issued.

 

Note 7. 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, 2020, the Company had net operating loss carry forwards of $686,169 that may be available to reduce future years’ taxable income. 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.

 

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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.

 

People’s Republic of China (“PRC”)

Under the Enterprise Income Tax (“EIT”) Law of the PRC, the standard EIT rate is 25%. The PRC subsidiary of the Company is subject to PRC income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which they operate. No provision for income taxes have been made as Maosong had no taxable income as of and for the six months ended June 30, 2020.

 

Provision for income tax consists of the following:

 

		For the Six Months Ended June 30,
		2020				2019
Current income tax
U.S.		$	-			$	-
Taiwan			-				-
PRC			-				-
Sub total			-				-
Deferred income tax
U.S.
Deferred tax assets for NOL carryforwards			(28,019	)			(3,013	)
Valuation allowance			28,019				3,013
Net changes in deferred income tax (benefit)			-				-
Total income tax provision		$	-			$	-

 

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

 

		For the Six Months Ended June 30,
		2020				2019
U.S. statutory income tax rate			21	%			21	%
Taiwan unified income tax rate			20	%			20	%
PRC standard EIT rate			25	%			25	%
Changes in valuation allowance			(46	)%			(66	)%
Other			(20	)%		-		%
Effective combined income tax rate			0	%			0	%

 

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Significant components of the Company’s deferred taxes as of June 30, 2020 and December 31, 2019 were as follows:

 

		June 30,				December 31,
		2020				2019
Deferred tax assets:
Net operating loss carryforwards		$	144,096			$	116,077
Less: Valuation allowance			(144,096	)			(116,077	)
Deferred tax assets, net		$	-			$	-

 

Note 8. 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, 2020 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.

 

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. Yu-Cheng Yang, a shareholder and director of the Company, is the sole director of EITB. Yu-Hsiang Chia is the branch manager of EITB.

 

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. On May 26, 2020, EOS Inc. increased its investment in Emperor Star by $134,004 (NTD$4,000,000). The Company also received the contributions to Emperor Star from non-controlling interests in the amount of $33,398 (NTD$1,000,000). As a result, the Company owns 83% equity interest of Emperor Star as of June 30, 2020, which is no longer a wholly-owned subsidiary.

   

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 purifying machines. On March 1, 2019, EOS(BVI) set up a wholly-owned subsidiary, Shanghai Maosong Co., Ltd (“Maosong”), under the laws of People’s Republic of China. Maosong is in the business of marketing and distribution of various products, including nutrition supplements, skin care products, and water purifying machines in China. As of the date of this report, Maosong has a registered capital of USD $100,000, but no capital has actually been paid into Maosong.

 

We have never been a party to any bankruptcy, receivership or similar proceeding, nor have we undergone any material reclassification, merger, consolidation, purchase or sale of a significant amount of assets not in the ordinary course of business.

 

We do not own any real property. Our principal executive office is presently located at 7F.-1, No. 162, Sec. 2, Zhongshan N. Rd., Zhongshan District, Taipei City 10452, Taiwan (Republic of China). EITB and Emperor Star operate from this Taipei location. Taiwan. Emperor Star and EITB entered into the office leases which commenced on June 15, 2019 and will end on June 14, 2021. The office occupies approximately 1,388 square feet and the average amount of office rent (including the maintenance fees) is approximately $2,016 per month. Before this location, our former principal executive office was at 372 Linsen N. Road, Suite 519, Zhongshan District, Taipei City, 104, Taiwan. Our then monthly rent for that office space was $1,280 and that lease expired on June 30, 2019.

 

A-Best operates its business at the address of 159 Songde Road, Building 13, Room 1, Xinyi District, Taipei, Taiwan. A-Best’s lease for that office space commenced on January 20, 2018 and will end on January 19, 2020 with a term of two years. The monthly rent for that office space is $1,451, excluding utilities and maintenance fees.

