UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
(Mark One)
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| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED: March 31, 2023
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FOR THE QUARTERLY PERIOD ENDED September 30, 2017
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| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER
Commission File Number: 000-55661
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(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) | | |
Room 519, 5F.
4F-1, No.5, Qingdao E. Rd.,
No. 372, Linsen N. Road,Zhongshan District,
Zhongzheng Dist.,
Taipei City
104,100008 Taiwan
(R.O.C.)(Republic of China)
(Address of principal executive offices, Zip Code)
+
8862-2568-32788862-2586-8300
(Registrant’s telephone number, including area code)
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| (Former name or former address, if changed since last report) | |
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
| | | | Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
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.
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| Smaller reporting company | |
(Do not check if smaller reporting company)
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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
¨
As of May2023, the number of shares of registrant’s common stock outstanding
asis 183,781,560.
Table of
November 10, 2017, is 64,122,997.Contents
TABLE OF CONTENTS
PPARTART I
–— FINANCIAL INFORMATION
The following unaudited interim condensed consolidated financial statements of EOS Inc. are included in this Quarterly Report on Form 10-Q:
INDEX TO FINANCIAL STATEMENT
SCHEDULES Financial Statements:
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EOS, INC. AND SUBSIDIARIES
CCONSOLIDATEDBALANCE SHEETS | | September 30, | | | December 31, | |
| | 2017 | | | 2016 | |
| | (Unaudited) | | | | |
Assets |
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Current Assets | | | | | | |
Cash and cash equivalents | | $ | 8,740 | | | $ | 42,086 | |
Account receivable | | | 83,481 | | | | - | |
Accounts receivable – related parties | | | 130,528 | | | | - | |
Inventory | | | 3,492 | | | | 1,919 | |
Advance to suppliers | | | 40,989 | | | | - | |
Prepaid expenses | | | 4,995 | | | | 6,311 | |
Total current assets | | | 272,225 | | | | 50,316 | |
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Property and Equipment, net | | | 7,737 | | | | 3,180 | |
Security deposit | | | 7,663 | | | | 2,544 | |
Total Assets | | $ | 287,625 | | | $ | 56,040 | |
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Liabilities and Stockholders’ Equity |
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Current Liabilities | | | | | | | | |
Accounts payable | | | 10,023 | | | | 2,778 | |
Accrued expenses | | | 16,070 | | | | 24,089 | |
Due to shareholders | | | 304,392 | | | | 263,879 | |
Advance from customers | | | - | | | | 34,797 | |
Total current liabilities | | | 330,485 | | | | 325,543 | |
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Total liabilities | | | 330,485 | | | | 325,543 | |
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Stockholders’ Equity | | | | | | | | |
Common stock, $0.001 par value; 75,000,000 shares authorized, 64,122,997 shares issued and outstanding | | | 64,123 | | | | 64,123 | |
Additional paid-in capital | | | 90,000 | | | | 90,000 | |
Accumulated deficit | | | (191,551 | ) | | | (424,166 | ) |
Accumulated other comprehensive income (loss) | | | (5,432 | ) | | | 540 | |
Total stockholders’ equity(deficit) | | | (42,860 | ) | | | (269,503 | ) |
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Total Liabilities and Stockholders’ Equity | | $ | 287,625 | | | $ | 56,040 | |
The accompanying notes are an integral partonsolidated Balance Sheets
As of
these consolidated financial statements.March 31, 2023 and December 31, 2022
(In U.S. Dollars, except share data or otherwise stated)
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Cash and cash equivalents | | | | | | | | |
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Prepaid expenses and other current assets | | | | | | | | |
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Property, plant and equipment, net | | | | | | | | |
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Operating lease right of use asset | | | | | | | | |
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LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | | |
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Other payable and accrued expenses | | | | | | | | |
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Other current liabilities | | | | | | | | |
Operating lease liabilities - current | | | | | | | | |
Current portion of long-term loan payables | | | | | | | | |
Total Current Liabilities | | | | | | | | |
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Operating lease liabilities - non-current | | | | | | | | |
Total Non-Current Liabilities | | | | | | | | |
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Commitments and Contingencies | | | | | | | | |
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Preferred stock ($0.001 par value, 5,000,000 shares authorized, 1,500,000 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively) | | | | | | | | |
Common stock ($0.001 par value; 575,000,000 shares authorized, 183,781,560 and 183,781,560 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively) | | | | | | | | |
Additional paid in capital | | | | | | | | |
Deferred stock compensation | | | | | | | | |
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Accumulated other comprehensive loss | | | | | | | | |
Total equity attributable to EOS, Inc. | | | | | | | | |
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Total Liabilities and Shareholders’ Equity | | | | | | | | |
EOS, INC. AND SUBSIDIARIES
CCONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)(UNAUDITED)
| | FOR THE NINE MONTHS ENDED SEPTEMBER 30, | | | FOR THE THREE MONTHS ENDED SEPTEMBER 30, | |
| | 2017 | | | 2016 | | | 2017 | | | 2016 | |
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Net Sales: | | | | | | | | | | | | |
Net sales | | $ | 109,590 | | | $ | - | | | $ | 93,822 | | | $ | - | |
Net sales to related parties | | | 446,778 | | | | 273,407 | | | | 178,640 | | | | 107,812 | |
Total | | | 556,368 | | | | 273,407 | | | | 272,462 | | | | 107,812 | |
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Cost of sales | | | 127,571 | | | | 126,974 | | | | 61,674 | | | | 59,337 | |
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Gross profit | | | 428,797 | | | | 146,433 | | | | 210,788 | | | | 48,475 | |
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Selling, general and administrative expenses | | | 256,401 | | | | 331,686 | | | | 84,582 | | | | 82,543 | |
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Income (loss) from operations | | | 172,396 | | | | (185,253 | ) | | | 126,206 | | | | (34,068 | ) |
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Other income (expenses) | | | | | | | | | | | | | | | | |
Interest income | | | 14 | | | | 47 | | | | - | | | | - | |
Other income – related party | | | 59,460 | | | | - | | | | 1,338 | | | | - | |
Gain (loss) on foreign currency exchange | | | 744 | | | | (4,279 | ) | | | (273 | ) | | | (1,950 | ) |
Total other income | | | 60,218 | | | | (4,232 | ) | | | 1,065 | | | | (1,950 | ) |
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Income (loss) before provision for income taxes | | | 232,614 | | | | (189,485 | ) | | | 127,271 | | | | (36,018 | ) |
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Provision for income taxes | | | - | | | | - | | | | - | | | | - | |
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Net Income (loss) | | $ | 232,614 | | | $ | (189,485 | ) | | $ | 127,271 | | | $ | (36,018 | ) |
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Weighted average number of common shares: | | | | | | | | | | | | | | | | |
Basic and diluted | | | 64,122,997 | | | | 62,152,194 | | | | 64,122,997 | | | | 64,122,997 | |
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Net income (loss) per share: | | | | | | | | | | | | | | | | |
Basic and diluted | | $ | 0.00 | | | $ | (0.00 | ) | | $ | 0.00 | | | $ | (0.00 | ) |
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Other Comprehensive Income (loss): | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | 232,614 | | | $ | (189,485 | ) | | $ | 127,271 | | | $ | (36,018 | ) |
Foreign currency translation adjustment, net of tax | | | (5,972 | ) | | | (898 | ) | | | 221 | | | | (827 | ) |
Comprehensive (Loss) Income | | $ | 226,642 | | | $ | (190,383 | ) | | $ | 127,492 | | | $ | (36,845 | ) |
The accompanying notes are an integral partonsolidated Statements of these consolidated financial statements.
