UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2019

 

or

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

EOS INC.

(Exact name of registrant as specified in its charter)

 

Nevada

30-0873246

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

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

Taipei City, 10452, Taiwan (Republic of China)

(Address of principal executive offices, Zip Code)

 

+886-2-2586-8300

(Registrant’s telephone number, including area code)

 

Securities Registered Pursuant to Section 12(b) of the Act: None

 

Securities Registered Pursuant to Section 12(g) of the Act: Common Stock $.001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 

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

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ No x

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

 

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

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

Emerging Growth Company

x

 

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

 

At June 28, 2019, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant is approximately $31 million.

 

The number of shares of registrant’s common stock outstanding, as of April 15, 2020 was 74,122,997.

 

 
 

 

 

  

TABLE OF CONTENTS

 

PART I

Item 1.

Business

4

Item1A.

Risk Factors

9

Item1B.

Unresolved Staff Comments

9

Item 2.

Properties

9

Item 3.

Legal Proceedings

9

Item 4.

Mine Safety Disclosures

9

PART II

Item 5.

Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

10

Item 6.

Selected Financial Data

11

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

Item7A.

Quantitative and Qualitative Disclosures about Market Risk

23

Item 8.

Financial Statements and Supplementary Data

F-1

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

24

Item9A.

Controls and Procedures

24

Item9B.

Other Information

25

PART III

Item10.

Directors, Executive Officers and Corporate Governance

26

Item11.

Executive Compensation

30

Item12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

31

Item13.

Certain Relationships and Related Transactions and Director Independence

32

Item14.

Principal Accountant Fees and Services

32

 

PART IV

Item15.

Exhibits, Financial Statement Schedules

33

Item 16.

Form 10-K Summary

33

SIGNATURES

34

 

 
2

 

 

 

FORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K contain “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially.

 

These risks and uncertainties, many of which are beyond our control, include, and are not limited to:

 

·

our growth strategies;

 

·

our anticipated future operation and profitability;

 

·

our future financing capabilities and anticipated need for working capital;

 

·

the anticipated trends in our industry;

 

·

acquisitions of other companies or assets that we might undertake in the future;

 

·

our business relationships in China and the regulatory, economic and political conditions in China; and

 

·

current and future competition.

 

In addition, factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Annual Report on Form 10-K, and in particular, the risks discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as those discussed in other documents we file with the SEC. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

 
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PART I

 

Item 1. Business.

 

Description of Business

 

General Information

 

Organizational Structure

 

EOS Inc. (“we,” “us,” “our,” or the “Company”) was incorporated in the State of Nevada on April 3, 2015.

 

On or about November 18, 2016, the Company formed EOS INC. TAIWAN BRANCH, a Taiwanese corporation (“EITB”) and the Company owns 100% of EITB.

 

On March 1, 2019, we formed  Maosong Trading Co., Ltd. (“Maosong  Trading”) under the laws of PRC.

 

During the year ended December 31, 2017, the Company paid the expenses of EITB in the amount of approximately $6,290. Additionally, the Company will continue to pay the expenses of EITB.

 

The principal executive office of EITB is located at 7F-1, No. 162, Sec. 2, Zhongshan N. Rd., Zhongshan District, Taipei City, 10452, Taiwan (Republic of China).  

 

Yu-Cheng Yang, a shareholder of the Company, is the sole director of EITB.

 

Yu-Hsiang Chia is the branch manager of EITB. Mr. Chia holds 2,700,000 shares of the Company’s common stock.

 

Emperor Star International Trade Co., Ltd., (“Emperor Star”), was incorporated on November 16, 2015 under the laws of Taiwan. Emperor Star is in the business of marketing and distributing various consumer products, including detergents, nutrition supplements, and skin care products.

 

On May 3, 2017, the Company entered into and closed a Share Purchase and Sale Agreement (the “Purchase Agreement”) with Emperor Star to acquire all of the issued and outstanding shares of Emperor Star in consideration of $30,562 in cash. As a result of the transaction, Emperor Star became the Company’s wholly owned subsidiary. Upon consummation of the transaction, the Company has assumed the business of Emperor Star and ceased to be a shell company. Yu-Hsiang Chia currently serves as the officer and director of Emperor Star.

 

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

 

 
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General Business Overview

 

We are a distributor of various consumer products, such as skin care products, dietary supplements, electronic noise suppressing devices and water purifying machines. Based on the sales and trends of various consumer products, we from time to time select or drop the products that we distribute and sell.

 

We market and distribute skin care products manufactured by A.C. (USA), Inc. (“A.C.”), which is headquartered in the City of Industry, California and has offices in Taiwan. We market and distribute A.C. skin care products to resellers who will recognize the needs of their targeted customers in various regions in Asia, such as People’s Republic of China (“PRC”), Singapore and Malaysia. We acquire the products from A.C.’s Taiwan warehouses. Our strategy is to target spas, department stores and specialty stores that sell similar skin products. As of the date of this annual report, we have sold the A.C. Products to local distributors and specialty stores.

 

The skin care products that we will distribute are designed to address various skin care needs. Those products include moisturizers, serums, cleansers, toners, body care, exfoliators, acne and oil correctors, facial masks, cleansing devices and sun care products. A number of those products are developed for use on particular areas of the body, such as the face or hands or around the eyes.

 

We believe the Company, together with its subsidiaries, distributes highly innovative personal care products and ecologically friendly cleaning products in Taiwan and plans to expand its distribution to China, Malaysia, and Thailand. Emperor Star’s product line includes anti-aging products that address the key signs of aging to reinvigorate and provide youthful energy and nutrition supplements. The Company stopped the line of ecologically friendly cleaning products in 2018.

 

In April 2018, we, through Emperor Star, started purchasing a type of water purifying machines from Cosminergy Hitech Development Co., Ltd. (“Cosminergy”) and reselling such water purifying machines in certain Asian countries and regions. However, we decided not to continue the sales of Cosminergy’s water purifying machines in 2019. 

In November 2019, we started the marketing, promotion, sales and distribution of certain electrical noise suppressing device (the “Calibrator”) globally provided by Ultra Velocity Technology Ltd. (“Ultra Velocity”), a corporation formed under the laws of Taiwan, based on an exclusive patent licensing and distribution agreement (the “Ultra Velocity Agreement”) between Ultra Velocity and us. However, due to the outbreak of coronavirus (“COVID-19”) in mainland China, Ultra Velocity and we terminated the Ultra Velocity Agreement in March 2020 and intended to redefine the cooperation model between the respective parties. 

 

In addition, we provided inventory, membership and business management software that designed by CKS Information Co., Ltd. to our customers in the fiscal year of 2019.

 

 
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Distribution Agreements

 

On May 1, 2015, we entered into a written Distribution Agreement with A.C. pursuant to which we have an exclusive right to market and distribute in Taiwan certain skin care products manufactured by A.C. for a period of 5 years (the “Distribution Agreement”). Pursuant to the provisions of the Distribution Agreement, we market and promote the A.C. Products as defined therein in the Territory as amended to include PRC, Singapore and Malaysia in addition to Taiwan. Accordingly, we are the exclusive distributor for those A.C. Products in the above Territories.

 

On April 30, 2018, we, through our Emperor Star, entered into a distribution agreement (the “Cosminergy Distribution Agreement”) with Cosminergy Hitech Development Co., Ltd. (Cosminergy”) pursuant to which we started purchasing a type of water purifying machines from Cosminergy and reselling the water purifying machines in certain Asian areas and countries. The term of the said distribution agreement expired on April 30, 2019.

 

On August 7, 2019, A-Best Wire Harness & Components Co., Ltd. (“A-Best”), its sole shareholder and the Company entered into a group of agreements, including the purchase agreement (the “Purchase Agreement”), the exclusive sales agreement (the “Exclusive Sales Agreement”) and the management agreement (the “Management Agreement”). Pursuant to the series of agreements, the Company served as the sole distributor to sell A-Best’s products, including the micro-ceramic magnetic speakers globally. However, on December 30, 2019, the Company, A-Best and A-Best’s manager and majority shareholder mutually terminated such three agreements. On March 2, 2020, the respective parties entered into a strategic alliance agreement (the “Strategic Alliance Agreement”), pursuant to which the Company continued to distribute A-Best’s products exclusively and A-Best may keep 10,000,000 shares of the Company’s common stock, par value $0.001 per share, subject to certain conditions described in the Strategic Alliance Agreement.

 

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

 

 
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Skin Care Products- A.C. Products

 

Moisturizing Mask – contains highly concentrated hydrating and anti-wrinkle ingredients that are specifically targeted for anti-wrinkle effects. This product adds moisture to the skin and brings out a natural healthy glow. Key ingredients are collagen, glycerin, hyaluronic acid, purified water and silk hydrolyzed protein. Rose water contributes a relaxing effect.

 

Acne Mask – contains a special formula that penetrates into the skin to clean pores, removes dirt and helps balance oil secretion. While purifying, Acne Mask, also, hydrates and moisturizes the skin with the designed calming and luminous effect. Ingredients include aloe vera extract, eucalyptus, lemon extract, hydrogenated castor oil, chamomile extract and sorbitol.

 

Levo-H Serum – is formulated to provide maximum hydration to the skin, as well as to reduce fine lines. After using this product, we hope the customers feel their skin moisturized and radiant.

 

Brightening Mask – contains concentrated L-ascorbic acid and natural botanical extracts that are good for evening skin tones and hydrating the skin. Application of the mask after exposure to sun can help minimize sun damage and clarify the skin. Key ingredients include carbopol, perfume, diglycerin, hyaluronic acid, aloe vera extract, mulberry extract, ginseng extract, collagen, rose water, hydrogenated castor oil, kojic acid and berry extract.

 

Levo-C Serum – is designed to diminish ultraviolet damages and even out overall skin tone. This product has a high concentrate L-ascorbic acid and can clarify skin, leaving it with a healthy glow.

 

Cosminergy Water Purifying Machines

 

The Cosminergy water purifying machines contain anion ceramic and silicon ceramic which can remove from water particles, sediments, chemical contaminants, like heavy metals and hydrogen sulfide to purify water. We believe the Cosminergy water purifying machines will be popular in the areas where the water quality is relatively poor. We believe the Cosminergy water purifying machines can effectively kill and stop the reproduction of bacteria in the water.

 

Marketing and Distribution

We believe our market is retailers who recognize the needs of the targeted consumers. Our strategy is to target spas, department stores and specialty stores that sell similar skin care products. We hope that our product positioning will assist in the marketing and distribution of those skin care products. We anticipate that we will reach our targeted reseller market by the following types of resellers: 

Spas and Health Clubs – Most high quality day spas and health clubs (and many upscale spas at resort properties) use generic products. Our goal will be to develop affiliations with select spas in urban areas and vacation destinations to whom we will market and sell those skin care products.

 

Lifestyle Retailers – We anticipate that the skin care products will be lifestyle-based rather than the typical soaps and potions of natural product retailers. These retailers exist in almost every city and have developed loyal and sophisticated customer bases.

 

Additionally, we anticipate that we will market those skin care products to cosmetic specialty retailers and boutique department stores.

 

We believe that the targeted in users of those skin care products are between the ages of 20 and 65 and are predominantly female. We believe they are urban professionals with at least some college level education. The targeted users have active lifestyles and are concerned about social and environmental issues. Mind and body wellness are important to them. They belong to a health club; take yoga, pilates or taichi lessons. The maintenance of a youthful appearance are a part of their life.

 

During the year ended December 31, 2019, the vast majority of our sales derived from one primary client. We are trying to diversify our clientele.  