 

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General Business Overview

 

EOS Inc. markets and distributes a variety of consumer products selected based on its understanding of the demand for each of its products. EOS conducts its business primarily in Asia, including the People’s Republic of China (“PRC”), Taiwan, Singapore and Malaysia. The principal products that EOS markets and sells through its subsidiaries include Nine Layer Transformation Hair Cream, Deep Seawater Mineral Extract, and Lifegenes & Youthgenes. Nine Layer Transformation Hair Cream is hair-coloring product that darkens the user’s hair color to brown or black while nourishing the hair. Deep Seawater Mineral Extract is a dietary supplement that is designed to enhance the overall health and appearance of the consumer. Both Lifegenes and Youthgenes are dietary supplements designed to improve the consumer’s health. In addition to the four major products, EOS also sells and distributes other dietary supplements and skin care products from time to time as it deems profitable. During the six months ended June 30, 2020, the net sales of dietary supplements and skin care products were $34,598, which represented approximately 4.2% of the total net sales for that period.  

 

On April 30, 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 six months ended June 30, 2020 and 2019 were $648,702 and $41,799, respectively, accounting for approximately 78.47% and 17.55% of the total revenue of the said period, respectively. We did not renew the Cosminergy Distribution Agreement when the said distribution agreement expired on April 30, 2019. We are actively seeking for the new vendors for this product.

 

In November 2019, we started the marketing, promotion, sales and distribution of certain electrical noise suppressing device (the “Calibrator”) globally provided by Ultra Velocity Technology Ltd. (“Ultra Velocity”), a corporation formed under the laws of Taiwan, based on an exclusive patent licensing and distribution agreement (the “Ultra Velocity Agreement”) between Ultra Velocity and us. However, due to the outbreak of coronavirus (“COVID-19”) in mainland China, Ultra Velocity and we terminated the Ultra Velocity Agreement in March 2020 and intended to redefine the cooperation model between the respective parties. During the six months ended June 30, 2020, the net sales of calibrator was $129,985, which represented approximately 15.72% of the total net sales for that 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 2019. During the six months ended June 30, 2020 and 2019, the software business line generated $13,448 and $4,515 respectively, accounting for approximately 1.63% and 1.9% of the total net sales for that period.

 

Distribution Agreements and Supply Agreement

 

On May 1, 2015, we entered into a written Distribution Agreement with A.C. (USA), Inc. (“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 Cosminergy Distribution Agreement expired on April 30, 2019 and we did not renew it.

 

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We, through one of our wholly-owned subsidiaries, entered into a product supply agreement (“Fortune King Product Supply Agreement”) with Fortune King (HK) Trading Limited (“Fortune King”), a company formed under the laws of Hong Kong, to provide and sell any products that Fortune King orders from EOS and its subsidiaries. Pursuant to the Fortune King Product Supply Agreement, we agreed to provide products ordered by Fortune King within five business days from the order date and the products we sell should have the expiration date/shelf life at least one year from the supply date. The Fortune King Product Supply Agreement became effective on October 1, 2018 and was extended to September 30, 2021. We provide marketing information on the products we sell and training services to Fortune King. During the year ended December 31, 2018 and nine months ended September 30, 2019, the majority of EOS’ sales of Nine Layer Transformation Hair Cream, Deep Seawater Mineral Extract, Lifegenes, Youthgenes, and household water purifying machines were to Fortune King. As of June 30, 2019, Fortune King was a related party of us because the founder and officer of Fortune King was a shareholder of EOS. On or about June 30, 2019, the founder and officer of Fortune King transferred her equity interest in the Company and therefore Fortune King is no longer a related party to the Company.

 

Acquisition of Control Interest in A-Best

 