Income and Comprehensive Income
For the Three Months Ended March 31, 2023 and 2022
(In U.S. Dollars, except share data or otherwise stated)
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Selling, general and administrative expenses | | | | | | | | |
Income (Loss) from operations | | | | | | | | |
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Interest income (expense) | | | | | | | | |
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Total other income (expense) | | | | | | | | |
Loss before income tax provision | | | | | | | | |
Income tax expenses (benefits) | | | | | | | | |
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Other Comprehensive Income (Loss): | | | | | | | | |
Net income (loss) attributable to non-controlling interests | | | | | | | | |
Net income (loss) attributable to EOS and subsidiaries | | | | | | | | |
Foreign currency translation adjustment, net of tax | | | | | | | | |
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Weighted average number of common shares: | | | | | | | | |
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EOS, INC. AND SUBSIDIARIES
CCONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
| | Nine Months ended September 30, | |
| | 2017 | | | 2016 | |
Cash Flows from Operating Activities | | | | | | |
Net income (loss) | | $ | 232,614 | | | $ | (189,485 | ) |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | | | | | | | | |
Depreciation | | | 769 | | | | 259 | |
Foreign currency exchange (gain) loss | | | (744 | ) | | | - | |
Changes in assets and liabilities: | | | | | | | | |
Decrease (Increase) in accounts receivable | | | (212,074 | ) | | | (3,038 | ) |
Decrease (Increase) in inventory | | | (1,434 | ) | | | 46,127 | |
Decrease (Increase) in advance to suppliers | | | (40,761 | ) | | | (449 | ) |
Decrease (Increase) in prepaid expense and other assets | | | 1,735 | | | | (3,153 | ) |
Decrease (Increase) in security deposits | | | (4,918 | ) | | | (2,636 | ) |
Increase (decrease) in accounts payable | | | (6,447 | ) | | | (32,020 | ) |
Increase (decrease) in accrued expenses | | | 4,750 | | | | 22,221 | |
Increase (decrease) in advance from customers | | | (36,966 | ) | | | - | |
Increase (decrease) in due to shareholders | | | 66,982 | | | | 82,636 | |
Net cash provided by (used in) operating activities | | | 3,506 | | | | (79,538 | ) |
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Cash flows from investing activities | | | | | | | | |
Purchase of equipment | | | (5,086 | ) | | | (3,717 | ) |
Acquisition of subsidiary equity interest | | | (30,562 | ) | | | - | |
Net cash used in investing activities | | | (35,648 | ) | | | (3,717 | ) |
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Cash Flows from Financing Activities | | | | | | | | |
Proceeds from issuance of common stock | | | - | | | | 100,000 | |
Net cash provided by financing activities | | | - | | | | 100,000 | |
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Effect of exchange rate changes on cash and cash equivalents | | | (1,204 | ) | | | (889 | ) |
Net increase (decrease) in cash and cash equivalents | | | (33,346 | ) | | | 15,856 | |
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Cash and Cash Equivalents | | | | | | | | |
Beginning | | | 42,086 | | | | 58,424 | |
Ending | | $ | 8,740 | | | $ | 74,280 | |
Supplemental Disclosure of Cash Flows | | | | | | | | |
Cash paid during the year for: | | | | | | | | |
Interest | | $ | - | | | $ | - | |
Income taxes | | $ | - | | | $ | - | |
The accompanying notes are an integral partonsolidated Statements of these consolidated financial statements.
Changes in Shareholders’ Equity
For the Three Months Ended March 31, 2023 and 2022
(In U.S. Dollars, except share data or otherwise stated)
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| | | | | | | | | | | | | | | | | | | | | | | Accumulated other Comprehensive | | | | | | | | | | |
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Balance at December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | | | | | - | | | | - | | | | | | | | | | | | | | | | | |
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Balance at March 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Balance at December 31, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | |
| | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | | | | | | ) | | | | |
Balance at March 31, 2023 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ) | | | | ) | | | | |
EOS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2023 and 2022
(In U.S. Dollars, except share data or otherwise stated)
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Cash flows from operating activities | | | | | | | | |
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Adjustments to reconcile net income to net cash provided by operating activities | | | | | |
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Amortization of right-of-use asset | | | | | | | | |
Changes in assets and liabilities | | | | | | | | |
Decrease in accounts receivable | | | | | | | | |
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Decrease in advance to suppliers | | | | | | | | |
Decrease (increase) in security deposits and other assets | | | | | | | | |
Increase in accounts payable | | | | | | | | |
Increase in accrued expenses | | | | | | | | |
Decrease in advances from customers | | | | | | | | |
Increase (decrease) in income tax payable | | | | | | | | |
Decrease in operating lease liabilities | | | | | | | | |
Net cash used in operating activities | | | | | | | | |
Cash flows from investing activities | | | | | | | | |
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Net cash provided by (used in) investing activities | | | | | | | | |
Cash flows from financing activities | | | | | | | | |
Proceeds from related party | | | | | | | | |
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Net cash provided by (used in) financing activities | | | | | | | | |
Effect of foreign currency translation on cash and cash equivalents | | | | | | | | |
Net increase (decrease) of cash and cash equivalents | | | | | | | | |
Cash, cash equivalents, and restricted cash | | | | | | | | |
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Reconciliation of Cash, Cash Equivalents & Restricted Cash to Statements of Cash Flows | | | | | |
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Total cash, cash equivalents, and restricted cash | | | | | | | | |
Supplemental Disclosure of Cash Flows | | | | | | | | |
Cash paid during the periods for: | | | | | | | | |
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EOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDAED FINANCIAL STATEMENTS SEPTEMBER 30, 2017
N(UNAUDITED)
Noteote 1. NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
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,
2016.2022.
EOS Inc. was incorporated on April 3, 2015 in the State of Nevada. The Company’s business plan is to market and distribute skin care products, including masks and serums.
On November 18, 2016, the Company
has set up a wholly-owned subsidiary in Taiwan to assist the Company to promote the business in Taiwan.