 

 
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Cosminergy Water Purifying Machines

 

In 2018, we mainly distributed the Cosminergy water purifying machines in PRC (including Hong Kong), Taiwan and Singapore through retailers in those regions and countries. In April 2019, we ceased the distribution of Cosminergy water purifying machines. We intend to find another strategic supplier for other types of water purification equipment.

 

Calibrators

 

We started the sales and distribution of automobile carbon reduction machines or Calibrators for Ultra Velocity in November 2019. During the year ended December 31, 2019, we generated a gross revenue of approximately $350,000 in the Asian market.  

 

Patents and Trademarks 

 

At the present we do not own any patents or trademarks. However, we had obtained the exclusive license to the patent (Patent M566970 registered in Taiwan) to the Calibrator from Ultra Velocity pursuant to the Exclusive Patent Licensing and Distribution Agreement, which was terminated on March 24, 2020.

 

Need for any Government Approval

 

There is no approval required for the marketing and distribution of those A.C. Products in Taiwan; provided, however, pursuant to the Statute for the Control of Cosmetic Hygiene promulgated by the Ministry of Health and Welfare in Taiwan, we are required to file an application with the Ministry of Health and Welfare in Taiwan for reference purposes.

 

We have been informed by appropriate representatives of A.C. that the skin care products we plan to market and distribute pursuant to the Distribution Agreement are classified as cosmetics not containing any medical, poisonous or potent drugs under the Republic of China Statute for Control of Cosmetic Hygiene. Accordingly, those products are not necessarily subject to any inspection to obtain approval for their sales. The labeling of those packages clearly indicate in Chinese the name and address of the manufacturer, the name of the product, the ingredients, the usage and directions, the weight, the manufacturing date, the expiration date, the name and address of the importer. We were informed by those representatives that those skin care products are, currently, appropriate for marketing and distribution in Taiwan. In the year of 2018, the Customs of Hong Kong, Malaysia and Singapore approved the imports of the A.C. Products that we brought to the three regions and countries. We were in the process of preparing additional documents for the Customs of the PRC with respect to the imports of the A.C. Products.

 

Environmental Laws

 

Our operations focused on sales and distribution and therefore are not subject to any environmental laws.

 

Employees and Employment Agreements of the Company, EITB and Emperor Star

 

The Company and its consolidated subsidiaries have a total of nine employees. Our President, He Siang Yang, who, currently, devotes 20 or more hours a week to our business, is responsible for the primary operation of our business. There is no outstanding employment agreement.

 

 
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12 Month Growth Strategy

 

Our goal is to maximize shareholder value. To achieve that goal, we intend to expand our operations and evaluate and cultivate new and alternative revenue generating opportunities. We are committed to marketing and distributing skin care products. While strategic and wisely executed marketing campaigns are key to expanding our operations; offering innovative skin care products should position us in the best possible way for long term success.

 

Item 1A. Risk Factors.

 

Not applicable for smaller reporting companies.

 

Item 1B. Unresolved Staff Comments.

 

None.

 

Item 2. Properties.

 

We do not own any real property. Our principal executive office is presently located at 7F.-1, No. 162, Sec. 2, Zhongshan N. Rd., Zhongshan District, Taipei City 10452, Taiwan (Republic of China). EOS’s Taiwan branch and Emperor Star operate from this Taipei location. Taiwan. Emperor Star and EOS Taiwan Branch entered into the office leases which commenced on June 15, 2019 and will end on June 14, 2021. The office occupies approximately 1,388 square feet and the average amount of office rent (including the maintenance fees) is approximately $2,016 per month.

 

Maosong Trading rented its office at 55 Auna Road, Building 1, Suite 1316, Free Trade Zone, Shanghai, China. Maosong Trading occupies approximately 215 square feet. The term of the lease is three years, from January 3, 2019 to January 2, 2022, for an aggregate rental expenses of RMB 75,000 (equivalent to approximately $10,491 USD) for the entire term of the lease.

 

During the fiscal years ended December 31, 2019 and 2018, we paid approximately $19,553 and $15,350 for leasing our offices, respectively. We believe the current spaces meet our business operational needs.

 

Item 3. Legal Proceedings.

 

We are currently not a party to any material legal or administrative proceedings and are not aware of any pending legal or administrative proceedings against us. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 
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PART II

 

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Our common stock is currently quoted on the OTCQB under the symbol “EOSS.” There has not been any significant trading to date in the Company’s common stock. The table below presents the high and low bid for our common stock for each quarter for the years ended December 31, 2019 and 2018. These prices reflect inter-dealer prices, without retail markup, markdown, or commission, and may not represent actual transactions.

 

 

 

High

 

 

Low

 

Year ended December 31, 2019

 

 

 

 

 

 

1st Quarter

 

$ 3.50

 

 

$ 0.65

 

2nd Quarter

 

$ 2.50

 

 

$ 1.10

 

3rd Quarter

 

$ 2.50

 

 

$ 1.45

 

4th Quarter

 

$ 2.40

 

 

$ 1.49

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 2018

 

 

 

 

 

 

 

 

1st Quarter

 

$ 2.00

 

 

$ 1.00

 

2nd Quarter

 

$ 1.99

 

 

$ 0.54

 

3rd Quarter

 

$ 2.50

 

 

$ 1.00

 

4th Quarter

 

$ 2.25

 

 

$ 0.55

 

 

There were approximately 178 holders of record of our common stock as of April 15, 2020.

 

Common Stock

 

As of April 15, 2020, the outstanding number of shares of our common stock was 74,122,997. All our outstanding common shares are legally issued, fully paid and non-assessable.

  

Each share of our common stock entitles the shareholder one vote on any and all matters such shareholder is entitled to vote at a shareholders’ annual or special meeting. There are no cumulative voting rights, which mean that the shareholder or shareholders owning 50% of the issued and outstanding shares in our capital stock can elect the entire board of directors. Therefore, any shareholder or shareholders, cumulatively with less than 50% of the voting power, cannot elect any director to the board of directors on their won. Pursuant to the provisions of Section 78.320 of the Nevada Revised Statues (the “NRS”), at least a majority of the outstanding shares of capital stock entitled to vote must be present, in person or by proxy, at any meeting in favor of the action exceeds the number of votes cast in opposition to the action, provided, however, that directors may be elected by a plurality of the votes of the shares present at the meeting and entitled to vote. Certain fundamental corporate changes, such as the liquidation and business combination, require the approval of holders of a majority of the outstanding shares entitled to vote.

 

Holders of our common stock have no pre-emptive rights nor conversion rights. There are no redemption or sinking fund provisions applicable to our common stock.

 

Preferred Stock

 

At present, we have no preferred stock authorized.

 

Dividends

 

The holders of our common stock are entitled to receive dividends on a pro rata based on the number of shares held, when and if declared by our Board of Directors, from funds legally available for that purpose. NRS Section 78.288 prohibits us from declaring dividends where, after giving effect to the distribution of the dividend we would not be able to pay our debts as they become due in the normal course of business; or except as may be allowed by our Articles of Incorporation, our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of stockholders who may have preferential rights and whose preferential rights are superior to those receiving the distribution. We do not, however, intend to pay any dividends in the foreseeable future and currently intend to retain all future earnings to finance our business.

 

 
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Our shareholders are not entitled to preference as to dividends or interest; pre-emptive rights to purchase new issues of shares; preference upon liquidation; or any other special rights or preferences.

 

There are no restrictions on dividends under any loan or other financing arrangements.

 

We paid no dividends on our common stock in the fiscal year of 2018. We do not have a policy of paying regular dividends and do not expect to pay any dividends on our common stock in the foreseeable future. We currently intend to retain any future earnings for our business. The payment of any future dividends on our common stock will be determined by our Board of Directors and will depend on business conditions, our financial earnings and other factors.

 

Outstanding Stock Options, Warrants and Convertible Securities

 

We had no outstanding stock options, warrants or convertible securities as of December 31, 2019.

 

Equity Compensation Plans, Bonus Plans

 

As of December 31, 2019, we had no equity incentive plans outstanding. We have no Compensation Committee.

 

Pension Benefits

 

As of December 31, 2019, we did not have any defined benefit pension plans.

 

Nonqualified Deferred Compensation

 

We do not maintain any nonqualified deferred compensation plans.

 

Debt Securities

 

We have no debt securities outstanding.

 

Repurchase Programs

 

There is currently no share repurchase program pending.

 

Recent Transactions Involving Unregistered Securities

 

On January 15, 2019, A-Best, its majority shareholder Ing Ming Lai, a Taiwanese individual, and the Company entered into an Investment Cooperation Agreement (the “Investment Agreement”), pursuant to which we issued 10 million shares of our common stock to Ing Ming Lai. The Company made such an issuance in reliance on an exemption from registration set forth in section 4(2) of the Securities Act of 1933, as amended.

 

Item 6. Selected Financial Data.

 

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

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

 
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Forward Looking Statements

 

Some of the statements contained in this Form 10-K that are not historical facts are “forward-looking statements” which can be identified by the use of terminology such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Form 10-K, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties, and other factors affecting our operations, market growth, services, products, and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

 

1.

Our ability to attract and retain management and key employees;

 

2.

Our ability to generate customer demand for our products;

 

3.

The intensity of competition; and

 

4.

General economic conditions.

 

All written and oral forward-looking statements made in connection with this Form 10-K that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.

 

Overview

 

Description of Business

 

General Information

 

EOS Inc. (“we,” “us,” “our,” or the “Company”) was incorporated in the State of Nevada on April 3, 2015.

 

On or about November 18, 2016, the Company formed EOS INC. TAIWAN BRANCH, a Taiwanese corporation (“EITB”) and the Company owns 100% of EITB.

 

During the year ended December 31, 2017, the Company paid the expenses of EITB in the amount of approximately $6,290. Additionally, the Company will continue to pay the expenses of EITB.

 

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

 

Emperor Star International Trade Co., Ltd., (“Emperor Star”), was incorporated on November 16, 2015 under the laws of Taiwan. Emperor Star is in the business of marketing and distributing various consumer products, including detergents, nutrition supplements, and skin care products.

 

On May 3, 2017, the Company entered into and closed a Share Purchase and Sale Agreement (the “Purchase Agreement”) with Emperor Star to acquire all issued and outstanding shares of Emperor Star in consideration of $30,562 in cash. As a result of the transaction, Emperor Star became the Company’s wholly owned subsidiary. Upon consummation of the transaction, the Company has assumed the business of Emperor Star and ceased to be a shell company. Yu-Hsiang Chia currently serves as the officer and director of Emperor Star.

 

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

 

General Business Overview

 

We market and distribute skin care products manufactured by A.C. (USA), Inc. (“A.C.”), which is headquartered in the City of Industry, California and has offices in Taiwan. We market and distribute A.C. skin care products to resellers who will recognize the needs of their targeted customers in various regions in Asia, such as People’s Republic of China (“PRC”), Singapore and Malaysia. We acquire the products from A.C.’s Taiwan warehouses. Our strategy is to target spas, department stores and specialty stores that sell similar skin products. As of the date of this annual report, we have sold the A.C. Products to local distributors and specialty stores.

 

The skin care products that we will distribute are designed to address various skin care needs. Those products include moisturizers, serums, cleansers, toners, body care, exfoliators, acne and oil correctors, facial masks, cleansing devices and sun care products. A number of those products are developed for use on particular areas of the body, such as the face or hands or around the eyes.