On August 7, 2019, the Company, A-Best Wire Harness & Components Co., Ltd (“A-Best”), a company formed under the laws of Taiwan, and Ing-Ming Lai, a Taiwanese individual and the majority shareholder of A-Best, entered into a purchase agreement (the “Purchase Agreement”), pursuant to which, subject to the terms and conditions therein, the Company shall purchase thirty-one percent (31%) of the issued and outstanding equity interest in A-Best and as consideration, issue ten million (10,000,000) shares (the “Stock Consideration”) of its common stock (the “Common Stock”) to Ing-Ming Lai and pay Ing-Ming Lai fifty-five million (55,000,000) new Taiwanese dollars (“NTD”) (the “Cash Consideration”). The Company currently owns twenty percent (20%) of equity securities in A-Best, and will subsequently own a total of fifty-one percent (51%) of issued and outstanding A-Best shares when Ing-Ming Lai completes transferring his 31% of A-Best’s equity to the Company in accordance with the Purchase Agreement. Pursuant to the Purchase Agreement, the Company shall use its best efforts to obtain its shareholder approval to increase the number of authorized common stock to allow legal issuance of the Stock Consideration to Ing-Ming Lai no later than December 31, 2019. In addition, pursuant to the Purchase Agreement, the Company shall pay the Cash Consideration to Ing-Ming Lai if and only if the Company successfully completes an Initial Public Offering (the “IPO”) of its common stock, with gross proceeds of no less than $5,000,000 USD. The Purchase Agreement contains the customary confidentiality provision, representations and warranties. The Purchase Agreement also provides for mutual indemnification clauses. A-Best is a Taipei-based company that designs magnetic resonance speakers.

 

In connection with the Purchase Agreement, on August 7, 2019, the Company, A-Best, and Ing Ming Lai entered into an Exclusive Sales Agreement (the “Exclusive Sales Agreement”), pursuant to which the Company is granted the right as the exclusive distributor to sell all of A-Best’s products, including its Micro-ceramic magnetic resonance speakers in the world, and the right to use A-Best’s trademarks and copyrights in connection with the sale of such products. The term of the Exclusive Sales Agreement shall be three (3) years from execution and be automatically renewed for another term of three (3) years unless one party gives the other parties a written notice of termination three (3) months before the end of the term.

 

In connection with the Purchase Agreement, on August 7, 2019, the Company and Ing-Ming Lai entered into a management agreement (the “Management Agreement”), pursuant to which the Company has agreed to maintain A-Best’s existing operations and Ing-Ming Lai’s positions as A-Best’s President and Chief Executive Officer of A-Best, until A-Best’s board of directors decides to terminate the terms of his positions. Pursuant to the Management Agreement, the Company shall also designate one individual to A-Best’s board of directors, and A-Best’s board of directors shall continue to maintain two director seats, where at least one of the two directors is designated by the Company until the Parties either reach a shareholder agreement or A-Best receives additional capital investment in equity or debt. The Management Agreement became effective upon execution. For more information about this transaction, the Purchase Agreement, the Exclusive Sales Agreement and Management Agreement, please refer to the current report on Form 8-K which was filed with the Securities and Exchange Commission on August 13, 2019.

   

On December 30, 2019, the Company, A-Best, and Ing-Ming Lai, a Taiwanese individual and the majority shareholder of A-Best, entered into a termination agreement (the “Termination Agreement”) to, among other things, terminate the Purchase Agreement, Exclusive Sales Agreement, and Management Agreement, all of which were dated August 7, 2019. The Company, A-Best and Mr. Ing-Ming Lai decided to terminate the three agreements primarily because they need more time to agree to a mutually beneficial way to cooperate with each other with respect to the sales of the Micro-ceramic magnetic resonance speakers that A-Best has developed. Pursuant to the Termination Agreement which became effective on December 31, 2019, none of the three parties owes any compensation, payments, damages, penalties or liabilities to one another or has any obligations to perform under any of the Purchase Agreement, Exclusive Sales Agreement, and Management Agreement, except that each party agrees to keep confidential the business plans, research and development information obtained from performing the three agreements. For more information about the Termination Agreement, please refer to the current report on Form 8-K which was filed with the Securities and Exchange Commission on December 31, 2019. 

  

On March 2, 2020, the Company, A-Best, and Ing-Ming Lai, a Taiwanese individual and the majority shareholder of A-Best (collectively, the “Parties”) entered into a strategic alliance agreement (the “Strategic Alliance Agreement”), pursuant to which the Parties redefined their cooperation with respect to the sales and distribution of A-Best’s micro-ceramic speakers. In accordance with the Strategic Alliance Agreement, A-Best, Mr. Ing-Ming Lai and the Company terminated the Investment Cooperation Agreement dated January 12, 2019 entered by and among the Parties and as a result the Company agreed to return 20% of the equity interest in A-Best to Mr. Ing-Ming Lai, which was valued at approximately $33,411 by the Parties.