Emperor Star International Trade Co., Ltd., (“Emperor Star”), was incorporated on November 16, 2015 under the laws of Taiwan.
The CompanyEmperor Star is in the business of marketing and distribution of various products, including
detergents, nutrition supplements,
and skin care
products.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
becomesbecame the Company’s wholly owned subsidiary. Upon consummation of the
Purchase,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.
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.
On June 2, 2020, EOS(BVI) 83.33% owner, and Shanghai Qifan Qiye Management Co., Ltd. (“Qifan”) 16.67% owner of Maosong resolute to change the registered capital of Maosong to RMB 1,200,000,000 (1.2 billion) and that EOS to contribute certain Intellectual Property as registered capital of Shanghai Maosong. Intellectual Property owned by EOS International Inc was valued at RMB 1,000,000,000 (1 billion) and Intellectual Property owned by Qifan was valued at RMB 200,000,000 (200 million).
On July 13, 2021, EOS(BVI), MaoSong, and Qifan entered into a Shareholder Agreement where Qifan (i) delegate its 16.67% equity voting rights, powers, or benefits in Maosong to EOS(BVI); (ii) grant EOS(BVI) an irrevocable, unconditional, exclusive option to purchase Maosong’s equity interest; (iii) the right to receive any proceeds from the Maosong’s Equity Interest; (iv) pledge its existing or any prospective Maosong equity interest to EOS Int’l; as a result EOS(BVI) retains 100% control of MaoSong and the 16.67% noncontrolling interest are consolidated.
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
Mr. Yu Cheng Yang’s 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 non-recurring 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,
and “NT$” and “NT dollars” mean New Taiwan
dollars. Going Concern
These unaudited consolidated financial statements were prepared on the basis of accounting principles applicable to going concern, which assumes the realization of assetsdollars, and discharge of liabilities in the normal course of business. As shown in the accompanying unaudited consolidated financial statements, the Company had accumulated deficit of $191,551 and $424,166 as of September 30, 2017 and December 31, 2016, respectively.
The Company faces all the risks common to companies at development stage, including capitalization and uncertainty of funding sources, high initial expenditure levels, uncertain revenue streams, and difficulties in managing growth. The Company’s losses raise substantial doubt about its ability to continue as a going concern. The Company’s financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.
The Company is currently addressing its liquidity issue by continually seeking investment capital through private placements of common stock and debt. The Company believes its current and future plans enable it to continue as a going concern. The Company’s ability to achieve these objectives cannot be determined at this time. These financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts which may differ from those in the accompanying consolidated financial statements.
“RMB” means Chinese Yuan, or Renminbi.
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Classification
Certain classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net loss nor accumulated deficit.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid instruments with original maturities of three months or less.
Accounts receivable 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 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
isare 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
isover five years. Depreciation expense
is $769was $192 and
$259$361 for the
ninethree months ended
September 30, 2017March 31, 2023 and
2016,2022, 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 livedlong-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. Impairment loss on property and equipment was $nil and $nil for the three months ended March 31, 2023 and 2022, respectively.
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.
Since COVID-19 pandemic hit globally in 2020 and throughout first three quarters of financial year ended December 31, 2021, management assessed that the market conditions that it operated in was worsening. Credit risk on customers was determined to have deteriorated significantly as the majority of its customers were located in the PRC. Accordingly, management took the position that revenue would only be recognized when the consideration is received as to satisfy revenue recognition criteria related to reasonable certainty of collections.
During the fourth quarter of financial year ended December 31, 2021, the Covid pandemic was effectively controlled in the PRC. Management hasre-assessed the market conditions and determined that no impairmentsthe overall market conditions were improving, and the Company’s collection history in the prior three quarters was positive, and in fourth quarter of long lived2021 reached sustainable recovery rate comparable to pre-COVID-19 environment. Accordingly, management decided that due to the improved conditions collection is now reasonably certain, and revenue is now recognized when risk and rewards are transferred to its customers.
The following tables provide details of revenue by major products and by geography.
Revenue by Major Products
For the three months ended March 31, 2023: | | | | |
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For the three months ended March 31, 2022: | | | | |
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Automobile carbon reduction machine | | | | |
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three months ended March 31, 2023 | | | |
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three months ended March 31, 2022 | | | |
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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 842.
The new leasing standard requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets
currently exist.Revenue Recognition
Revenuesand 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 when products are shipped to customers, both titlebased on the present value and future minimum lease payments over the risks of ownership are transferred, and the collectability of accounts receivable can be reasonably assured.lease term at commencement date. The Company’s standard shipping term is Free on Board (FOB) destination. Usually no sales returns, discounts or other allowances are providedfuture minimum based payments used to customers. Shipping and handling charges to customers are included in net sales. Shipping and handling charges incurred bydetermine 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 are includeduses its estimated incremental borrowing rate based on the information available at commencement date in selling,determining the present value of lease payments.
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 are expensed at the time such advertising commences. Advertising expenses were
$50$nil and
$23,953$nil for
the ninethree months ended
September 30, 2017March 31, 2023 and
2016,2022, respectively.
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”). Under the fair value recognition provisions, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as compensation expense on a straight-line basis over the requisite service period, based on the terms of the awards. The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model and estimates the fair value of the stock based upon the estimated fair value of the common stock.
In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the guidance in ASC 718 to include share-based payments for goods and services to non-employees and generally aligns it with the guidance for share-based payments to employees. In accordance with ASU 2018-07, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the underlying equity instrument. The fair value of the equity instrument is charged directly to compensation expense and additional-paid-in capital over the period during which services are rendered.
Post-retirement and
post-employment benefitsPost-employment Benefits
The Company’s subsidiaries
in Taiwan adopted the government mandated defined contribution plan pursuant to the
Taiwan Labor Pension Act (the “Act”)
in Taiwan.. Such labor regulations require that the rate of contribution made by an employer to the Labor Pension Fund per month shall not be less than 6% of the worker’s monthly salaries. Pursuant to the Act, the Company makes monthly contribution equal to 6% of employees’ salaries to the employees’ pension fund. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were
$4,173 $1,175and
$1,993$1,400 for
the ninethree months ended
September 30, 2017March 31, 2023 and
2016,2022, respectively. Other than the above, the Company does not provide any other post-retirement or post-employment benefits.
Net Income (loss) per
FASB ASC 820, “Fair Value Measurements” defines fair value for certain financial and non-financial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It requires that an entity measure its financial instruments to base fair value on exit price, maximize the use of observable units and minimize the use of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability of the inputs as follows:
Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted prices in active markets that are readily and regularly available.
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Valuations based on inputs that are unobservable and not corroborated by market data. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies, or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability.
The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable, inventory, advance to suppliers, prepaid expenses, accounts payable, accrued expenses, and due to shareholders, approximate fair value because of to their relatively short maturities.