 

We believe the Company, together with its subsidiaries, distributes highly innovative personal care products and ecologically friendly cleaning products in Taiwan and plans to expand its distribution to China, Malaysia, and Thailand. Emperor Star’s product line includes anti-aging products that address the key signs of aging to reinvigorate and provide youthful energy and nutrition supplements. The Company stopped the line of ecologically friendly cleaning products in 2018.

 

In April 2018, we, through our Emperor Star, started purchasing a type of water purifying machines from Cosminergy Hitech Development Co., Ltd. (“Cosminergy”) and reselling the water purifying machines in certain Asian areas and countries. The sales generated from selling the water purifying machines for the year ended December 31, 2019 were $769,592, accounting for approximately one third of the total revenue of the said period. We ceased the sales of water purifying machines from Cosminergy in April 2019.

 

We commenced the sales and distribution of Calibrators in November 2019. The sales generated from selling the Calibrators for the year ended December 31, 2019 were $354,401, accounting for approximately 15% of the total revenue of the said period. We ceased the sales the Calibrators from Ultra Velocity in March 2020.

 

In addition, we provided inventory, membership and business management software that designed by CKS Information Co., Ltd. to our customers in the fiscal year of 2019.

 

Critical Accounting Policies and Estimates

 

 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 the assets and liabilities of Emperor Star were transferred to the Company at their respective carrying amounts on the date of transaction. The Company has recast prior period financial statements to reflect the conveyance of Emperor Star’s common shares as if the restructuring transaction had occurred as of the earliest date of the consolidated financial statements. All material intercompany accounts, transactions, and profits have been eliminated in consolidation. The nature of and effects on earnings per share (EPS) of nonrecurring intra-entity transactions involving long-term assets and liabilities is not required to be eliminated and EPS amounts have been recast to include the earnings (or losses) of the transferred net assets.

 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Classification

 

Certain classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net income nor retained earnings.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash and all highly liquid instruments with original maturities of three months or less.

 

Accounts Receivable

 

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

 

Inventory

 

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

 

Property and Equipment

 

Property and equipment is carried at cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Expenditures that improve the functionality of the related asset or extend the useful life are capitalized. When property and equipment is retired or otherwise disposed of, the related gain or loss is included in operating income. Leasehold improvements are depreciated on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Depreciation is calculated on the straight-line method, including property and equipment under capital leases, generally is five years. Depreciation expense is $1,916 and $2,510 for the years ended December 31, 2019 and 2018, respectively.

 

 
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Impairment of Long-Lived Assets

 

The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve breakeven operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. Management has determined that no impairments of long-lived assets currently exist as of December 31, 2019 and 2018.

 

Long-term Equity Investment

 

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

 

·

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

 

 

·

Non-marketable cost method investments when the equity method does not apply.

  

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

 

 
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Other-Than-Temporary Impairment

 

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

 

·

Marketable equity securities include the consideration of general market conditions, the duration and extent to which the fair value is below cost, and our ability and intent to hold the investment for a sufficient period of time to allow for recovery of value in the foreseeable future. The Company also considers specific adverse conditions related to the financial health of, and the business outlook for, the investee, which may include industry and sector performance, changes in technology, operational and financing cash flow factors, and changes in the investee’s credit rating. The Company records other-than-temporary impairments on marketable equity securities and marketable equity method investments in gain (loss) on equity investments.

 

 

·

Non-marketable equity investments based on the Company’s assessment of the severity and duration of the impairment, and qualitative and quantitative analysis of the operating performance of the investee; adverse changes in market conditions and the regulatory or economic environment; changes in operating structure or management of the investee; additional funding requirements; and the investee’s ability to remain in business. A series of operating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred that is other than temporary and that shall be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of the equity method. A loss in value of an investment that is other than a temporary decline shall be recognized. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. The Company records other-than-temporary impairments for non-marketable cost method investments and equity method investments in gain (loss) on equity investments.

 

Revenue Recognition

 

During the fiscal year 2018, the Company has adopted FASB Accounting Standards Codification (“ASC”), Topic 606 (“ASC 606”), Revenue from Contracts with Customers, using the modified retrospective method to all contracts that were not completed as of January 1, 2018. The Company recognized the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning of 2018. The results for the Company’s reporting periods beginning on and after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. Based on the Company’s review of existing sales contracts as of January 1, 2018, the Company concluded that the adoption of the new guidance did not have a significant change on the Company’s revenue during all periods presented.

 

Pursuant to ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines is within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration the Company is entitled to in exchange for the goods or services the Company transfers to the customers. At inception of the contract, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

 
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Merchandise sales: The Company recognizes sales revenues from merchandise sales when customers obtain control of the Company’s products, which typically occurs upon delivery to customer. Merchandise sales revenues are recorded at the sales price, or “transaction price”.

 

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

 

Trade discount and allowances: The Company generally does not provide invoice discounts on product sales to its customers for prompt payment.

 

Product returns: The Company generally does not provide customers with the right to return a product for a full or partial refund, a credit, or an exchange for another product.

 

To date, product allowance and returns have been minimal and, based on its experience, the Company believes that returns of its products will continue to be minimal.

 

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

 

Revenue by Major Products

 

For the year ended December 31, 2019:

 

 

 

Nutrition supplement

 

$ 927,149

 

Water purifier machine

 

 

769,592

 

Automobile carbon reduction machine

 

 

354,401

 

Skin care product

 

 

135,964

 

Software

 

 

102,437

 

    Total

 

$ 2,289,543

 

 

Revenue by Geography

 

For the year ended December 31, 2019:

 

 

 

Asia Pacific

 

$ 2,289,543

 

   Total

 

$ 2,289,543

 

 

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

 

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

 

Practical Expedient

Description

Reassessment of expired or existing contracts

The Company elected not to reassess, at the application date, whether any expired or existing contracts contained leases, the lease classification for any expired or existing leases, and the accounting for initial direct costs for any existing leases.

Use of hindsight

The Company elected to use hindsight in determining the lease term (that is, when considering options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of right-to-use assets.

Reassessment of existing or expired land easements

The Company elected not to evaluate existing or expired land easements that were not previously accounted for as leases under ASC 840, as allowed under the transition practical expedient. Going forward, new or modified land easements will be evaluated under ASU No. 2016-02.

Separation of lease and non-lease components

Lease agreements that contain both lease and non-lease components are generally accounted for separately.

Short-term lease recognition exemption

The Company also elected the short-term lease recognition exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months.

 

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

 

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

 

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

 

Advertising Costs

 

Advertising costs are expensed at the time such advertising commences. Advertising expenses were $39,645 and $13,299 for the years ended December 31, 2019 and 2018, respectively.

 

 
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Post-retirement and Post-employment Benefits

 

The Company’s subsidiaries in Taiwan adopted the government mandated defined contribution plan pursuant to the Taiwan Labor Pension Act (the “Act”). Such labor regulations require that the rate of contribution made by an employer to the Labor Pension Fund per month shall not be less than 6% of the worker's monthly salaries. Pursuant to the Act, the Company makes monthly contribution equal to 6% of employees’ salaries to the employees’ pension fund. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $7,051 and $7,958 for the years ended December 31, 2019 and 2018, respectively. Other than the above, the Company does not provide any other post-retirement or post-employment benefits.

 

Fair Value Measurements

 

FASB ASC 820, “Fair Value Measurements” defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It requires that an entity measure its financial instruments to base fair value on exit price, maximize the use of observable units and minimize the use of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability of the inputs as follows:

 

 

Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted prices in active markets that are readily and regularly available.

 

 

 

 

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

 

 

 

Level 3 – Valuations based on inputs that are unobservable and not corroborated by market data. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies, or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability.

 

The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable, inventory, advance to suppliers, prepaid expenses, accounts payable, accrued expenses, and due to shareholders, approximate fair value because of to their relatively short maturities.

 

 
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Net Income Per Share

 

Basic income per share is computed by dividing net income by weighted average number of shares of common stock outstanding during each period. Diluted income per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents, and potentially dilutive securities outstanding during each period. For the years ended December, 2019 and 2018, the Company does not have any outstanding common stock equivalents; therefore, a separate computation of diluted income per share is not presented.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.

 

Concentration of Credit Risk

 

Cash and cash equivalents: The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments in high quality credit institutions in Taiwan, but these investments may be in excess of the insurance limits of Taiwan Central Deposit Insurance Corporation (the “TCDIC”). The Company does not enter into financial instruments for hedging, trading or speculative purposes. Concentration of credit risk with respect to trade and notes receivables is limited due to the wide variety of customers and markets in which the Company transacts business, as well as their dispersion across many geographical areas. As of December 31, 2019, the Company had approximately $124,213 in excess of TCDIC insured limits. The Company has not experienced any losses in such accounts.

 

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

 

For the year ended December 31, 2019, one customer accounted for more than 10% of the Company’s total revenues, representing approximately 95% of its total revenues, and 99% of accounts receivable in aggregate at December 31, 2019.

 

Customer

 

Net sales for the year ended December 31, 2019

 

 

Accounts receivable balance as of December, 2019

 

A

 

$ 2,171,766

 

 

$ 2,151,192

 

 

.

For the year ended December 31, 2018, two customers accounted for more than 10% of the Company’s total revenues, represented approximately 69% and 16% of its total revenues and 69% and 13% of accounts receivable in aggregate at December 31, 2018, respectively.    

 

Customer

 

Net sales for the year ended December 31, 2018

 

 

Accounts receivable balance as of December 31, 2018

 

A

 

$ 1,235,203 *

 

$ 1,263,833

 

B

 

$ 279,405

 

 

$ 237,980

 

 

*Related party transactions (see Note 4).

 

 
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Suppliers: The Company purchases its inventories from various suppliers.

 

For the year ended December 31, 2019, four suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 34%, 27%, 19% and 10% of total net purchase, and 0% of accounts payable in aggregate at December 31, 2019, respectively:

 

Supplier

 

Net purchase for the year ended December 31, 2019

 

 

Accounts payable balance as of December 31, 2019

 

A

 

$ 96,743

 

 

$ -

 

B

 

$ 74,819

 

 

$ -

 

C

 

$ 52,505

 

 

$ -

 

D

 

$ 28,400

 

 

$ -

 

 

For the year ended December 31, 2018, three suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 41%, 23% and 16% of total net purchase, and 0% of accounts payable in aggregate at December 31, 2018, respectively:

 

Supplier

 

Net purchase for the year ended December 31,

2018

 

 

Accounts payable balance as of December 31,

2018

 

E

 

$ 50,529

 

 

$ -

 

B

 

$ 28,371

 

 

$ -

 

F

 

$ 19,620

 

 

$ -

 

 

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.

 

Translation Adjustment

 

The accounts of the Company’s subsidiaries were maintained, and their financial statements were expressed in New Taiwan Dollar (“NTD”) and Renminbi (“RMB”). Such financial statements were translated into U.S. Dollars (“$” or “USD”) in accordance ASC 830, "Foreign Currency Matters", with the NTD and RMB as the functional currency. According to the Statement, all assets and liabilities are translated at the current exchange rate, common stock and additional paid-in capital are translated at the historical rates, and income statement items are translated at an average exchange rate for the period. The resulting translation adjustments are reported under accumulated other comprehensive income (loss) as a component of stockholders’ equity.

 

Comprehensive Income (loss)

 

Comprehensive income (loss) includes accumulated foreign currency translation gains and losses. The Company has reported the components of comprehensive income (loss) on its consolidated statements of operations and other comprehensive income (loss).

 

 
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Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.

 

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

 

Results of Operations

 

The following presents the consolidated results of the Company for the years ended December 31, 2019 and December 31, 2018.