 

Furthermore, subject to the terms and conditions of the Strategic Alliance Agreement, A-Best has granted the Company the exclusive sale and distribution right of A-Best’s micro-ceramic speakers in the world for one (1) year (the “Term”), which may be renewed with mutual consent of the Parties two months prior to the expiration of the Term, while A-Best retains its own right to sell and distribute the micro-ceramic speakers on its own. In consideration for the exclusive distribution right of A-Best’s speakers under the Strategic Alliance Agreement, the Company agreed to have A-Best keep the Company’s 10,000,000 shares of common stock, par value $0.001 per share, issued under the Investment Cooperation Agreement and the Company may keep the revenue and profits generated from the sale of A-Best speakers until the total revenue from such speakers reaches $15 million U.S. dollars. This Strategic Alliance Agreement contains A-Best’s and Mr. Ing-Ming Lai’s joint representation regarding their intellectual property rights to A-Best ceramic speakers. For more information about this transaction and the Strategic Alliance Agreement, please refer to the current report on Form 8-K which was filed with the Securities and Exchange Commission on March 5, 2020.

  

On April 22, 2020, the Company returned 20% equity interest in A-Best to Mr. Ing-Ming Lai pursuant to the Strategic Alliance Agreement.

   

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On November 25, 2019, the Company and Ultra Velocity Technology Ltd. (“Ultra Velocity”), a corporation formed under the laws of Taiwan, entered into an exclusive patent licensing and distribution agreement (the “Exclusive Patent Licensing and Distribution Agreement”), pursuant to which, subject to the terms and conditions therein, Ultra Velocity granted the Company an exclusive license to the patent (Patent M566970 registered in Taiwan) to its electrical noise suppressing device (the “Calibrator”) and the exclusive right to market, promote, distribute and sell the Calibrator globally. In accordance with the Agreement and in consideration for the exclusive patent license and distribution right to the Calibrator, the Company agreed to issue Ultra Velocity three million (3,000,000) restricted shares of its common stock after the execution of this Agreement and upon the shareholder approval to increase the number of authorized capital of the Company (the “Shareholder Approval”).  The term of this Agreement was ten years, commencing from the dare thereof. However, on March 30, 2020, the Company and Ultra Velocity terminated the Exclusive Patent Licensing and Distribution Agreement via a mutually agreed written notice, effective March 24, 2020. 

 

Results of Operation – For the three months ended June 30, 2020 compared to the three months ended June 30, 2019 

 

Net sales

 

Net sales were $94,007 for three months ended June 30, 2020, representing an increase of $55,947, or 147.00%, as compared to $38,060 for the three months ended June 30, 2019. The increase was primarily due to the increase in sales of water purifying machines of approximately $50,000.

 

Cost of sales

 

Cost of sales was $14,191 for the three months ended June 30, 2020, representing an increase of $7,425 or 109.74%, as compared to $6,766 for the three months ended June 30, 2019. Such increase was mainly due to the increase in the sales of water purifying machines.

 

Gross profit

 

Gross profit was $79,816 for the three months ended June 30, 2020, compared to $31,294 for the same period in 2019. Gross profit as a percentage of net sales was 84.90% for the three months ended June 30, 2020, compared to 82.22% in the same period in 2019. The change in gross margin was because the higher gross margin product accounted for a higher proportion of sales for the three months ended June 30, 2020.

 

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 $231,069 for the three months ended June 30, 2020, representing an increase of $43,690, or 23.32%, as compared to $187,379 for the three months ended June 30, 2019. The increase in selling, general and administrative expenses was primarily attributable to the increase in the marketing expense of $62,500 as a result of Sales Collaboration Agreement, partially offset by the decrease in travel expenses of approximately $10,000.