Earnings (Loss) Per Share
Basic income (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted income (loss) per share is computed by dividing net lossincome (loss) by the weighted average number of shares of common stock, common stock equivalents, and potentially dilutive securities outstanding during each period. At September 30, 2017year. Dilutive shares are excluded the exercise price is greater than the average market price and December 31, 2016,when the Company does notincurred a net loss as the inclusion of such shares would have any outstanding common stock equivalents; therefore,an anti-dilutive effect.
For the three months ended March 31, 2023 and 2022, warrants were excluded as dilutive shares as the Company incurred a
separate computation of diluted loss per share is not presented.net loss.
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.
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
Equity.stockholders’ equity.
The accounts of the Company’s subsidiaries were maintained, and their financial statements were expressed in New Taiwan Dollar (“NTD”
) and Chinese Yuan, or 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,
Equity’s deficitcommon 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
Equity’s deficit.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
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”) NT$ 3 million. The Company does not expectenter 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 adoptionwide variety of customers and markets in which the Company transacts business, as well as their dispersion across many geographical areas. As of March 31, 2023, the Company had approximately $nil in excess of TCDIC insured limits. The Company has not experienced any losses in such accounts.
: The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral.
For the three months ended March 31, 2023,
one
customer accounted for more than 10% of the Company’s total revenues.
| | | | | | Accounts receivable balance as of March 31, 2023 | | | | |
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For the three months ended March 31, 2022, one customer accounted for more than 10% of the Company’s total revenues.
| | | | | | Accounts receivable balance as of March 31, 2022 | | | | |
| | | | | | | | | | | | | |
: The Company’s inventory is purchased from various suppliers.
For the three months ended March 31, 2023, one supplier accounted for more than 10% of the Company’s total net purchase:
| | | | | | | Accounts payable balance as of March 31, 2023 | | | | |
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For the three months ended March 31, 2022, one supplier accounted for more than 10% of the Company’s total net purchase:
| | | | | | | Accounts payable balance as of March 31, 2022 | | | | | |
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Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” This pronouncement, along with subsequent ASUs issued to clarify provisions of ASU 2016-13, changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. In developing the estimate for lifetime expected credit loss, entities must incorporate historical experience, current conditions, and reasonable and supportable forecasts. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. On November 19, 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), finalized various effective date delays for private companies, not-for-profit organizations, and certain smaller reporting companies applying the credit losses (CECL), the revised effective date is January 2023.
Management does not believe that any other recently issued, but not yet effective, accounting pronouncements tostandards, if currently adopted, would have a significant impactmaterial effect on our condensed financial statements.
As of March 31, 2023, the Company has operating lease agreement for its car with remaining lease terms of 36 months, photocopier with remaining lease terms of 42 months, and office lease with remaining lease terms of 21 months, respectively. The Company does not have any other leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for the lease and non-lease components of its leases as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.
Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is incremental borrowing rate or, if available, the rate implicit in the lease. The Company determines the incremental borrowing rate for each lease based primarily on its resultlease term in Taiwan which is approximately 2.44%.
Operating lease expenses were $16,479 and $15,965 for the three months ended March 31, 2023 and 2022, respectively.
The components of lease expense and supplemental cash flow information related to leases for the three months ended are as follows:
| | | | | | |
Operating lease cost (included in general and administrative expenses in the Company’s statement of operations) | | | | | | | | |
| | | | | | | | |
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Right-of-use assets obtained in exchange for new operating leases liabilities | | | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities | | | | | | | | |
Weighted average remaining lease term – operating leases (in years) | | | | | | | | |
Average discount rate – operating lease | | | | | | | | |
The supplemental balance sheet information related to leases for the period is as follows:
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Operating lease liabilities | | | | | | | | |
The future minimum lease payment schedule as follows:
For the years ending March 31, | | | |
2023 (nine months remaining) | | | | |
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The financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations,
financial position or cash flow.Subsequent events
Management has evaluated subsequent events throughrealization of assets, and liquidation of liabilities in the date whichnormal course of business.
As reflected in the financial statements, are available to be issued. All subsequent events requiring recognitionthe Company had net losses for the three months ended March 31, 2023, and had negative working capital and accumulated deficit as of September 30, 2017 have been incorporated into these consolidatedMarch 31, 2023. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s cash position may not be sufficient to support the Company’s daily operations. Management has financed its operating costs with loans from director and officers. The Company intends to generate sufficient revenue and raise additional funds to support its operations, however there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further generate sufficient revenue and its ability to raise additional funds.
The financial statements do not include any adjustments related to the recoverability and thereclassification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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 are no subsequent events that require disclosureowned by Shuang Hua. In accordance to the agreement, the Company shall pay Shuang Hua a refundable deposit of in accordance with FASB ASC Topic 855, “Subsequent Events.”the aggregate amount of $2,894,000, before December 31, 2021.
Note
2.5. RELATED PARTY TRANSACTIONS
Related
party salesparties of the Company during the three months ended March 31, 2023 and 2022 consist of the following:
(1) | The | |
| | Majority Shareholder, Director and Officer of the Company had sales to EOS Trading |
Co-Innovation Group Limited | | Company under control of Yu Cheng Yang |
World Capital Holding Limited | | Company under control by Shanghai Qifan Qiye Management Co., Ltd., (“EOS Trading”), a Hong Kong company owned by the officer, director, and shareholder’s shareholders, former non-controlling interest of the Company in an aggregate amount of $369,849 and $273,407 for nine months ended September 30, 2017 and 2016, respectively. Accounts receivable due from EOS Trading was $73,233 and $0 as of September 30, 2017 and December 31, 2016, respectively. |
| |
(2) | The Company had sales to Able Vision Ltd., (“ABLE Vision”), a Seychelles company owned by one of shareholders of the Company in an aggregate amount of $76,929 and $0 for nine months ended September 30, 2017 and 2016, respectively. Accounts receivable due from ABLE Vision was $57,295 and $0 as of September 30, 2017 and December 31, 2016, respectively.
|
Related party other income
On February 24, 2017, the Company entered an agreement with EOS Trading to assist EOS Trading to design and develop a customer management and sales integration system. As of September 30, 2017, the service has been fully rendered and the Company recognized other income of NT$1,780,000, equivalent $59,460, accounting for a one-time service fee, net of cost incurred for the nine months ended September 30, 2017.
The Company has advanced funds from
one of its directors and
shareholdershareholders Yu Cheng Yang for working capital purposes. As of
September 30, 2017March 31, 2023 and December 31,
2016,2022, there were
$304,392$392,425 and
$263,879 advances$277,080 advance outstanding, respectively. The Company has agreed that the outstanding balances bear 0% interest rate and are due upon demand after
30thirty days
of written notice by the
officerdirector and shareholder.
Mr. Yang advanced $155,370 to the Company as working capital, and the Company repaid $41,343 to Mr. Yang for the three months ended March 31, 2023.