 

Net sales

 

Net sales were $2,289,543 for year ended December 31, 2019, representing an increase of $511,598, or 28.77%, as compared to $1,777,945 for the year ended December 31, 2018. The increase was primarily due to the increase in sales of automobile carbon reduction machines or Calibrators of approximately $350,000, nutrition supplements of approximately $420,000 and water purifying machines of approximately $210,000, partially offset by the decrease in sales of skin care products of approximately $500,000.

 

Cost of sales

 

Cost of sales was $275,463 for the year ended December 31, 2019, representing an increase of $58,958 or 27.23%, as compared to $216,505 for the year ended December 31, 2018. Such increase was mainly due to the increase in the sales of automobile carbon reduction machines, water purifying machines and nutrition supplements, partially offset by the decrease in sales of skin care products.

 

Gross profit

 

Gross profit was $2,014,080 for the year ended December 31, 2019, compared to $1,561,440 for the same period in 2018. Gross profit as a percentage of net sales was 87.97% for the year ended December 31, 2019, compared to 87.82% in the same period in 2018. The change in gross margin was because the higher gross margin product accounted for a higher proportion of sales for the year ended December 31, 2019.

 

Selling, general and administrative expenses

 

Selling, general and administrative expenses consist primarily of office rent, salary and related costs for personnel and facilities, and professional service fees. Selling, general and administrative expenses were $905,822 for the year ended December 31, 2019, representing an increase of $358,142, or 65.39%, as compared to $547,680 for the year ended December 31, 2018. The increase in selling, general and administrative expenses was primarily attributable to the increase in payroll expenses of approximately $160,000, accounting, legal and professional fees of approximately $90,000, advertising expense of approximately $26,000 and travel of approximately $25,000.

 

 
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Income from operations

 

Income from operations was $1,108,258 for the year ended December 31, 2019 compared to income from operations of $1,013,760 for the year ended December 31 2018, representing an increase of $94,498, or 9.32%. Such increase was primarily due to the increase in sales of automobile carbon reduction machines, water purifying machines and nutrition supplements, partially offset by the decrease in sales of skin care products and the increase in selling, general and administrative expenses.

 

Other income (expense)

 

Other income (expense) was $(26,491) for the year ended December 31, 2019, reflecting a decrease of $59,851, or 179.41%, compared to $33,360 for the year December 31, 2018. The decrease was mainly attributable to the increase in loss on foreign currency exchange and the increase in loss on investment in equity securities under the equity method.

 

Net Income

 

As a result of the above factors, our net income was $1,081,767 for the year ended December 31, 2019, as compared to net income of $1,029,325 for the year ended December 31, 2018, representing an increase of $52,442, or 5.09%.

 

Liquidity and Capital Resources

 

Cash and cash equivalents were $295,594 at December 31, 2019 and $36,130 at December 31, 2018. Our total current assets were $2,819,688 at December 31, 2019, as compared to $1,927,538 at December 31, 2018. Our total current liabilities were $221,694 at December 31, 2019, as compared to $299,092 at December 31, 2018.

 

We had working capital of $2,597,994 at December 31, 2019, compared to working capital of $1,628,446 at December 31, 2018. The increase in working capital was primarily attributable to the increase in cash and cash equivalents, accounts receivable and advance to suppliers, and the decrease in accounts payable and due to shareholder.

 

Net cash provided by operating activities was $265,176 during the year ended December 31, 2019, as compared to $13,505 for the year ended December 31, 2018. The increase in net cash provided by operating activities in the amount of $251,671 was primary attributable to the increase in net income and account receivable, partially offset by the increase in advance to suppliers and security deposits and other assets, and the decrease in due to shareholders.

 

Net cash used in investing activities was $1,818 during the year ended December 31, 2019, as compared to $2,869 for the year ended December 31, 2018. The decrease in net cash used in investing activities in the amount of $1,051 was mainly due to the decrease in purchase of equipment.

 

We did not have net cash flow provided by nor used in financing activities during the year ended December 31, 2019 and 2018.

 

As a result of the above factors, net increase in cash and cash equivalents was $36,130 for the year ended December 31, 2019, as compared to $24,610 for the year ended December 31, 2018.

 

Off-Balance Sheet Arrangements

 

We did not have any off-balance sheet arrangements as of December 31, 2019.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

 

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

 

 
23

 

Table of Contents
 
Item 8. Financial Statements and Supplementary Data.

 

 FINANCIAL STATEMENT SCHEDULES

 

Report of Independent Registered Public Accounting Firm

 

F-2

 

 

 

 

Financial Statements:

 

 

 

 

 

Consolidated Balance Sheets

 

F-3

 

 

 

 

Consolidated Statements of Operations and Comprehensive Income

 

F-4

 

 

 

 

Consolidated Statements of Stockholders’ Equity

 

F-5

 

 

 

 

Consolidated Statements of Cash Flows

 

F-6

 

 

 

 

Notes to Consolidated Financial Statements

 

F-7 - F-20

 

 

 
F-1

 

 

 

Audit • Tax • Cnsulting • Financial Advisory

Registered with Public Company Accounting Oversight Board (PCAOB)

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

EOS Inc. and its subsidiaries

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of EOS Inc. and its subsidiaries ( “the Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for the years ended December 31, 2019 and 2018, in conformity with the U.S. generally accepted accounting principles in the United States of America.

 

Change in Accounting Principle

 

As discussed in Note 1 and 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 842, Leases.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ KCCW Accountancy Corp.

 

We have served as the Company’s auditor since 2015.

Diamond Bar, California

April 8, 2020

 

KCCW Accountancy Corp.

3333 South Brea Canyon Rd. Suite 206, Diamond Bar, CA 91765, USA

Tel: +1 909 348 7228 • Fax: +1 909 895 4155 • info@kccwcpa.com

 

 
F-2

 

Table of Contents

 

EOS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$ 295,594

 

 

$ 36,130

 

Accounts receivable

 

 

2,177,124

 

 

 

464,937

 

Accounts receivable – related parties

 

 

-

 

 

 

1,365,321

 

Inventory, net

 

 

10,541

 

 

 

7,211

 

Advance to suppliers

 

 

317,280

 

 

 

25,879

 

Prepaid expenses and other current assets

 

 

19,149

 

 

 

28,060

 

Total current assets

 

 

2,819,688

 

 

 

1,927,538

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

7,719

 

 

 

7,650

 

Operating lease right-of-use assets

 

 

34,979

 

 

 

-

 

Security deposit

 

 

127,534

 

 

 

2,693

 

Long-term investment

 

 

20,751

 

 

 

-

 

Total Assets

 

$ 3,010,671

 

 

$ 1,937,881

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$ 2,045

 

 

$ 46,400

 

Accrued expenses

 

 

74,281

 

 

 

66,466

 

Due to shareholders

 

 

96,114

 

 

 

147,281

 

Income tax payable

 

 

25,837

 

 

 

38,945

 

Operating lease liabilities – current

 

 

23,417

 

 

 

-

 

Total current liabilities

 

 

221,694

 

 

 

299,092

 

 

 

 

 

 

 

 

 

 

Operating lease liabilities – noncurrent

 

 

11,562

 

 

 

-

 

Total liabilities

 

 

233,256

 

 

 

299,092

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 75,000,000 shares  authorized, 74,122,997 and 64,122,997 shares issued  and outstanding as of December 31, 2019 and 2018,  respectively

 

 

74,123

 

 

 

64,123

 

Additional paid-in capital

 

 

112,425

 

 

 

90,000

 

Retained earnings

 

 

2,577,898

 

 

 

1,496,131

 

Accumulated other comprehensive income (loss)

 

 

12,969

 

 

 

(11,465 )

Total stockholders' equity

 

 

2,777,415

 

 

 

1,638,789

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$ 3,010,671

 

 

$ 1,937,881

 

  

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

 

 
F-3

 

Table of Contents

 

EOS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME

 

 

 

 

 

 

 

For the Years Ended

December 31,

 

 

 

2019

 

 

2018

 

Net sales

 

$ 2,289,543

 

 

$ 1,777,945

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

275,463

 

 

 

216,505

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

2,014,080

 

 

 

1,561,440

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

905,822

 

 

 

547,680

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

1,108,258

 

 

 

1,013,760

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 Interest income

 

 

74

 

 

 

81

 

 Other income

 

 

18

 

 

 

1,991

 

 Gain (loss) on foreign currency exchange

 

 

(14,908 )

 

 

31,288

 

 Gain (loss) on investment in equity securities

 

 

(11,675 )

 

 

-

 

Total other income (expense)

 

 

(26,491 )

 

 

33,360

 

 

 

 

 

 

 

 

 

 

Income before income tax provision

 

 

1,081,767

 

 

 

1,047,120

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

 

-

 

 

 

17,795

 

 

 

 

 

 

 

 

 

 

Net income

 

$ 1,081,767

 

 

$ 1,029,325

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

Net income

 

$ 1,081,767

 

 

$ 1,029,325

 

Foreign currency translation adjustment, net of tax

 

 

24,434

 

 

 

(24,019 )

Comprehensive Income

 

$ 1,106,201

 

 

$ 1,005,306

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$ 0.02

 

 

$ 0.02

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

70,177,792

 

 

 

64,122,997

 

 

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

 

 
F-4

 

Table of Contents

   

EOS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 Additional

 

 

 

 

 

Other

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Retained

 

 

Comprehensive

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Total

 

Balance at December 31, 2017

 

 

64,122,997

 

 

$ 64,123

 

 

$ 90,000

 

 

$ 466,806

 

 

$ 12,554

 

 

$ 633,483

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(24,019 )

 

 

(24,019 )

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,029,325

 

 

 

-

 

 

 

1,029,325

 

Balance at December 31, 2018

 

 

64,122,997

 

 

 

64,123

 

 

 

90,000

 

 

 

1,496,131

 

 

 

(11,465 )

 

 

1,638,789

 

Common shares issued in exchange  for investment in equity securities

 

 

10,000,000

 

 

 

10,000

 

 

 

22,425

 

 

 

-

 

 

 

-

 

 

 

32,425

 

Foreign currency translation adjustment

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

24,434

 

 

 

24,434

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,081,767

 

 

 

-

 

 

 

1,081,767

 

Balance at December 31, 2019

 

 

74,122,997

 

 

$ 74,123

 

 

$ 112,425

 

 

$ 2,577,898

 

 

$ 12,969

 

 

$ 2,777,415

 

 

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

 

 
F-5

 

Table of Contents

 

EOS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

For the Year Ended

December 31,

 

 

 

2019

 

 

2018

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net income

 

$ 1,081,767

 

 

$ 1,029,325

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

Depreciation

 

 

1,916

 

 

 

2,510

 

Loss on investment in equity securities

 

 

11,675

 

 

 

-

 

Loss (gain) on foreign currency exchange

 

 

14,908

 

 

 

(31,288 )

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Decrease (increase) in accounts receivable

 

 

(344,219 )

 

 

(1,042,657 )

Decrease (increase) in inventory

 

 

(3,074 )

 

 

(7,240 )

Decrease (increase) in advance to suppliers

 

 

(282,115 )

 

 

(22,210 )

Decrease (increase) in security deposits and other assets

 

 

(111,794 )

 

 

(5,226 )

Increase (decrease) in accounts payable

 

 

(44,417 )

 

 

9,757

 

Increase (decrease) in accrued expenses

 

 

6,273

 

 

 

23,147

 

Increase (decrease) in income tax payable

 

 

(13,561 )

 

 

4,122

 

Increase (decrease) in due to shareholders

 

 

(52,183 )

 

 

53,265

 

Net cash provided by operating activities

 

 

265,176

 

 

 

13,505

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of equipment

 

 

(1,818 )

 

 

(2,869 )

Net cash used in investing activities

 

 

(1,818 )

 

 

(2,869 )

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(3,894 )

 

 

884

 

Net increase in cash and cash equivalents

 

 

259,464

 

 

 

11,520

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

 

 

 

 

 

 

 

Beginning

 

 

36,130

 

 

 

24,610

 

Ending

 

$ 295,594

 

 

$ 36,130

 

Supplemental Disclosure of Cash Flows

 

 

 

 

 

 

 

 

Cash paid during the periods for:

 

 

 

 

 

 

 

 

Interest

 

$ -

 

 

$ -

 

Income taxes

 

$ 8,125

 

 

$ 13,673

 

 

 

 

 

 

 

 

 

 

Non-cash financing and investing activities

 

 

 

 

 

 

 

 

Common shares issued in exchange for investment in equity securities

 

$ 32,425

 

 

$ -

 

 

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

 

 
F-6

 

Table of Contents

 

EOS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDAED FINANCIAL STATEMENTS
 

Note 1. NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

 

Organization

 

EOS Inc. was incorporated on April 3, 2015 in the State of Nevada. The Company’s business plan is to market and distribute skin care products, including masks and serums.