 

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Income (loss) from operations

 

Loss from operations was $151,253 for the three months ended June 30, 2020 compared to loss from operations of $156,085 for the three months ended June 30, 2019, representing a decrease in loss of $4,832, or 3.10%. Such decrease was primarily due to the increase in sales of water purifying machines, partially offset by the increase in selling, general and administrative expenses.

 

Other income (loss)

 

Other income (loss) was $(52,899) for the three months ended June 30, 2020, reflecting a decrease of $55,524, or 2,115.20%, compared to other income of $2,625 for the three months June 30, 2019. The decrease was mainly attributable to the increase in loss on foreign currency exchange and loss on investment in equity securities.

 

Net loss

 

As a result of the above factors, our net loss was $204,152 for the three months ended June 30, 2020, as compared to net loss of $153,460 for the three months ended June 30, 2019, representing an increase in loss of $50,692, or 33.03%.

 

Results of Operation – For the six months ended June 30, 2020 compared to the six months ended June 30, 2019 

 

Net sales

 

Net sales were $826,733 for six months ended June 30, 2020, representing an increase of $588,561, or 247.12%, as compared to $238,172 for the six months ended June 30, 2019. The increase was primarily due to the increase in sales of water purifying machines and mobile carbon reduction machine of approximately $600,000 and $130,000, respectively,           partially offset by the decrease in sales of skin care products of approximately $130,000. 

 

Cost of sales

 

Cost of sales was $107,014 for the six months ended June 30, 2020, representing an increase of $62,193 or 138.76%, as compared to $44,821 for the six months ended June 30, 2019. Such increase was mainly due to the increase in the sales of water purifying machines and automobile carbon reduction machines, partially offset by the decrease in sales of skin care products.

 

Gross profit

 

Gross profit was $719,719 for the six months ended June 30, 2020, compared to $193,351 for the same period in 2019. Gross profit as a percentage of net sales was 87.06% for the six months ended June 30, 2020, compared to 81.18% in the same period in 2019. The change in gross margin was because the higher gross margin product accounted for a higher proportion of sales for the six months ended June 30, 2020.

 

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 $533,148 for the six months ended June 30, 2020, representing an increase of $159,218, or 42.58%, as compared to $373,930 for the six months ended June 30, 2019. The increase in selling, general and administrative expenses was primarily attributable to the increase in the marketing expense of $125,000 as a result of Sales Collaboration Agreement and accounting, legal and professional fees of approximately $30,000.

 

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Income (loss) from operations

 

Income from operations was $186,571 for the six months ended June 30, 2020 compared to loss from operations of $180,579 for the six months ended June 30, 2019, representing an increase in income of $367,150, or 203.32%. Such increase was primarily due to the increase in sales of automobile carbon reduction machines and water purifying machines, partially offset by the decrease in sales of skincare products and the increase in selling, general and administrative expenses.

 

Other income (loss)

 

Other income (loss) was $(37,492) for the six months ended June 30, 2020, reflecting a decrease of $47,639, or 469.49%, compared to other income of $10,147 for the six months June 30, 2019. The decrease was mainly attributable to the increase in loss on foreign currency exchange and loss on investment in equity securities.

 

Net Income (loss)

 

As a result of the above factors, our net income was $149,079 for the six months ended June 30, 2020, as compared to net loss of $170,432 for the six months ended June 30, 2019, representing an increase in income of $319,511, or 187.47%.

 

Liquidity and Capital Resources

 

Cash and cash equivalents were $91,852 at June 30, 2020 and $295,594 at December 31, 2019. Our total current assets were $2,286,258 at June 30, 2020, as compared to $2,819,688 at December 31, 2019. Our total current liabilities were $245,647 at June 30, 2020, as compared to $221,694 at December 31, 2019.

 

We had a working capital of $2,040,611 on June 30, 2020, compared to the working capital of $2,597,994 on December 31, 2019. The decrease in working capital was primarily attributable to the decrease in cash and cash equivalents and accounts receivable.

 

Net cash used in operating activities was $226,990 during the six months ended June 30, 2020, as compared to $30,146 for the six months ended June 30, 2019. The increase in net cash used in operating activities in the amount of $196,844 was primary attributable to the increase in security deposits and other assets, partially offset by the increase in net income and stock-based compensation and the decrease in advance to suppliers.