Mr. Yang advanced $242,717 to the Company as working capital, and the Company repaid $21,409 to Mr. Yang for the three months ended March 31, 2022.
Loan from First Commercial Bank
On September 30, 2020, TWD 3,000,000 (approximately $107,750) term loan was granted to the Company for working capital with repayment period of 60 months. The term loan is subject to an interest charge at 1% per annum for the first 9 months of the term loan; interest charges on the term loan from 10th
to 60th
is 3.5% per annum. On September 30, 2020, TWD 2,000,000 (approximately $71,833) term loan was granted to the Company for employee salary with repayment period of 30 months. The term loan is subject to an interest charge at 1.5% per annum for the first 9 months of the term loan; interest charges on the term loan from 10th
to 60th
is 1.845% per annum. On May 7, 2021, TWD 4,000,000 (approximately $143,666) term loan was granted to the Company for employee salary with repayment period of 60 months. The term loan is subject to an interest charge at 1% per annum for the first 8 months of the term loan; interest charges on the term loan from 9th
to 60th
is 1.9% per annum. On May 7, 2021, TWD 1,000,000 (approximately $35,917) term loan was granted to the Company for employee salary with repayment period of 60 months. The term loan is subject to an interest charge at 1.5% per annum for the first 8 months of the term loan; interest charges on the term loan from 9th
to 60th
is 2% per annum. As of March 31, 2023, the outstanding balance of the term loan is $167,125, of which $65,455 is due within one year and classified as short term, and $101,670 is due after one year, and has classified as long term, respectively.
As of December 31, 2022, the outstanding balance of the term loan is $184,509, of which $68,497 is due within one year and classified as short term, and $116,012 is due after one year, and has classified as long term.
Interest expenses were $1,383 and $880 for the three months ended March 31, 2023 and 2022, respectively.
Note 7. STOCKHOLDERS’ EQUITY
On July 8, 2021, the board of directors of the Company amended its stock designation and the Company is authorized to issue 5,000,000 shares of Series A Preferred Stock with par value $0.001. Each stock is entitled to 1,000 votes of common stock without dividend rights.
As of March 31, 2023, the Company has 1,500,000 shares of Series A Preferred Stock issued and outstanding.
On May 19, 2022, the Company issued 3,601,306 shares of restricted common stock to non-employees, the amount is recorded as deferred (unearned) compensation of $38,534, due to the service has not been started.
On May 19, 2022, the Company issued 115,000 shares of restricted common stock to non-employees as compensation in the amount of $1,231.
On August 18, 2021, the Company completed and closed a series of transactions to reorganize the Company’s structure and to develop its business by acquiring certain minority control interest of its subsidiary and intellectual properties. Pursuant to the Intellectual Property Transfer Agreement, the Company to issue 75,000,000 shares of Common Stock to the transferors for the intellectual properties in consideration of the transfer. Pursuant to the Shareholders’ Agreement of Shanghai Maosong Trading Co., Ltd and Equity Pledge Agreements, the Company to issue 15,000,000 shares of Common Stock to the transferors for the minority controlling interests of its subsidiary. Upon completion of the transactions above, EOS International Inc became a wholly controlled subsidiary of the Company.
As of March 31, 2023, the Company has 183,781,560 shares of Common Stock issued and outstanding.
On February 3, 2022, the Company granted the issuance of warrants to purchase 200,000 shares of the Company’s common stock at an exercise price of $2 per share with an expiration date of December 22, 2027 to a consultant or its designees as compensation. The warrants were fully vested upon issuance.
A summary of warrant activities as follows:
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Warrants outstanding at December 31, 2022 | | | | | | | | | | | | |
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Warrants outstanding at March 31, 2023 | | | | | | | | | | | | |
Warrants exercisable at March 31, 2023 | | | | | | | | | | | | |
Note 8. STOCK BASED COMPENSATION
On May 19, 2022, the Company issued 3,601,306 shares of restricted common stock to non-employees, the amount is recorded as deferred (unearned) compensation of $38,534, due to the service has not been started. The fair value of the shares was determined based on a contemporaneous valuation report.
On May 19, 2022, the Company issued 115,000 shares of restricted common stock to non-employees as compensation in the amount of $1,231. The shares were fully vested upon issuance as there were no other conditions required for the shares to vest. The fair value of the shares was determined based on a contemporaneous valuation report.
On February 3, 2022, the Company granted the issuance of warrants to purchase 200,000 shares of the Company’s common stock at an exercise price of $2 per share with an expiration date of December 22, 2027 to a consultant or its designees as compensation. The warrants were fully vested upon issuance as there were no other conditions required for the warrants to vest.
In accordance to ASC 815-40, an equity-linked financial instrument can be classified in equity only if it (1) is indexed to the reporting entity’s own stock and (2) meets all other conditions for equity classification. The warrants are classified as equity instruments because a fixed amount of cash is exchanged for a fixed amount of equity.
The fair value of the warrants was determined using the Black-Scholes option pricing model which requires the input of subjective assumptions, the expected life of the warrants, and the expected stock price volatility. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.
The assumptions used to determine the initial fair value of the Warrants at inception as follows:
The expected life of the warrants was estimated using the “simplified method,” as the Company has no historical information to develop reasonable expectations about future exercise patterns for its warrant grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. The expected life of awards that vest immediately use the contractual maturity since they are vested when issued.
For stock price volatility, the Company calculated its expected volatility based on historical closing price of its common stock, par value $0.001 per share. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the warrant at the grant-date.
Stock based compensation were $nil and $nil for the three months ended March 31, 2023 and 2022, respectively.
EOS, Inc. is incorporated in the United States of America and is subject to United States federal
taxation.taxation at tax rate of 21%. No provisions for income taxes have been made as the Company has no taxable income for the period.
The applicable income tax rate for the Company was 34% for the nine months ended September 30, 2017 and 2016, respectively. As of
September 30, 2017,March 31, 2023, the Company had net operating loss carry forwards of
approximately $382,343$1,376,634 that may be available to reduce future years’ taxable
income through 2037.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 %100% valuation allowance has offset deferred tax asset resulting from the net operating losses.
Taiwan
The Taiwan Income Tax Act (ITA) generally imposes a unified enterprise
EOS International Inc. is incorporated in British Virgin Islands and are not required to pay income tax rate of 17% on all enterprises with taxable income greater than approximately $3,900 (NT$120,000). tax.
The subsidiary of EOS Inc. and Emperor Star is incorporated underin Taiwan. According to the lawsamendments to the “Taiwan Income Tax Act” enacted by the office of Taiwan. Nothe President of Taiwan on February 7, 2018, statutory income tax liabilities existedrate increased from 17% to 20% and undistributed earning tax decreased from 10% to 5%, 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
September 30, 2017 and
Decemberfor the three months ended March 31,
2016 due to the Company’s continuing operating losses.2023.