 

On November 18, 2016, the Company set up a wholly-owned subsidiary in Taiwan to assist the Company to promote the business in Taiwan.

 

Emperor Star International Trade Co., Ltd., (“Emperor Star”), was incorporated on November 16, 2015 under the laws of Taiwan. Emperor Star is in the business of marketing and distribution of various products, including nutrition supplements, skin care products, and water purifiers.

 

On May 3, 2017, the Company entered into and closed a Share Purchase and Sale Agreement (the “Purchase Agreement”) with Emperor Star and the shareholder of Emperor Star to acquire all issued and outstanding shares of Emperor Star in consideration of $30,562 in cash. As a result of the Purchase Agreement, Emperor Star became the Company’s wholly owned subsidiary. Upon consummation of the transaction, the Company has assumed the business of Emperor Star and ceased to be a shell company.

 

On September 20, 2018, the Company set up another wholly-owned subsidiary, EOS International Inc. (“EOS(BVI)”), under the laws of British Virgin Islands. EOS(BVI) is in the business of marketing and distribution of various products, including nutrition supplements, skin care products, and water purifiers.

 

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

 

Principles of Consolidation     

 

The accompanying consolidated financial statements, including the accounts of EOS Inc. and its wholly owned subsidiaries in Taiwan, British Virgin Islands, and People’s Republic of China, have been prepared in conformity with accounting principles generally accepted in the United States of America. Since the Company and Emperor Star are entities under common control prior to the acquisition of Emperor Star, the transaction is accounted for as a restructuring transaction. All the assets and liabilities of Emperor Star were transferred to the Company at their respective carrying amounts on the date of transaction. The Company has recast prior period financial statements to reflect the conveyance of Emperor Star’s common shares as if the restructuring transaction had occurred as of the earliest date of the consolidated financial statements. All material intercompany accounts, transactions, and profits have been eliminated in consolidation. The nature of and effects on earnings per share (EPS) of nonrecurring intra-entity transactions involving long-term assets and liabilities is not required to be eliminated and EPS amounts have been recast to include the earnings (or losses) of the transferred net assets.

 

 
F-7

 

Table of Contents
 

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

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Classification

 

Certain classifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net income nor retained earnings.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash and all highly liquid instruments with original maturities of three months or less.

 

Accounts Receivable

 

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

 

Inventory

 

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

 

 
F-8

 

Table of Contents

 

Property and Equipment

 

Property and equipment is carried at cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Expenditures that improve the functionality of the related asset or extend the useful life are capitalized. When property and equipment is retired or otherwise disposed of, the related gain or loss is included in operating income. Leasehold improvements are depreciated on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Depreciation is calculated on the straight-line method, including property and equipment under capital leases, generally is five years. Depreciation expense is $1,916 and $2,510 for the years ended December 31, 2019 and 2018, respectively.

 

Impairment of Long-Lived Assets

 

The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve breakeven operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. Management has determined that no impairments of long-lived assets currently exist as of December 31, 2019 and 2018.

 

Long-term Equity Investment

 

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

 

·             

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

 

 

·

Non-marketable cost method investments when the equity method does not apply.

  

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

 

 
F-9

 

Table of Contents

 

Other-Than-Temporary Impairment

 

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

 

·             

Marketable equity securities include the consideration of general market conditions, the duration and extent to which the fair value is below cost, and our ability and intent to hold the investment for a sufficient period of time to allow for recovery of value in the foreseeable future. The Company also considers specific adverse conditions related to the financial health of, and the business outlook for, the investee, which may include industry and sector performance, changes in technology, operational and financing cash flow factors, and changes in the investee’s credit rating. The Company records other-than-temporary impairments on marketable equity securities and marketable equity method investments in gain (loss) on equity investments.

 

 

·

Non-marketable equity investments based on the Company’s assessment of the severity and duration of the impairment, and qualitative and quantitative analysis of the operating performance of the investee; adverse changes in market conditions and the regulatory or economic environment; changes in operating structure or management of the investee; additional funding requirements; and the investee’s ability to remain in business. A series of operating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred that is other than temporary and that shall be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of the equity method. A loss in value of an investment that is other than a temporary decline shall be recognized. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. The Company records other-than-temporary impairments for non-marketable cost method investments and equity method investments in gain (loss) on equity investments.

 

Revenue Recognition

 

During the fiscal year 2018, the Company has adopted FASB Accounting Standards Codification (“ASC”), Topic 606 (“ASC 606”), Revenue from Contracts with Customers, using the modified retrospective method to all contracts that were not completed as of January 1, 2018. The Company recognized the cumulative effect of applying the new revenue standard as an adjustment to the opening balance of accumulated deficit at the beginning of 2018. The results for the Company’s reporting periods beginning on and after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. Based on the Company’s review of existing sales contracts as of January 1, 2018, the Company concluded that the adoption of the new guidance did not have a significant change on the Company’s revenue during all periods presented.

 

Pursuant to ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines is within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration the Company is entitled to in exchange for the goods or services the Company transfers to the customers. At inception of the contract, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

 
F-10

 

Table of Contents

 

Merchandise sales: The Company recognizes sales revenues from merchandise sales when customers obtain control of the Company’s products, which typically occurs upon delivery to customer. Merchandise sales revenues are recorded at the sales price, or “transaction price”.

 

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

 

Trade discount and allowances: The Company generally does not provide invoice discounts on product sales to its customers for prompt payment.

 

Product returns: The Company generally does not provide customers with the right to return a product for a full or partial refund, a credit, or an exchange for another product.

 

To date, product allowance and returns have been minimal and, based on its experience, the Company believes that returns of its products will continue to be minimal.

 

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

 

Revenue by Major Products

 

For the year ended December 31, 2019:

 

 

 

Nutrition supplement

 

$ 927,149

 

Water purifier machine

 

 

769,592

 

Automobile carbon reduction machine

 

 

354,401

 

Skin care product

 

 

135,964

 

Software

 

 

102,437

 

 Total

 

$ 2,289,543

 

 

Revenue by Geography

 

For the year ended December 31, 2019:

 

 

 

Asia Pacific

 

$ 2,289,543

 

 Total

 

$ 2,289,543

 

 

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

 

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

 

Practical Expedient

Description

Reassessment of expired or existing contracts

The Company elected not to reassess, at the application date, whether any expired or existing contracts contained leases, the lease classification for any expired or existing leases, and the accounting for initial direct costs for any existing leases.

Use of hindsight

The Company elected to use hindsight in determining the lease term (that is, when considering options to extend or terminate the lease and to purchase the underlying asset) and in assessing impairment of right-to-use assets.

Reassessment of existing or expired land easements

The Company elected not to evaluate existing or expired land easements that were not previously accounted for as leases under ASC 840, as allowed under the transition practical expedient. Going forward, new or modified land easements will be evaluated under ASU No. 2016-02.

Separation of lease and non-lease components

Lease agreements that contain both lease and non-lease components are generally accounted for separately.

Short-term lease recognition exemption

The Company also elected the short-term lease recognition exemption and will not recognize ROU assets or lease liabilities for leases with a term less than 12 months.

 

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

 

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

 

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

 

Advertising Costs

 

Advertising costs are expensed at the time such advertising commences. Advertising expenses were $39,645 and $13,299 for the years ended December 31, 2019 and 2018, respectively.

 

 
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Post-retirement and Post-employment Benefits

 

The Company’s subsidiaries in Taiwan adopted the government mandated defined contribution plan pursuant to the Taiwan Labor Pension Act (the “Act”). Such labor regulations require that the rate of contribution made by an employer to the Labor Pension Fund per month shall not be less than 6% of the worker's monthly salaries. Pursuant to the Act, the Company makes monthly contribution equal to 6% of employees’ salaries to the employees’ pension fund. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits, which were expensed as incurred, were $7,051 and $7,958 for the years ended December 31, 2019 and 2018, respectively. Other than the above, the Company does not provide any other post-retirement or post-employment benefits.

 

Fair Value Measurements

 

FASB ASC 820, “Fair Value Measurements” defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It requires that an entity measure its financial instruments to base fair value on exit price, maximize the use of observable units and minimize the use of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability of the inputs as follows:

 

 

Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted prices in active markets that are readily and regularly available.

 

 

 

 

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

 

 

 

Level 3 – Valuations based on inputs that are unobservable and not corroborated by market data. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies, or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability.

 

The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable, inventory, advance to suppliers, prepaid expenses, accounts payable, accrued expenses, and due to shareholders, approximate fair value because of to their relatively short maturities.

 

 
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Net Income Per Share

 

Basic income per share is computed by dividing net income by weighted average number of shares of common stock outstanding during each period. Diluted income per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents, and potentially dilutive securities outstanding during each period. For the years ended December, 2019 and 2018, the Company does not have any outstanding common stock equivalents; therefore, a separate computation of diluted income per share is not presented.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.

 

Concentration of Credit Risk

 

Cash and cash equivalents: The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments in high quality credit institutions in Taiwan, but these investments may be in excess of the insurance limits of Taiwan Central Deposit Insurance Corporation (the “TCDIC”). The Company does not enter into financial instruments for hedging, trading or speculative purposes. Concentration of credit risk with respect to trade and notes receivables is limited due to the wide variety of customers and markets in which the Company transacts business, as well as their dispersion across many geographical areas. As of December 31, 2019, the Company had approximately $124,213 in excess of TCDIC insured limits. The Company has not experienced any losses in such accounts.

 

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

 

For the year ended December 31, 2019, one customer accounted for more than 10% of the Company’s total revenues, representing approximately 95% of its total revenues, and 99% of accounts receivable in aggregate at December 31, 2019.

 

Customer

 

Net sales for the year ended

December 31, 2019

 

 

Accounts receivable balance

as of December, 2019

 

A

 

$ 2,171,766

 

 

$ 2,151,192

 

 .

For the year ended December 31, 2018, two customers accounted for more than 10% of the Company’s total revenues, represented approximately 69% and 16% of its total revenues and 69% and 13% of accounts receivable in aggregate at December 31, 2018, respectively.

 

Customer

 

Net sales for the year ended

December 31, 2018

 

 

Accounts receivable balance

as of December 31, 2018

 

A

 

$ 1,235,203 *

 

$ 1,263,833

 

B

 

$ 279,405

 

 

$ 237,980

 

 

*Related party transactions (see Note 4).