 

Net cash used in investing activities was $1,095 during the six months ended June 30, 2020, as compared to $935 for the six months ended June 30, 2019. The increase in net cash used in investing activities was due to the slight increase in the acquisition of property, plant and equipment.

 

Net cash provided by financing activities was $33,300 during the six months ended June 30, 2020, as compared to $0 for the six months ended June 30, 2019. The increase in net cash provided by financing activities was due to the proceeds from investments by noncontrolling interests in subsidiary.

 

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As a result of the above factors, net decrease in cash and cash equivalents were $203,742 for the six months ended June 30, 2020, as compared to $28,508 for the six months ended June 30, 2019.

 

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.

 

Critical Accounting Policies

 

Principles of Consolidation

 

The accompanying unaudited consolidated financial statements, including the accounts of EOS Inc. and its wholly owned subsidiaries in Taiwan, British Virgin Islands, and People’s Republic of China, 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 and the subsidiary in People’s Republic of China is the Chinese Yuan, or Renminbi; 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$” and “U.S. dollars” mean United States dollars, “NT$” and “NT dollars” mean New Taiwan dollars, and “RMB” means Chinese Yuan, or Renminbi. 

 

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.

 

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Accounts Receivable

 

Accounts receivable are stated at carrying value less estimates made for doubtful receivables. An allowance for impairment of trade receivables is established if the collection of a receivable becomes doubtful. Such receivable becomes doubtful when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the receivable is impaired. The amount of the allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. An impairment loss is recognized in the statement of income, as are subsequent recoveries of previous impairments.

 

Inventory

 

Inventory is stated at the lower of cost and net realizable value. Net realizable value (NRV) is defined as estimated selling prices less costs of completion, disposal, and transportation. Inventory consists mainly of finished goods held for resale. Cost is determined on a weighted average cost method. The Company periodically reviews the age and turnover of its inventory to determine whether any inventory has become obsolete or has declined in value, and incurs a charge to operations for known and anticipated inventory obsolescence.

 

Property and Equipment

 

Property and equipment is carried at cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Expenditures that improve the functionality of the related asset or extend the useful life are capitalized. When property and equipment is retired or otherwise disposed of, the related gain or loss is included in operating income. Leasehold improvements are depreciated on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Depreciation is calculated on the straight-line method, including property and equipment under capital leases, generally is five years. Depreciation expense is $1,138 and $902 for the six months ended June 30, 2020 and 2019, 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 as of June 30, 2020 and December 31, 2019.

   

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Long-term Equity Investment

 

The Company acquires equity investment to promote business and strategic objectives. The Company accounts for non-marketable equity and other equity investments for which the Company does not have control over the investees as:

 

☐	Equity method investments when the Company has the ability to exercise significant influence, but not control, over the investee. Its proportionate share of the income or loss is recognized monthly and is recorded in gain (loss) on equity investments.
☐	Non-marketable cost method investments when the equity method does not apply.

 

Significant judgment is required to identify whether an impairment exists in the valuation of the Company’s non-marketable equity investments, and therefore the Company considers this a critical accounting estimate. Its yearly analysis considers both qualitative and quantitative factors that may have a significant impact on the investee’s fair value. Qualitative analysis of its investments involves understanding the financial performance and near-term prospects of the investee, changes in general market conditions in the investee’s industry or geographic area, and the management and governance structure of the investee. Quantitative assessments of the fair value of its investments are developed using the market and income approaches. The market approach includes the use of comparable financial metrics of private and public companies and recent financing rounds. The income approach includes the use of a discounted cash flow model, which requires significant estimates regarding the investees’ revenue, costs, and discount rates. The Company’s assessment of these factors in determining whether an impairment exists could change in the future due to new developments or changes in applied assumptions.