Provision for income tax consists of the following:
| | For the Nine Months Ended | | | For the Nine Months Ended | |
| | September 30, 2017 | | | September 30, 2016 | |
Current | | | | | | |
U.S. | | $ | - | | | $ | - | |
Taiwan | | | - | | | | - | |
| | | | | | | | |
Deferred | | | | | | | | |
U.S. | | | | | | | | |
Deferred tax assets for NOL carryforwards | | | (26,030 | ) | | | (49,225 | ) |
Valuation allowance | | | 26,030 | | | | 49,225 | |
Net changes in deferred income tax under non-current portion | | | - | | | | - | |
| | | |
| | | | | | |
Current income tax (benefit) | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Deferred tax assets for NOL carry-forwards | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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 Nine Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| | 2017 | | | 2016 | |
| | | | | | |
U.S. statutory income tax rate | | | 34 | | | | 34 | |
Foreign statutory income tax rate difference | | | (17 | ) | | | (17 | ) |
Changes in valuation allowance | | | (17 | ) | | | (17 | ) |
Effective income tax rate | | | 0 | | | | 0 | |
net loss before income taxes and its provision for income taxes as follows:
| | | |
| | | | | | |
Net loss before income tax | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Significant components of the Company’s deferred taxes assets as follows:
| | | | | | |
Net operating loss carry-forwards | | | | | | | | |
Less: Valuation allowance | | | | | | | | |
| | | | | | | | |
Note 10. COMMITMENTS AND CONTINGENCIES
Sales Collaboration Agreement
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 3,000,000 shares were issued on December 29, 2020.
The Company recognized the stock-based compensation of marketing expenses based on quarterly basis, with a quarterly marketing expense of $62,500. There are 24 quarters in total.
Copyright and Distribution Agreement
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 to the agreement, the Company shall pay Shuang Hua a refundable deposit of in the aggregate amount of $2,894,000, before December 31, 2021.
As of December 31, 2022, the Company has paid $1,013,541 to Shuang Hua, respectively, and are recorded as other long-term assets. Due to Covid-19 in 2020, the Company has not started its business plan with the exclusive copyright and distribution agreement, and such amount paid has been fully impaired as of September 30, 2017 and December 31, 2016 were2022.
Note 11. 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
follows: | | September 30, | | | December 31, | |
| | 2017 | | | 2016 | |
Deferred tax assets: | | | | | | |
Net operating loss carryforwards | | $ | 129,997 | | | $ | 103,967 | |
Less: Valuation allowance | | | (129,997 | ) | | | (103,967 | ) |
Deferred tax assets, net | | $ | - | | | $ | - | |
Note 4. COMMITMENT
Operating lease commitments consist of leases for office spaceMarch 31, 2023 have been incorporated into these consolidated financial statements and copy machines under various operating lease agreements which expirethere are no other subsequent events that require disclosure in December 2019. Operating lease agreements generally contain renewal options that may be exercised at the Company’s discretion after the completion of the terms.
Future minimum lease payments under the operating leases are summarized as follows:
As of September 30, | | Amount | |
2018 | | $ | 10,642 | |
2019 | | | 806 | |
2020 | | | 201 | |
Total | | | 11,649 | |
accordance with FASB ASC Topic 855, “Subsequent Events.”
IItemtem 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 of the results of operations and financial condition of EOS Inc. and its subsidiary(“EOS” or the “Company”) as of March 31, 2023 for the
three months ended March 31, 2023 and 2022
should be read in conjunction with our
unaudited financial statements
and the notes to those unaudited financial statements that are included
herewith.elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us”, “we”, “our” and similar terms refer to EOS. This
discussion should not be construed to implyQuarterly Report contains forward-looking statements as that
the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating resultsterm is defined in the
future. Such discussion represents only the best present assessmentfederal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our
management.Threeplans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions, are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based.
Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. Except as required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.
U.S. Dollars are denoted herein by “USD,” “$” and “dollars”.
EOS Inc. 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.
The following presents the consolidated result of the Company for the three months ended
September 30, 2017March 31, 2023 compared to the three months ended
September 30, 2016March 31, 2022.
Net revenue was $272,462sales
Net sales were $171,079 for three months ended March 31, 2023, representing an increase of $138,015 or 417.4%, as compared to $33,064 for the three months ended September 30, 2017, representing an increase of $164,650, or 152.72%, as compared to $107,812 for the three months ended September 30, 2016.March 31, 2022. The increase was primarily due to the increase inhigher domestic sales and increased focus on selling nutritional supplement products.
Cost of
nutrition supplements and skin care products.sales
Cost of sales was $61,674$58,173 for the three months ended September 30, 2017,March 31, 2023, representing
an increase of $2,337,o
f $51,498 or
3.94%771.5%, as compared to
$59,337$6,675 for the three months ended
September 30, 2016. The increase was mainly attributable to the increase in sales.March 31, 2022.
Gross profit was
$210,788$112,906 for the three months ended
September 30, 2017,March 31, 2023, compared to
$48,475$26,389 for the same period in
2016.2022. Gross profit as a percentage of net sales was
approximately 77% in66.0% for the
third quarter of 2017,three months ended March 31, 2023, compared to
approximately 45%79.8% in the same period in
2016.2022. The
change in gross profit margin isdecrease was primarily due to
more skin carecategories of products
with higher yield margin sold during
each of the
three months ended September 30, 2017.periods ended.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of export expense, compensationoffice rent, salary and related costs for personnel and facilities, and professional service fees. Selling, general and administrative expenses were $84,582$242,326 for the three months ended September 30, 2017,March 31, 2023, representing an increase of $2,039,$12,243 or 2.47%5.3%, as compared to $82,543$230,083 for the three months ended September 30, 2016, whichMarch 31, 2022.
Income (loss) from operations
Loss from operations was
not considered a substantial change.Other income (expense) was $1,065$129,420 for the three months ended September 30, 2017, an increaseMarch 31, 2023 compared to loss from operations of $3,015, or 154.62%, from $(1,950)$203,694 for the three months ended September 30, 2016.March 31, 2022, representing a decrease of $74,274 or 36.5%. Such decrease was primarily due to the increase in sales and cost of sales.
Other loss was $717 for the three months ended March 31, 2023, reflecting a decrease of $2,668, or 78.8%, compared to other loss of $3,385 for the three months March 31, 2022. The
increasedecrease was mainly attributable to
service fees of $1,338 charged to our related party duringinvestment disposal loss in the
three months ended September 30, 2017.prior period.
As a result of the above factors, our net
incomeloss was
$127,271$130,137 for the three months ended
September 30, 2017,March 31, 2023, as compared to
a net loss of
$36,018$207,079 for the three months ended
September 30, 2016,March 31, 2022, representing
an increase of $163,289, or 453.35%.Nine months ended September 30, 2017 compared to the nine months ended September 30, 2016
Net revenue was $556,368 for the nine months ended September 30, 2017, representing an increase of $282,961, or 103.49%, as compared to $273,407 for the nine months ended September 30, 2016. The increase was primarily due to the increase in sales of nutrition supplements and skin care products.