 

 
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Suppliers: The Company purchases its inventories from various suppliers.

 

For the year ended December 31, 2019, four suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 34%, 27%, 19% and 10% of total net purchase, and 0% of accounts payable in aggregate at December 31, 2019, respectively:

 

Supplier

 

Net purchase for the year ended

December 31, 2019

 

 

Accounts payable balance

as of December 31, 2019

 

A

 

$ 96,743

 

 

$ -

 

B

 

$ 74,819

 

 

$ -

 

C

 

$ 52,505

 

 

$ -

 

D

 

$ 28,400

 

 

$ -

 

 

For the year ended December 31, 2018, three suppliers accounted for more than 10% of the Company’s total net purchase, representing approximately 41%, 23% and 16% of total net purchase, and 0% of accounts payable in aggregate at December 31, 2018, respectively:

 

Supplier

 

Net purchase for the year ended

December 31, 2018

 

 

Accounts payable balance

as of December 31, 2018

 

E

 

$ 50,529

 

 

$ -

 

B

 

$ 28,371

 

 

$ -

 

F

 

$ 19,620

 

 

$ -

 

 

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.

 

Translation Adjustment

 

The accounts of the Company’s subsidiaries were maintained, and their financial statements were expressed in New Taiwan Dollar (“NTD”) and Renminbi (“RMB”). Such financial statements were translated into U.S. Dollars (“$” or “USD”) in accordance ASC 830, "Foreign Currency Matters", with the NTD and RMB as the functional currency. According to the Statement, all assets and liabilities are translated at the current exchange rate, common stock and additional paid-in capital are translated at the historical rates, and income statement items are translated at an average exchange rate for the period. The resulting translation adjustments are reported under accumulated other comprehensive income (loss) as a component of stockholders’ equity.

 

Comprehensive Income (loss)

 

Comprehensive income (loss) includes accumulated foreign currency translation gains and losses. The Company has reported the components of comprehensive income (loss) on its consolidated statements of operations and other comprehensive income (loss).

 

 
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Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU is effective for public companies for annual reporting periods and interim periods within those annual periods beginning after December 15, 2019. The Company is currently evaluating the effect, if any, that the ASU will have on its consolidated financial statements.

 

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

 

Note 2. LEASE

 

The Company has no finance leases. The Company’s leases primarily include office facility and copy machine under the operating lease arrangements. The Company’s operating leases have remaining lease terms up to 3 years as of December 31, 2019.

 

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

 

 

 

December 31,

2019

 

Operating Leases:

 

 

 

Operating lease – right of use (“ROU”) assets

 

$ 34,979

 

 

 

 

 

 

Operating lease liability, current portion

 

 

23,417

 

Operating lease liability, noncurrent portion

 

 

11,562

 

 Total operating lease liabilities

 

$ 34,979

 

 

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

 

 

 

 Year Ended

 

 

 

December 31,

2019

 

Operating lease expenses

 

$ 19,553

 

 

 
F-16

 

Table of Contents

 

Other information related to leases is presented below:

 

 

 

Year Ended

 

 

 

December 31,

2019

 

Cash paid for amounts included in measurement of liabilities:

 

 

 

Operating cash flows from operating leases

 

$ 19,553

 

 

 

 

 

 

Weighted average remaining lease term:

 

 

 

 

Operating leases

 

1.62 years

 

 

 

 

 

 

Weighted average discount rate:

 

 

 

 

Operating leases

 

 

4 %

 

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

 

 

 

Operating

leases

 

2020

 

$ 24,309

 

2021

 

 

10,631

 

2022

 

 

862

 

2023

 

 

215

 

Total future minimum lease payments, undiscounted

 

 

36,017

 

Less: Imputed interest

 

 

(1,038 )

Present value of future minimum lease payments

 

$ 34,979

 

 

Note 3. LONG-TERM INVESTMENT

 

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

 

As of December 31, 2019, the Company owns 20% equity of A-Best. The Company holds an equity interest in A-Best accounting for its equity interest using equity method to account for its equity investment as prescribed in ASC 323, Investments—Equity Method and Joint Ventures (“ASC 323”). Equity method adjustments include the Company’s proportionate share of investee’s income or loss and other adjustments required by the equity method.

 

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

 

Balance Sheets

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Current assets

 

$ 42,818

 

 

$ 20,997

 

Noncurrent assets

 

 

857

 

 

 

-

 

Current liabilities

 

 

1,372,351

 

 

 

1,238,711

 

Shareholders’ deficit

 

 

(1,328,676 )

 

 

(1,217,714 )

 

 
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Statement of Operation

 

 

 

For the period from May 24, 2019 to December 31,

2019

 

Net sales

 

$ 4,487

 

Gross profit

 

 

1,185

 

Net loss

 

 

(58,374 )

 

 

 

 

 

Share of loss from investment accounted for using equity method

 

 

(11,675 )

 

Note 4. RELATED PARTY TRANSACTIONS

 

Related party – Sales

 

(1)            

The Company had sales to EOS Venture International Pte Ltd., (“EOS Venture”), a Singapore company. Mr. He-Siang Yang, the officer, director, and shareholder of the Company, is the key person who can significantly affect the economic performance of EOS Venture. The sales amounted to $0 and $4,038 for years ended December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, accounts receivable balance was $0 and $101,488, respectively.

 

 

(2)

The Company had sales to Fortune King (HK) Trading Limited, (“Fortune King”), a Hong Kong company. As of June 30, 2019, Fortune King had been a related party of the Company because the founder and officer of Fortune King was a shareholder of the Company. On or about June 30, 2019, the founder and officer of Fortune King transferred her equity interest in the Company and therefore Fortune King is no longer a related party to the Company. The sales amounted to $2,171,766 and $1,235,203 for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, accounts receivable balance was $2,151,192 and $1,263,833, respectively.

  

Due to shareholders

 

The Company has advanced funds from its directors and shareholders for working capital purposes. As of December 31, 2019 and 2018, there were $96,114 and $147,281 advances outstanding, respectively. The Company has agreed that the outstanding balances bear 0% interest rate and are due upon demand after thirty days written notice by the director and shareholder.

 

Note 5. INCOME TAXES

 

United States

EOS, Inc. is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company has no taxable income for the period. As of December 31, 2019, the Company had net operating loss carry forwards of $552,745 that may be available to reduce future years’ taxable income. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements as their realization is determined not likely to occur and, accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards. No tax benefit has been realized since a 100 % valuation allowance has offset deferred tax asset resulting from the net operating losses.

 

British Virgin Islands

EOS International Inc. is incorporated in British Virgin Islands and are not required to pay income tax.

 

Taiwan

The subsidiary of EOS Inc. and Emperor Star are incorporated in Taiwan. According to the amendments to the “Taiwan Income Tax Act” enacted by the office of the President of Taiwan on February 7, 2018, an increase in the statutory income tax rate from 17% to 20% and decrease in the undistributed earning tax from 10% to 5% are effective from January 1, 2018.

 

 
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People’s Republic of China (“PRC”)

Under the Enterprise Income Tax (“EIT”) Law of the PRC, the standard EIT rate is 25%. The PRC subsidiary of the Company is subject to PRC income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which they operate. No provision for income taxes have been made as Maosong had no taxable income as of and for the year ended December 31, 2019.

 

Provision for income tax consists of the following:

 

 

 

For the Years Ended

December 31,

 

 

 

2019

 

 

 2018

 

Current income tax

 

 

 

 

 

 

U.S.

 

$ -

 

 

$ -

 

Taiwan

 

 

-

 

 

 

17,795

 

PRC

 

 

-

 

 

 

-

 

Sub total

 

 

-

 

 

 

17,795

 

 

 

 

 

 

 

 

 

 

Deferred income tax

 

 

 

 

 

 

 

 

U.S.

 

 

 

 

 

 

 

 

Deferred tax assets for NOL carryforwards

 

 

(4,521 )

 

 

(30,245 )

Valuation allowance

 

 

4,521

 

 

 

30,245

 

Net changes in deferred income tax (benefit)

 

 

-

 

 

 

-

 

Total income tax provision

 

$ -

 

 

$ 17,795

 

 

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

 

 

 

For the Years Ended

December 31,

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

U.S. statutory income tax rate

 

 

21 %

 

 

21 %

Taiwan unified income tax rate

 

 

20 %

 

 

20 %

PRC standard EIT rate

 

 

25 %

 

 

N/A

 

Changes in valuation allowance

 

 

(66 )%

 

 

(21 )%

Other

 

 

-

%

 

 

(18 )%

Effective combined income tax rate

 

 

0 %

 

 

2 %

 

Significant components of the Company’s deferred taxes as of December 31, 2019 and 2018 were as follows:

 

 

 

December 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Deferred tax assets:

 

 

 

 

 

 

Net operating loss carryforwards

 

$ 116,077

 

 

$ 111,556

 

Less: Valuation allowance

 

 

(116,077 )

 

 

(111,556 )

Deferred tax assets, net

 

$ -

 

 

$ -

 

 

 
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Note 6. SUBSEQUENT EVENTS

 

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

 

Furthermore, subject to the terms and conditions of the Strategic Alliance Agreement, A-Best has granted the Company the exclusive sale and distribution right of A-Best’s micro-ceramic speakers in the world for one (1) year (the “Term”), which may be renewed with mutual consent of the Parties two months prior to the expiration of the Term, while A-Best retains its own right to sell and distribute the micro-ceramic speakers on its own. In consideration for the exclusive distribution right of A-Best’s speakers under the Strategic Alliance Agreement, the Company agreed to have A-Best keep the Company’s 10,000,000 shares of common stock, par value $0.001 per share, issued under the Investment Cooperation Agreement and the Company may keep the revenue and profits generated from the sale of A-Best speakers until the total revenue from such speakers reaches $15 million U.S. dollars. 

 

On November 25, 2019 (the “Effective Date”), EOS the Company and Ultra Velocity Technology Ltd. (“Ultra Velocity”), a corporation formed under the laws of Taiwan, entered into an exclusive patent licensing and distribution agreement (the “Agreement” or “Exclusive Patent Licensing and Distribution Agreement”), pursuant to which, subject to the terms and conditions therein, Ultra Velocity granted the Company an exclusive license to the patent to its electrical noise suppressing device (the “Calibrator”) and the exclusive right to market, promote, distribute and sell the Calibrator globally. In accordance with the Agreement and in consideration for the exclusive patent license and distribution right to the Calibrator, the Company shall issue Ultra Velocity three million (3,000,000) restricted shares of its common stock after the execution of this Agreement and upon the shareholder approval to increase the number of authorized capital of the Company (the “Shareholder Approval”). Pursuant to the Agreement, Ultra Velocity shall apply for the carbon right for the Calibrator, and may sell the revenue generated from the carbon right to the Company in exchange for additional stock of the Company, if the carbon right ever generates any income. Upon Ultra Velocity providing the complete client list and transferring its sales accounts to the Company and the Shareholder Approval, the Company shall issue five million (5,000,000) restricted shares of its common stock to Ultra Velocity. Upon having the common stock of the Company listed on the Nasdaq stock exchange, the Company shall designate NTD$50 million (equivalent to $1.64 million USD) to expand Ultra Velocity’s manufacturing facility, subject to the terms of a separate agreement. In addition, after execution of this Agreement and upon Shareholder Approval, the Company shall issue 100,000 restricted shares of its common stock to each of two individuals, who made the introduction of Ultra Velocity to the Company. The term of this Agreement is ten years, commencing from the Effective Date.