 

Other-Than-Temporary Impairment

 

The Company’s long-term equity investments are subject to a periodic impairment review. Impairments affect earnings as follows:

 

☐	Marketable equity securities include the consideration of general market conditions, the duration and extent to which the fair value is below cost, and our ability and intent to hold the investment for a sufficient period of time to allow for recovery of value in the foreseeable future. The Company also considers specific adverse conditions related to the financial health of, and the business outlook for, the investee, which may include industry and sector performance, changes in technology, operational and financing cash flow factors, and changes in the investee’s credit rating. The Company records other-than-temporary impairments on marketable equity securities and marketable equity method investments in gain (loss) on equity investments.
☐	Non-marketable equity investments based on the Company’s assessment of the severity and duration of the impairment, and qualitative and quantitative analysis of the operating performance of the investee; adverse changes in market conditions and the regulatory or economic environment; changes in operating structure or management of the investee; additional funding requirements; and the investee’s ability to remain in business. A series of operating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred that is other than temporary and that shall be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of the equity method. A loss in value of an investment that is other than a temporary decline shall be recognized. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. The Company records other-than-temporary impairments for non-marketable cost method investments and equity method investments in gain (loss) on equity investments.

 

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Revenue Recognition

 

During the fiscal year 2018, the Company has adopted FASB 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”.

 

Software sales: The Company does not develop the software products on its own. When the Company receives a purchase order from the customer, the Company would engage with the third-party software company to customize and develop the software products. The Company recognizes software revenues upon completion of the installation and testing, and transfer the control of the software products to the customer. Software revenues are recorded at the fixed sales price, or “transaction price”, pursuant to the sales contracts. The Company may also charge the customer maintenance service fees on a straight-line basis over the service period pursuant to the sales contract. The Company concluded that the performance obligation for the maintenance service is distinct. Therefore, such maintenance service revenue can be separated from other elements in the arrangement.

 

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.

 

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The following tables provide details of revenue by major products and by geography.

 

Revenue by Major Products

 

For the six months ended June 30, 2020:
Water purifier machine		$	648,702
Automobile carbon reduction machine			129,985
Nutrition supplement			34,598
Software			13,448
Total		$	826,733

 

Revenue by Geography

 

For the six months ended June 30, 2020:
Asia Pacific		$	826,733
Total		$	826,733

 

Leases -— The Company adopted FASB Accounting Standards Codification, Topic 842, Leases ("ASC 842") using the modified retrospective approach, electing the practical expedient that allows the Company not to restate its comparative periods prior to the adoption of the standard on January 1, 2019. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption. For the comparative periods prior to adoption, the Company presented the disclosures which were required under ASC 840.

 

The Company applied the following practical expedients in the transition to the new standard and allowed under ASC 842:

 

Practical Expedient	Description
Reassessment of expired or existing contracts	The Company elected not to reassess, at the application date, whether any expired or existing contracts contained leases, the lease classification for any expired or existing leases, and the accounting for initial direct costs for any existing leases.
Use of hindsight	The Company elected to use hindsight in determining the lease term (that is, when considering options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of right-to-use assets.
Reassessment of existing or expired land easements	The Company elected not to evaluate existing or expired land easements that were not previously accounted for as leases under ASC 840, as allowed under the transition practical expedient. Going forward, new or modified land easements will be evaluated under ASU No. 2016-02.
Separation of lease and non-lease components	Lease agreements that contain both lease and non-lease components are generally accounted for separately.
Short-term lease recognition exemption	The Company also elected the short-term lease recognition exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months.

 

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The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. The Company’s future minimum based payments used to determine the Company’s lease liabilities mainly include minimum based rent payments. As most of Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

 

The adoption of ASC 842 had no substantial impact on the Company’s consolidated balance sheets. The most significant impact was the recognition of the operating lease right-of-use assets and the liability for operating leases.  Accordingly, adoption of this standard resulted in the recognition of operating lease right-of-use assets of $8,235 and operating lease liabilities of $8,235 on the consolidated balance sheet as of January 1, 2019. The adoption of ASC 842 did not result in a cumulative-effect adjustment to the opening balance of retained earnings.

 

In addition, the adoption of the standard did not have a material impact on the Company's results of operations or cash flows. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in Selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period when the changes in facts and circumstances on which the variable lease payments are based occur.