Cost of sales was $127,571 for the nine months ended September 30, 2017, representing an increase of $597, or 0.47%, as compared to $126,974 for the nine months ended September 30, 2016, which was not considered a substantial change.
Gross profit was $428,797 for the nine months ended September 30, 2017, compared to $146,433 for the nine months ended September 30, 2016. Gross profit as a percentage of net sales was approximately 77% for the nine months ended September 30, 2017, compared to approximately 54% in the same period in 2016. The change in gross profit margin was due to more skin care products with higher yield margin sold during the nine months ended September 30, 2017.
Selling, general and administrative expenses consist primarily of export expense, compensation and related costs for personnel and facilities, and professional service fees. Selling, general and administrative expenses were $256,401 for the nine months ended September 30, 2017, a decrease of $75,285, or 22.70%, as compared to $331,686 for the nine months ended September 30, 2016. The decrease in selling, general and administrative expenses was mainly due to the decrease in payroll expenses by $35,223 and the decrease in advertising expenses by $25,370 during the nine months ended September 30, 2017.
Other income (expense) was $60,218 for the nine months ended September 30, 2017, an increase of $64,450, or 1522.92%, from $(4,232) for the nine months ended September 30, 2016. The increase was mainly attributable to service fee of $59,460 charged to our related party and an increased gain on foreign currency exchange during the nine months ended September 30, 2017.
As a result of the above factors, our net income was $232,614 for the nine months ended September 30, 2017, as compared to a net loss of $189,485 for the nine months ended September 30, 2016, representing an increase of $422,099,$76,942 or 222.76%37.2%.
Liquidity and Capital Resources
Cash and cash equivalents were
$8,740$15,031 at
September 30, 2017,March 31, 2023 and
$42,086$18,169 at December 31,
2016.2022. Our total current assets were
$272,225$455,659 at
September 30, 2017,March 31, 2023, as compared to
$50,316$425,916 at December 31,
2016.2022. Our total current liabilities were
$330,485$1,442,775 at
September 30, 2017,March 31, 2023, as compared to
$325,543$1,266,234 at December 31,
2016.2022.
We had
negativea working capital
deficit of
$58,260 at September 30, 2017,$987,116 on March 31, 2023, compared to
negativethe working capital
deficit of
$275,227 at$840,318 on December 31,
2016.2022. The decrease in
negative working capital was primarily
attributable to the increase in amount due to
the increasesshareholders and increased in
account receivable and advance to suppliers.inventory.
Net cash
provided byused in operating activities was
$3,506$98,218 during the
ninethree months ended
September 30, 2017,March 31, 2023, as compared to
$163,180 for the three months ended March 31, 2022. The net cash used in operating activities
$79,538 for the nine months ended September 30, 2016. The increase in net cash provided by operating activitiesdecreased $64,962 was primary attributable to the
decrease in net losses with an increase in
net income.accounts payables and other payables.
Net cash used in investing activities was
$35,648$1,096 during the
ninethree months ended
September 30, 2017,March 31, 2023, as compared to
$3,717$nil for the
ninethree months ended
September 30, 2016.March 31, 2022. The increase in net cash used in investing activities
primarily because we acquired all issued and outstanding shareswas due to the increase in the acquisition of
one of our subsidiaries in Taiwan in consideration of $30,562 in cash during the nine months ended September 30, 2017.equipment.
Net cash provided by financing activities was
$0 for$96,066 during the
ninethree months ended
September 30, 2017,March 31, 2023, as compared to
$100,000$201,641 for
ninethe three months ended
September 30, 2016.March 31, 2022. The decrease in net cash provided by financing activities was
because we did not issue any new common stock shares duringdue to the
nine months ended September 30, 2017.Net changeproceeds from related party payable and borrowings.
As a result of the above factors, net decrease in cash and cash equivalents was a decrease of $33,346were $3,139 for the ninethree months ended September 30, 2017.March 31, 2023, as compared to net
increaseof $37,388 for the three months ended March 31, 2022.
Critical Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements, including the accounts of EOS Inc. and its wholly owned subsidiaries in Taiwan, British Virgin Islands, and People’s Republic of China, have been prepared in conformity with accounting principles generally accepted in the United States of America. Since the Company and Emperor Star are entities under common control prior to the acquisition of Emperor Star, the transaction is accounted for as a restructuring transaction. All assets and liabilities of Emperor Star were transferred to the Company at their respective carrying amounts on the date of transaction. The Company has recast prior period financial statements to reflect the conveyance of Emperor Star’s common shares as if the restructuring transaction had occurred as of the earliest date of the consolidated financial statements. All material intercompany accounts, transactions, and profits have been eliminated in consolidation. The nature of and effects on earnings per share (EPS) of non-recurring intra-entity transactions involving long-term assets and liabilities is not required to be eliminated and EPS amounts have been recast to include the earnings (or losses) of the transferred net assets.
The functional currency of the subsidiaries in Taiwan is the New Taiwan dollars and the subsidiary in People’s Republic of China is the Chinese Yuan, or Renminbi; however, the accompanying consolidated financial statements have been translated and presented in United States Dollars ($). 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.
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.
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 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 is stated at the lower of cost and net realizable value. Net changerealizable 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 are carried at cost net of accumulated depreciation. 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 over five years. Depreciation expense was $192 and $361 for the three months ended March 31, 2023 and 2022, 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. Impairment loss on property and equipment was $nil and $nil for the three months ended March 31, 2023 and 2022, respectively.
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.
Since COVID-19 pandemic hit globally in 2020 and throughout first three quarters of financial year ended December 31, 2021, management assessed that the market conditions that it operated in was worsening. Credit risk on customers was determined to have deteriorated significantly as the majority of its customers were located in the PRC. Accordingly, management took the position that revenue would only be recognized when the consideration is received as to satisfy revenue recognition criteria related to reasonable certainty of collections.
During the fourth quarter of financial year ended December 31, 2021, the Covid pandemic was effectively controlled in the PRC. Management re-assessed the market conditions and determined that the overall market conditions were improving, and the Company’s collection history in the prior three quarters was positive, and in fourth quarter of 2021 reached sustainable recovery rate comparable to pre-COVID-19 environment. Accordingly, management decided that due to the improved conditions collection is now reasonably certain, and revenue is now recognized when risk and rewards are transferred to its customers.
The following tables provide details of revenue by major products and by geography.
Revenue by Major Products
For the three months ended March 31, 2023:
For the three months ended March 31, 2022: | | | | |
| | | | |
Automobile carbon reduction machine | | | | |
| | | | |
| | | | |
| | | | |
three months ended March 31, 2023 | | | |
| | | | |
| | | | |
three months ended March 31, 2022 | | | |
| | | | |
| | | | |
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 842.