 

On March 30, 2020, the Company and Ultra Velocity, signed a termination notice to terminate the Exclusive Patent Licensing and Distribution Agreement dated November 25, 2019 by and between the Company and Ultra Velocity. The respective parties are renegotiating the terms for a new agreement but the failure to do so will have no effect on the validity of this termination.

 

Management has evaluated subsequent events through the date which the financial statements are available to be issued. All subsequent events requiring recognition as of December 31, 2019 have been incorporated into these consolidated financial statements and there are no subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”

 

*****

 
 
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Table of Contents

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A. Controls and Procedures.

 

Management’s Report of Internal Control over Financial Reporting

 

We conducted an evaluation of the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”), as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2019, the end of the year covered by this annual report on Form 10-K. The Disclosure Controls evaluation was done under the supervision and with the participation of management, including our chief executive officer and chief financial officer, who is the same person. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our chief executive officer and chief financial officer concluded that, due to our limited internal audit function and our very limited staff, our disclosure controls were not effective as of December 31, 2019, such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to the chief executive officer/chief financial officer, as appropriate to allow timely decisions regarding disclosure. This Annual Report does not include an attestation report of the Company’s registered accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC.

 

Evaluation of Disclosure Controls and Procedures

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. During our assessment of the effectiveness of internal control over financial reporting as of December 31, 2019, 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 over financial reporting were not effective as of December 31, 2019.

  

 
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Management has determined that our internal controls contain material weaknesses due to the absence of segregation of duties, as well as lack of qualified accounting personnel and excessive reliance on third party consultants for accounting, financial reporting and related activities. The lack of any separation of duties, with the same person, who is our only employee who serves as both chief executive officer and chief financial officer, and who does not have an accounting background and serves on a part-time basis, makes it unlikely that we will be able to implement effective internal controls over financial reporting in the near future.

 

Due to our size and nature, segregation of all conflicting duties is not possible. However, to the extent possible, we plan to implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals if and when we have sufficient income to enable us to hire such individuals, and we cannot give any assurance that we will be able to hire such personnel. Our financial condition makes it difficult for us to implement a system of internal controls over financial reporting.

 

Until we generate significantly greater revenues and employ accounting personnel, it is doubtful that we will be able implement any system which provides us with any degree of internal controls over financial reporting. Due to the nature of this material weakness in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could not be prevented or detected.

 

A material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

 

None. 

 

 
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PART III

 

Item 10. Directors, Executive Officers and Corporate Governance.

 

Director and Executive Officer of the Company

 

Name

Age

Position

He-Siang Yang

68

Chief Executive Officer (“CEO”), President, Secretary, Treasurer and Chairman of the Board(1)

Yu-Cheng Yang

40

Director and General Manager(2)

Lai-Chen Kwok

76

Director(3)

__________
(1)Mr. Yang will serve as a director until the next annual shareholder meeting.
(2)Mr. Yang will serve as a director until the next annual shareholder meeting.
(3)Mr. Kwok will serve as a director until the next annual shareholder meeting 

 

The term of office of each director of the Company ends at the next annual meeting of the Company’s stockholders or when such director’s successor is elected and qualifies. No date for the next annual meeting of stockholders is specified in the Company’s Bylaws or has been fixed by the Board of Directors. The term of office of each officer of the Company ends at the next annual meeting of stockholders, or when such officer’s successor is elected and qualifies.

 

Background of the Executive Officers and Directors of the Company

 

The following information sets forth the background and business experience of our directors and executive officers.

 

He-Siang Yang, CEO, President, Secretary, Treasurer and Director

 

Mr. Yang obtained a Bachelor of Science degree in mathematics from the National Taiwan Ocean University in Taiwan. From 2009 through 2015, Mr. Yang served as the president of U-Power in Taipei, Taiwan. Mr. Yang performed those duties normally associated with a president, including, but not limited to business development, management and business oversight. From 2015 to the present, Mr. Yang has been the president of EOS Trading Company Limited, a Hong Kong company.

 

On April 3, 2017, Mr. Yang was appointed as the President, Secretary, Treasurer and Director of the Company.

 

Yu Cheng Yang, Director and General Manager

 

Mr. Yang graduated from Jin Wen University of Science and Technology in 2003 with a Bachelor’s Degree in Hotel Management.

 

From 2009 through 2015, Mr. Yang was on the board of directors of and employed by U-Power Co., located in Taipei, Taiwan, which was in the business of developing e-commerce platforms and related server maintenance. Mr. Yang’s duties with U-Power Co. were the development, implementation and management of various business policies.

 

In April, 2015, Mr. Yang became the President and sole director of the Company. On April 3, 2017, Mr. Yang resigned as President, Secretary and Treasurer of the Company. Mr. Yang is also the sole director of EITB.

 

 
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Lai Chen Kwok, Director

 

Mr. Kwok obtained a Bachelor of the Arts degree in English from the Overseas Chinese University, a private university in Taiwan.

 

From 2008 through 2015, Mr. Kwok served as a financial planner at Prudential Hong Kong Limited, a Hong Kong insurance company.

 

On April 3, 2017, Mr. Kwok was appointed as a Director of the Company.

 

Yu-Hsiang Chia, Branch Manager of EITB and Director of Emperor Star

 

Mr. Yu-Hsiang Chia, 51, graduated from Fu Jen University located in New Taipei City, Taiwan, with a bachelor’s degree in Japanese. From 2013 to 2016, Mr. Chia served as a vice president of Advantage Universal Limited Co., a Taiwan company, which was in the business of distribution of imported products. From 2016 to present, Mr. Chia serves as a vice president of Emperor Star International Trade Co., Ltd., which was in the business of distribution of supplements and cleaning products. Mr. Chia’s main duties include management and business oversight. In June 2017, Mr. Chia became the branch manager of Emperor Star.

 

To our knowledge, during the last ten years, none of our directors and executive officers has been subject to any of the following:

 

·

A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

 

·

Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

·

The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

 

(i)

Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 

(ii)

Engaging in any type of business practice; or

 

(iii)

Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

 

 
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·

The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or commodity laws, or to be associated with persons engaged in any such activity;

 

·

Found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;

 

·

Found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

 

·

The subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

 

(i)

Any federal or state securities or commodities law or regulation; or

 

(ii)

Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

 

(iii)

Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

·

The subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

No Compensation to Non-executive Directors.

 

No director has received any cash or other compensation for serving as a non-executive director, and we do not plan to pay any cash or other compensation to any person for serving as a non-executive director. Our directors are entitled to reimbursement for reasonable out-of-pocket expenses incurred in connection with our business. Our Board of Directors may award special remuneration to any director undertaking any special services on our behalf, other than services ordinarily required of a director.

 

Code of Ethics; Financial Expert

 

We do not have a Code of Ethics. We do not have a financial expert on our Board of Directors.

 

Committees of the Board of Directors

 

Concurrent with having sufficient members and resources, our Board of Directors will establish an audit committee and a compensation committee. The audit committee will review the results and scope of the audit and other services provided by the independent auditors and review and evaluate our system of internal controls. The compensation committee will manage any stock option plan we may establish and review and recommend compensation arrangements for our officers. No final determination has yet been made as to the memberships of these committees or when we will have sufficient members and resources to establish those committees.

 

Potential Conflicts of Interest

 

As we do not have an audit committee or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our directors. Thus, there is a potential conflict of interest, in that our directors and officers have the authority to determine issues concerning management compensation and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executive officers or directors.

 

We plan to adopt a code of ethics that obligates our directors, officers and employees to disclose potential conflicts of interest and prohibits those persons from engaging in such transactions without our consent.

 

 
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Directors Independence

 

Our Board of Directors is composed of three members, who do not qualify as independent directors in accordance with the published listing requirements of the NASDAQ rules. The NASDAQ independence definition includes a series of objective tests, such as that the director is not, and has not been for at least three years, one of our employees and that neither the directors, not any of his or her family members has engaged in various types of business dealings with us. In addition, our Board of Directors has not made a subjective determination as to each director that no relationships exist which, in the opinion of our Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, though such subjective determination is required by the NASDAQ rules. If our Board of Directors made these determinations, our Board of Directors would have reviewed and discussed information provided by the directors and us with regard to each director’s business and personal activities and relationships as they may relate to us and our management.

 

Term of Office

 

Each of our directors is appointed to hold office until the next annual meeting of our stockholders or until his or her respective successor is elected and qualified, or until he or she resigns or is removed in accordance with the applicable provisions of Nevada law. Our officers are appointed by our Board of Directors and hold office until removed by our Board of Directors or until their resignation.

 

Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than ten percent of our common stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of our common stock. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

 

We intend to ensure to the best of our ability that all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent (10%) beneficial owners are complied.

 

We were not aware of any securities transaction during the fiscal year ended December 31, 2019, or subsequent thereto that would require a filing pursuant to Section 16 of the Securities Exchange Act of 1934, as amended was not reported accordingly.

 

Audit Committee Financial Expert

 

Our current directors act as our audit committee. The current directors are not independent. An informal search is under way to identify a suitable candidate for service on the Board of Directors as an independent director who would be qualified as an audit committee financial expert.

 

Audit Committee

 

We have not yet formed an audit committee, and all of our directors currently act as our audit committee. At the present time, we believe that our directors are capable of analyzing and evaluating our consolidated financial statements and understanding internal controls and procedures for financial reporting. The Company, however, recognizes the importance of good corporate governance and intends to add additional directors to the Board of Directors and appoint an audit committee comprised entirely of independent directors, including at least one financial expert.

 

Limitation on Liability and Indemnification of Directors and Officers

 

Our articles of incorporation provide that no director or officer shall have any liability to the Company if that person acted in good faith and with the same degree of care and skill as a prudent person in similar circumstances.

 

Our articles of incorporation and bylaws provide that we will indemnify our directors and officers and may indemnify our employees or agents to the fullest extent permitted by law against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices or positions with us. However, nothing in our articles of incorporation or bylaws protects or indemnifies a director, officer, employee or agent against any liability to which that person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of that person’s office or position. To the extent that a director has been successful in defense of any proceeding, the Nevada Revised Statutes provide that the director shall be indemnified against reasonable expenses incurred in connection with the proceeding.

 

 
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Table of Contents

 

Item 11. Executive Compensation.

 

EXECUTIVE SUMMARY COMPENSATION TABLE BY THE COMPANY

 

Name and Principal Position

 

Year

 

Salary

FY ($)

 

 

Bonus ($)

 

 

Stock

Awards

($)

 

 

Option

Awards

($)

 

 

Non-Equity

Incentive

Plan

Compensation

($)

 

 

Change in

Pension

Value and

Nonqualified

Deferred

Compensation

Earnings

($)

 

 

All

Other

Compensation

($)

 

 

Total ($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

He Siang Yang,

 

2019

 

 

58,235

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

58,235

 

CEO, President, Secretary,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Treasurer, and Director(1)

 

2018

 

 

19,913

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,913

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yu Cheng Yang,

 

2019

 

 

171,494

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

171,494

 

Director and General Manager(1)

 

2018

 

 

52,528

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

52,528

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lai Chen Kwok,

 

2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Director(1)

 

2018

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yu-Hsiang Chia,

 

2019

 

 

26,319

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

26,319

 

Branch Manager(1)

 

2018

 

 

24,215

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

24,215

 

____________
We did not have any employment agreements with any of the named officers and directors listed above.

 

 
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth the number of shares of common stock beneficially owned as of April 15, 2020 by (i) those persons or groups known to us to beneficially own more than 5% of our common stock; (ii) each director; (iii) each executive officer; and (iv) all directors and executive officers as a group. The information is determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) based upon information furnished by persons listed or contained in filings made by them with the SEC or by information provided by such persons directly to us. Except as indicated below, each of the stockholders listed below possesses sole voting and investment power with respect to their shares and the address of each person is c/o EOS Inc.