 

Advertising Costs

 

Advertising costs are expensed at the time such advertising commences. Advertising expenses were $17,645 and $22,321 for the six months ended June 30, 2020 and 2019, 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 $2,584 and $4,000 for the six months ended June 30, 2020 and 2019, 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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	☐	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, inventory, 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 six months ended June 30, 2020 and 2019, the Company does not have any outstanding common stock equivalents; therefore, a separate computation of diluted income 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 in Taiwan, but these investments may be in excess of the insurance limits of Taiwan Central Deposit Insurance Corporation (the “TCDIC”). 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. As of June 30, 2020, the Company had approximately $3,638 in excess of TCDIC insured limits. The Company has not experienced any losses in such accounts.

 

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Customers: The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral.

 

For the six months ended June 30, 2020, one customer accounted for more than 10% of the Company’s total revenues, representing approximately 85% of its total revenues, and 98% of accounts receivable in aggregate at June 30, 2020.

 

Customer		Net sales for the six months ended June 30, 2020				Accounts receivable balance as of June 30, 2020
A		$	704,397			$	1,801,027

 

For the six months ended June 30, 2019, one customer accounted for more than 10% of the Company’s total revenues, represented approximately 76% of its total revenues and 76% of accounts receivable in aggregate at June 30, 2019, respectively.    

 

Customer		Net sales for the six months ended June 30, 2019				Accounts receivable balance as of June 30, 2019
A		$	180,367	*		$	1,143,557

_________ 

*Related party transactions (see Note 5).

 

Suppliers: The Company purchases its inventories from various suppliers.

 

For the six months ended June 30, 2020, three suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 39%, 31%, and 22% of total net purchase, and 0% of accounts payable in aggregate at June 30, 2020, respectively:

 

Supplier		Net purchase for the six months ended June 30, 2020				Accounts payable balance as of June 30, 2020
A		$	60,547			$	-
B		$	49,300			$	-
C		$	34,000			$	-

 

For the six months ended June 30, 2019, two suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 87% and 10% of total net purchase, and 0% and 100% of accounts payable in aggregate at June 30, 2019, respectively:

 

Supplier		Net purchase for the six months ended June 30, 2019				Accounts payable balance as of   June 30, 2019
A		$	34,561			$	-
D		$	3,821			$	715

 

Foreign-currency Transactions

 

Foreign-currency transactions are recorded in New Taiwan dollars (“NTD”) and Renminbi (“RMB”) 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 and Renminbi, 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 stockholders’ equity.

 

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Translation Adjustment

 

The accounts of the Company’s subsidiaries were maintained, and their financial statements were expressed in New Taiwan Dollar (“NTD”) and Renminbi (“RMB”). Such financial statements were translated into U.S. Dollars (“$” or “USD”) in accordance ASC 830, “Foreign Currency Matters”, with the NTD and RMB as the functional currency. According to the Statement, all assets and liabilities are translated at the current exchange rate, common stock and additional paid-in capital 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.

 

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 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 consolidated financial statements.

 

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, as part of its initiative to reduce complexity in accounting standards. The amendments in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

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

 

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Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on their evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of June 30, 2020.

 

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures is also based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect our internal controls 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.

 

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ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

Exhibit No.		Description
31.1		Certification of Chief Executive and Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1		Certification of Chief Executive and Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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 21, 2020	By:	/s/ He-Siang Yang
		He-Siang Yang
		Principal Executive Officer, Principal Financial Officer, President and Chairman of the Board

 

EOS INC. Reports 03/23/2016 - 10-K 04/13/2017 - 10-K 04/03/2018 - 10-K 04/16/2020 - 10-K 04/15/2021 - 10-K 01/08/2016 - 10-Q 05/13/2016 - 10-Q 08/15/2016 - 10-Q 11/14/2016 - 10-Q 05/15/2017 - 10-Q 08/14/2017 - 10-Q 11/13/2017 - 10-Q 05/15/2018 - 10-Q 08/13/2018 - 10-Q 11/14/2018 - 10-Q 06/25/2020 - 10-Q 08/21/2020 - 10-Q 01/25/2021 - 10-Q 05/18/2021 - 10-Q 08/16/2021 - 10-Q