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.
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 are expensed at the time such advertising commences. Advertising expenses were $nil and $nil for three months ended March 31, 2023 and 2022, respectively.
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”). Under the fair value recognition provisions, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as compensation expense on a straight-line basis over the requisite service period, based on the terms of the awards. The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model and estimates the fair value of the stock based upon the estimated fair value of the common stock.
In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the guidance in ASC 718 to include share-based payments for goods and services to non-employees and generally aligns it with the guidance for share-based payments to employees. In accordance with ASU 2018-07, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the underlying equity instrument. The fair value of the equity instrument is charged directly to compensation expense and additional-paid-in capital over the period during which services are rendered.
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 $1,175 and $1,400 for three months ended March 31, 2023 and 2022, respectively. Other than the above, the Company does not provide any other post-retirement or post-employment benefits.
FASB ASC 820, “Fair Value Measurements” defines fair value for certain financial and non-financial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It requires that an entity measure its financial instruments to base fair value on exit price, maximize the use of observable units and minimize the use of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability of the inputs as follows:
| | Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted prices in active markets that are readily and regularly available. |
| | Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| | Level 3 – Valuations based on inputs that are unobservable and not corroborated by market data. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies, or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability. |
The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, wasaccounts 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.
Earnings (Loss) Per Share
Basic income (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents, and potentially dilutive securities outstanding during each year. Dilutive shares are excluded the exercise price is greater than the average market price and when the Company incurred a net loss as the inclusion of such shares would have an increaseanti-dilutive effect.
For the three months ended March 31, 2023 and 2022, warrants were excluded as dilutive shares as the Company incurred a net loss.
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 $15,856assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.
Foreign-currency Transactions
Foreign-currency transactions are recorded in New Taiwan dollars (“NTD”) and Renminbi (“RMB”) at the rates of exchange in effect when the transactions occur. Gains or losses resulting from the application of different foreign exchange rates when cash in foreign currency is converted into New Taiwan dollars and Renminbi, or when foreign-currency receivables or payables are settled, are credited or charged to income in the year of conversion or settlement. On the balance sheet dates, the balances of foreign-currency assets and liabilities are restated at the prevailing exchange rates and the resulting differences are charged to current income except for those foreign currencies denominated investments in shares of stock where such differences are accounted for as translation adjustments under stockholders’ equity.
The accounts of the Company’s subsidiaries were maintained, and their financial statements were expressed in New Taiwan Dollar (“NTD”) and Chinese Yuan, or Renminbi (“RMB”). Such financial statements were translated into U.S. Dollars (“$” 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 nineperiod. 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).
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”) NT$ 3 million. 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 March 31, 2023, the Company had approximately $nil in excess of TCDIC insured limits. The Company has not experienced any losses in such accounts.
: The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral.
For the three months ended
September 30, 2016.Inflation
Our opinionMarch 31, 2023,
one
customer accounted for more than 10% of the Company’s total revenues.
| | | | | | | | Accounts receivable balance as of March 31, 2023 | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
For the three months ended March 31, 2022, one customer accounted for more than 10% of the Company’s total revenues.
| | | | | | | | Accounts receivable balance as of March 31, 2022 | | | | |
| | | | | | | | | | | | | | | | | | | | |
: The Company’s inventory is purchased from various suppliers.
For the three months ended March 31, 2023, one supplier accounted for more than 10% of the Company’s total net purchase:
| | | | | | | | Accounts payable balance as of March 31, 2023 | | | | |
| | | | | | | | | | | | | | | | |
For the three months ended March 31, 2022, one supplier accounted for more than 10% of the Company’s total net purchase:
| | | | | | | | Accounts payable balance as of March 31, 2022 | | | | |
| | | | | | | | | | | | | | | | % |
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments.” This pronouncement, along with subsequent ASUs issued to clarify provisions of ASU 2016-13, changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. In developing the estimate for lifetime expected credit loss, entities must incorporate historical experience, current conditions, and reasonable and supportable forecasts. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. On November 19, 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), finalized various effective date delays for private companies, not-for-profit organizations, and certain smaller reporting companies applying the credit losses (CECL), the revised effective date is January 2023.
Management does not believe that
inflation hasany other recently issued, but not
hadyet effective, accounting standards, if currently adopted, would have a material effect on our
operations and is not expected to have any material effect on our operations.Climate Change
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
condensed financial statements.
IItemtem 3. Quantitative and Qualitative Disclosures about Market Risk.
As a smaller reporting company, we are not required to provide this information.
IItemtem 4. Controls and Procedures.
As
Evaluation of the end of the period covered by this report, we conducted an evaluation, under the supervisionDisclosure Controls and with the participation of our Chief Executive Officer and Chief Financial Officer, of ourProcedures
We maintain disclosure controls and procedures
(as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concludeddesigned to provide reasonable assurance that
our disclosure controls and procedures were effective as of end of the period covered by this report to ensure thatmaterial information required to be disclosed by us in the reports
that we file or submit under the Securities Exchange Act of 1934 is
(1)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;disclosure. We performed an evaluation, under the supervision and
(2) recorded, processed, summarizedwith the participation of our management, including our Chief Executive Officer and
reported, within the time periods specified in the rules and formsChief Financial Officer, of the
Securitieseffectiveness of the design and
Exchange Commission.There was no changeoperation of our disclosure controls and procedures as of the end of the period covered by this report. During our assessment of the effectiveness of internal control over financial reporting as of March 31, 2023, management identified material weaknesses related to (i) our internal audit functions (ii) inadequate levels of review of the financial statements, (iii) a lack of segregation of duties within accounting functions and (iv) the absence of any independent directors. Therefore, our internal controls orover financial reporting were not effective as of March 31, 2023.
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 other factorsall disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that could affect thesewe 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.
Material Weaknesses and Corrective Actions
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
hashave materially affected, or
isare reasonably likely to materially affect our internal
controlcontrols over financial reporting.
PART II - OTHER INFORMATION Item 1. Legal Proceedings. We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, or proceeding by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or our subsidiary, threatened against or affecting our Company, our common stock, our subsidiary or of our companies or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
As a smaller reporting company, we are not required to provide this information.
IItemtem 2. Unregistered Sales of Equity Securities and Use of Proceeds.
IItemtem 5. Other Information.
There is no other information required to be disclosed under this item which has not been previously disclosed.
The following exhibits are filed herewith:
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Table of Contents | Cover Page Interactive Data File - the cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, is formatted in Inline XBRL. |
Pursuant to the requirements of the
Securities Exchange Act
of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Date: November 13, 2017May 16, 2023 | |
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| | Principal Executive Officer, Principal Financial Officer, President and Chairman of the Board |