 

The Company

 

 

 

 

 

 

 

Name of Beneficial Owner

 

Common Stock Beneficially

Owned

 

 

Percentage of Common Stock Beneficially owned (1)

 

Officers and directors as a group

 

 

 

 

 

 

Yu Cheng Yang

 

 

30,000,000

 

 

 

40.47 %

He Siang Yang

 

 

10,000,000

 

 

 

13.49 %

Lai Chen Kwok

 

 

900,500

 

 

 

1.21 %

All officers and directors as a group (3 person)

 

 

40,900,500

 

 

 

55.17 %

5%  or more shareholders

 

 

-

 

 

 

-

 

Ing-Ming Lai

 

 

10,000,000

 

 

 

13.49 %

Total

 

 

50,900,500

 

 

 

68.67 %

 

 
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Beneficial ownership percentages are calculated based on shares of common stock issued and outstanding and is based on a total of 74,122,997 shares of common stock that were issued and outstanding as of April 15, 2020. Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act. The number of shares beneficially owned by a person includes shares of common stock underlying options or warrants held by that person that are currently exercisable or exercisable within 60 days of April 15, 2020. The shares issuable pursuant to the exercise of those options or warrants are deemed outstanding for computing the percentage ownership of the person holding those options and warrants but are not deemed outstanding for the purposes of computing the percentage ownership of any other person. The persons and entities named in the table have sole voting and sole investment power with respect to the shares set forth opposite that person’s name, subject to community property laws, where applicable, unless otherwise noted in the applicable footnote.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

Related Party Transactions

 

The Company had sales to EOS Venture International Pte Ltd., (“EOS Venture”), a Singapore company. Mr. He-Siang Yang, the officer, director, and shareholder of the Company, is the key person who can significantly influence the operations and decisions of EOS Venture. The sales amounted to $0 and $4,038 for years ended December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, accounts receivable balance was $0 and $101,488, respectively.

 

The Company had sales to Fortune King (HK) Trading Limited, (“Fortune King”), a Hong Kong company. As of June 30, 2019, Fortune King had been a related party of the Company because the founder and officer of Fortune King was a shareholder of the Company. On or about June 30, 2019, the founder and officer of Fortune King transferred her equity interest in the Company and therefore Fortune King is no longer a related party to the Company as of the date of this annual report. The Company’s sales to Fortune King amounted to $2,171,766 and $1,235,203 for the years ended December 31, 2019 and 2018, respectively. As of December 31, 2019 and 2018, accounts receivable balance was $2,151,192 and $1,263,833, respectively.

 

Due to shareholders

 

The Company has advanced funds from Mr. Yu Chen Yang, a director and general manager of the Company, for working capital purposes. As of December 31, 2019 and 2018, there were $96,114 and $147,281 of outstanding balances in advances from Mr. Yu Chen Yang, respectively. The Company and Mr. Yu Chen Yang have agreed that the outstanding advances bear 0% interest rate and are due upon demand after thirty-day written notice by the creditor.

 

Item 14. Principal Accounting Fees and Services.

 

Summary of Principal Accounting Fees for Professional Services Rendered

 

The following table presents the aggregate fees for professional audit services and other services rendered by KCCW Accountancy Corp. 

 

 

 

Year Ended December 31,

2019

 

 

Year Ended December 31,

2018

 

 

 

 

 

 

 

 

Audit Fees

 

$ 20,000

 

 

 

20,000

 

 

 

 

 

 

 

 

 

 

Tax Fees

 

 

1,000

 

 

 

1,000

 

All Other Fees

 

 

-

 

 

 

 

 

Total

 

$ 21,000

 

 

 

21,000

 

 
Audit Fees
consist of fees billed for the annual audit of our consolidated financial statements and other audit services including the provision of consents and the review of documents filed with the SEC. 

We do not have an independent audit committee and directors, therefore, serves as the audit committee for all purposes relating to communication with our auditors and responsibility for our audit. All engagements for audit services, audit- related services and tax services are approved in advance by our Board of Directors. Our Board of Directors has considered whether the provision of the services described above for the fiscal year ended December 31, 2019, is compatible with maintaining  the auditor’s independence.

 

 
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All audit and non-audit services that may be provided by our principal accountant to us shall require pre-approval by the Board of Directors. Further, our auditor shall not provide those services to us specifically prohibited by the SEC, including bookkeeping or other services related to the accounting records or financial statements of the audit client; financial information systems design and implementation; appraisal or valuation services, fairness opinion, or contribution-in-kind reports; actuarial services; internal audit outsourcing services; management functions; human resources; broker-dealer, investment adviser, or investment banking services; legal services and expert services unrelated to the audit; and any other service that the Public Company Oversight Board determines, by regulation, is impermissible.

 

Item 15. Exhibits and Financial Statement Schedules.

 

(a)(1) List of Financial statements included in Part II hereof

 

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive Income

Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

Notes to the Financial Statements

 

(a)(2) List of Financial Statement schedules included in Part IV hereof: None.

 

(a)(3) Exhibits

 

The following exhibits are included herewith: 

 

Exhibit

Number

Description

3.1

Articles of Incorporation of the Company, as amended[1]

3.2

Bylaws of the Company[2]

4.1

 

Description of Securities

10.1

 

Purchase Agreement dated August 7, 2019, by and among EOS Inc., A-Best Wire Harness & Components Co., Ltd., and Ing-Ming Lai [3]

10.2

 

Exclusive Sales Agreement dated August 7, 2019, by and among EOS Inc., A-Best Wire Harness & Components Co., Ltd., and Ing-Ming Lai[4]

10.3

 

Management Agreement dated August 7, 2019 between EOS Inc. and Ing-Ming Lai [5]

10.4

 

Exclusive Patent and Licensing and Distribution Agreement dated November 25, 2019 by and between EOS Inc. and Ultra Velocity Technology, Ltd. [6]

10.5

 

Strategic Alliance Agreement dated March 2, 2020 [7]

10.6

 

Termination Notice to Exclusive Patent and Licensing and Distribution Agreement dated November 25, 2019 by and between EOS Inc. and Ultra Velocity Technology, Ltd. [8]

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+

32.1

Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act+

32.2

Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act+

 

101.INS*

XBRL Instance Document

101.SCH*

XBRL Taxonomy Extension Schema Document

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

+

Filed herewith

 

***

XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

[1]

Incorporated by reference to Exhibits 3.1 and 3.2 to the Company’s Form S-1 filed on September 10, 2015 and Exhibit 3.4 to the Company’s Form S-1 Amendment No. 1 filed on October 21, 2015.

[2)

Incorporated by reference to Exhibit 3.3 to the Company’s Form S-1 filed on September 10, 2015.

[3]

Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on August 13, 2019.

[4]

Incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed on August 13, 2019

[5]

Incorporated by reference to Exhibit 10.3 to the Company’s current report on Form 8-K filed on August 13, 2019

[6]

Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on November 26, 2019

[7]

Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on March 5, 2020.

[8]

Incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on April 1, 2020.

 
Item 16. 10-K Summary.

Not applicable.
 

 
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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

EOS Inc.

 

Dated: April 16, 2020

By:

/s/ He-Siang Yang

He-Siang Yang

Principal Executive Officer

Principal Financial Officer

President and Chairman of the Board

 

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacities and on the dates indicated.

 

EOS Inc.

 

Signature

Title

Date

 

/s/ He-Siang Yang

Principal Executive Officer, Principal Financial Officer

April 16, 2020

He-Siang Yang

President and Chairman of the Board

 

/s/ Yu Cheng Yang

Director

April 16, 2020

Yu Cheng Yang

 

/s/ Lai Chen Kwok

Director

April 16, 2020

Lai Chen Kwok

 

 

34

EXHIBIT 4.1

 

DESCRIPTION OF THE REGISTRANT’S SECURITIES

 

REGISTERED PURSUANT TO SECTION 12 OF THE

 

SECURITIES EXCHANGE ACT OF 1934

 

As of April 15, 2020, EOS Inc. (the “Company”) has one class of its securities, common stock, registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

The Company’s authorized capital stock consists of 75,000,000 shares of common stock, par value $0.001 per share.

 

The following description of our common stock is a summary and is subject to, and is qualified in its entirety by reference to, the provisions of our Articles of Incorporation, as amended and our Bylaws, copies of which are incorporated by reference as Exhibits 3.1 and 3.2, respectively, to our Annual Report on Form 10-K for the year ended December 31, 2019.

 

Common Stock

 

As of April 15, 2020, there were 74,122,997 shares of common stock issued and outstanding,. Each share of our common stock entitles the shareholder one vote on any and all matters such shareholder is entitled to vote at a shareholders’ annual or special meeting. There are no cumulative voting rights, which mean that the shareholder or shareholders owning 50% of the issued and outstanding shares in our capital stock can elect the entire board of directors. Therefore, any shareholder or shareholders, cumulatively with less than 50% of the voting power, cannot elect any director to the board of directors on their won. Pursuant to the provisions of Section 78.320 of the Nevada Revised Statues (the “NRS”), at least a majority of the outstanding shares of capital stock entitled to vote must be present, in person or by proxy, at any meeting in favor of the action exceeds the number of votes cast in opposition to the action, provided, however, that directors may be elected by a plurality of the votes of the shares present at the meeting and entitled to vote. Certain fundamental corporate changes, such as the liquidation and business combination, require the approval of holders of a majority of the outstanding shares entitled to vote. There are no pre-emptive rights, conversions, redemptions or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and non-assessable. As of April 15, 2020, our common stock was quoted on the OTC Markets under the symbol “EOSS.”

 

EXHIBIT 31.1

 

CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, He-Siang Yang, certify that:

 

1.

I have reviewed this Annual Report on Form 10-K for the year period ended December 31, 2019 of EOS Inc.;

 

2

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     

 

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     

 

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

   

 

5

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

   

 

a.

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

     

 

b.

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: April 16, 2020

By:

/s/ He-Siang Yang

 

He-Siang Yang

Chief Executive Officer

Principal Executive Officer

 

EXHIBIT 31.2

 

CERTIFICATION OF THE PINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, He-Siang Yang, certify that:

 

1.

I have reviewed this Annual Report on Form 10-K for the year period ended December 31, 2019 of EOS Inc.;

 

2

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     

 

a.

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     

 

b.

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     

 

c.

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     

 

d.

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

   

 

5

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

 

a.  

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

     

 

b.  

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: April 16, 2020

By:

/s/ He-Siang Yang

 

He-Siang Yang

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

SECTION 906 OF SARBANES-OXLEY ACT OF 2002

 

I, He-Siang Yang, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

 

1.

The Annual Report on Form 10-K of EOS Inc. (the “Company”) for the Annual period ended December 31, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (U.S.C. 78m or 78o(d)); and

 

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: April 16, 2020

By:

/s/ He-Siang Yang

 

He-Siang Yang

 

Chief Executive Officer

Principal Executive Officer

 

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

SECTION 906 OF SARBANES-OXLEY ACT OF 2002

 

I, He-Siang Yang, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

 

 

1.

The Annual Report on Form 10-K of EOS Inc. (the “Company”) for the Annual period ended December 31, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (U.S.C. 78m or 78o(d)); and

 

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: April 16, 2020

By:

/s/ He-Siang Yang

 

He-Siang Yang

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.v3.8.0.1